Westpac’s changes to home loan underwriting has disrupted its growth and led to ongoing problems with mortgage lending.
The implementation of a new expenditure verification tool has significantly affected lending volumes due to being “clunky”.
As a result, the bank’s Australian housing loans increased by 1 per cent to $4.5 billion compared to 17.6 billion the previous year.
Speaking at the full-year results, Brian Hartzer, chief executive of Westpac says: “The way they rolled HEM out made it harder for customers and brokers to do business so applications went elsewhere.”
Last year, in response to criticism by the Hayne royal commission, Westpac and the other banks reduced their reliance on HEM as it did not constitute verification of a borrower’s expenditure.
The bank expanded the number of expense categories in its home loan application from six to 13 and made some categories mandatory.
Any category given a value of zero must be accompanied by an explanation and a separate set of expense categories termed commitments (fixed outgoings) is also collected.
Westpac reworked these measures and implemented them again some weeks ago. Despite this, growth is not expected to pick up for at least a year due to the ‘lag affect’ between applications and settlements.
Hartzer says: “The tool put out for brokers around how to collect data was clunky but we have reworked that and we are seeing applications rise.”
Westpac expects average lending to be relatively flat over 2020 financial year as a likely decline in mortgage balances in the first half of the year will offset by expected growth in second half of 2020.
According to the Reserve Bank of Australia, annual mortgage growth has been 3.1 per cent over the last 12 months.
Owner occupied balances grew 3 per cent, while investor property lending fell 1 per cent.
In the September quarter, runoff of $16.4 billion exceeded new flows of $13.6 billion. Hartzer expects system growth to be around 3 per cent by the end of 2020.
Peter King, Westpac’s chief financial officer says: “We have implemented mortgage improvement processes in the last few weeks but it will take some time to improve new flows.”
In addition, the bank announced its plans to digitise the home loan origination experience for both bankers and customers through the Customer Service Hub by 2020.
The capabilities of the hub aim to deliver a 25 per cent reduction in the cost of mortgage
origination, a lower cost of change, a 25 per cent reduction in banker processing time and a 50 per cent reduction in customer documents.
Hartzer says: “It gives us the tools to materially improve the way we interact with customers across channels, products and businesses and the first wave will be live for Westpac mortgages by the end of the year.”