The release of the ASIC Report 493 again focuses on responsible lending obligations in particular Brokers own serviceability calculators.
At QED CompliFast we have advocated for some time now that all brokers should perform their own servicing calculations to demonstrate they are not putting the borrower into financial hardship.
The report is very clear that mortgage brokers are required to make their own assessment of their client’s financial situation before assisting the client to obtain a loan. The broker must be able to demonstrate this through documented evidence that their client will be able to comply with their financial obligations under the contract without substantial hardship.
When brokers only use lender calculators, essentially the broker is demonstrating the lender’s assessment of the consumer’s ability to comply with their financial obligations under the contract and not the broker’s assessment.
With regard to interest-only loans, broker calculations should provide a financial buffer if the consumer’s situation changes. The calculation should also take into account repayments after the interest-only period has passed. Failure to account for the interest-only period will place the broker at significant risk of being unable to demonstrate compliance with their responsible lending obligations.
So the message for brokers is that the easiest way to demonstrate you have met your Responsible Lending obligations is to complete your own servicing calculation in addition to lender calculators.
Requirements and objectives was another area of focus in Report 493. The report referred to an “inquiry tool”, such as a fact find or clients’ needs analysis to gather information from the client in addition to well-articulated narrative about the client’s requirements and objectives. This will help to demonstrate the broker has had the relevant discussion with the client.
In the broker notes or inquiry tool it should be evident why the broker has suggested a product that is not unsuitable and meets the requirements and objectives of their client, especially when it comes to interest-only loans, where the broker should also include disclosure of the costs or risks.
The key here is for brokers to keep clear, detailed and structured records. Using phrases like the ‘client is refinancing to a lower rate’ does not provide enough detail or relevant information to fully demonstrate that the client’s requirements and objectives have been fully explored and met.
Jayne Coppins, QED CompliFast Compliance Consultant