ASIC moves mortgage lending beyond HEM

The Australian Securities and Investments Commission (ASIC) has released a “principles-based” responsible lending road map that seeks to replace the flawed Household Expenditure Measure (HEM) – a relative poverty estimate – used widely by banks in the lead-up to the Hayne Royal Commission:

ASIC commissioner Sean Hughes said the examples provided by the regulator were aimed at striking a balance between giving lenders and brokers both maximum flexibility and detailed guidance…

“The provision of credit is a decision for a lender and not a decision for ASIC,” Mr Hughes said. “These guidelines have been made to assist lenders make good lending decisions, we are not adding new or additional requirements that do not already exist”…

Mr Hughes said the regulator decided against applying prescriptive minimum standards because the credit risk ultimately lies with the bank and its representatives…

The regulator has included 39 detailed examples to accommodate the changing business landscape which has included new styles of employment and expenses…

Banks are also being told by ASIC to go beyond a basic spending benchmark known as the Household Expenditure Measure or HEM when gauging the reliability of a customer’s submitted expenses…

Australian Banking Association CEO Anna Bligh said the industry was pleased the regulator had avoided the route of black-letter-law and instead adopted a principles-based approach.

As these reforms are ‘principles-based’, they are only one step above industry self-regulation. This means they will likely only curb credit excesses at the margin by ensuring that banks give at least some consideration to expenditures outside of the HEM.

While they are better than nothing, they are hardly the revolution needed after the malfeasance uncovered by the Hayne Royal Commission.

Leith van Onselen

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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Comments

    • Even StevenMEMBER

      That’s right. The courts have already ruled that HEM is not unreasonable. What choice does ASIC have at this point to do anything other than a principles-based approach?

      UE: If you want to blame someone, I would suggest our judicial system appears to be the culprit. We get one view from Commissioner Hayne (a lawyer) and get a completely contradictory view from a judge (another lawyer).

      Personally, I think reality/the truth lies somewhere in the middle.

  1. I can see a bunch of bankers sitting around trying to work out what this “principles” word means.

  2. “ credit risk ultimately lies with the bank and its representatives…”

    No it doesn’t. If you’re too big to fail then you are a systemic risk and will be bailed out (in?) by the government (tax payers) when your risk taking goes bad. If we as tax payers are bearing the ultimate consequences then we should also be governing the ultimate risks, to the letter of the law.

  3. Jumping jack flash

    Finally decoupling debt availability from wages?

    After all, it is only the LVR that matters. You want a $10m lump of debt on 52K/year? No worries mate. Just make sure when you sell it after the price has doubled every 7 years to settle the loan first. Make token repayments up until that point.

    It makes perfect sense because wages are stagnant with no chance of rising ever again with all this debt about, sucking down any freed wage capacity from the introduction of super-cheap 3rd world slaves.

    I’m also waiting for the resumption of IO loans. Coupled with “beyond HEM” lending we’re setting ourselves up for endless growth, and endless growth means endless prosperity. But most importantly of all for the pollies, it means no recessions!!

  4. Australian Banking Association CEO Anna Bligh said the industry was pleased

    And that tells you everything you need to know about this decision. When you are doing things that please a bunch of psychopathic, rapacious sh1theads who are completely devoid of all traces of humanity and are motivated by nothing but their own greed, and reason for this pleasure is to the great detriment of all the other citizens of the nation then you are doing something rong.

  5. This was as predictable as the dud French sub procurement. And people give me sh!t for being a guillotine enthusiast…. smh.

  6. Jevons ghostMEMBER

    Anyone notice? iSignThis (ASX code: ISX) is suing the ASX. Very interesting scenario, best explored by reading the ISX forum on Hot Copper. Details of the writ should also be accessible through the ASX website. Amazing scenes unfolding.

    • Even StevenMEMBER

      Able to give us any more on this interesting scenario? I don’t fancy having to (presumably) sign up for a hot copper account just to understand what this is about.

      • Jevons ghostMEMBER

        The allegations and counter-allegations that are being flung about on Hot Copper about this imbroglio are a drawn out yet fascinating read in themselves, as apparently very little of what is being claimed as ASX skulduggery by some protagonists has come out in the mainstream media. Conflict of interest for example.