Lo Doc and No Doc Loans
Funding of Lo Doc and No Doc loans has changed dramatically since mid to late 2008. Banks have had their policy changed in many ways by changes to mortgage insurer underwriting guidelines. For example, Genworth now require BAS Statements on all Lo Doc applications to loosley confirm income being stated. Genworth and QBE/PMI will not allow Lo Doc borrowers to borrow further funds for an unspecified use. It now has to be proven beyond reasonable doubt as to what the funds will be used for and documented.
Bear in mind that banks take out LMI on Lo Doc loans if the LVR exceeds 60% of the valuation/purchase price. Technically banks do not need to mirror the mortgage insurers under this 60% benchmark. However, our experience since early/mid 2009 is that banks will still assess Lo Doc loans under 60% in a tougher fashion. For example, Westpac (correct as at March 2009) require BAS Statements on all Lo Doc loans regardless of LVR. CBA do not require BAS Statements under their advertised policy for Lo Doc loans under 60% LVR but their credit managers reserve the right to request this information during the assessment process. In late 2009 we had a few examples of this which have created greater uncertainy in advising borrowers of the most suitable lender. ANZ on the other hand have a maximum LVR of 60% on Lo Docs and were the first major bank to tighten in 2008. However, from what we see their policy is reliable and they do not ask for BAS Statements.
It is in some ways like we turned back the clock 10 years on lending policy in Australia. The secondary banks and non-bank lenders have had opportunities delivered to them by the major banks winding back credit policy. Adelaide Bank for example utilsie the services of both mortgage insurers (QBE and Genworth) and normally will approve a Lo Doc application that has been mortgage insurance approved without applying additional credit restrictions.
Also an emerging product is a Lo Doc 80% product which is NOT mortgage insured and priced for risk. We believe that funders that release these style products will certainly fill the viod of the major banks deserting Lo Doc borrowers.