How CCR can help brokers verify and assess borrower expenses

Owning a home has long been considered the ‘Great Australian Dream’ but as house prices have risen over the decades, this dream has felt out of reach for many average Australians.

Ever resourceful first homebuyers have found a number of ways to better their chances of getting on the housing ladder. These range from tapping into the ‘bank of mum and dad’; to moving from major cities to regional centers; to purchasing homes with friends or siblings for those prospective homebuyers not in a long-term relationship.

However, in recent years a less legitimate path to purchase has also been growing. So-called ‘liar loans’ are estimated to account for up to $500bn worth of mortgages in Australia, according to data from UBS. In fact, the same data revealed only 67% of homeowners said their mortgage application was "completely factual and accurate", leaving one third who admit the information in their mortgage application wasn’t entirely true.

Fresh in our minds, of course, is the Hayne royal commission’s focus on banks’ assessments of customer incomes and expenditures.

This issue has come to the fore at a time when brokers have a powerful tool at their fingertips. A tool that can help ensure they’re not being fooled by consumers hoping to hide their true financial situation in order to buy their next property.

Liar loans in the spotlight
‘Liar loans’ are the result of consumers deliberately withholding their total liabilities, overstating their incomes or understating their expenses when applying for credit and mortgages.

As lenders usually require the cross checking of income and expenses by brokers, who originate more than 50% of all residential mortgage applications in Australia, it’s up to this group to be the careful gatekeepers.

The royal commission hearings focussed on brokers, highlighting poorly verified expenses in customers’ loan applications. While bank practices on expense verification were also criticised, what is clear is that expense verification will be featured in the Commission’s interim findings due out in September.

The benefits of CCR to brokers
Thankfully for brokers, banks, and the housing market as a whole, Australia’s shift to a comprehensive credit reporting (CCR) environment is well underway, with CCR data loading having reached approximately 40% in July 2018.

Under CCR, active lines of credit are shown – and with that, the current credit limit of each active line of credit. Previously brokers could only see if a credit application had been made (ie an enquiry for credit), but not if it was still open, or what the current maximum credit limit is.

CCR also enables a broker to see how well a customer has been managing their credit, recording if the required payment has been made on time.

In addition, CCR can also facilitate enhanced and long-lasting customer relationships, assisting brokers in working closely with clients to improve their credit history and financial situation.

Rebuilding relationships
While the spotlight on mortgage brokers is expected to continue over the course of the royal commission, there is a light at the end of the tunnel.

CCR provides brokers an opportunity to address customer pain points and offer more informed advice, helping the industry rebuild and strengthen relationships with customers.

Brokers don’t need to wait until the final banking royal commission report is delivered to start making changes and taking advantage of the more in-depth data already available to them. As one of the first ports of call for consumers looking to take out a mortgage, brokers have a unique opportunity to inform and educate their clients on the benefits of CCR and achieve better outcomes for them.

Mike Cutter is Equifax’s group managing director for Australia and New Zealand.

Read Mike’s earlier column, here:
https://www.mpamagazine.com.au/sections/features/how-brokers-can-harness-the-power-of-ccr-253628.aspx?keyword=CCR