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Borrowers don’t always conform to expectations

WHILE most people have an abundance of housing loan options, many individuals do not fit the standard criteria of mainstream lenders.

The good news for these individuals is through lenders like Liberty Financial, GE Mortgage Solutions and Bluestone Mortgages.

The Loan Cafe’s Anne-Marie Syme said non-conforming lenders had carved out a significant niche, accounting for up to 5 per cent of all housing loans.

“They suit many people, including those with a broken employment record or a credit default, contract workers, former bankrupts or simply those with no credit history. All of these groups struggle to meet the banks’ lending criteria,” Ms Syme said.

“These new lenders are prepared to look at each person on a case-by-case basis.”

The ‘non-conforming’ market also includes ‘lite-doc’ loans, a niche product available through lenders including Adelaide Bank, ANZ Origin and GE Mortgage Solutions.

‘Lite-doc’ loans are generally for self-employed borrowers who have a sound credit history and substantial equity, but are unable or unwilling to provide current financial records.

They are also non-regulated loans, for business or investment purposes, and outside the scope of the consumer credit code

Ms Syme said non-conforming lenders were more expensive than mainstream lenders, therefore they were usually used as an interim measure rather than as a long-term option.

“In many cases borrowers can establish a repayment record with a non-conforming lender and then refinance at a lower rate,” she said.

GE Mortgage Solutions general manager Ian Hendey said “consumer awareness was still in its infancy in Australia, despite strong growth over the past few years, and the outlook was positive as more consumers began to understand the alternative borrowing market”.

Bluestone managing director Alistair Jeffery said his customers included the self-employed, people with moderate to severe credit-related problems, recent immigrants, borrowers over 55, and contract or seasonal workers.

“Traditional lenders are increasingly relying on computer scoring systems and centralised underwriting to improve efficiency, creating a growing number of deserving borrowers who are automatically disqualified,” he said.

Mr Jeffery said Bluestone’s average loan was for about $200,000, well above the banks’ average housing loan, highlighting that non-conforming lenders were not simply servicing ‘battlers’.

Liberty managing director Sherman Ma said the interest rates on conforming loans were highly varied, depending on each borrower’s circum-stances.

“If you are just outside the banks’ lending criteria you would pay about 7 per cent, but if you are a recently discharged bankrupt, you would pay closer to 12 per cent,” Mr Ma said.

The non-conforming lenders distribute their mortgages through a range of third-party finance brokers and originators. These include Liberty’s alliance with Aussie Home Loans and Bluestone’s alliance with WA Homeloans.

Their funding comes from a variety of sources. Bluestone has arranged a $250 million wholesale funding line through Barclays Bank plc and Nomura International plc.

Liberty raises funds through the securitisation market, issuing AAA-rated mortgage-backed securities to institutional investors.

Mr Ma said Liberty was lending more than $50 million per month, comprising a mix of housing, personal and business finance, and had grown to the point of having 130 staff.

Liberty has been lending for more than five years, making it the veteran of the industry, and Mr Ma said several competitors had come and gone over that time.

He attributed Liberty’s success to its understanding of the Australian market, competitive funding and in-house servicing of loans, which provides added flexibility.

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