During a panel discussion at The REAL Future of Advice Conference in Vietnam this week, former Macquarie head of sales and distribution for mortgages, Tim Brown, noted the recent Federal Court decision ruling in the favour of Westpac.
ASIC had taken Westpac to court over allegations it breached lending laws between 2011 and 2015 by using the household expenditure measure to estimate potential borrowers’ living expenses.
ASIC had argued the benchmark was too frugal and that customers’ expenses were higher.
Mr Brown, who is currently the chief executive of Ezifin Financial Services, called the current lending landscape a “minefield” where lenders “can’t get clarification from ASIC” over standards for evaluating consumers’ eligibility for mortgages.
“I think the problem with this whole expense discussion, as I was pointed out earlier on is that a lot of the assessors put their own personal assessment on what someone else spends money on, which is where the problem lies,” Mr Brown said.
“It needs to be much more factual.
“I think it is going to be a problem for at least another six months until some of the banks get together with ASIC and say look we need to get some clear guidelines around this. Because they’re basically saying HEM isn’t acceptable anymore.”
Mr Brown noted when he first started lending, brokers would sit with clients, go through their expenses and make sure they had enough capacity to meet any future increases and interest rates, by using HEM and allowing up to two and a half per cent above the current rate.
Reflecting on his expenses when buying his first house, said he did not think he would have passed current standards.
“But within the first six months of buying a home, and we know this factually and we’ve recently seen ASIC having these discussions, that most people will reduce their discretionary spending by 20 per cent.
“Now, most assessors in the past could make that decision without any concern. But in the current environment, they are afraid to make those decisions now because there’s a way around it and ASIC might review that. And this comes back to this personal assessment of someone else’s opinion on what someone should have a discretionary not a discretion.
“Because ASIC just goes ‘well you know best endeavors, you know, whatever you think is reasonable.’ And then they’ll charge you if they don’t think it’s reasonable.”
‘We want some direction’
Talking about missing clarity from ASIC, Mr Brown said: “The banks are sick of this game that they’re playing with ASIC at the moment and eventually the four of them will get together and say look, you need to give us some clear guidelines.”
“At the moment, I think the industry bodies are trying to come together with something they can take to ASIC both from a vendor’s perspective and also from a MFAA (Mortgage and Finance Association of Australia) and FBAA (Finance Brokers Association of Australia).”
Mr Brown noted every time he had been on a panel, he had been asked about the Westpac decision.
“There’s obviously a real concern among the number of people at the moment,” he said.
“We want some direction.”
