ASIC abandons responsible mortgage lending

Last month, ASIC abandoned its “wagyu and shiraz” responsible lending suit against Westpac after the heads of the Australian Treasury and the Reserve Bank of Australia both privately warned that proceeding with the case would exacerbate economic uncertainty amid COVID-19.

ASIC had argued that Westpac was too reliant on the Household Expenditure Measure to assess loan applicants’ capacity repay and therefore did not undertake rigorous enough assessments into applicant’s financial circumstances on some 260,000 mortgages. These actions, according to ASIC, breached responsible lending guidelines under the National Consumer Credit Protection Act.

However, the federal court ruled narrowly in favour of Westpac, which ASIC has since chosen not to appeal.

Earlier this month, RBA Governor Phil Lowe also told the Standing Committee on Economics that Australian mortgage restrictions have become too strict and are constraining the economy:

“The pendulum has probably swung a bit too far to blaming the bank if a loan goes bad, because the bank didn’t understand the customer; if it had done proper due diligence—this is the mindset of some—the bank would never have made the loan. So some of the banks have had this mindset, ‘Well, we can’t make loans that go bad'”.

Now ASIC has now shifted focus to ensuring banks can approve mortgages more quickly:

ASIC commissioner Sean Hughes praised the new breed of fintech and regtech companies able to assess and approve the necessary documentation for a home loan in less than an hour.

“Now compare this to the 64 days it takes some traditional institutions to approve similar loans,” Mr Hughes told an industry event late last week.

“It is remarkable to think that regulators are often blamed for red tape blockages, when in fact the capability to harness and tap into technology to accelerate positive customer outcomes lies within entities, if they choose to invest in and develop it”…

ASIC’s criticism that banks were not willing to invest enough in systems came as many banks show signs of reaching capacity…

In a series of examples conducted using data sets supplied by ASIC… a digital assessment overturned two credit decisions made by a human credit officer, producing better outcomes for the lender.

Clearly, the whole notion of responsible lending – a pillar of last year’s banking royal commission findings – has been jettisoned by Australia’s financial regulators.

Leith van Onselen
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Comments

  1. Bring on the sub-prime. People need to get into houses and the economy needs to keep house prices up.
    We have exhausted all other options so now lending standards have to go.
    It’ll or be fine once we open back up and the ‘V’ shaped recovery takes place.

    As for….
    ‘a digital assessment overturned two credit decisions made by a human credit officer, producing better outcomes for the lender.’
    Well there you go, what would some experienced person, capable of taking into account multiple complex factors and making a decision, know when a machine with a few ‘if’ then ‘else’ logic statements can approve a loan!
    Win-win!!!

      • happy valleyMEMBER

        Well, Strayan banks certainly have a depth of talent and experience and aligned mortgage brokers to take irresponsible lending to that next level that Straya and our fed and state/territory governments now so desperately need?

    • lol @ the better outcome for the lender.

      In other words, computer said ‘yes’, lender got to lend money, revenues increased, profits up, bonuses paid out to execs. It’s awesomeness all round. And if the loan goes bad, it’s on the taxpayer anyway.

  2. Reasonably often with respect to accidents that were catastrophic with multiple fatalities, one of the primary causal factors was the willful and deliberate disablement of a key control mechanism.

    It might be a stretch to say ASIC is key to anything, so think of ASIC more as a symbol of governance and control, vs. the actual, given how they have a demonstrated history of abandoning cases or losing those that they pursue.

    • Normalcy of deviance, nothing has gone wrong for a long time so cutting some corners won’t hurt anyone. Challenger Space disaster as a case in point

  3. Ukraine fnMEMBER

    No real price discovery yet , wait until JobLiar and the rest of the stimulus measures disappear. The big 4 are only pretending that they want to lend hence the long lead time to “try” to get approval. If the smaller lending Isto’s want to lend for housing using “quick” approval’s good luck to them because it’s not a hot potato that i would like to be caught with.

  4. “Last month, ASIC abandoned its “wagyu and shiraz” responsible lending suit against Westpac after the heads of the Australian Treasury and the Reserve Bank of Australia both privately warned that proceeding with the case would exacerbate economic uncertainty amid COVID-19.” – I read this paragraph 4 times to make sure I did not misread anything. So, things are so bad that we need to encourage massive speculation and push gamblers into loans they could never pay back so we can keep the house of cards stand for few more quarters.
    I guess, Scumo and Mal were right to vote against RBC, they probably knew it was waste of money as nothing will come out of it as there is no will to change to ethical behavior. We just can’t help it, we are truly addicted and will keep going until we overdose is collapse.
    Now I start to think Libs are good economic managers.

  5. Speed need not equal sub standard quality

    Should be able to use cognitive services to wrap up an assessment of a list of transactions to look for risk (gambling, etc) with some QA by a human.

    • scottb1978MEMBER

      And that would say that most of the loans shouldn’t be allowed so there is no chance that’s going to happen!

      What you describe will be the model that will rise out of the ashes of unavoidable meltdown though.

  6. Goldstandard1MEMBER

    I thought home loans were already built on trust not the hard numbers….
    I mean the FHOG is essentially that right? 5% down in a market where most have over-borrowed is essentially lambs to the slaughter.

  7. alwaysanonMEMBER

    My recent mortgage application was really thoroughly vetted by ING. They are also my bank and went through the last six months or so of transactions. They saw heaps of it was on our credit cards and wanted all those statements too and asked questions that showed they really looked through it.

    The funny thing was their initial response to us consolidating our savings from other banks (UBank, Rabo) as well as the Macro Fund in to them to get ready to pay our depsoit. They were like “we need an afadavit saying this was a gift from your parents”. We were like “umm this is all our savings” and they were very surprised and then wanted to see the statements showing the other side of the transfers. I made a comment that it was interesting that was their assumption and they were like “most large cash desposits are gifts from family – we just need to make sure they are not loans.”

    • Not entirely surprising( although the thoroughness is).
      I listen to a lot of people who have loaned money to adult offspring to buy a house, in the expectation the money will be returned when the house is upgraded- the assumption is that the prices will always rise, and quickly, and both parents and kids will come out ahead.
      When this thing unwinds( and I’m in agreement with the sun lord), whole extended families will be devastated.

      • alwaysanonMEMBER

        If it had been from the parents the bank then wanted a signed document from the parents saying that it was a gift thereby ensuring that they have no formal standing against the house as an asset. So even if it is really a loan the banks are very smart to have themselves covered there…

        • We’ve had the same thing happen between spouses. I’ve had to sign that money in my name was a gift for my husband to buy property in his name. It’s all joint funds, it just moves names.

    • happy valleyMEMBER

      ING wanted to know that the Bank of Mum and Dad, Straya’s next largest (in book size terms) lender to them or perhaps even a bit bigger, was fully across the credit risk of the kids and supportive of it? It is a great comfort to see another “lender” in the deal, particularly one ranking behind ING?

    • Arthur Schopenhauer

      We had the same experience 6 years ago. A general disbelief at the size of the deposit. One bank even refused to look at our application because, “the loan size wasn’t really worth it to them”.

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