Inside Australia’s half trillion dollar “liar loan” nuclear time bomb

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    • Some adaptation of Elizabeth Barrett Browning, 1806 – 1861, may help

      How Do I Bullshit Thee? (Sonnet 43)
      How do I bullshit thee? Let me count the ways.
      I bullshit thee to the depth and breadth and height
      My mortgage application can reach, when feeling out of sight
      For the ends of being and ideal grace.
      I bullshit thee to the level of every pay
      Most quiet need, by bank and regulator-light.
      I bullshit thee freely, as is every Australian’s divine right.
      I bullshit thee purely, as I rack up more praise.
      I bullshit thee with the passion put to use
      Eschewing my old beliefs, and with lying my new faith.
      I bullshit thee with a bullshit I seemed to lose
      With my lost saints I bullshit thee with the breath.
      On TV or papers, of bankers and corporates, and every politician we choose,
      I shall but bullshit thee better after death.

    • DiscoFingersMEMBER

      Mentioned this at work and everyone was an apologist – “everyone understates expenses, what’s the big deal?”.

      As the article says,complcency is real.

    • Australia’s banks are ironclad though trollolololol.

      I wonder if any of the betting houses is running wagers on which bank folds first?

  1. Seriously is this AT ALL surprising??
    I don’t know anyone who has applied for a home loan who hasn’t gone through multiple iterations of ‘massaging’ to get the numbers required. And brokers aren’t going to let the facts get in the way of a good commission. Not cheating is simply a lack of ambition.
    And what do we expect when so much money is made on the transaction and so little downside for the quality of the debt. And then there’s mortgage insurance….

      • if anything I’d say study results are likely to be understated…people don’t like to tell the truth about their lies.

      • “people don’t like to tell the truth about their lies.”

        too true. I was once asked by a mortgage broker to sign as a witness on a First Home Owners Grant application form. When I told him that I knew the borrower had no intention of occupying the place, and that his partner also had used the grant on another property, ruling him ineligible, I was met with, “what does it matter? No one is getting harmed?” to which I replied that I can’t put my name to a known case of fraud. The response was, “Don’t say it like that! You make it sound like we’re criminals!”

        I’ve seen bankers, mortgage brokers, accountants, financial planners “massage” all manner of information to get a loan and a property purchased. Imagine how Nathan Birch’s mortgage broking business helps people in Western Sydney? That’s gonna be a big bust when it happens.

    • I had to fiddle it the other way. I put in a genuine estimate of my living costs, and they said it was too low, so I made up something higher.

  2. darklydrawlMEMBER

    “the event that house price inflation stops” THIS! This is exactly the trigger for the whole GFC and US housing meltdown. It will be the cause here too. All those idiots looking for an increase in unemployment are looking the wrong way. They won’t even see what hit them.

      • Stephen Keene will be relieved, proved right after a 10 year wait, his Minski model may be the only correctly operating economic model on the planet.

    • Its like a car driving through a muddy swamp, if it slows it looses traction and gets stuck in the mud.

      Then everyone has to bail out and try to fix the mess, generally involving lots of arguing about who’s fault it was and who needs to do the work to get it out. At the end of it, everyone is covered in crap and no one is happy.

      Just like the housing market.

  3. Why aren’t the ratings agency’s doing their own audit on Australian banks? And then downgrading hard.
    Let’s get this over and done with so my/our kids have a chance when the dust settles.

  4. Did any of these mortgage applicants save 35% (needed to get to an 80% LTV) of the value of the property for which they were intending to purchase?

    And the below excerpt is a cracker. The ‘greater fool’ principle writ large !
    “Interestingly the largest change was a fall in respondents who were not prepared to answer the question.”

  5. I think ASIC tried to tidy this up late last year and settled with the banks on the basis they tighten their lending standards. Only Westpac didn’t settle and ASIC have taken them to the Federal Court. Watching this case will be interesting:
    Basically the case is that Westpac didn’t properly assess borrowers ability to repay, expenses greater than income etc. I think there will be class actions on this down the track when arrears pick up.

    • “for home loans with an interest-only period, Westpac failed to have regard to the higher repayments at the end of the interest-only period when assessing the borrowers’ ability to repay.”

      • Ahhh yeah but you can just roll it over to another bank at the end. You know bounce around on Interest Only periods between banks. 😀

  6. Out on the patio we’d sit,
    And the humidity we’d breathe,
    We’d watch the lightning crack over canefields
    Laugh and think, this is Australia.

    We are a first world nation with honest-than-ever politicians and bureaucrats. Lies and corruption is mostly relegated to China, India and third world countries.

  7. reusachtigeMEMBER

    It’s irrelevant because house prices in Aus always boom so anyone not able to make repayments can just sell for a profit and pay off the loan!

  8. Jake GittesMEMBER

    And with automation mortgage bots which deliver mortgages inside 30 minutes the deceit is assured. But reality may be overrated, or not fully rated, because the entire thing depends on a collective myth and while UBS’s survey is solid and more evidence, until this turns to real shit it will be discounted and ignored.

  9. two plus twoMEMBER

    “In Australia the average life of a mortgage is approximately 4 ½ years.”

    I thought standard duration of new mortgages are 30 years. Is the volume of turnover in buying/selling/refinancing high enough to bring the average down to 4.5 years? If so, wow.

    • I think, average life of a mortgage is 3 years, atleast that was the case until last year.
      In banking, life of a mortgage = refinance-churn.

      • darklydrawlMEMBER

        Exactly. This is why the Aussie economy has been powering along for the past to years. Equity Mate via the “My House as an ATM”. Many folks are topping up their lifestyles with equity (especially as wage growth has been so low).

    • Everyone I know with a mortgage has gone looking for a refinance to get a better interest rate (if not a bigger loan as well) every 3-4 years, so that seems about right.

    • Interest only loans expire after a few years, so there is a huge incentive to refinance before it become principle and interest.

      • I know less than a handful of people in my life who are in their 60’s, have lived in the same property for 20 years and who have paid it out and are ready for retirement. I don’t have enough fingers and toes to count the number of people who have been in a similar situation to the above, yet owe more on their property than ever before but have flash cars, TV’s and other household items. Some have also gone down that path of refinancing for another rental property to play that good old game that runs for so long as the market stays up and people want to rent your place for the price you advertise. I know just as many who are running backwards today having tried to achieve this great property portfolio dream.

        Refinancing your home – has there ever been a bigger way to con more people out of never owning their houses and being loaded up with more needless crap in their lives by taking money out from the gap between valuation (usually inflated) and what they owe. But interest rates have never been lower, its virtually risk free….bah

  10. Denise Brailey will eventually be Australian of the Year. Lying pricks. It all started when mortgage brokers hit the scene en masse circa 2000.

    • Denise readily defends the Brokers and points to the practices within the bank as being fraudulent. Everything else is deflection from the control fraud. If the banks wanted to verify income and expenses they’d only need to compare notes among themselves. The fact that “Mortgage Broking” exists at all is purely due to the control fraud. Case law establishes that Brokers are the Agent of the BANK.

      • Mining BoganMEMBER

        My brother the mortgage broker agrees with this. He’d often tell hopeful future slaves that he didn’t think they would qualify for a loan but he’d pass it on if they insisted.

        They always qualified. Every time. Brother did quite well out of it. Which bank? …

  11. Partners sister is working as a Mortgage Broker and she helped us get our loan approved. We were very honest with expenses, amount of deposit, etc… We were approved for $800k loan no problem. I never had to do an interview with a bank, just sign paper work and I could have told fibs etc.. my partner has some hecs debt and a small credit card loan, which they did know about.

    But I was shocked how easy it was really, I mean on paper I’m probably a low risk applicant, only thing that held me back was myself and not wanting to borrow a metric shit tonne.

    I recall back in 2001 applying for a mobile phone contract – I was working a casual job at a call center (as a student) and they knocked me back for credit check, I couldn’t believe it and that was only for a couple hundred phone contract… Borrow 800k no problems, take out a phone contract and they deny you. haha.

    I’ve only borrowed $5k from a bank before back in 2005. But even that involved going in to the bank and talking to a loan manager and he asked what the loan was for and I said to help my partner buy a car etc.. I remember the absolute joy of having paid it off.

    Getting a home loan must be the easiest money to acquire in my limited experience. Does that not tell you anything?

    • I recently sold my main residence in Sydney and am now renting in the inner west. I was staggered the amount of documentation I had to produce to be able to rent a property. Even after showing I had outright owned the house I had just sold . More documentation than I have had to produce for loans for investment properties in the past.

      800K mortgage though?. You can have it. I have warned my children off purchasing in Sydney (or Melbourne) for the next 12-18 months.

      • Had a similar experience recently. Had to provide SIX payslips to the RE as proof of income. Hard to see how the level of fraud can be anything like as high as UBS indicates unless banks have pretty much given up on verification entirely.

      • Yeah 800k was nuts, I got re-approved for it just in case. But I hadn’t intended to go that high. I really didn’t want to borrow over 500k but the place I wanted sold for 1.175M. Kind of glad I missed out now.

  12. Accuracy levels lower in the 600k and above price brackets. So the biggest debts are more likely to sit with people who had to lie on their applications….

    Why are banks not soiling themselves over these figures?Is it because they’ve already securatised the mortgages and passed the risk off to someone else?

  13. just wait till GMA burns thru their capital on WA delinquent mortgages, then the banks will have to take a provision on the debt they previously thought was “insured”….

  14. Well, if the level of deceit is really that high and I have no doubt that it is, then the ‘formal’ application process with credit scores and income v expense to determine ‘ability’ to repay is just for the regulators to make it ‘look’ above board.

    How quaint really, to think it was all based on merit and careful selection, when all that is involved is a lender taking the cap off the Mont Blanc and providing what both sides of the contract (desperately) need.

    • I can promise you that credit scores are total nonsense and bear no correlation to a debtor’s ability to pay. Those credit bureaus get by on the fact that most people pay their debts when times are good, and anyone who doesn’t is a statistical outlier. When it all goes wrong they’ll use the “hoocoodanode” get-out clause, and explain it away with “external forces”, then lay low until the dust settles.

  15. TailorTrashMEMBER

    ” However, in the event that house price inflation stops we believe the problems arising from inaccurate mortgage applications come to the fore.”
    ………..should that not be WHEN House price inflation stops ?……………or can it keep going in perpetual motion ?…….
    Surely we are now past the point where this can be saved …… pump that debt …take that bonus …and hope you can get out before it explodes ….

    • Lower interest rates, negative rates, policy manipulation, UBI, debt jubilee etc etc

      No reason why it can’t grow infinitely

    • darklydrawlMEMBER

      Yes – having the skill and knowledge to leave the party 5 minutes before someone starts throwing up in the punch bowl cannot be overstated here. Those who time it right (through skill or luck) will rest easy, the rest of them will be cleaning up the filth with a nasty hangover.

  16. Useless without knowing by how much they misrepresented their situation

    $500 billion is just sensationalism as that is the total value
    Maybe people only fudged it 1-2% which won’t make a Lick of difference particularly given the servicing costs have only fallen during this period (while wages continue to rise)

    • darklydrawlMEMBER

      “while wages continue to rise”… Heh – I don’t think so. That is not what the data says. More like folks are refinancing their equity to maintain their lifestyle and nice luxury cars by plugging the hole in their household budgets due to stagnant wages.

      • Inner West Sydney, buy a house get a free SUV… I see it everywhere! Nobody drives old bangers anymore because it wouldn’t look good for their lifestyle of the rich and famous look they are all going for.

    • Rental returns also play a role. A work colleague owns two properties in Perth and his combined rental returns have dropped from $1000 per week to $500. I’m sure a 25k annual shortfall far outweighs interest rate falls and rising wages.

      • Your colleague is doing it all wrong, please advise him to get a property mentor.

        Most astute landlords usually and always raise the rents, atleast thats the advice they give:
        1. will remove negative gearing – we will increase rents
        2. will reduce deductions – we will increase rents
        3. interest rates will rise – we will increase rents
        4. council rates will rise – we will increase rents
        5. rental is empty – we will increase rents
        6. house not selling on market – we will increase rent
        7. employment increasing – we will increase rent
        8. employment decreasing – we will increase rent
        9. inflation high/low – we will increase rent

      • So I wonder, now that CBA is cutting interest rates I would assume that this party can go on for a long

    • two plus twoMEMBER

      They did analyse by what amount people misrepresented their situation. Refer to figure 14.

      “We found the median response to our questioning around the extent of over or under-representation on mortgage applications was in the range of 10-12%.

      However, there was a wider range of responses for both the level of underrepresentation of other loans or commitments and under-representation of living expenses with some respondents stating they under-stated on their mortgage application by around 30%.”

  17. There is a simple solution to the problem and it doesn’t involve APRA.

    Just declare publicly there will be ZERO support from the tax-payer if the banks fail. Given that bank Execs have a huge amount of wealth tied up in stock options that might just get them focussed on the right things.

    State support for the financial system (moral hazard) is 100% to blame for the reckless behaviour of these clowns. Macro prudential is a crock of shit, plain and simple. Let the market sort this out and get the tax-payer out of harms’s way right now.

  18. Reading comments on FB regarding this did nothing but amaze me… Almost all the comments were of people blaming the banks for lending money and not doing their due diligence! Calls for the banks to be held responsible when SHTF. Nobody talking about the fact that they lied and therefore committed fraud to get the loan in the first place… lol

  19. Mining BoganMEMBER

    All the talking heads I heard today said it doesn’t matter because they’re only little white lies that don’t really affect much and that banks are probably cracking buys.

    Little white lies. I’ll just leave those words there. Here’s some others. Living on air. Equity for appearances. Fraudulent behavior. Corruption. Bankruptcy. And like the old KTel ads, there’s many more…