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  • Profile photo of Ryan McLeanRyan McLean
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    What are you required to provide the banks with or a low doc loan?

    I want to purchase a property using my trust (new trust set up for the property), but I want to apply for a low doc loan because I run a business and I am casually employed.

    What will banks ask for when I apply for a low doc loan?
    How long does my business have to be running before they will consider me for a low doc loan?

    Ryan McLean | On Property
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    Profile photo of blackhotelblackhotel
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    I'm interested in the answer to this one also.

    I just re-financed my low-doc loans and they asked for nothing. All I had to do was sign a stat decl stating that I can afford the repayments. They asked what my wage was and I stated whatever they wanted to hear. Infact I just added up all my income from the rents gross and gave them this figure.

    What I don't understand is upon rec all the paperwork from the bank, I had to sign the application and all my property liabilities and assests were all mixed up and a bit different to what I stated. Also, they had 2 x American express c/cards on the application when I only have 1. All of this makes no difference as I got the loan approved and I did not want to go and ring them up to say there's a mistake, did I.

    But, what would happen if I did not tell them about all the c/c I have. I got my credit report the other day and it shows absolutely nothing except a revolving line of credit for $12K with the CBA, which I have no clue what this is as I have a m/c for a $10K limit with CBA.

    Profile photo of BankerBanker
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    I went to a training session with the head of one of the major banks fraud teams recently.

    Their biggest two areas of fraud is;

    1. false income information
    2. Non disclosure of liabilities

    The biggest problem with bank low doc loans is that if you actually read the low doc declaration they do not state ‘what you think you might earn’ or ‘what you expect to earn’ – all major 4 actually ask ‘what was your taxable income in the last financial year’.

    This banks don’t usually lose money from this type of fraud – not like fake name and ID applications where the deals settle and someone does a runner etc.

    So the reality is: if you are committing fraud you can not say it’s not fraud cause everyone else does it, or your broker / banker says a figure to get over the line. If the figure does not match you NET income – it is fraud…

    The bank is also monitoring brokers / bankers with a high percentage of low doc deals.

    So question is – is it a fraud you are comfortable with?
    For a lot of investors the answer it Yes.

    Profile photo of Richard TaylorRichard Taylor
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    Banker is totally correct that it fraud to declare an income higher than the actual amount merely to get a loan over the line and hence the new NCCP provisions may see the end of lodoc as we know it come 15th July 2010.

    In saying this there are couple of lenders that do merely ask the client to state that they are aware of the monthly comittment and feel that they can support this loan without any undue hardship.

    In addition of course in many cases there is absolutely no need to go lodoc if your Broker / banker knows how to read a set of Tax Returns correctly.

    Altenative is Nodoc where no income / assets / liabilities are required to be stated. It is purely an asset lend.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
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    0-40 Properties in a decade with an unencumbered value of over $35M. Email for a copy of my API article

    Profile photo of Ryan McLeanRyan McLean
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    I didn’t realise that low doc loans required you to simply state what your taxable income was in the last financial year. I am not suggesting mortgage fraud in any way, just looking for ways to best get my loans approved. Banks have a lot of lending criteria which someone on a casual wage (even though I am permanent casual and have been there 5 years) can find hard to get around, thought a low doc loan might help in that case.

    What are the lending criteria for no doc loans? Why would the banks lend no doc and how can they see if you fit their criteria?

    Ryan McLean | On Property
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    Profile photo of BankerBanker
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    ryan mclean wrote:
    What are the lending criteria for no doc loans? Why would the banks lend no doc and how can they see if you fit their criteria?

    The major banks don’t do no doc – you will need a smaller non-banker lender. Low LVRs and high rates. Hence a lot of people take the common fraud opition with low doc. Richard has a point of the future of low doc – I’m sure they will be around however rules like providing bas statements and confirming a trading business exists (rather than property holding) will be more relivant.

    As this is a property forum, we don’t get too many posts on cashflow generation outside of property. I am a strong beleiver that to grow a strong portfolio you need a seperate cash cow – the fatter the better…

    If you don’t have one you might need to start with a goat.

    Profile photo of Ryan McLeanRyan McLean
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    What are the LVR’s on a no doc loan? How much more expensive are we talking?

    Ryan McLean | On Property
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    Profile photo of Richard TaylorRichard Taylor
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    Nodoc's normally maxed at 70% Interest rate from 9.5%

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    0-40 Properties in a decade with an unencumbered value of over $35M. Email for a copy of my API article

    Profile photo of MarJacMarJac
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    ryan mclean wrote:
    What are the LVR's on a no doc loan? How much more expensive are we talking?

    Will depend on the Lender, most of which would be Finance Companies and not Banks, some of these companies may not be 'trading' ie no new loans just managing existing portfolio, mainly due to the GFC.
    Not sure how many / if any are even doing No Doc

    Depending on the property (Commercial/Residential) the LVR would be around 60-70% at most with a rate of approx 2-3% + above 'regular Bank rates'

    Note that I havn't worked in this area for almost 18 months so above could be considered as a guide only

    Profile photo of TerrywTerryw
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    Low doc loans generally require at least 2 years ABN and GST registration if your business is turning over $75k pa. These days they are also often asking for bas statements too – to make sure what you are declaring is similar to what you are telling the ATO what you are making.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of blackhotelblackhotel
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    Rams requires no BAS statements LVR 80% with LMI. There's word that Adelaide bank is bringing in a new low doc product in approx 1 month which will require no Bas statement and an LVR 70% with LMI. Considering the very large amount of self employed people out there I cannot see low docs will dissapear. As real estate gets back to a normal pace of growth (which looks like it's happening now in SYD & MELB) banks will get allot more confident about borrowing, I reckon anyway! Just my opinion. I watched Mark Bouris talking the other day and he is already planning his move to come back into the market place in the next year and he won't be the only one. Our default rates are so low in Australia compared to any other country.

    Just another thing on this sub-prime stuff in the USA. I am a perfect example of a sub-prime borrower out of the States. I purchased a property in the USA 5 yrs ago in San Francisco and I borrowed from a US Bank. Don't live in the US, don't work in the US and not a US Citizen. I used my friends address for all the paper work to be sent to and he forwarded to me in Auzzie.

    The loan was fixed at 7% for 30yrs. Last year the bank rang me to ask if I was having problems making my payments. I had made all my payments on time so I asked why. They said because so many people are defaulting, we are just phoning all our customers who are not defaulting to see if your too proud to ask for help. I  told her that all that has happened for me was my rental income dropped by $500per mth. The bank modified my loan for 5yrs @4% with one phone call. 

    Imagine a bank like that!

     

    Profile photo of BankerBanker
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    blackhotel wrote:
    Imagine a bank like that!

    Sounds nice in theory. The biggest cause (in my opinion) to the financial crisis in the US was and still is non-recourse lending.

    Most loans are and were non-recourse which means if the bank sells the property for 300k and you owe them 400k – you are not liable for the 100k difference. Therefore when the market crashes you can hand in your keys with no consequence to your other assets.

    In the US banks had so many keys being dropped off some had key boxes installed at the doors. In some cases a key put in the box represented a $1.0M loss to the bank. Lots of keys makes a bank bankrupt.

    In Australia if the bank sells they also have recourse to your other assets and will bankrupt you if need be. Therefore most people will struggle to keep paying – keeping prices stable and avoiding thousands of firesales by the banks.

    What happens to Black Hotel was a matter of bank in crisis control. They would waive interest in full if required as long as you hold on to the keys – As log as the US keeps lending on this basis their property market will remain at risk.

    Banker

    Profile photo of Dan42Dan42
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    Banker wrote:
      The biggest cause (in my opinion) to the financial crisis in the US was and still is non-recourse lending.

    Most loans are and were non-recourse which means if the bank sells the property for 300k and you owe them 400k – you are not liable for the 100k difference. Therefore when the market crashes you can hand in your keys with no consequence to your other assets. In the US banks had so many keys being dropped off some had key boxes installed at the doors.
     

    100% agree. Yet this fundamental difference is never mentioned by the doom-and-gloomers, when they predict similar price falls for the Australian market.

    Profile photo of Richard TaylorRichard Taylor
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    Imagine if we had a system that in Qld there was no recourse lending yet in NSW there was. Thats what happens in the US.

    We had dealings with 5/6 US Banks which are no longer with us.

    The Adelaide Bank 70% product (if it ever arrives. My mail is that the Adelaide Bank board have decided to hold off and see what the new Credit Code brings with it) will be a lodoc product and not nodoc.

    Even the Anz Bank 60 product has changed so that the applicant needs to have a ABN for 6 months compared to 1 day as previously.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    0-40 Properties in a decade with an unencumbered value of over $35M. Email for a copy of my API article

    Profile photo of YossarianYossarian
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    Dan42 wrote:
    Banker wrote:
      The biggest cause (in my opinion) to the financial crisis in the US was and still is non-recourse lending.

    Most loans are and were non-recourse which means if the bank sells the property for 300k and you owe them 400k – you are not liable for the 100k difference. Therefore when the market crashes you can hand in your keys with no consequence to your other assets. In the US banks had so many keys being dropped off some had key boxes installed at the doors.
     

    100% agree. Yet this fundamental difference is never mentioned by the doom-and-gloomers, when they predict similar price falls for the Australian market.

    Non-recourse loan contracts exist in about 50% of US jurusdictions, not all.

    The implosion of US was the result of a massive speculative bubble, fueled by extraordinarily poor lending practices which, in turn,  were driven by moral hazard created by the fact that you could swiftly package and dispose of said bad credit through markets prepared to buy and package debt to buyers the world over who were suckered by AAA ratings that weren't worth the paper they were written on.

    Profile photo of YossarianYossarian
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    Banker wrote:
    blackhotel wrote:
    Imagine a bank like that!

    Sounds nice in theory. The biggest cause (in my opinion) to the financial crisis in the US was and still is non-recourse lending. Most loans are and were non-recourse which means if the bank sells the property for 300k and you owe them 400k – you are not liable for the 100k difference. Therefore when the market crashes you can hand in your keys with no consequence to your other assets. In the US banks had so many keys being dropped off some had key boxes installed at the doors. In some cases a key put in the box represented a $1.0M loss to the bank. Lots of keys makes a bank bankrupt. In Australia if the bank sells they also have recourse to your other assets and will bankrupt you if need be. Therefore most people will struggle to keep paying – keeping prices stable and avoiding thousands of firesales by the banks. What happens to Black Hotel was a matter of bank in crisis control. They would waive interest in full if required as long as you hold on to the keys – As log as the US keeps lending on this basis their property market will remain at risk. Banker

    No recourse to your toerh assets, but this is only part of the story. The importance of your credit score in the US is such that defaulting on your mortgage not only impacts on your ability to get credit, but also makes it very difficult to get any utilities in your own name, a rental property or even a job.

    It is simply incorrect to imply that defaulting on a non-recourse loan is somehow without material consequences (in the 50% of jurisdictions that it exists).

    Profile photo of BankerBanker
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    Yossarian wrote:
    Banker wrote:
    blackhotel wrote:
    Imagine a bank like that!

    Sounds nice in theory. The biggest cause (in my opinion) to the financial crisis in the US was and still is non-recourse lending. Most loans are and were non-recourse which means if the bank sells the property for 300k and you owe them 400k – you are not liable for the 100k difference. Therefore when the market crashes you can hand in your keys with no consequence to your other assets. In the US banks had so many keys being dropped off some had key boxes installed at the doors. In some cases a key put in the box represented a $1.0M loss to the bank. Lots of keys makes a bank bankrupt. In Australia if the bank sells they also have recourse to your other assets and will bankrupt you if need be. Therefore most people will struggle to keep paying – keeping prices stable and avoiding thousands of firesales by the banks. What happens to Black Hotel was a matter of bank in crisis control. They would waive interest in full if required as long as you hold on to the keys – As log as the US keeps lending on this basis their property market will remain at risk. Banker

    No recourse to your toerh assets, but this is only part of the story. The importance of your credit score in the US is such that defaulting on your mortgage not only impacts on your ability to get credit, but also makes it very difficult to get any utilities in your own name, a rental property or even a job.

    It is simply incorrect to imply that defaulting on a non-recourse loan is somehow without material consequences (in the 50% of jurisdictions that it exists).

    Agreed there are a lot of other factors however a huge number of Americans handed keys in without defaulting prior to this on their loans.

    If you had a property with a loan of 600k the property is now worth 400k – there is a pretty large incentive to walk away? Without a doubt it triggered massive capital losses for many US lenders.

    Profile photo of YossarianYossarian
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    Banker wrote:
    Yossarian wrote:
    Banker wrote:
    blackhotel wrote:
    Imagine a bank like that!

    Sounds nice in theory. The biggest cause (in my opinion) to the financial crisis in the US was and still is non-recourse lending. Most loans are and were non-recourse which means if the bank sells the property for 300k and you owe them 400k – you are not liable for the 100k difference. Therefore when the market crashes you can hand in your keys with no consequence to your other assets. In the US banks had so many keys being dropped off some had key boxes installed at the doors. In some cases a key put in the box represented a $1.0M loss to the bank. Lots of keys makes a bank bankrupt. In Australia if the bank sells they also have recourse to your other assets and will bankrupt you if need be. Therefore most people will struggle to keep paying – keeping prices stable and avoiding thousands of firesales by the banks. What happens to Black Hotel was a matter of bank in crisis control. They would waive interest in full if required as long as you hold on to the keys – As log as the US keeps lending on this basis their property market will remain at risk. Banker

    No recourse to your toerh assets, but this is only part of the story. The importance of your credit score in the US is such that defaulting on your mortgage not only impacts on your ability to get credit, but also makes it very difficult to get any utilities in your own name, a rental property or even a job.

    It is simply incorrect to imply that defaulting on a non-recourse loan is somehow without material consequences (in the 50% of jurisdictions that it exists).

    Agreed there are a lot of other factors however a huge number of Americans handed keys in without defaulting prior to this on their loans.

    If you had a property with a loan of 600k the property is now worth 400k – there is a pretty large incentive to walk away? Without a doubt it triggered massive capital losses for many US lenders.

    (a) What % of US borrowers handed back their keys prior to defaulting? Source?
    (b) Same incentive exists in Oz. Borrowers in strife and with negative equity rarely have other assets to speak of (or have protected them from bankruptcy proceedings) and for most people, bankruptcy in Oz has arguably fewer long term consequences than destroying your credit record in the US.In fact, if you actually speak to your risk analyts, you will find that a negative equity position is a very strong predictor of default.
    (c) Poor credit decisions were the root cause of the credit losses, as they always are.

    Profile photo of BankerBanker
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    Yossarian wrote:

    (a) What % of US borrowers handed back their keys prior to defaulting? Source?
    (b) Same incentive exists in Oz. Borrowers in strife and with negative equity rarely have other assets to speak of (or have protected them from bankruptcy proceedings) and for most people, bankruptcy in Oz has arguably fewer long term consequences than destroying your credit record in the US.In fact, if you actually speak to your risk analyts, you will find that a negative equity position is a very strong predictor of default.
    (c) Poor credit decisions were the root cause of the credit losses, as they always are.

    Hi Yoss,

    A: I’m not going to look for a percentage or a source as I never quoted one. You will note that in my original post it says in the top line "In my Opinion”.  If you want to Google the topic you will find there are plenty of people that agree with my view on non-recourse lending. Re: people handing in keys before they default -. I don’t think anyone (unless you want to) will argue that people in the US have not been voluntarily handing in their properties to satisfy their debt.

    B. Yes negative equity is a cause of concern however it is not so common here. If the market crashed by 30% I'd rather own a mortgage backed security made up of recourse lending rather than non recourse lending. There are plenty of articles / opinions on the net re the belief that non-recourse lending enhanced the US crisis – trying to prove this impossible.

    C. Yes. Poor credit decisions cause problems – that’s a no-brainer. As I said above my opinion is that non-recourse lending was a fundamental floor in the US banking system and I have no doubt that it had an impact in the downturn. How much of an impact is of course debatable.

    Profile photo of blackhotelblackhotel
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    Hi Ryan,
    Just reading a story in "Your investment property" and RAMS is number 2 for the top 10 non-bank low-doc lenders. Interesting.

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