Banks blamed for low-doc’s bad rap

The allegation comes after Pepper Australia slammed an article which appeared in The Australian newspaper on Tuesday entitled ‘Low-doc loans make an unwanted return’.

In a statement on Wednesday, Pepper said the article featured misleading and incorrect statements about the lender.

But now another lender has come forward, on the condition of anonymity, telling Mortgage Business that banks actually “ruined” low-doc lending prior to the GFC by lending to the wrong borrowers.

The lender said that, prior to the GFC, it was not uncommon for bank staff to encourage PAYG applicants to obtain an ABN so that they could be considered self-employed and complete a low-doc declaration.

“Before the GFC there was no checking with accountants or looking at trading accounts like there are now,” they said.

“In some ways banks kind of ruined low-doc lending and some customers were able to borrow money with the best of rates.”

The Australian referred to low-doc loans as “liar’s loans” in its article, and claimed that they are now easier to obtain as “lending standards loosen”.

The article also claimed that low-doc loans are used by “tax-avoiding small business owners”.

But an ASIC review of low-doc lenders published last month found they had tightened their lending practices.

Before the introduction of responsible lending laws in 2010, some lenders did not verify a borrower’s financial situation for low-doc loans, according to ASIC.

“Instead, lenders often simply relied on a statement from the borrower that they could meet their repayments,” it said.

“This led, in some cases, to borrowers not being able to pay back the loan, or only being able to do so by selling their home.”

ASIC’s review of 12 lenders found that they had tightened their low-doc lending practices since the introduction of the NCCP.

ASIC found that lenders are providing low-doc loans to a narrower range of borrowers, and that low-doc loans are only being offered to the self-employed or those who do not have a readily verifiable income, rather than borrowers with a regular income stream that can be readily verified by documents such as payslips.