ANZ will cut its reliance on the controversial HEM benchmark for mortgage applications

(Cameron Spencer / Getty Images)
  • ANZ is reducing its use of the Household Expenditure Measure (HEM) benchmark in home loan approvals.
  • CEO Shayne Elliott told the financial services royal commission the bank plans to reduce its HEM use to around 30% from over 70%.
  • Elliott confirmed the accuracy of a file note which said he “doesn’t disagree with the weakness in HEM”.

ANZ is cutting back on its use of the Household Expenditure Measure (HEM) benchmark in the approval process for mortgage applications.

CEO Shayne Elliott confirmed the shift in comments made at the banking royal commission today.

Bank regulator APRA first engaged with banks to question their reliance on HEM in October 2016.

And last November, APRA chairman Wayne Byres questioned its accuracy in determining loan applicability.

“We would like to see the industry devote more effort to the collection of realistic living expense estimates from borrowers”, Byres said.

Since then, mortgage approval practices have come under further scrutiny as credit growth to housing investors slowed to an all-time low.

Westpac faced a court battle with ASIC this year over alleged breaches of responsible lending standards stemming from excessive use of the HEM benchmark.

Today at the Royal Commission, the AFR reports that senior counsel assisting Rowena Orr produced a file note which mentioned that Elliott “doesn’t disagree with the weakness in HEM”.

Elliott confirmed the note was a fair reflection of his current views on HEM, adding that “it’s an agreed area for improvement”.

Following APRA’s initial consultation in 2016, ANZ engaged consultants from KPMG to carry out a file review which showed the HEM benchmark was used in 73% of files.

Elliott told the commission that ANZ has since reduced the use of HEM to around the mid-50% range.

He added ANZ is now trialling a new measuring system called Triex which applies a more detailed expense testing procedure.

“If we are successful in the rollout, our usage of HEM should be fundamental to around a third of our applications in total,” Elliott said.

Elliott said ANZ told the corporate regulator that it’s committed to achieving that level by the end of its 2019 financial year, which finishes on September 30.

Ahead of this year’s reporting season, analysts from UBS speculated whether the big banks would try and get ahead of regulators by “abandoning the HEM benchmark and moving to full expense verification”.

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