ASIC targets Aussie mortgage fraud

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By Leith van Onselen

Back in March, the Australian Security and Investments Commission (ASIC) revealed that it was investigating 11 lenders for dodgy practices. The following month (in April), ASIC announced further measures to promote responsible lending in the home loan sector, taking particular aim at interest-only mortgages. Then in October, ASIC released its review of interest-only lending, which put both banks and mortgage brokers on notice to tighten up their selling of interest-only loans or risk regulatory intervention.

Today, The Australian reports that ASIC will further target Australian banks and brokers for mortgage fraud:

ASIC is ramping up surveillance of the $1.5 trillion home lending market, with individuals and a “handful” of large and small lenders under investigation for fabrication of documents and inadequate fraud detection systems.

The project, partly funded through the $120 million in extra funding last year from the Turnbull government, will be completed by next September and include a report on the industry’s prac­tices and the level of consumer harm.

The Australian Securities & Investments Commission’s acting chairman, Peter Kell, told The Australian that loan fraud would be a “perennial focus” for the regulator, particularly with lenders and brokers tempted to cut corners and drum up business as the housing market cooled.

“We’re upping the ante with this new project — it’s important to act quickly to send a powerful message,” Mr Kell said.

…individuals and several major banks, second-tier lenders, non-banks and mortgage aggregators are under investigation for similar misconduct in the watchdog’s industry-wide probe. The majority of cases involve small-scale fraud by individuals or brokers who are motivated by commissions to falsify loan documents…

Leading bank analyst Jonathan Mott said the scale of the problem posed a threat to the banking system and the economy.

So, ASIC has effectively confirmed one of the thematics of the recent UBS survey that concluded brokers, in particular, were loose with lending standards:

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One of the key areas of focus of the 2017 UBS Evidence Lab Australian Mortgages survey was to assess the level of factual accuracy in mortgagor’s applications. While there has been anecdotal evidence for many years that customers are not always accurate in their application, we were lacking hard evidence. As a result the UBS Evidence Lab asked participants who had recently taken out a mortgage the degree of factual accuracy in their application.

The results of this survey were disappointing, with only 67% of participants stating their mortgage application was “completely factual and accurate”. This is a statistically significant fall from the results of the 2015 and 2016 Vintages.

This was offset by a statistically significant increase in respondents who stated their application was “mostly factual and accurate” (25% up from 21% in the 2016 Vintage) and “partially factual and accurate” which reached 8% of applications (up from 6% in the 2016 Vintage and 3% in the 2015 Vintage).

We see these results as disturbing and difficult to reject given approximately onethird of participants stated their application was not entirely factual and accurate…

If anything, we believe it is more likely these figures may understate the level of misrepresentation in mortgage applications as some respondents may not want to state they were less than completely accurate despite the anonymity of this survey.

Given the apparent breadth of the problem, as well as other recent instances of banking malfeasance, why not have one broad-ranging Royal Commission (or Commission of Inquiry) to address the sector in its entirety and drain the banking swamp once and for all?

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.