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ASIC’s ongoing review of interest-only loans has found that standards in the lending industry have continued to improve, said an ASIC manager yesterday.
The regulator is nearing the completion of the latest stage of its review of IO loans, which examines how lenders and brokers make sure a loan meets the requirements and objectives of a consumer. The review involves scrutinising cases where owner-occupiers have been provided with more expensive IO home loans.
ASIC group senior manager of credit Chris Green said the regulator will publish a media release on the findings of the review in the next few weeks.
ASIC announced in April 2017 that it was conducting a targeted review of whether lenders and mortgage brokers were inappropriately recommending more expensive IO loans.
It said in October that the first stage of the review found major banks had cut back their IO lending by $4.5bn over the past year. All 16 of the lenders reviewed provided $14.3bn in IO loans to owner-occupiers in the June 2017 quarter, down from $19bn in the September 2015 quarter.
For the ongoing review, ASIC has looked at loan files to see if lenders and brokers are helping borrowers meet their objectives and requirements – including whether they are providing the right loans to consumers.
“The standard has continued to improve, so that’s a really encouraging message,” said Green at a lending summit in Sydney.
He noted how around 30% of the loan files ASIC looked into in its first review of IO lending in 2015 had no information of borrowers’ requirements and objectives.
“In our current review, out of the 300 files we’ve looked at, there are just a handful of files that are ‘poor’.”
Green said the majority of the files are "good" and that there seems to have been an increase in industry standards.
Giving examples of good practice that ASIC has identified, Green said some loans contained thorough records that matched consumers’ objectives. He also cited an example of an IO loan that detailed what would happen when it would switch to principal & interest.
Among the files considered “poor”, ASIC identified problems such as poor recordkeeping and terse and ambiguous notes.
Green called the initial findings of the review “a good story”. “Certainly an improving trend,” he said.
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