What is Responsible Lending?
So big ScoMo or Scott Morrison our PM has realised that, shit, it’s hard to get a home loan or business loan these days.
We had a quick chat with him and told him this! So, here’s what he is going to do about it.
Post the Global Financial Crisis (GFC) in 2008/09 the Government really shit themselves and decided to bring in what’s called Responsible Lending, which meant that banks, would need to ensure that clients aren’t borrowing too much. Sounds good right? Wrong.
What went wrong with Responsible Lending?
Responsible lending now has turned into a nightmare 10 years on, with banks, wanting all your expenses, income verification, DNA, and firstborn child to get you a simple home loan. It’s turned the idea of a bank to help the country, into the idea of never being able to get a loan in the first place. Loans and finance help drive the economy forward, and now with COVID Big ScoMo is stressing HARD! He and Josh Frysomething (our Treasurer) is keen to wind these policy banks to a more normal world, a more judgemental world – we are pumped.
What changes are coming to responsible lending?
So what are some of the changes afoot:
Currently, the onus of verifying borrower information lies with the lender leading to
Lenders following very long drawn-out processes to verify borrower information resulting in significant costs and time is taken to assess credit.
The verification process is the same for most borrowers irrespective of their circumstances. E.g. existing mortgage holders with a strong credit history and savvy investors go through the same amount of scrutiny as a high-risk borrower applying for a payday loan. This once again leads to significant delays for experienced borrowers who may not require the same level of scrutiny.
The new obligations will enable lenders to rely on the information provided by borrowers who will be more accountable to provide accurate information. This change will result in
Addressing the excessive risk aversion shown by lenders
Reducing the processing time and costs to issue loans
Providing easier access to credit for small business, especially in cases where residential property equity is utilised to apply for loans
What our Heroes think?
While I look at this move as a welcome step that will benefit the Heroes out there looking to get a loan, to get home, there are parts of the world who have voiced concerns about lenders becoming loosey caboosy again and approving loans to borrowers who can’t afford the repayments. Hmm… we don’t agree, it ain’t that hard to be a good lender, find good clients and sense check their plans. Don’t be a big brother and don’t care too little, somewhere in the middle is good.
This reform only looks at shifting the onus of providing accurate customer information to the borrower. It does not absolve lenders of the required due diligence, credit analysis, or the impact of credit losses due to defaults. We think, firmly believe that this move will only streamline the process of getting finance and more property to the right people.
Go Scomo, your probs at level 1 on our Hero status – keep going champ!
A link to the media fact sheet on Responsible Lending Changes
Here’s a link to the formal media fact sheet (heads up it’s a huge read) – link here.