“The Australian Tax Office will crack down on low doc housing loans for which borrowers don’t have to substantiate their incomes. The market appeals to the self-employed who pay an extra 0.5 to 1 per cent in interest to obtain one of the loans. The ATO suspects that borrowers are either inflating their incomes on the loan applications or playing down incomes on tax returns – or both. The Tax Office has been comparing tax returns with low doc applications over the past few months and will release the results of its examinations in a week or two.”
By Sydney Morning Herald, 1/6/04
Cheers
Stu
Yep – the writing is on the wall for some.. There’s going to be some fall-out for banks, borrowers and brokers, and it could get very messy indeed..
My colleagues and I were scratching our heads when various lenders brought out regulated Lo Doc Loans – I appreciate most are funded offshore -but still believe the majority would breach the UCCC if tested. Have always been careful when writing Lo Docs because of the potential pitfalls, but I think the ATO could have a field day if they so desire..
theloanarranger
[uneasy]
I hate to hear all this doomsday talk looming about lo docs… what do you think it means for us brokers??
Lucky me I only have two lo-docs on my books (both unregulated), but I have since found that one of them is DEFINATELY an inflation of figures…. not that I knew at the time!
Who do you think is going to cop the blame??
It seems to me each party has an element of greed![thumbsdownanim
Liz
Mortgage Lender
It seems to me that lenders are well aware that the income may not be there.
And as long as the borrower signs that income declaration the lender is off the hook as far as consumer law protection is concerned.
I have heard stories where the taxation department did for one reason or another did make enquiries but didn’t take any further action.
Pisces
Lets not over react here.
Lodocs are valid for people behind in their tax returns and for people who cannot be bothered with all the paperwork.
I imagine that the only folks who need to be concerned are those that have lied on an application. And perhaps those that knowingly assist them.
All the best folks and I will continue to write them where they are appropriate.
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Still, I worry about the broker who is misinformed by their client. How are we meant to protect ourselves? If a client wants a lo doc and tell me they earn $100K per year, what more can I do? As a broker I should do the loan – but how do I really know if it’s going to bite me on the behind or not? I am at the mercy of the client…. makes me very very nervous as I have already been lied to once… [uneasy]
Liz
Mortgage Lender
Lied to once?
I am forever finding CRA reports that don’t match what clients tell me lol
Hope that is the worst that happens to you mate!
Cheers,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Where did the idea that most are funded offshore come from??
Hee hee,
well lied to about income! I’ve been lied to about CRA reports, thats normal though and there is no recourse for us brokers!
I wish I was a mindreader though, then I could save alot of time for legitimate clients!
Liz
Mortgage Lender
Liz, one can of course ask the client to sign an agreement which states that if the details he supplies are incorrect then you are entitled to be paid a processing fee of xyz dollars which would be payable if the loan doesn’t proceed.
It would be adviseable anyway to have some sort of agreement between the two of you.
Pisces
Pisces,
I tend to explain the process of a credit check to my clients… this has been working for me.
I heard of a broker that charged $250 to take onboard every enquiry, and if the loan was approved he would give them the $250 back. It saved him the time of dealing with tyre-kickers and ensured he was making money for his time.
An interesting approach… but my services will continue to be fee-free.
Liz
Mortgage Lender
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