Lenders say no on dodgy docs

From Banking Day:

Lenders are refusing to give borrowers copies of the loan application documents, according to a report in The Australian.

It said Bendigo and Adelaide Bank has told borrowers they are not entitled to copies of their applications, while other lenders have told borrowers that such documents have been destroyed.

In many cases, the borrowers affected took out low-doc loans.

The issue is related to a campaign by a consumer group, Banking and Finance Consumers Support Association, claiming that lenders falsified loan documents to provide inappropriately large loans to certain borrowers.

A BFCSA representative gave evidence to the Senate Standing Committee on Economics banking inquiry this week.

Houses and Holes
Latest posts by Houses and Holes (see all)

Comments

  1. It is interesting that News Ltd is taking the lead in reporting the sub-prime story, while Fairfax seems to have a total news brownout* in place, especially on the proceedings of the Senate hearing into banking.

    (The exception being Michael West, who covered it a few weeks ago)

  2. Application forms destroyed during the life of the loan?

    Sounds like a Document Retention policy that would do the tobacco industry proud.

    • ….so if there’s no documentation, there’s no loan? I’d suggest any mortgage holders that can’t see proof of their obligation, in writing, stops meeting it….. After all, isn’t that what a court would ask to see if push comes to shove…

        • Yes, banks will probably be forced to release the applications only after some court action.

          It seems law firm Slater & Gordon in conjunction with litigation funder IMF Australia is currently conducting due diligence to a potential class action for aggrieved borrowers/mortgagors against BankWest and the Commonwealth Bank.

      • I believe the mortgage brokers retain all the supporting documentation, and the lenders only hold the final application/contract? I can’t remember exactly, but I think that was the case.
        Could get messy……..

      • This is no garden variety consumer advocacy group, its being run by Denise Brailey a very determined operator who has so much ammunition on the low doc loans scandal that this situation could develop into a real issue for Mega Bank.

        She has whipped up a whole lot of support and her tenacity in bringing this to a Senate Committee hearing is only the start of a very real issue for the Banks.

        I researched her blog and if you have the time read her daily blogs about the situation she has uncovered lending practices which beggar belief.

        Read the blogs and form your own opinions.

        http://www.bfcsa.com.au/index.php/easyblog/blogger/listings/deniseb

        • Thanks. I will have a read.

          But my point remains that regulators will do nothing to help her. In fact, they will do everything in their power to suppress information. So she needs all the help she can get from ordinary citizens.

          • It is pathetic that a private “Consumer Advocate” has to fight this battle while ASIC is complicit by doing nothing. But the The High Court did back her up as did the good Samaritan who put up the $3M to cover legal costs to hold off 7 years worth on First Mac appeals!

            Glenn Stevens said it has taken a while for the Sub-Prime wave to hit Australia so maybe that was proof we’re ‘different’? It was simply on Appeal waiting for a precedent to be set!

            The Banks are now destroying evidence???…. heads are going to roll on this one!

  3. I’m a bit confused about this. Surely the borrowers must have a copy from when they actually signed the application?

    So is it alleged that they signed a blank application that was filled out after submission?

    Or that the completed application was later modified? Or is there something that I’m missing?

      • I don’t think that quite answers my question. The closest I can find is:

        “Because banks require evidence of a borrower’s ability to repay loans, information such as income levels have in many cases been falsely inflated by brokers before being submitted to banks.”

        So my question still remains – did they sign a blank application or was the completed application modified after submission?

        • Sorry, I stand corrected.

          “Banking and Finance Consumer Support Association president Denise Brailey said that in the past six weeks she had seen low-document or no-document loan applications from 400 people, and each one had been tampered with after being signed.”

  4. Cognitive Dissonance

    I was once involved in a job where a bank leased a office / warehouse in Sydney, the office part had a few desks for I guess the administrative work and a big warehouse out the back.
    What was the warehouse going to be filled with, mortgage documents, wall to wall mortgage documents.

    I am sure existing laws require these documents to be kept and access to be allowed to the parties involved in each instance. If the newspaper report is true a court order will clear the way from the mumbo jumbo desk staff are told to repeat. The problem is who is going to go to the expense at the present time only a handful of people of modest means seem to be interested.

    • Yes, this is the problem, here in Australia the justice system is only for the richest. It is obviously made to serve only the people who have much spare money to undertake those types of court suits, but who don’t have any interest to change or improve a corrupted system. It is shame for any democracy.

      • Lori

        I am staggered with the in roads a single person with vigour and commitment can make, check out my post on Denise Brailey above and study the case that she has built against low doc and poor lending practices.

        It’s only a matter of time until her efforts gather the interest of the litigators.

  5. The Lost Bank is a good read for those interested in an illustration of how this movie ends. Now that prices are falling, people trapped in loans they never had a hope of servicing are going to get foreclosed on. What made sense for the banks in a rising market (take the fees and the bonuses up front and then force the borrower to sell into a rising market when they default) comes back to bite them in a market like this. The borrower won’t sell because the proceeds of sale won’t cover the outstanding balance of the loan. The banks will try to foreclose but that will necessitate them providing the docs, which they don’t want to do because they’re defective. Result: property prices down, bank balance sheets down, “unprecedented”, “nobody could have foreseen” yadda, yadda, yadda.

  6. In the section of the financial sector where I work records must be maintained for 7 years.

    I would think that banks are subject to the same requirements.

    That said, i held the copy of a document where the income etc was correct (ie the original) nd the bank couldn’t produce their copy, but said they based it on a different amount, they would then have the burden of proof.
    As a complaints officer a few years ago I had some very bad moments when the company i worked for didn’t have a copy of the letter sent to an individual with incorrect information( more than 7 years prior) because at that point if she had had a copy we would have had to honor it. Hard coding data that is variable in a letter is never a good idea.
    I don’t buy that there is a huuuuge conspiracy. I see it more as a series of decisions that are made because it is easier/faster or simply protects an outdated business model, where the people making the decision don’t bother to get external review.

    • “In the section of the financial sector where I work records must be maintained for 7 years.”

      Same. And all paper documents must be digitised and stored on read-only media so they can’t be altered or deleted.

    • It’s not a conspiracy, I agree. It’s a case of the system of incentives being poorly designed. Mortgage pushers get paid handsomely to originate. Salesmen will ALWAYS try to circumvent pesky controls. It’s what makes them tick. Those who are paid to enforce the controls are typically low status/seniority/ability party-poopers who get pushed aside by persuasive operatives who are making lots of money and thus have higher status and power within the organisation. In a rising market, everybody (that matters – ie. senior management and shareholders) wins. Profits are up. Would-be defaulting borrowers quietly decide to sell and the mess cleans itself up. In a market like we have now, that can’t happen and all the sh*t rises. Like I said above “The Lost Bank” (about the demise of WaMu) is a really good illustration of how this can happen when essentially good people respond naturally to incentive systems that are in practice a time bomb.

    • Last seen near OfficeWorks in Brisbane CBD. 🙂

      Seriously, I think PF has been banned.
      TP: I contacted Peter, we had a chat. He’s not banned – he’s free to post here, but not whilst he posts at APF.