Non-major bank ‘pauses’ FHLDS loans

While announcing its FY20 full-year results, Tasmania-based lender MyState Bank revealed that it has had to halt its processing of the government’s First Home Loan Deposit Scheme (FHLDS) due to a backlog.

The FHLDS is an Australian government initiative that aims to help eligible first home buyers buy a home sooner by reducing the size of deposit needed to secure a mortgage.

The FHLDS, administered by the National Housing Finance and Investment Corporation (NHFIC), aims to provide up to 10,000 first home buyers per financial year with access to housing finance with a deposit of at least 5 per cent.

Of the 10,000 places, 1,000 have been allocated to MyState Bank.

According to the non-major lender, it had particularly strong participation in the FHLDS.

MyState Bank’s managing director and chief executive officer, Melos Sulicich, told Mortgage Business that it had seen “meaningful” participation in the first round, with another strong showing in FY21.

“MyState Bank continues to grow its loan book significantly above system. [The total book] increased 4.7 per cent [to $5.28 billion] or 1.7 times system growth.

“We reserved 985 loans in the [first round of the] federal government’s FHLDS, more than any of our non-major bank peers and coming in very close to that maximum allocation of 1,000 loans,” he said.

Indeed, in FY20, MyState Bank’s mortgage book grew by 5.1 per cent, with overall home loan applications rising to $2.27 billion in FY20, up from $2.05 billion the year before. However, settlements dropped on the year, with $1.29 billion settled compared with FY19’s $1.36 billion.

Mr Sulicich told Mortgage Business: “We started off the year with some service issues associated with the number of loans that we got from the previous tranche. 

“As we improved those service issues, we again got a lot of applications.”

Indeed, earlier this month, the bank announced that it would be reducing the maximum debt-to-income ratio for loans backed by the FHLDS. For all FHLDS applications submitted from Monday, 17 August, the debt-to-income (DTI) ratio – total debts divided by gross income – was capped at 6.

The bank also said that applicants would be required to have a minimum monthly surplus of $50 or $200 for those with a loan-to-value ratio exceeding 90 per cent.

Bank is getting processing ‘back in order’

However, the bank has now revealed that it is “pausing” its processing of all new FHLDS applications from mainland Australia.

While Mr Sulicich said that the second tranche had been very popular with borrowers, he added: “We’re certainly punching above our weight again, to the point where we’ve got so many of those loans coming in [that] we’ve actually had to take a pause on those from mainland Australia for the time being.”

He explained: “We were doing so much it was starting to affect our service levels.So we’ll just pause on that for the time being, get ourselves back in order and then we will reopen to those again in the time to come.”

While Mr Sulicich said he did not know how long the pause would be, it would be dependent on “how quickly [the bank] can get the backlog through the system”.

As well as pausing FHLDS applications, the bank CEO also confirmed that the lender would be closing all of its branches outside of its home state of Tasmania.

The bank said it will close all four of its Queensland shopfronts: Gladstone, Rockhampton, Stockland Rockhampton and Yeppon, as well as two in Tasmania (New Town and Kings Meadows).

Over the last financial year, MyState’s net operating profit before provisions and tax increased 12.9 per cent to $47.9 million from $42.4 million in FY19. After provisions of $4.9 million for possible credit losses, statutory net profit after tax (NPAT) was $30.1 million compared with $29.8 million from continuing operations in FY19, down 3 per cent on last year,

The bank’s board said it had resolved not to pay a final dividend (barring unforeseen circumstances, directors expect to resume dividends for the first half of FY21).

In light of the current economic uncertainty, the board resolved to change its dividend policy for the time being to a pay-out ratio of 60-80 per cent of post-tax earnings from the previous range of 70-90 per cent.

It added that the board has also reduced non-executive directors’ fees for a six-month period from May 2020 by 20 per cent and that the executive team has elected to forgo any short-term incentive payments. The bank CEO also said there would be no salary increases in the usual cycle in 2020. 

The CEO and MD concluded: “While COVID-19 is uncharted territory in terms of credit and liquidity challenges, we are extremely well placed for the future. We are ready to compete for market share, grow our mortgage book and secure a greater number of deposit customers across Australia.”