Responsible Lending. Broker Requirements and Objectives. R&O Quick Reference Guide

Transcription

1 Responsible Lending Broker Requirements and Objectives R&O Quick Reference Guide Version 1.0, issued October 2017

2 Table of Contents Requirements and Objectives (R&O)... 3 Foreseeable Changes to Circumstances... 6 Special Circumstances... 8 Mature Age... 9 Arrears Fixed Interest Rate Interest Only Interest In Advance Lenders Mortgage Insurance (LMI) Purchase of Non Real Estate Goods Line of Credit Relocation Loan Refinance / Debt Consolidation Mixed Purpose Loan Other R&O Resubmissions effective from 8 Jan Copyright 2017 Westpac Banking Corporation ABN Published in Australia by Westpac Banking Corporation to inform the mortgage brokers (including their staff) to which the document is directly sent by Westpac. This document should be treated as confidential by those mortgage brokers (including their staff) and not disclosed to other persons. Page 2 of 21 Version 1.0, issued Oct 2017

3 Requirements and Objectives (R&O) Introduction As a bank, the Westpac Group must meet its responsible lending conduct obligations under the National Consumer Credit Protection Act. We are committed to meeting our regulatory requirements, and ensuring we lend responsibly and in the very best interests of our customers. Having a deep customer conversation is so important. Finding out about the customer s requirements and objectives helps to ensure the customer applies for a loan that meets their needs and that they understand both the benefits and limitations of the product features of the loan. What s changing? To help us to continue to lend responsibly to customers and meet our obligations, new Requirements and Objectives (R&O) questions and declarations will be introduced. Broker-initiated changes to a loan application will need to be made in ApplyOnline and resubmitted before an Assessor can take action. Assessors will only be able to accept and action changes submitted in AOL, not from a request in an from a Broker. (Note there are some exceptions refer to the Resubmissions section of this document for more information.) These changes will be made in line with your Aggregator roll outs from 14 November Why are we changing? It is important that you discuss and complete the relevant Requirements & Objectives questions and declarations with your clients to help ensure that they apply for a suitable loan product that is aligned to their individual financial circumstances.. All Broker-initiated changes must be documented in ApplyOnline to provide a clear audit and compliance trail in one central location. These responsible lending obligations are not new in the industry, and you may be following these best practice standards already. The changes to ApplyOnline make it easier for you to meet your compliance and regulatory requirements. Page 3 of 21 Version 1.0, issued Oct 2017

4 What do you need to do from November 2017? For electronically lodged loan applications, you will need to discuss and complete the R&O questions and declarations when discussing new lending with individuals and individual trustees for trusts for home loans, investment loans and equity access loans. Please complete these sections with your customer and record their responses in the dedicated sections within ApplyOnline. Depending on the product type and features selected the relevant mandatory questions will automatically display. You will be able to record the customer s responses by selecting from a list of dropdown options for each question, which show the most common responses from customers. If the customer s responses do not match any of the options in the dropdown lists, select Other and, in the textbox that will display, please enter a clear, concise summary to outline the customer's response. Declarations relating to the selected product type and features display for acknowledgement on the Compliance tab. Please note that applications with incomplete or unclear comments are more likely to be deferred or declined by the Assessment area. This will result in increased rework for Brokers, further delays and a poor overall customer experience. Certain R&O fields, such as when Other has been selected and a free text comment entered, will be flagged for review by the Broker Mortgage Services (BMS). What do you need to do from 8 January 2018? You will need to make any Broker-initiated changes to a loan application in ApplyOnline and resubmit the application. (Note there are some exceptions refer to the Resubmissions section of this document for more information.) Page 4 of 21 Version 1.0, issued Oct 2017

5 Where do you go for more information? If you would like more information: Review the quick reference guide (R&O questions, declarations, dropdown options) and frequently asked questions (FAQs) on the Broker portal. Contact your Lending / Credit Services Manager for questions related to completing the R&O questions and declarations in your Customer Relationship Manager tool (CRM). Contact your St.George Group Business Development Manager (BDM) for loan application queries. Note: The text and dropdown options shown on the following pages show the R&O questions and declarations that will be required for completion. They do not represent the Aggregator CRMs, which may have different wording, fields and dropdown options. Page 5 of 21 Version 1.0, issued Oct 2017

6 KEY CHANGES Foreseeable Changes to Circumstances Foreseeable changes to circumstances questions have been revised. There will be additional dropdown options to choose from. Foreseeable changes questions must be completed for each applicant included on the loan. If an applicant is removed from a loan, the applicant s responses to the foreseeable changes to circumstances questions will be removed from the R&O record. Does the applicant anticipate or plan any significant changes to their financial situation that would ADVERSELY impact their ability to meet their loan repayments? EXAMPLES: Examples of changes which may adversely impact the applicant s ability to meet their loan repayments include: a change to employment which may result in reduced income parental or other extended leave an upcoming bullet or balloon repayment for an existing loan an interest only, no repayment or honeymoon interest rate period for an existing loan ending. Yes No Timeframe for change Within 3 Years Beyond 3 Years Nature of Change Additional Information (Beyond 3 Years) Extended unpaid leave (e.g. maternity) End of contract / loss of employment Reduced income Retirement Leaving employment Medical treatment / illness Increased debt repayments Large expenditure Other (with corresponding textbox) Nature of Change (Within 3 Years) Mandatory free-form text box to record Further Details for each mitigant selected. Nature of Change Temporary decrease in disposable income Permanent decrease in disposable income Anticipated large expenditure Text box to record Further Details of the selected option. Description of Change Extended unpaid leave (e.g. maternity) End of contract / loss of employment Reduced income Retirement Leaving employment Medical treatment / illness Page 6 of 21 Version 1.0, issued Oct 2017

7 Increased debt repayments What is the applicant s plan for making their repayments when this happens? Text box to record Further Details of option selected. Using savings Securing additional income Application reflects change Reduced expenditure Sale of asset Page 7 of 21 Version 1.0, issued Oct 2017

8 KEY CHANGES Special Circumstances This is a new question in ApplyOnline. Special circumstances questions must be completed for each applicant included on the loan. If an applicant is removed from a loan, the applicant s responses to the special circumstances questions will be removed from the R&O record. Special circumstances refers to circumstances other than those covered by the questions in the application on marital / spousal status, number of dependants under 18 years and post-settlement residential address. Examples of special circumstances which may impact on living expenses include: children in private schools dependants (i.e. persons financially reliant on the applicant) other than a spouse who are 18 years or older dependants with health issues, disabilities or special needs. Note: Living in a remote location or the number of dependents under the age of 18 is not relevant as to whether there are special circumstances. Does the applicant have any special circumstances which may impact on their living expenses? What are the special circumstances? Are the financial impacts of the special circumstances included in the figures for living and fixed expenses provided by the applicant? Yes No Free-form text box Yes No (with mandatory free-form text box for financial impacts) Page 8 of 21 Version 1.0, issued Oct 2017

9 KEY CHANGES Mature Age ApplyOnline performs a calculation and will display the plans to retire and not work question if the customer is aged 45 years or older. This question is mandatory if the applicant is aged 45 years or older. If the response to the plans to retire and not work question is Yes, then the planned retirement age question displays. If the applicant s planned retirement age is 75 or older, then the question Will the Applicant reach their planned retirement age during the term of the loan? displays. If the customer is 75 years or older OR will reach their planned retirement age during the loan term, please discuss and complete the planning to pay off this loan question. Mature age questions are applicable for each applicant included on the loan. If an applicant is removed from a loan, the applicant s responses to the mature age questions will be removed from the R&O record. Plans to retire and not work Yes No Planned Retirement Age Enter age into text box Will the Applicant reach their planned retirement age during the term of the loan? How is the applicant planning to pay off this loan once they retire (voluntarily or due to circumstances which arise)? Yes No Repayment of loan prior to retirement Downsizing of home Sale of assets Recurring income from superannuation Superannuation lump sum following retirement Income from other investments Other Mandatory free-form text box for Additional Information to support the option selected above Page 9 of 21 Version 1.0, issued Oct 2017

10 KEY CHANGES Arrears This is a new question in ApplyOnline. Arrears questions must be completed for each applicant included on the loan. If an applicant is removed from a loan, the applicant s responses to the arrears questions will be removed from the R&O record. Is the applicant over the credit limit, in arrears or in hardship in relation to any existing credit or other fixed expenses? Yes (with mandatory free-form text box for details of the arrears ) No Page 10 of 21 Version 1.0, issued Oct 2017

11 Fixed Interest Rate KEY CHANGES This is a new question with declarations in ApplyOnline. What is important to the applicant about a fixed rate? Certainty of repayments Make budgeting easier Lock in the applicable interest rate Other (with mandatory free-form text box) I have discussed the restrictions which apply to additional repayments when the interest rate is fixed. Each applicant appears to understand and wants to proceed. I have discussed the possibility of expensive break costs if the additional repayments exceed the threshold, the loan is repaid in full or switched to another product or loan type within the fixed rate period. Each applicant appears to understand and wants to proceed. Page 11 of 21 Version 1.0, issued Oct 2017

12 Interest Only KEY CHANGES The dropdown options have changed in ApplyOnline. Why has the applicant chosen interest only repayments? I have discussed the higher interest rates applicable to interest only loans (where applicable). Each applicant appears to understand and wants to proceed. I have discussed not paying off the principal will result in more interest being paid over the loan term. Each applicant appears to understand and wants to proceed. I have discussed that after the end of the interest only repayments period principal and interest repayments will be required and that these will be higher than they would have been if the loan had principal and interest repayments throughout its term. Each applicant appears to understand and wants to proceed. I have discussed that the amount of equity that can be built-up in the home will be less with an interest only home loan than with a principal and interest home loan. Each applicant appears to understand and wants to proceed. Smaller initial repayments to boost cash on hand Flexibility to manage cash flow Smaller initial repayments to maximise tax deductions (This loan is for investment purposes) Priority is paying off non-deductable debts (This loan is for investment purposes) Smaller initial repayment to free up cash flow for other personal purposes Other (with mandatory free-form text box) N/A (as applicable interest rates are not higher) Page 12 of 21 Version 1.0, issued Oct 2017

13 Interest In Advance / Prepaid Interest KEY CHANGES This is a new question with declarations in ApplyOnline. Why has the applicant chosen to pay interest in advance? I have discussed that interest in advance is only available where the loan is on a fixed rate and the purpose is Investment. Each applicant appears to understand and wants to proceed. I have discussed that an upfront payment equivalent to the chosen interest in advance period s worth of interest only repayments, is required to participate in this option. Each applicant appears to understand and wants to proceed. For tax advantages Discounts on interest rate Helps maximise cash flow and budgeting Other (with mandatory free-form text box) Page 13 of 21 Version 1.0, issued Oct 2017

14 Lenders Mortgage Insurance (LMI) KEY CHANGES There are new declarations in ApplyOnline. I have discussed that lenders mortgage insurance protects the lender if the applicant is unable to meet their loan obligations but this does not relieve the applicant of their obligation to repay the loan. Each applicant appears to understand and wants to proceed. I have discussed the extent to which lenders mortgage insurance premiums are refundable where the loan is repaid early. Each applicant appears to understand and wants to proceed. I have discussed that adding the lenders mortgage insurance premium to the loan will increase the size of the loan and repayments. Each applicant appears to understand and wants to proceed. I have discussed that adding the lenders mortgage insurance premium to the loan will mean that the applicant will pay interest on it for the term of the loan. Each applicant appears to understand and wants to proceed. Page 14 of 21 Version 1.0, issued Oct 2017

15 Purchase of Non Real Estate Goods KEY CHANGES There is a new question and declarations in ApplyOnline. Is the applicant planning to use all or part of the loan proceeds to buy Non Real Estate goods? I have discussed that the goods may not hold their value for as long as the remaining term of the loan and so the applicant may be paying for it beyond the useful lifespan of the goods. Each applicant appears to understand and wants to proceed. I have discussed with the applicant the option of a separate loan with a shorter term for the part of the loan required for the purpose of the goods. Each applicant appears to understand and wants to proceed with the specified loan term. Yes No N/A - Useful lifespan of goods likely to exceed loan term. Page 15 of 21 Version 1.0, issued Oct 2017

16 Line of Credit KEY CHANGES There are new questions with declarations in ApplyOnline. Why has the applicant chosen a line of credit with interest only repayments rather than a loan where they are required to pay off the principal over time? What is the applicant s plan for paying off the line of credit? (multiple options can be selected) If the applicant s line of credit is reduced or cancelled, how will they repay the amount owing? (multiple options can be selected) I have discussed the higher interest rates applicable to a line of credit as compared to a standard loan. Each applicant appears to understand and wants to proceed. I have discussed that not paying off the principal will result in more interest being paid over the loan term. Each applicant appears to understand and wants to proceed. I have discussed with the applicant that line of credit loans require a high level of discipline on behalf of the applicant in order to pay off the loan principal. Each applicant appears to understand and wants to proceed. Flexibility of drawdown Flexibility of revolving line of credit Assists with investment purchases and tax planning Ongoing need for funds planning to make a few purchases over a period of time Other (with mandatory free-form text box) Savings from income Sale of assets Recurring income from rental Income from other investments Other (with mandatory free-form text box) Sale of assets (with corresponding mandatory free-form text box) Other (with mandatory free-form text box) Acknowledge the declaration N/A - Interest rate is lower or the same as for a standard loan Page 16 of 21 Version 1.0, issued Oct 2017

17 KEY CHANGES There are new declarations in ApplyOnline. Relocation Loan I have discussed that when the interest is capitalised, the customer will pay interest on the capitalised interest. Each applicant appears to understand and wants to proceed. Page 17 of 21 Version 1.0, issued Oct 2017

18 KEY CHANGES Refinance / Debt Consolidation There are some new questions and declarations in ApplyOnline The new fields to enter include interest rate, fees & charges and frequency, exit fees / break costs and loan term remaining for existing liabilities to be refinanced or consolidated. Fields are located on the Security tab for existing liabilities and on the Financial Position tab for new liabilities. This additional information is used by the Broker to assess if the refinance / debt consolidation will result in overall cost savings to the customer. Where the customer cannot provide exact details on associated costs, enter a best estimate. Multiple liabilities can be entered by clicking the Add New button. Interest Rate Fees & Charges Repayments Exit Fees / Break Costs Loan Term Remaining Why does the applicant want to refinance the existing loan? (multiple options can be selected) I have discussed that any lender s mortgage insurance (LMI) already paid may not be refundable. Each applicant appears to understand and wants to proceed. If the remaining term of the existing loan being refinanced is greater than 6 months and less than the new loan term (30 years is used for Equity Access ): Why has the applicant requested a new loan term that is greater than the remaining term on their existing loan? I have discussed that despite consolidating the debt into a lower interest rate loan, the term will be longer and the applicant may end up paying more interest, particularly if following the debt consolidation the applicant incurs further unsecured debt. Each applicant appears to understand and wants to proceed. I have discussed that if the applicant can t make the repayments, the property being used as security may be at risk. Each applicant appears to understand and wants to proceed. Enter amount into free-form text box Enter Amount and select Frequency Enter Amount and select Frequency Free-form text box enter a best estimate if the exact amounts are not known Enter Years / Months Reduced monthly repayments under the new loan Lower interest rate under new loan Increasing total amount of loan Greater flexibility under new loan Extra loan features under new loan Want to reduce number of lenders Dissatisfied with other financial institution Other (with mandatory free-form text box) Improved monthly cash flow due to lower repayments Other (with corresponding mandatory free-form text box) Page 18 of 21 Version 1.0, issued Oct 2017

19 KEY CHANGES There are new declarations in ApplyOnline. Mixed Purpose Loan A mixed purpose loan is one partly for personal, domestic or household purposes (where interest paid will usually not be tax deductible) and partly for business or investment purposes (where interest paid will often be tax deductible). A loan can be a mixed purpose loan from the time of establishment, but will more typically occur where either: the initial loan was for personal, domestic or household purposes and the applicant requests a credit limit increase for business or investment purposes the initial loan was for business or investment purposes and the applicant requests a credit limit increase for personal, domestic or household purposes. Would the applicant prefer separate loans (possibly secured over the same property), one for each purpose? Given the possible complications in claiming tax deductions, what are the applicant s reasons for wanting a mixed purpose loan? (multiple options can be selected) I have discussed with the applicant that there may be complications in claiming tax deductions in connection with a mixed purpose loan and whether the applicant has sought tax advice regarding the structure of their loan(s). Each applicant appears to understand and wants to proceed. Yes No Cost saving (with corresponding free-form text box for details) Easier to manage Advised by tax adviser Other (with corresponding mandatory free-form text box) Page 19 of 21 Version 1.0, issued Oct 2017

20 KEY CHANGES Other R&O There is a new question in ApplyOnline. If the customer has other requirements and objectives that have not already been covered or discussed in the R&O questions, enter a clear, concise summary in the textbox to outline the details. Does the applicant have any other requirements and objectives not already stated which may affect the suitability of this loan? Yes (with mandatory free-form text box for details of other requirements and objectives) No Page 20 of 21 Version 1.0, issued Oct 2017

21 KEY CHANGES Resubmissions effective from 8 Jan 2018 From 8 January, 2018, Broker-initiated changes must be documented in ApplyOnline to provide a clear audit and compliance trail in one central location. There will be scenarios where, if the Assessor identifies a change is required, you will also be requested to make the change in ApplyOnline and will need to resubmit. To resubmit: a. Open the application in ApplyOnline, click Edit to Resubmit and then navigate to the relevant tab and field that needs to be edited. b. Overwrite the old answer with the revised response. c. Save the application, validate the application and then click Resubmit. d. The application is resubmitted for the Assessor to reassess. There are some exceptions where you do not need to resubmit the change in ApplyOnline because the fields do not impact the R&O decision. You can still an Assessor with the change for any of the five fields listed below. Page 21 of 21 Version 1.0, issued Oct 2017