Lenders, aggregators and brokers have hit back at accusations by Choice magazine that ”lax” lending standards and high loan-to-value ratio (LVR) loans are putting consumers at risk. Tom Godfrey, spokesman for the consumer group, told Australian Broker some “risky” home loans being offered to borrowers have the potential to put home buyers in financial difficulty.

 Industry Slams Consumer Groups’  Risky Lending Accusations
– Australian Broker Online, January 15, 2014.

These vile and outlandish claims of lax lending standards need to be addressed with the utmost urgency; as does the ludicrous scare-mongering about a property bubble whipped up by cheap credit.

In support of his claims, this Godfrey fellow from Choice had the cheek to cite an innovative mortgage product offered by RAMS with an LVR of 120 per cent.

In other words, you don’t have to put a deposit down to get your loan from RAMS. RAMS, owned by Westpac, magnanimously gifts you another 20 per cent of the value of your loan on top!

Godfrey slandered the RAMS product as “risky”. Though he soon met his just desserts in the comment section found at the bottom of the Australian Broker story:

“Godfrey – stick to comparing vacuum cleaners,” wrote Stewart.

“I dare say it won’t be long before these idiots at Choice start blaming banks and brokers for clients losing their jobs causing hardship and the inability to repay their debts,” observed GC. “Godfrey should stick his head … “, and so on.

There were many more. At first blush, it seemed RAMS may have been mimicking good old ANZ, whose “Two-Tiered Marketing” had been a real hit before the last recession. This was where the bank and the property developer slung their customers a lavish discount on exciting subdivision opportunities in pioneer suburbs – house-and-land packages – often interstate.

Not this cutting-edge RAMS product though. This little beauty covers “upfront costs, home improvements and debt consolidation”. Under an example on the website, a customer can borrow $350,000 without a deposit or mortgage insurance if his parents gave an $87,500 guarantee.

Ship it in. All these goodies and a big discount to boot; it’s free money.

As noted in the piece, “The RAMS spokesperson … says, if anything, the bank’s lending criteria has tightened in recent years.”

Debunking once and for all this scare campaign about lax lending standards and bubbles, we decided to undertake some in-depth research.

With the assistance of an electronic device conducting high-speed mathematical and logical operations (a computer) – and deploying high-level software to search databases for specific information (Google) – it took approximately 15 seconds to find that just about every lender in the country is back touting 95 per cent LVR loans – via the mortgage broking profession, of course.

It was not that simple to source mortgages with 100 per cent LVRs, though. One had to search high and low to find a mortgage with an LVR much higher than the conservative 95 per cent, let alone a new-fangled RAMS-style resource.

The first website uncovered by our own analysis, Mortgage Experts, showed just how stringent this lending market has become.

“There is good news for borrowers of late as it seems lenders’ appetite for 95 per cent home loans – and 95 per cent investment loans – has increased,” says Marty from Mortgage Experts. “We now have many more options available for those looking for 95 per cent loans and lenders are actually being more flexible in their requirements.” There you have it. From the horse’s mouth.

“So who is the cheapest lender for 95 per cent home loans really depends on your individual circumstances such as whether you have genuine savings.” Genuine savings – que? Presumably, if you have fake savings, you can pretty much forget it.

Wait, perhaps not.

“If you have access to a 5 per cent or more deposit in your bank account which isn’t all genuine savings, we might still be able to get you a 95 per cent home loan.”

According to Marty, the mortgage insurers were often tougher than the lenders themselves. This LMI (lenders mortgage insurance) could be a sticking point.

“That said we have access to few lenders who can approve the lenders mortgage insurance ‘in house’,” said Marty, “meaning those particular lenders’ policies can override the mortgage insurer’s policies”.

Just like the lenders, the mortgage brokers are not too keen to impart that this insurance does not cover the borrower. The borrower pays for it but it actually covers the lender.

However, this pesky cost can be capitalised. Slotted into the loan, that is.

There are lenders, said Marty, who allow the mortgage insurance cost to be added to the loan. “This means that … (they) will in effect lend around 97 per cent to 98 per cent (95 per cent plus insurance).”

Phew. It’s still well shy of 100 per cent.

Briefly to administrative matters: we regret to inform you, dear readers, that – and it is with a heavy heart that we concede this – as a consequence of unrelenting pressure from colleagues and friends, this scribe has finally capitulated and agreed to engage in the most shallow, most trite and gimmicky, most irritating communications platform of them all: Twitter.

The good news is, you won’t be reading sentences as long as that one.