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Lo/No Doc Loans & Ethics

Discussion in 'Finance & Banking' started by coopranos, 23rd Jul, 2007.

  1. coopranos

    coopranos Well-Known Member

    Joined:
    11th Oct, 2006
    Posts:
    498
    Location:
    Perth
    Just a question: As lo/no doc loans are generally for self employed people, how do people approach this from an ethical stand point when a regular PAYG earner applies for one of these loans and signs a statement suggesting they are in fact self employed?
    I take it these types of loans are fantastic for getting over the income tests when the bank says "no more" (and you can actually afford it without overcommitting yourself, for example you have ample funds coming in from managed funds to service the shortfall plus enough capital in managed funds that if they didnt provide the income you could still sell units and service the loan for the far foreseeable future), but how is this ethically justified?

    You see and read a few stories (particularly on terrible current affair tv shows) about some flanel wearing, corn cob pipe smoking, no-front-teeth hillbillies with 8 kids on $50k a year joint income (possibly slightly exaggerated) who have purchased 20 houses in a 4 month period and wonder what strings their broker pulled for them to get it through the lenders...

    Also while on the topic, what would be the likely penalties involved if you stated you were self employed and the bank somehow discovered that you were a normal employee the whole time (and would they even care at all if you kept your end of the repayments bargain)?
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    Don't forget that these loans are more expensive than regular loans - lower LVRs and higher interest rates. You'd only use them if you couldn't get regular finance.

    If you mislead the bank when applying, they generally have the right to call in the loan immediately (which would be very bad for you) ... but remember, the whole point of lo/no doc loans is that there is little if any documentation required - the lender uses their own criteria (usually value of the asset ??) to determine whether they should lend the money.

    I wouldn't assume that just because you are not self employed that you can't use these products - you wouldn't necessarily be "misleading" the lender - depending on what their requirements are. The key is to meet their requirements and to not lie on the application form ... and the whole point with these products is that you don't have to lie to get the money !!
     
  3. seaview

    seaview Well-Known Member

    Joined:
    8th Jun, 2006
    Posts:
    77
    Location:
    NEWCASTLE
    Hi,
    We have quite a few lo-doc loans and my husband is a salary earner.
    I got an ABN and am self employed as an investor so was able to go guarantor for the loans in my husbands name. This suited the bank as long as someone was self employed. We were also able to truthfully answer the income questions they asked. We ruled out some lo-doc loans as they wanted too much info on our after tax income, and we were not willing to lie. (Not because we were worried about the bank calling in our loans, but because it was against our principles.)
    Although the loans are in husbands name, I used them to buy assets in my name which is quite legal.
    Basically, I think it is a matter of shopping around and finding out exactly what the lender is going to ask you on their application forms about income and if your answers will satisfy them. If not, then try another lender. It is all about being able to jump through whatever hoops they put in front of you whilst still keeping your integrity. eg. some accept 1 day ABNs whilst others want 2 year old ABNs etc.
    Hope this helps
    Seaview