Meeting responsible lending guidelines during COVID-19

According to data from the ABS, an estimated 1.6 million Australians lost income during the first week of the Coronavirus lockdown – a reality that heightens the importance of responsible lending during the pandemic.

In a recent letter to the ABA, ASIC cautioned lenders not to make assumptions about how quickly a loan applicant’s income could recover post pandemic; the uncertainty of the situation highlighting the challenge both lenders and brokers currently face when assessing new loan applications.

Most lenders now ask borrowers for additional information regarding whether they have been impacted by COVID-19. Staying on top of these requirements has become a necessary part of meeting responsible lending criteria during these unprecedented and economically uncertain times.

Having the COVID conversation should come naturally

According to Resimac’s general manager distribution Daniel Carde, asking if a borrower has been or is likely to be impacted by COVID-19 is a question that should be part of a broker’s interaction with a loan applicant.

“It should actually come quite naturally, in terms of making sure you’re recommending the right product for someone as part of that general conversation,” he says.

In a recent communication to its more than 10,000 broker partners, the non-bank mortgage provider requested that borrowers be asked if their business or place of employment had been affected by COVID-19 and to what extent.

“Our position is you need to ask any question that’s relevant to that borrower,” says Carde, explaining that assessing customers’ positions during the pandemic is a case by case scenario.

“It’s not necessarily limited to the immediate economic impact of their employment or their pay, it could also include impacts on their family life that may mean that their expenses have gone up or gone down, or whatever might be relevant to the current situation.”

Resimac has asked brokers to have conversations with their clients and provide detailed notes about the potential impacts rather than have the borrower fill out an extra form.

“We do appreciate the notes from the broker because everyone’s case is going to be unique and the number one thing is you can’t rely on assumptions.”

The varying effects of the COVID-19 crisis

He says it is important for brokers to remember that people are being affected by COVID-19 in many different ways, and these effects may not be black and white.

Resimac recently approved a loan application from someone working at Myer after assessing the impact of the pandemic on their job.

“They were employed in a store but they’re now fulfilling online orders – still employed, same income, same hours, and given the demand for their products through the online channel, not likely to change. So, we were comfortable to take that on.”

On the other side of the coin, essential workers such as police officers and certain health care professionals may be earning more now than they did prior to COVID-19 due to an increase in overtime hours.

He says, if this is the case, the effect on their income post-pandemic should be taken into account.

“It does work both ways – there are some people that are doing better financially from an income perspective in this environment that won’t do as well necessarily from an overtime perspective once we return to that normal.”

According to Bankwest general manager third party Ian Rakhit, Bankwest has lowered the maximum amount of overtime they will use for some customers in some industries.

The lender also requires applicants to provide a copy of their most recent payslip.

“Bankwest is constantly evolving its support packages and services and has introduced several changes recently to help meet the rapidly changing needs of brokers.”

Some of these changes include establishing an end-to-end digital home buying experience and new pricing across their fixed and variable rate products.

Additional questions in a COVID-19 environment

Bankwest requires brokers to provide an additional form as part of all new applications and applications in progress. This includes two mandatory questions that relate to the economic impacts of the coronavirus.

“Those questions are: ‘At this point in time are you aware of any changes to your broader situation that may impact on your earning capacity?’ and ‘Have you been advised of any changes to your employment circumstances or income levels that will affect your ability to meet any existing debts or expenses?’,” says Rakhit.

“These questions will assist brokers in identifying if a customer’s ability to service any existing or new debts and expenses has been impacted by COVID-19.”

“We can then determine how to proceed with, or restructure, an application based on the customer’s changing circumstances, or offer further support options where required.”

For borrowers who have already lodged an application before becoming affected by COVID-19, Rakhit says Bankwest will work with brokers to try and find the best solution.

“The wellbeing of customers remains our top priority and that includes maintaining our commitment to responsible lending through this period of uncertainty.”

“If an applicant’s financial circumstances change as a result of COVID-19, the deal can proceed if servicing is still evident using the updated income types.”

“If the deal no longer services, we’ll work with the broker to assess the individual circumstances of the customer and attempt to find the best solution for everyone.”

He says the lender has brought in a range of support measures that could assist in these situations, however it is important to consider that some customers may not want to proceed with their applications.

“That’s why it’s important we work with brokers to understand their customers’ needs.”

“These situations are personal, and customers should seek the right advice – independent or otherwise – that helps them decide the best course of action with their application.”

Working closely with the broker is something Resimac also commits to within these scenarios.

“We do actually reach out to brokers and ask them if they’ve had the conversation with their borrower,” he says.

“The first question is, if they have been impacted, does the borrower want to continue with the application, or continue to settle it?”

“For a refinance, that’s obviously an easier conversation to have because it’s either a yes or a no depending on what the refinance was for.”

He says in the case of purchases, if the borrower has been impacted by COVID-19, the broker should ask them additional questions regarding their plans for the next few months.

“We will relook at serviceability based on their changed circumstances and if need to we’ll look at other options as well.”

“Our number one priority is settling those loans for purchases as opposed to looking for reasons not to.”

“We do assess every application on its individual merits, we haven’t changed our policy and we haven’t changed our products.”