Move over Sleaze Bank. Dodgy home loans hit half-trillion

Via UBS:

A UBS survey of 907 Australians who took a mortgage in the past 12 months found that just 67 per cent said their application was completely factual and accurate versus 72 per cent a year ago.

By channel, the level fell to 61 vs 68 per cent for brokers and to 75 vs 78 per cent for bank branches. For NAB, the level fell to 62 per cent and for ANZ it fell to 55 per cent.

And while APRA has again clamped down on risky lending this year, 46 per cent said it was easier to get a mortgage compared to 17 per cent who said it was harder than previous experiences.

Equally disturbing from a policy standpoint is the fact that Respondents also said there has been no increase in the amount of supporting documentation and verification required.

“Despite recent macroprudential policies, the findings of this survey and the fact that mortgage approvals remain at record levels implies that there is little evidence mortgage underwriting standards have been tightened through the eyes of the consumer,” UBS analyst Jonathan Mott says.

Given the rising level of misstatement over multiple years, he estimates banks now have about $500 billion of factually inaccurate mortgages or “liar loans” on their books. The term was used in the US during the Financial Crisis for mortgages where documentation was not accurate.

“While household debt levels, elevated house prices and subdued income growth are well known, these finding suggest mortgagors are more stretched than the banks believe, implying losses in a downturn could be larger than the banks anticipate,” Mr Mott says. “We are underweight Australian banks and are very cautious the medium term outlook.”

Lol, go you good thing. Just imagine what it’s going to be like when the bubble busts and real lending standards return. From the AFR:

The amount of home loans that have been extended based on “factually inaccurate” information is estimated to have reached $500 billion, according to an updated study by investment bank UBS.

The broker said that its latest survey of over 900 mortgage applications originated over the last 12 months revealed that about one third of home loans contained information that was not accurate, a significant increase compared to around 28 per cent in 2016.

Given the “rising level of misstatement” of many years, UBS said it estimated $500 billion of home loans were “liar loans”, the researchers, Jonathan Mott, Rachel Bentzvelen and George Tharenou wrote.

“While household debt levels, elevated house prices and subdued income growth are well known, these finding suggest mortgagors are more stretched than the banks believe, implying losses in a downturn could be larger than the banks anticipate.

The broker said it was “underweight” Australian banks and cautious of the outlook.

Housing bubbles like that in Australia simply are not possible without rampant fraud.

Comments

  1. fun fact: i actually met matthew lesko once on a subway train in the washington d.c metro area. he was wearing his full question mark suit and everything and was just as wacky in person as he is in his videos.

  2. Real standards returning?!! Like hell they are… US of A took it up the corn-chute in 2008 – and that didn’t stop them.

    They *can’t* stop. If it’s not liar-loans, it’s something else – in a different part of the “economy” … If they stop, they die.

  3. Does UBS reveal whether or not the twenty to thirty percent of respondents who said their loan applications were not accurate then request (or demand) that the lender adhere to a strict accuracy policy.

    Were inannuccaries mortgagee or lender initiated. I think both of these questions are of importance. It brings to mind that lady on the Four Corners property investigation who committed to a large investment mortgage in another State. You can’t stop stupidity but where inaccuracies were lender initiated, you may have claw back. Where both parties were keen, should the loan fail, I say bad luck end of story. That potential bad debt on banks books isn’t pretty.

    Personally I do know people who have “enhanced” mortgage applications desperate to get the loan with “assistance” from mortgage brokers. Anedotally I hear this is not so easy now.

      • Yes Fraser is a blessing in that regard – “maybe at the margins with unconventional lenders, but our pedigree banks are as have very high standards”

      • Ahh yes, the friendly mortgage broker. $3000 up front for selling the average loan and $1000 per year for the life of the loan. I’m sure they have a great deal of confidence in the stability of our system.

    • Were inannuccaries mortgagee or lender initiated. I think both of these questions are of importance.

      They definitely are both important, especially when you consider who has what obligations insofar as ensuring that, as the folks who lend money on an ongoing basis, banks ought to have robust systems in place that allow them to independently verify the financial information given to them by loan applicants and have responsible lending practices.

      Otherwise, we’d end up with the ghastly and unimaginable situation of banks neglecting to undertake basic checks, like seeing if people earn the money they say they do, because it may get in the way of profitability.

      Then again, we do hear story after story about individuals making bucketloads of money by fibbing slightly on their loan applications, which I guess they do after punching an old person but before stealing a child’s ice cream, so ultimately would the responsibility here only reside with the couple saying they earn $15K a year more than they actually do?

      • More likely and much more dangerous is fraudulent understatement of liabilities. Talking a lot if they forgot to include the cars, cards and seeding loan from mum

  4. But we were told for the last 3yrs we have MP
    We were told that the MP meant the RBA could prudently cut interest rates to record lows
    We were lied to

  5. All housing (well most) purchases have ‘cumulative finance’ of 115% ! There is no saving there are no 27 years to accumulate a deposit there is bank of mum and dad who borrow and lend to kids and, speculators who borrow against equity as a deposit on their next domino, I mean property …

    Epic fraud interconnecting all the banks, its a Mexican standoff !

  6. Only 55% of ANZ customers said their mortgage applications were factual and accurate? I mean seriously, WTF?

  7. You can’t have a housing bubble without mortgage fraud. They go hand in hand in every instance. no exception.

  8. Yeah Peachy, reminds me of all the vomit that came out the housing lobby in the States saying; quality of borrowers was not important because the value of security always rises and a house is the last thing people will let go………. wank wank, money in the bank!

  9. proofreadersMEMBER

    “Housing bubbles like that in Australia simply are not possible without rampant fraud.”

    Gold, gold, gold to Straya.

  10. Gotta like the assumption here, the government are going to help bail out a property crash, its just a question of when

    “The big question is whether the government will allow prices and volumes to go down before they start helping,” Triguboff said, adding, “Australians could lose an enormous amount of wealth.” http://www.msn.com/en-au/news/australia/billionaire-developer-harry-triguboff-warns-apartment-downturn-could-destroy-an-enormous-amount-of-wealth/ar-AArEZy5?ocid=ientp

    • Speaking of wealth, the 2-yearly income & wealth distribution comes out of the ABS on Wednesday.

      I’m looking forward to seeing how I’ve slipped back into the pack compared with 2 years ago by not being a multiple property owner, and I’d be really interested to know what the next one in 2 years time is going to look like.

  11. Title of the MSN article should be; ” I, Harry, am not quite rich enough Triguboff, we loose a lot of wealth if the property market corrects and the govnuts don’t bail me out”

  12. the smug ones on here clamouring for a housing collapse neglect to mention that if their wishes were to come to pass, the ones most likely to be left holding the bailout bill is ordinary hardworking and saving taxpayers via the tax system, banking system and superannuation system. This house of cards is too big to fail but not too big to bail…be careful what you wish for.

    • smug? You can’t be serious.
      How about you give us the opposite argument and how propping this up will be a benefit to the “hard working et al”. Make sure you address the 2 hour each way commutes just because that is where you can only afford a house. Make sure you address the always working 24hr hyper vigilant attentive type behaviour that employees have to have now and that which has accompanied elevated house prices because how else are we going to afford it if I lose my job. Make sure you address the the lack of time for intimate family relations like a family dinner, family holiday or genuinely engaged conversation because the “hard working” are commuting all the time. Make sure you address the depression of being in a relationship you’d rather not be in because you can’t afford to leave owing to the price of finding new accommodation. Make sure you address the rising levels of domestic violence directly caused by increasing financial insecurity because of elevated housing prices.
      The only thing that will save this country’s living standard and collective sanity long term is a housing bust as soon as possible.

      • A housing bust of the magnitude you are advocating necessarily entails a banking and financial system bust – along the lines of the US during GFC only bigger as our problems are more entrenched. I’m not saying the policies of low interest rates, never-ending inflation and creation of fiat out of thin air against home equity that is equally as vacuous should be preserved – in fact i’m a hard money advocate – but what you are advocating would be nothing short of a total financial system collapse and reset, the consequences of which would need to be seriously thought through. Alternative is introduction of policies which will induce a slow melt a la Japan style over a number of decades until things get back to some semblance of normality. To those who are already suffering, I can see the appeal of the short sharp crash and reset but this would throw many babies out with the bathwater.

      • A hard and fast reset doesn’t affect most of Australia as the great bulk of the market is sitting on paper profits, said profits that
        weren’t genuinely earned and will not be missed on the downside either. The only people this affects is those who have transacted (remortgaged/new mortgage) in the last 9-10 years (because that will get us back to some semblance of fair value with respect to income and ability to service/repay etc). Bond holders (Bank issued paper) will need to take a mark to market loss as will any unsecured depositors above the deposit guarantee.
        Under no circumstances should there be a direct bailout by the RBA/Government to existing bank legal structures. Sure some zombie bank management may need to take place (akin to Spain’s bad bank or UK’s RBS type set up) but everything should be crossed over market values.
        Like a bad flu, it’s pointless in the immediate and longer terms to take antibiotics, best to bunk down and sweat it out. You’ll be healthier as a result.

      • “be careful what you wish for.”
        No I won’t , they didn’t care for anybody why should I be careful to wish their house of cards come collapsing.
        They didn’t care for the youth, the elderly, the working class, our superannuation, the tax evasions, the money laundering, the corruption within, the unemployed, the underemployed, the future of the nation, the industry, the wellbeing of the economy

        Why should I FU^#%#ING care for what I wish for them ??

        I wish everything comes back to normal? too much to ask for theses days ?

        Take the ugly painful drug now to be healed, instead of wishing that living with the illness makes you better !!

    • We could just nationalise all the banks for $500 billion and lock up all the fraudulent banksters and mortgage brokers. But I suspect we’ll follow the US lead of spending many times that amount to bail the banks and reflate the housing market. Pats all round from govt/banks/reserve bank/regulators. Worthy of a massive pay rise for all the banksters, and cushy banking jobs for the politicians involved.

    • Is this a joke? Australians with property are the smuggest, most self entitled pricks that the world has ever seen.

      Travis is right on the money. Vested interests always cry about the dire consequences when the bubble goes proof, but fail to describe the huge damage that has been going on to individuals, to families and to society since this bubble started about 18 bloody years ago!

      • I’ve got one property. I’d be happy to see it halve in value. I wouldn’t make any difference to me – I’ve still got the same debt to pay off.

  13. Across the ditch, taxpayers are now buying houses for people – National announces election bribe of increased FHB grant. $20k for established homes, $30k for new ones. I wonder if I could submit an application in the name of my cat? Surely we have mortgage fraud here too?

  14. But we can’t stop now, we haven’t reached #1 globally for private debt! We can’t come all this way for Silver, fuck that. Let’s keep booming so the boom gets boomier and booms for eternity and we’re all wealthy thanks to gold in our backyards!

    • @gavin – off topic but you appear to be a man who would know. I need to store some cars for 7-10 months. Have you got a top 5 list of things I need to consider? eg. hand break left off so pads don’t fuse to discs? engine ok to leave that long without turning over?
      thanks in advance

      • Hey Travis,
        Yeah store the car on jack stands so you don’t get flat spots on tyres, probably good idea to remove the battery (so it doesn’t discharge and go flat) store battery off the ground on a wooden bench (concrete will make it go flat) and probably not a bad idea to change oil before putting in storage, depends on where you’re storing it? But if it will be damp and cold might want to do something to prevent mould build up (can get tablet like things that go in the car I think?) but otherwise don’t store under a tarp outdoors as they scratch paint work and water under it (moisture) can do damage to paint. Best to store indoors with no cover or a light sheet like cover (very soft) – hopefully no wind etc..?

        Might be good to have a full tank of fresh fuel in it, fuel does go off over time but 7-10 months shouldn’t be an issue. Full tank prevents rust in tank (but this is more long term storage). Ideal if someone can start the motor once a month or 2? Let it run for about 10-15 miins, take it for a short drive and put it back (but might not be easy to get someone to do that).

        Brakes can seize over time if not used, but again it’s a short amount of time to store and to be honest if it’s in a relatively warm, clean storage place it shouldn’t be a problem.

      • many thanks Gav, definitely a few things I didn’t think about there, so some real food for thought. Top stuff, thanks again
        cheers

  15. Lots of rorting going on. My neighbours recently sold to a family who asked them to stay and rent the place for 3 months. The reason? The buyers were advised by real estate agent they could borrow more as ‘investors’, then change the mortgage terms once the sellers moved out.

  16. So how’s that property crash going? Have you guys all sold your homes yet?

    (I kid, I kid. These are some pretty terrible stats, it’s a wonder our financial system hasn’t collapsed in on itself like the supermassive black hole that it resembles).

  17. I wonder how glen Stephen is enjoying his retirement. He is the architect of all this mess. The biggest do nothing RBA governor we have ever had. Evan had the Gaul to give himself a 35% pay increase.

  18. Am I the only one who feels a tad uncomfortable knowing that I, the tax payer, are the guarantor of all these loans?