"We don't know which other accounts they have. Most applicants for a home loan with us are not ANZ customers."
But he conceded it was even used for a large number of ANZ's own customers.
Elliott said ANZ was currently developing internal software that would allow the bank to analyse its customers' actual expenditure by identifying which payments are "rent, utility bills, discretionary" out of their account.
He stressed there would always be a place for the tool.
"There is some finesse in the use of HEM," he said. "I believe even if our system operates at the level we expect, there will still be cases that default to HEM. If we are successful in the rollout of our system, our usage of HEM should fall to around one-third of applications in total."
The total average use of the HEM at ANZ was "now in the mid-50s and continues to trend down", he said, while in the branch channel it was even lower "in the mid-40s". Prior to the policy change, he said the branch channel "actually had slightly higher dependence" on HEM than brokers.
"That is counterintuitive," he said.
"I think there is a rational answer. Applicants that come to us through a branch typically look different than a broker, there is a skew towards what we would call a top-up mortgage — mostly those are for renovation purposes.
"In that case, given the strength of the relationship with the bank manager, (they) have been more likely to historically shortcut the process. The latest data (shows) the branch network is now lower in terms of its usage of the HEM than the broker network."
Elliott said ANZ had updated its internal home loan guide with new processes managers "have to work through". He attributed the drop in HEM usage to "just greater care to be perfectly honest".
"We are more diligent, we've talked to our front line, reinforced the need for people to ask more questions," he said.
ANZ has also updated its home lenders guide it requires its brokers to use. "At the end of the day when a broker submits an application we still have control," Elliott said.
"We are much more likely to send it back. Their numbers are coming down rapidly as well."
Elliott said the HEM was useful "as a test".
"We know that people have difficulty recalling their expenditure, I'm not sure I buy the argument people are deliberately misleading," he said.
"Most people know what they earn and what's left in the bank at the end of the month. Where they struggle is to determine categories of expense, particularly if you're asking them to recall over a year.
"So we ask questions. I think it's fair to say in the past we haven't asked enough questions, but ultimately we use it as a benchmark, just as a test, a rule of thumb. 'Does this sound right for a person in this family situation with this income?'"
Elliott continued his appearance from Wednesday, when he said the bank was setting limits on problem gamblers who use credit cards in gaming venues in the same way bars can stop serving drunk patrons.
He said the bank had changed the terms and conditions for credit cards to create "speed bumps". "People can buy alcohol but at some point, not if they're intoxicated," he said.
"We tried to apply those principles here to provide some level of protection to customers so they would not get themselves in harm's way by using our products perhaps irresponsibly."
Later on Wednesday he said ANZ was thinking about cutting back on the use of staff bonuses to rebalance the remuneration mix more towards fixed pay.
"It is an unapproved plan," Elliott said. "This program of work, as you may imagine, is a significant piece of work."
Bendigo and Adelaide Bank chairman Robert Johanson appeared after Elliott, with the final witness to be APRA chairman Wayne Byres.
