Low-doc loan danger

Low-doc loans are falling by the wayside, with lenders questioning the ongoing viability of their products, says financial products ratings firm Cannex.

Low-doc loans are falling by the wayside, with lenders questioning the ongoing viability of their products, says financial products ratings firm Cannex. The low-doc home loan star ratings report out today, shows 27 low-doc loans are no longer available, and some lenders have dropped out of the market in the last six months.

It is not only the wholesale funding difficulties that are threatening the viability of the market, but also the delinquency rates among borrowers.

Cannex says if interest rates and the cost of funding remain high, there will be further repercussions. “Interest rates on some low-doc loans will increase faster than those on standard loans,” warns financial analyst Joshua Zenas.

In January there were 180 loans from 46 lenders. This has shrunk to 153 low-doc loans from 38 lenders.

Lenders that have exited the low-doc market include Bluestone, Ironbark Mortgage Solutions, Virgin Money and big banks like HSBC and Macquarie.

The good news? Low-doc products make up 1% of outstanding loans in Australia last year, well below the US’s 13% sub-prime loans.

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