Dodgy operators marketing high-risk mortgages to consumers who cannot afford them have been delivered a blunt warning: shape up or be stamped out.
The mortgage industry's peak professional body has today changed its code of practice to deal with growing evidence of predatory lending practices that target people with little or no capacity to meet repayments.
The clampdown comes at a time of rising mortgage stress, and as the mortgage industry itself is calling for national regulation by the Government.
As part of an ethical revamp, the Mortgage and Finance Association of Australia (MFAA) now requires its 13,000 members to only deal with credit providers that are members of a scheme approved by the corporate regulator, ASIC.
MFAA chief executive Phil Naylor says any MFAA member breaching the code would face serious disciplinary action by the MFAA Tribunal.
"We are determined to rid our industry of unscrupulous operators," he said.
"Brokers and lenders who recommend loans inappropriate for a borrower's needs are a blight on our whole industry."
"We have every intention of coming down on predatory lending like a tonne of bricks. It is bad for our industry and bad for consumers."
Mr Naylor says a feature of predatory lending is for the borrower to be induced into signing a declaration that the loan is for business purposes, taking away the protection to the borrower under the Uniform Consumer Credit Code provisions of ASIC regulation.
He believes the current mortgage stress facing consumers strengthens the case for national regulation of the mortgage industry.
"There's a massive, almost unanswerable case for national regulation of the industry, whether it's done by the states cooperatively or whether the Federal Government takes it over," he said.
The MFAA's move to amend its code of practice has received the qualified support of consumer advocates.
But Consumer Action Law Centre spokesman Gerard Brody is urging the banking industry to follow the MFAA's lead in weeding out predators.
"This should really be a risk management exercise for banks to ensure the brokers they deal with are good industry players and abide by a code of practice," he said. © 2007 Australian Broadcasting Corporation
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