Remember this:
Now try this from Domainfax:
A hedge-fund manager and an economist pose as a gay couple on a combined income of $125,000 and tour Sydney’s western suburbs viewing housing developments and meeting mortgage brokers for research to determine if there’s a housing bubble.
The conclusion is it’s worse than they thought.
“The further west I went, the more irrational it felt. Lots and lots of supply and prices that bore no resemblance to construction cost and income of people around there,” says John Hempton, Bronte Capital’s chief investment officer.
What they discovered repeatedly was that mortgage brokers were advising them to lie on loan application documents about the deposit for a house and about income.
As Tepper has written in a report, “we asked if the bank would call our employer, and both reputable and disreputable brokers said banks rarely verified payslips”.
Hempton says they were also told the checking of documents was sometimes done by Indian call centres. What also concerned Hempton was that on loan applications low-income earners were often offered discounts on the advertised mortgage rate of up to a 1 percentage point, increasing the vulnerability of the banks if there were a correction.
“The banks have always said their underwriting is of high quality,” says Hempton. “We just went around and this was not the story we were told. We were coached on how to get things through banks.”
The first chart is never possible without the second story. If you believe otherwise then apply for a job at APRA and RBA.
