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MFAA Prosper : Mortgage and Finance Brief 13
52 Mortgage & Finance brief a: We’ve actually received a number of enquiries from members and others about similar practices. Unfortunately, they seem to be gaining some steam. It’s what we’d like to call ‘valuer shopping’. If the rumours are correct then this is what is happening: • A property developer has a number of ‘units’ (be they detached houses or actual units) to develop and sell. He/she then needs to get them valued at a price that provides a return on his/her capital outlay and allows for a profit. • Unfortunately the market is a little lacklustre at the moment so, just to jig it along a little bit, he/she approaches a broker for help. • Because sales in the area of his/her development have been zero to date, it is very hard to strike a realistic valuation for the properties in the current economic circumstances. So, what to do? • Our developer and his/her new best broker friend decide they could give the market a little bit of a hand to set some ‘realistic’ prices, by getting a valuation from a ‘friendly’ valuer who ‘knows what’s what’ and isn’t shy about arriving at a (higher than might otherwise be set by the market) price that suits the developer – often for a fee. And, in turn, they get other brokers to use the same valuers because they’re interested in helping to settle some loans on the properties. Ask yourself a few questions here. Even without any of the ethical considerations (like, does this scenario comply with the NCCP requirement to put someone into a loan ‘that is not unsuitable’?), what about ‘conflicts of interest’ under the NCCP? And how about fraud – does that come into it here? I have to say the short answer to each is ‘yes’. Without even trying to point out the flaws in their logic, it should be obvious that the developer, the broker and the friendly valuer have committed a fraud on the lender, the lender’s mortgage insurer, the PI insurer and, most importantly, the borrower. If we buy a trinket at a flea market that turns out to be rubbish for $2 we don’t get too upset. But what about when it’s a $600,000 house? Just imagine how the lenders, the insurers, the media and, of course, the regulators are going to view this practice. And don’t mention the wrath of a duped borrower. Don’t get involved. If it seems too good to be true is probably is. knowledge centre coMPlIAnce QuestIons What do i need to do? a: If you use social media you should be aware of the regulatory pitfalls associated with the accelerating use of social media networks in the credit sector. The greater use of tools such as Twitter, LinkedIn and Facebook, as well as being a business opportunity, also poses a compliance threat. Many organisations are still wary of social media, but nonetheless are looking at it as the next big thing to help their businesses survive in the current economic climate. However, credit industry participants (and our members) need to ensure that messages of this are ASIC (and APRA) compliant and carefully read and assess the content. Business owners and compliance professionals need to ask a few questions such as: • Is this message an advertisement? • Could the reader misconstrue my Twitter ramblings as financial advice? • Would the message be understood differently if it were printed in a magazine? • Have I tested my messages on real people? • Does my page/blog suggest a borrower use a particular product and/or lender? • Will the reader be able to differentiate between ‘puffery’ and advice?’ ASIC has said that it will produce a document about advertising to meet the Responsible Lending Guidelines for credit providers and others in the not-too-distant future, but will it cover ‘advertising’ through social media? And what if you link to another party’s website through your social media pages; they may be compliant now but what happens when they change their site? Whatever you do please make sure that you don’t mislead or coerce the reader into doing something he/she wouldn’t have done otherwise. The MFAA encourages its members to take advantage all of the possibilities that social media offers, so long as you don’t get yourself into trouble. Remember, keep your eyes out for ASIC’s advertising guidelines. ••• Q: i’ve recently heard about non-MFaa brokers liaising with property developers and valuers to exaggerate property values for their own benefit. surely this practice can’t be legal? Q:alotofmypeersare embracing social media, such as twitter, Facebook and linkedin. i want to get involved, as i appreciate it can play a significant role in business, but i’m wary from a compliance perspective. What do i need to be aware of? MFaa ExEcutivE DirEctor – GovErnancE anD coMpliancE Calvert duFFy ansWErs your quEstions. Do you have a question you’d like the MFaa to answer? if so, email firstname.lastname@example.org
Mortgage and Finance Brief 12
Mortgage and Finance Brief 14