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Self Certified Loans: A focus on Low Doc Loans 

The big four banks in Australia. Westpac, Commonwealth, ANZ, NAB.

If you are self-employed, have irregular income such as freelance work, commissions or bonuses, have tax debt or perhaps you are retired, you might think that you don’t stand a chance of getting a mortgage loan. But, in fact, that is not the case. Have you ever heard of self-certified mortgages?

What are Self-Certified Mortgages?

A self-certified mortgage is a loan granted on the merits of the deal based upon the personally certified declaration of the borrower about his or her ability to repay the loan from income sources such as self-employment income, assets, retirement pension, or even income generated from the loan itself, such as rental or retail income.

Self-certified loans come from specialised providers who understand that not all income and assets are easily documented. They understand that there are people who need or want a loan who cannot provide the documentation traditionally required by a big bank, and they are willing to help. If you don’t have the required paper trail but need a loan, private lending may be able to help you. Contact
Acumen Finance today to see if you might qualify for a self-certified loan.

The self-cert loan requires you to declare your income but it does not require you to prove that income. “So,” I hear you ask, “how do I get one?

First, let’s back up a bit and give you a little history into the global financial crisis and the subsequent regulations that have tightened the purse strings of banking institutions. Then we’ll talk about the self-cert option.

The Global Financial Crisis in a Nutshell

The crisis, beginning in 2007 and hitting its crescendo in September 2008 with the Lehman Brothers and AIG filing for bankruptcy, was due to several factors, including: increased borrowing from banks and investors, regulations and policy errors, and possibly most important, due to excessive risk-taking in a favourable macroeconomic environment.   

The United States played host to the catalyst that sent ripples across the globe. The economy was doing well, and lending institutions started to get that “too big to fail” attitude. Combined with a government mandate for equal opportunity in lending practices that gave lending institutions virtually a free-rein, banks started offering home mortgage loans to the denizens who could ill afford it. 

They created loan products designed to get people into the market, such as interest-only, extremely high-LVR loans (100 to 110%) and self-certified loans. The banks were confident - overly so. To mitigate their risks, the big banks packaged home loans, good and bad, into Mortgage-Backed Securities (MBS), and sold them to investors worldwide. Sure, there were risky components, but many investors believed that the majority of the package was solid and the good loans would compensate for defaults and delinquencies.

Unfortunately, that didn’t happen. As the enticingly-low, initial premiums rose drastically, so too did the number of defaults. Soon, investors realised that the MBS packages had more risk than reward, ultimately causing a crash in the Securities and leading to the great “Sub-Prime Mortgage Crisis” that affected economies worldwide.

Australia’s government was actually a little ahead of the game. They weren’t as heavily invested in the crap commodities, and when the cookies started to crumble, they stepped in with immediate consumer stimulus package to keep their economy sound. This, combined with Australia’s strong export deals with China, and Australia weathered the storm remarkably well.

Learning from the Mistakes of Others

But that didn’t mean there weren't any lessons to be learned. Governments around the world came together and set forth some plans to prevent this from happening again. As part of their new fiscal policies, the Basel Committee on Banking Supervision (BCBS) adopted risk-averse methods for financing and the Reserve Bank of Australia (RBA) set forth some “prudent lender” guidelines.

Prudent Lenders Clauses 

The aim of the responsible lending reforms was to “introduce standards of conduct to encourage prudent lending and leasing in the consumer credit industry.” To this end the RBA has prescribed certain guidelines:

1) Lenders must make reasonable inquiries about the consumer’s loan objectives, such as amount, the purpose of the loan and the time frame (term). 

2) Make reasonable inquiries about the borrower’s financial situation to gain a sufficient understanding of the consumer’s income and expenditures and the source of income.

3) Take reasonable steps to verify the borrower’s financial information. This will include, at minimum, income and housing payments and may also include a review of the consumer’s bank statements.

In the view of the ASIC, these responsibilities are scalable; that is to say, the necessary prudent steps will be determined by the circumstances of the loan.

The primary gist is that lenders need to take prudence when selling a loan; they need to ask reasonable questions to determine whether the loanee can afford the loan, that they do not lend beyond that which the borrower can reasonably repay without causing unnecessary hardship, and that the borrower understands any contract that he or she signs - it cannot be so complex as to confuse the borrower. 

The Accountant’s Letter of Declaration was employed to comply with these basic standards by attesting to the financial claims a borrower makes when applying for low-doc loans.

Self-Cert: The Accountant’s Declaration Letter

Still, many banks are choosing to remain within the “safe zone,” providing loans only to those who can jump through their hoops and provide the required documentation. This is creating a growing, unserviced market of borrowers wishing to secure a loan, whether it’s for first direct or commercial mortgage, or for a larger project development. 

For the self-employed, retired, or irregular-income earners, there is the option of pursuing a self-certified loan. There are private/P2P lenders who are willing and able to serve you and the expert team at Acumen Finance can match you to a lender that best suits your needs. 

An expert consultant from our staff will meet with you to discuss your needs, your objectives and your terms (length of loan). As not all loans require the same level of disclosure, an Acumen expert will determine just how much information is necessary to create the most effective accountant’s declaration letter for you - no, they are not all created equal. In some cases, we have been able to secure a loan based solely on the lender’s inspection of a project, bypassing this step altogether.

From years of experience, Acumen understands all the players. They know who can lend on low-doc and non-conforming loans, and who is bound by the restrictions posed by their charters or by that of the Basel III framework. Acumen is an expert at writing contracts for asset-backed loans and their pool of high-value private lenders are not bound by the safety margins of today’s regulated banking systems. They provide the ultimate in loan flexibility. Also, they do not have any limit on the loan size they chose to back, whereas Tier 2 lenders will typically cap out as low as $2.5 million which can inhibit buyers eager to enter the quickly-rebounding Australian real estate markets.

Acumen understands the idiosyncrasies of the accountant’s declaration so you don’t have to. Don’t you think it’s time that you give them a call to get your investment dreams moving?