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Read the story below about mortgage brokers advising clients to lie about their incomes in order to get “dodgy” loan applications approved by banks.
Banking industry defends home loan standards
by Clancy Yeates
The banking industry has hit back at claims of sloppy home lending practices and mortgage brokers encouraging borrowers to commit fraud, pointing to multiple checks that lenders carry out on broker-sourced loans.
Responding to alarming claims of poor underwriting standards from economist Jonathan Tepper, of contrarian research house Variant Perception, banks on Wednesday argued loan applications, especially those from brokers, were tested rigorously.
Banks insist all mortgage applications are tested rigorously.
Mr Tepper recently conducted a shadow-shopping real estate tour of Western Sydney with John Hempton of Bronte Capital. His report says they found mortgage brokers advising clients to lie about their incomes in order to get “dodgy” loan applications approved by banks.
The report, which predicts a 50 per cent collapse in big city house prices, also raised concerns that banks do not routinely verify payslips of potential borrowers with employers.
National Australia Bank said it continually reviewed its risk settings.
Banks said it was true that not every payslip was verified with employers. However, banks said they took other steps to check customers’ income, such as looking into their bank accounts for deposits, or making inquiries with employers where an application looked suspicious.
It would be impractical and cause significant delays for customers to double check every payslip provided by a customer, banks said.
Westpac, the country’s second biggest mortgage lender, said there was a “rigorous” process for validating documents before it decided to give someone a loan.
“Whilst in the majority of cases this doesn’t include calling the employer, we have processes to check documents, including payslips. The checks on those documents represent a prudent approach,” it said.
APRA chairman Wayne Byres.
ANZ Bank said all loan applications from mortgage brokers were verified by the bank, which included double-checking the calculations brokers make on whether a customers would be able to service a loan.
“ANZ validates income documents provided by brokers and doesn’t rely on broker verification,” ANZ said.
National Australia Bank said it continually reviewed its risk settings, and took responsible lending standards “very seriously”.
“Home loan applications made through NAB’s branches, digital channels or mortgage broker network are considered on a case by case basis taking account of individual circumstances,” NAB said.
The Commonwealth Bank, Australia’s largest mortgage lender, said: “we constantly review and monitor our loan portfolio to ensure we are maintaining our prudent lending standards and meeting our customers’ financial needs. Commonwealth Bank conducts its own independent verification of all broker home loan applications.”
Mr Tepper’s anecdotes of risky lending come after top regulators have repeatedly warned banks about poor lending standards in the $1.3 trillion mortgage market, prompting banks to last year tighten credit availability to housing investors especially.
Australian Prudential Regulation Authority chairman Wayne Byres in October said some credit standards from before it stepped up scrutiny had fallen to “horribly low levels” that lacked “common sense,” and APRA would have liked to uncover the poor lending standards earlier than it did.
The chief executive of the Australian Bankers’ Association, Steven Munchenberg, said banks had been under “intense” scrutiny from the Australian Securities and Investments Commission and APRA.
Mr Muncheberg argued for banks to check the veracity of every payslip provided by borrowers, customers would be waiting “quite some time” for loans to be approved.
“It seems fanciful that people are going to the trouble of falsifying payslips,” he said. “The system does undoubtedly to a degree rely on customers being honest about their information.”
Big bank shares fell between 2.8 per cent and 3.9 per cent on Wednesday, a slump that some in the market blamed on Variant’s report. END