With incessant mumblings in the finance sector about the risk of ‘too much, too soon’ when it comes to the recent influx of investment borrowers hitting up the banks for mortgage products, regulators are keeping an ever watchful eye on Australian industry lending practices.
In the wake of increased lending activity spurred on by historically low interest rates boosting consumer confidence, the Australian Prudential Regulation Authority (APRA) released a prudential practice guide for authorized deposit taking institutions earlier this month, laying the ground rules for risk management in mortgage lending.
The Prudential Practice Guide APG 223 Residential mortgage lending, outlines APRA’s expectations of the banks in how they assess and verify aspects of residential credit applications, including income and expenses, loan origination, the role of lender’s mortgage insurance and property valuation procedures.
APRA says the document does not impose any new requirements, but instead reinforces its “supervisory oversight” of Australia’s financial institutions and how they manage their mortgage portfolios.
So why the current need to remind lenders that Big Brother is keeping a close eye on how serious they are about risk aversion in the residential mortgage market?
Well, given that lenders’ mortgage books collectively represent the largest credit exposure in the Australian banking system, and there’s still a fair level of uncertainty when it comes to the future of various developed economies, I guess it’s understandable that regulators are a little jittery.
APRA chairman Wayne Byres said, “Housing lending has historically demonstrated a low and stable risk profile compared with other lending exposures in Australia. However, for some time APRA has seen increasing evidence of residential mortgage lending with higher risk characteristics by Australian ADIs.”
Of course any tightening up of what might have start to become a little sloppy when it comes to the banks vetting high risk mortgage applicants is a good thing, as far as we’re concerned.
A more stable and appropriately risk averse finance industry means a more stable housing market, and that can only be a good thing for Australian property investors who are in it for the long haul.