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Are Lenders Failing To Do Due Diligence On Borrowers?

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  • donna
    replied
    Here's some info on mortgage insurance - so if I'm reading it correctly - the borrower pays it but only the lender benefits from it - if say the sale of the home falls short of the loan amount. So instead of the insurance, the interest rate is higher if you have a deposit of less than 20%.

    But borrowers can take out mortgage protection insurance and maybe this should be compulsory for FHBs?

    The Gov't says they want to protect FHBs from the impact of DTIs.

    In his response, the Minister has agreed in principle to add debt serviceability restrictions to the MoU, on the condition that any implementation is designed to avoid impact, as much as possible, to first home buyers.
    source

    Isn't the implementation of DTIs protecting borrowers from taking on a loan they can not comfortably surface? Yes - so they plan to not 'protect' FHBs!

    cheers,

    Donna

    Leave a comment:


  • brokerman
    replied
    Originally posted by donna View Post
    ^^ yes relevant I think if one type of lender can do it and another can not so why not one rule for all?

    Isn’t mortgage insurance for low deposit borrowers?

    cheers

    Donna
    Hi Donna, there is no such thing as mortgage insurance in New Zealand, it ceased in the GFC.

    Leave a comment:


  • brokerman
    replied
    Originally posted by Sanya View Post


    I think it is highly relevant to Donna's question of how the debt servicing of almost 46% of combined income got approved in the first place!
    Without knowing the whole story it's impossible to give a realistic answer unfortunately. However, nearly all non bank lending at high rates is short to medium term so part of the underwriting process is both servicing and exit strategy. Non banks are as controlled in terms of servicing as the banks and in many cases more so as their rates are higher. I can't comment on the approval, what I can comment on is the customers attitude to both lender and FSCL. This was never going to end well, bank or non bank, and if you look at the Covid responses from lenders overall, non banks led the way. I feel for the family, however they should have sold as they said they would and pocket the undoubted gains they would have made. I have total respect for Susan Taylor at FSCL, her comments and decision on this complaint are correct, a customer cannot blame a lender for their own inaction and bad decision making.

    Leave a comment:


  • donna
    replied
    ^^ yes relevant I think if one type of lender can do it and another can not so why not one rule for all?

    Isn’t mortgage insurance for low deposit borrowers?

    cheers

    Donna

    Leave a comment:


  • Sanya
    replied
    Originally posted by brokerman View Post

    I don't think the type of lender is relevant here. [...]

    I think it is highly relevant to Donna's question of how the debt servicing of almost 46% of combined income got approved in the first place!

    Leave a comment:


  • brokerman
    replied
    Originally posted by Sanya View Post


    The article mentions the loan is from a non-bank lender.

    I don't think the type of lender is relevant here. The fact that the borrower failed to comply with requests from the lender and then FSCL shows that they had other issues at hand. Rule number one. Pay the bl**dy mortgage!

    Leave a comment:


  • Sanya
    replied
    Originally posted by donna View Post

    [...]

    What I really don't understand is how can a lender approve this loan? Clearly, the repayments are way above the ideal 30-ish % of take-home pay - leaving nothing for unexpected expenses like a medical event or loss of income.

    The article mentions the loan is from a non-bank lender.

    While NBLI's are still regulated by RBNZ they are known to be more liberal with their loan structures and approvals than traditional registered banks.

    As a side note I see the minister of Finance has entered into an MOU with the RBNZ to advance the use - if approved - of a DTI tool. RBNZ has indicated the DTI will apply to both investors as well as owner occupied housing purchases.

    Originally posted by RBNZ
    Our analysis suggests that, in the current market, a DTI cap of seven would have minimal impacts on first-home buyers while deterring some purchases by investors,” it said, seeming to send a strong hint on roughly where caps could be set.
    Last edited by Sanya; 16-06-2021, 10:52 PM.

    Leave a comment:


  • brokerman
    replied
    Lenders all have to abide by the Responsible Lending Code and make lending decisions around this. Prior to the RLC coming in June 2015 we had our own version which is why NZ did not suffer the huge losses others did in the GFC. Of greater concern is Kiwi reluctance to take out mortgage protection insurances etc. Making a lender responsible for peoples change in circumstances is nuts.

    Leave a comment:


  • Perry
    replied
    Supposedly, it's the job of the Financial Markets Authority.

    Leave a comment:


  • donna
    started a topic Are Lenders Failing To Do Due Diligence On Borrowers?

    Are Lenders Failing To Do Due Diligence On Borrowers?

    Hi All,

    I think this is worthy of discussion. Here is s family that has a combined income of $8700 per month and repayments of $4000 (45.9%). Their lender says they can afford the repayments and they've not been given proof of hardship. Now the borrowers face mortgagee sale of their home.

    Caveat: My calculations may be way off but assuming the $8700 is net and the tax rate is 33% (may be a bit low) = the combined income is around $140K. The loan must be near 1 million.

    If the bank did a DTI of say 5 on this family - they wouldn't have been able to get such a huge loan. They'd get say 700K and on current interest rates - this is affordable (when changes of circumstances are considered).

    What I really don't understand is how can a lender approve this loan? Clearly, the repayments are way above the ideal 30-ish % of take-home pay - leaving nothing for unexpected expenses like a medical event or loss of income.

    Why isn't the Gov't cracking down on irresponsible lending to homeowners?

    cheers,

    Donna ​​​​​​​



    Couple to lose home after refusing to tell lender why they couldn't afford repayments.
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