The Australian newspaper (Anthony Klan in particular) has done some great work this year in questioning the commonly held view that Australia’s banking sector is conservative.
In April, The Australian uncovered how Australia’s largest banks are being forced to forgive mortgage debts of borrowers granted loans based on falsified or fraudulent information supplied by mortgage brokers.
In August, The Australian reported on instances where the banks had been enticing elderly Australians into Ponzi-like mortgages that they had no way of repaying, as well as provided detailed coverage on the Senate committee into banking, where evidence of widespread improper lending practices were revealed. The Australian also revealed that lenders had been refusing to provide low-doc borrowers with copies of their applications, while other lenders had told borrowers that such documents had been destroyed.
Following their article yesterday revealing how higher-risk low-doc lending is making a comeback, The Australian today has published another ripper article questioning the RBA’s claim that Australia was not involved in widespread sub-prime lending:
HOME loans classed as “sub-prime” accounted for about one in 10 of the nation’s mortgages when the global financial crisis hit, with those loans now more than six times as likely to be in arrears as normal loans.
The figures reveal that claims Australia was insulated from the worst of the GFC due to vastly superior lending standards, a notion encouraged by many of the biggest banks, are exaggerated.
Following the GFC, the Reserve Bank repeatedly moved to distance Australia’s mortgage market from that of the US, claiming fewer than 1 per cent of loans here were sub-prime, compared with about 14 per cent in the US.
However, that analysis failed to account for high-risk “no-doc” and “low-doc” loans, now officially recognised as “sub-prime” in the US…
According to Reserve Bank figures, low-doc loans represented 7.85 per cent of all bank loans in September 2008, as the GFC took hold. Those figures do not include non-bank lenders, who were proportionally far more active in writing low-doc and no-doc loans, and the loans the RBA had originally identified as sub-prime…
The latest figures from ratings agency Standard & Poors shows 6.07 per cent of low-doc loans are more than 30 days in arrears – almost five times the rate for normal loans – with those arrears rates doubling in the past two years. Low-doc loans are currently more than six times as likely to be 90 days past due, compared with normal loans…
[The figures] …suggest Australia’s mortgage market was far more susceptible to a surge in unemployment or substantial house price corrections than has been generally acknowledged.
Another reason for the surge in low-doc arrears rates – and further evidence of improper lending during the boom years – was the 2010 introduction of the National Consumer Credit Code.
Under that legislation, lenders and mortgage brokers can be held liable for writing improper loans, and many people with questionable low-doc loans written before the new loans are finding they cannot refinance…
Lending expert Martin North, of Digital Financial Analytics, said Australia was lucky the crisis hit when it did. “Had the GFC not hit us, and had the lending market continued to develop as it was for another 12 months, then the major (lenders) would have ventured much further into low-docs and milking riskier lending sectors,” Mr North said. “We got away by accident rather than design.”
Well done to The Australian, and Anthony Klan in particular, for keeping abreast of this issue.