Remember Kate Moloney? She was the 2012 Property Investor of the year at the age of 24 who now owes $5.8 million on property worth $2.3 million, and is facing financial ruin.
Last night, Ms Moloney was featured on a special 60 Minutes Investigation, whereby evidence of predatory lending lending across remote regions. According to News.com.au, which wrote a summary of the report:
The 24-year-old, who was an ordinary income earner, was loaned $6.5 million by a bank and encouraged to invest in a “highly volatile” market in the little mining town of Moranbah in Queensland — she bought 10 properties.
She has now obtained documents from the bank that loaned her the money, which show they knew there was a medium to high risk of the values collapsing and her homes being left abandoned by potential renters.
Reporter Ross Coulthart said he thought the case was an isolated incident, until he delved deeper and discovered this was what banks were doing in remote communities in Queensland, Western Australia and the Northern Territory.
“It raises a question mark about the rationality of lending practises and why thousands of investors are looking at bankruptcy because they can’t get tenants into their investment apartments or residential homes,” Mr Coulthart told news.com.au.
“The investors bought their properties during a peak in the market, some were $600,000 or $700,000 for ordinary buildings, but now some are worth just $100,000”…
The 24-year-old featured in the 60 Minutes report doesn’t entirely blame the bank for the millions she borrowed, admitting to being greedy…
“To some degree that’s true, but they should have a duty of care to make sure people have the capacity to repay.”
The documents the 24-year-old got her hands on in relation to her loan show the bank knew her investment was risky.
“So it doesn’t make a great deal of sense why the bank loaned this money,” Mr Coulthart said.
The 60 Minutes report reveals people are borrowing 95 or sometimes 100 per cent of the cost of their investments.
A lack of tenants and a struggle with repayments mean it’s resulting in multi-million dollar white elephants in Australia’s mining towns.
The CBA has responded to the 60 Minutes investigation with the following statement:
We recognise that among the millions of customers who take loans with us there can be instances where they fall into difficult financial circumstances that neither we nor them could be expected to foresee. When this happens, it is very upsetting and stressful which is why we always encourage customers to speak with us early and to access our comprehensive arrangements for hardship.
In both cases referenced, we have kept the lines of communication open and in the case of the Moloneys we have been in discussions since late 2014. Both the Moloneys and the James’ have had the opportunity to take their concerns for independent review by the Financial Ombudsman Service whose findings have confirmed our lending practices were appropriate.
This week we have been in touch with both the Moloneys and the James’ to organise a meeting with a specialist from our Customer Assist team. We are committed to better understanding their full circumstances, particularly where we may not be their main banking partner. As part of our discussions we are seeking to explore all options including how we can help them stay in the home in which they live as we work through their particular circumstances.
As Australia transitions from the mining boom, we know there are towns that are experiencing worsening economic conditions however, the vast majority of our customers continue to meet their home loan repayments.
And here’s the response from NAB:
“NAB is absolutely committed to lending responsibly and sustainably to our customers. Due to privacy reasons, we cannot comment on individual customers.
Lending applications are considered on a case by case basis, taking account of individual circumstances. We continually review our risk settings, considering a range of economic factors to get the balance right and manage the risk for our customers and our business.
Valuations in mining and related towns have fallen significantly in recent years from the peaks of 2011-13 as the economy has transitioned, leading to reduced demand for housing and lower rents in these areas. This has in turn impacted residents, investors and communities.
Our NAB Assist teams of specialist bankers have been travelling to many of these areas, talking to local residents, businesses and our customers to gain a first-hand appreciation of the situation.
We are committed to supporting our customers, with our NAB Assist team specially trained to understand their situation and assist based on how we can get the best outcome for them.”
Let’s hope a thorough investigation into the lending standards of the banks arises from this report.
