ABC 7.30 Report does ‘liar loans’ and the interest-only time bomb

ABC’s 7.30 Report last night tackled irresponsible lending by the banks, which is expected to be under the spotlight of the Banking Royal Commission today.

The segment features a middle-aged nurse, Linda Schmidt, who borrowed millions of dollars interest-only to purchase investment properties around Perth and is now facing financial ruin.

The segment also features Digital Finance Analytics’ Martin North, who discusses the interest-only reset time bomb (chart below). North expects a 10% to 15% drop in property prices over coming years as a result of some $150 billion in interest-only mortgages having to reset to a higher interest rate, causing forced sales.

North says the situation facing Australia is similar to the US sub-prime reset experience:

Pass the popcorn!


  1. proofreadersMEMBER

    “Pass the popcorn!”

    And check that bulk supplies are in stock, as demand is about to get as huge as reusa. Order more also, which will probably have to come from overseas?

    • A fall of 10%-15% is nothing to eat popcorn about. Back to 2016 prices.

      2016 prices.

      Check the 2016-vintage posts on this site – you will be reminded that in 2016 housing was already grotesquely unaffordable.

      • astrolinMEMBER

        True but this issue is one factor, there may well be other downward pressures looming

      • Once prices fall over 8% yoy there will be lot of people that will be under water as they can’t flip houses anymore. 15% drops will cause panic and lot of people will be heading for the exit doors. By then RBA would have spent the 2 cuts left. And this without external shock – scary.

      • I agree. I demand at least a 60% or higher drop. Shan’t deposit requirements be significantly higher even with a 10% drop? I trust the government will come to the rescue with some creative solutions. Shared equity investment, you buy an investment property and you get a zero interest government loan of 20%.

    • Careful what you wish for. If housing drops 40% or more the banks may be at risk. And if its really severe ( external shock to economy), forget about for ADI 250K bank guarantee. APRA’s prime mandate will be financial system stability.

  2. “who borrowed millions of dollars interest-only to purchase investment properties around Perth and is now facing financial ruin”

    It’s about time that financial ruin got experienced by someone who isn’t (1) young (2) a saver.

    Cry me a river.

    • She deserves all she gets. If prices went to the moon she wouldn’t be complaining would she? It it typical BS from property investors, they are happy to bask in the upside and call for government guarantees on the downside.

    • Kormanator_T800

      Yeah, I have no sympathy for some big fat property speculator in Perth with 11 investment properties. She took out loans with almost every bank I’ve heard of (PN bank, CBA, WestPac, NAB, Ubank, MeBank…) to hide her other investments. She was upset that the banks actually wanted her to service her debt.

      The big issue for me was how sympathetic people were to her. She went into the casino, put everything on black and lost. Tough!

      I expect more calls for savers to bail in to help people like this fat fool.

      • TheRedEconomistMEMBER

        Yep no sympathy here…

        These were the types of people who I had to compete against at open homes regularly when looking for a home.

        Not understanding the risk associated with taking out interest only loans is laughable.

        Considering the state of her desk and paperwork everywhere… this “investor” could not organise a chook raffle.. let alone run the numbers on up to 10 properties.

      • No sympathy here. She wanted “passive income” for her retirement. No sympathy for those that want to get rich in their sleep by speculating. Everyone wants sit down money including speculators.

    • Privatize the profits. Socialize the losses. What a sick subculture this is. The investors and banks should get their faces ripped off. Whoever wrote fraudulent loans should be in prison.

  3. Guys, this is nothing
    I just cant find the link. SOMPSL posted it, but the High Court has ruled that whatever the punter signs, stands!
    Many many punters are going to go to the wall,
    And this needs to be sorted, publicly:
    ABC business journalist Elysse Morgan revealed that her loan documents had been tampered with, telling Four Corners that she got them back from the bank to find that her income had been “massively inflated”.
    “There was a line that says ‘your monthly income’, and for my husband it was correct, but for me it was inflated by around 38 per cent,” Ms Morgan said.
    She said she had never found out who changed the figures on her loan application, and declined to name the bank when contacted by
    It may sound extraordinary, but Ms Morgan is not alone. Hundreds of mum-and-dad borrowers have contacted the Banking and Finance Consumers Support Association with claims that lenders have forged their signatures on loan documents, with details of their personal income and assets bumped up by hundreds of thousands of dollars.

    • “Liar loans” 1/3 of people admitting they had not been accurate about their financial position when applying for a mortgage. UBS that equates one third – or $500 billion – of Australia’s $1.5 trillion residential mortgage book.

  4. haroldusMEMBER

    Also, I don’t think my heart can handle Martin North. Especially it looks like he’s dressed up for the interview and briefly changed the beige shirt.

    • Whatcha talking bout’ Willis? Martin North is a national treasure. Dry as paper towels, but impartial, succinct and to the point. I’ve been watching all his YouTube goodness. If there was a 10 point scale for property related investment advice. 1 would be Jessica Irvine and 10 would be Martin North.

      • ceteris paribusMEMBER

        You got it in one Gavin. North ultra-restrained style and presentation yells charisma against the backdrop of all the suits and babble of the finance and property sector. His contrast, in conjunction of course with his evidenced-based message, make him compelling viewing. One strains to capture every morsel of his quiet prophesy.

      • billygoatMEMBER

        Maybe Elissa and her bank are complicit.
        She’ll be right mate.
        I sort your income after you leave the office.
        I call BS that a third of people unknowingly had their income inflated.
        They’re buying/ renting $ from the bank.
        Buyer beware.
        Anyone with half a brain or an ounce of integrity can do the math to know they can’t service a loan etc etc.
        Cry me an efffffing river!

      • No, not Elysse, she’s a class act and way too smart for that. The potential for serious fraud here is if she or other borrowers had their docs changed behind the scene without knowledge of the person who signed the docs. If it’s the broker or a bank employee, it’s huge – not only for the RC but also for the many class-action lawyers watching it.

  5. There’s gonna be shitloads of people facing and then experiencing financial ruin over the next few years. Sux to be them.

    Yeah, the banks are predatory lenders who aren’t behaving responsibly, but what about the punters who get all the money and buy all the properties and don’t make a sound when prices are going up? I bet Linda wasn’t beating her breast and howling “Oh woe is me…my heavily leveraged investment based on millions of borrowed dollars is making a mozza…someone please take all that money back!!!” when times were good.

    The banks have offered me and my partner loans of over $2 million, but we didn’t take the money because we know that borrowers have a duty of care as well and that would be too much for us to handle. A nurse who borrows millions of dollars for property speculation gets no sympathy from me. None at all. Not a bit. Not a single iota.

  6. Jake GittesMEMBER

    The nurse’s office suggests a lack of organisation. She was opportunistic but the evidence in the report shows the banks obscured the financial state in order to offer more leverage.

      • Good point Kormanator. There’s too many apologists out there for these.greedy morons.

        And when the TBTF banks get into trouble because of morons like this, they’ll be helping themselves to the savings of the patient, the prudent, the old fashioned savers through a bail-in. [email protected]$ these assholes- they had dollars in their eyes and need to accept the consequences.

      • Good points, but even if she did try to obscure her debt levels the banks still didnt do their due diligence properly.

        “Problem belong bank.”

  7. TailorTrashMEMBER

    If those 11 properties in Perth had gone up this lady would have been in a property mag as “investor of the year “
    Now she is facing ruin and looking for an out … will many punters ….sorry I was cheated ….it was not my fault …the bank made me do it ……I need to be let off .

    …sorry no sympathy ………..but this is a symptom of the complete corruption,greed and unimaginable stupidity that has taken over Straya’s homes market .

    I don’t hold out much hope for this RC but if it brings out the size of the fcukup in dodgy lending that might be a start ….at least it will embarrass some of those
    Million dollar a year PUPLIC SERVANTS who appear to have been failing in their responsibilities .

    • I am not sure you know this but Mr.Bitch was channeling all his loans and his clients loans through Westpac.
      It is well documented on PropertyChat forums

      • When I applied for a $800k loan, Westpac was only too happy to approve it. I thought it quite lax, not even an interview or phone call. Everything I put down was honest, broker I trust as she’s my partner’s sister and isn’t a cheat / liar etc.. (but knows of dodgy brokers)…

        I think giving anyone that kind of leverage is mad.

    • U may have missed it, but to now repay the principal equates to approx double the interest only payment.
      Interest rates would have to go to less than negative to balance the P&I repayment.
      So 1/3 are liar loans and say 2/3 of the balance will default when principal has to be repaid also,
      the robots are coming and pay rises equals 1 or in some places 2 schooners
      this is gunna be HUGE.

      • Nah, they’ll just pull out the 200yr mortgage (Interest + .5% principle) with a 10 year term.

        She’ll be right mate!

  8. You know the banks have a obligation under the National Credit Act to exercise “responsible lending”. How can anyone argue that loaning a 71 year old nurse 3.7 million to purchase 11 investment properties is responsible lending. Hell judging by her physical condition she could drop off the perch tomorrow.

    Yes, Ms Schmidt is stupid and greedy but no lender can justify placing her in that position. There are criminal penalties applicable for that level of misconduct!

      • Don’t misunderstand me WW, I’m happy for the punter to carry the can, as long as the lenders that facilitated this are penalised for their misconduct also.

        I know plenty of ‘Ms Schmidts’, investors who are leveraged to their back teeth and think they are financial geniuses by speculating in a rising market. Most aren’t smart enough to see just how stuffed they are when this bubble bursts.

        The lenders are the ones who have made out like bandits throughout this bubble. They need to be penalised for their part in all this.

      • Sem
        the punter is the guilty party, however the washup will be that the lender has to repossess the asset and carry the monetary loss of a liquidation sale
        the punter (may be bankrupted but) will probably be barred from receiving a loan for “life”, but they still qualify for social assistance.
        Now social assistance amounts to thousands per week, in payments and kind.
        Paid for by the sensible punters.

      • Now social assistance amounts to thousands per week, in payments and kind.

        Thousands per week? Even with rent assistance and cheap dr appointments and pharmaceuticals there’s no way it comes to that much assistance for almost any family, let alone individual. If it did I’d quit my job tomorrow and join the ranks of laughing Centrelink clients.

    • I agree with “Caveat Borrower”. However, I must say that the bank loan application forms are very poorly written. They ask only about loans on properties that have already been completed; they do not ask about properties that have exchanged but not settled, and they do not ask about properties that you may have purchased off the plan, which are still under construction (for which you will obviously need to take out a loan upon completion). Someone could easily put a deposit on two or three off-the-plan properties over a 3-year period, and then buy two existing properties within a 6-week period around the time that the first one settles, and on each loan application they could truthfully declare that they have no “existing” loans on any established properties. Even if they wanted to declare it, there is no place on the form for them to do it.

  9. Jumping jack flash

    Debt requires service, to be repaid in full plus interest. Interest-only loans are a financial abomination and they will certainly play a significant part in the eventual collapse of this debt ponzi.

    The problem is the risk of all the debt is completely ignored in place of the LVR. LVR means nothing when it is a function of the cost and availability of debt. The whole thing is backwards and upside down.

    As total debt held by individual increases, risk must also increase and be priced in as interest rate rises.
    After borrowing millions of dollars, the interest rates on the most recent debt should have been set to 15% or something.

    Which leads nicely to the idea of one-size-fits-all interest rates. It is just not reflective of how things actually work, and is all a part of successfully decoupling interest rates from risk (or rather, ignoring risk completely and replacing it with LVR) which has allowed this debt ponzi to occur.
    “load up on debt at 4%. No problems mate. We don’t really care too much if you’ve already got a million debt dollars against your name, the LVR on that debt is great!”

    One-size-fits-all isn’t used for insurance premiums, how can it work that way for gigantic debt mountains?

  10. interest only loans have been around for a very long time. Often used by high income individuals to negatively gear property in the expectation of capital gain to offset the net out of pockets after tax benefits are taken into account. They won’t stop but their availability will wax and wane over time. Some people will get caught out, but most will be able to refinance provided they are under 80% of valuation at the time of refinancing. Banks don’t want to go into possession if they can avoid it, but they will when the chips are down against them. The preference of the bank is always for the borrower to refinance or sell themselves.
    The big risks are loss of employment and a market crash.
    Neither the RBA or the Government will intentionally cause a crash in property prices. Interest rates won’t be put up to such an extent to be likely to cause a threat to the banking system through borrower defaults. Kicking the can will always be done while ever it can be.

    • Except that the Loan Application Form which showed the fraud was hidden from her.
      Sure she was greedy but also the victim of predatory lending.

      The Loan Application Forms which show inflated incomes and assets are often never shown to the customer.
      It is predatory behavior.

      • i’m not denying that gramus. the video showed the customer’s lawyer saying that the banks hid the risks..they simply didn’t.
        but would she check her application details if prices went up and she wasn’t in trouble?

        might i add: doesn’t help me if it’s fraud or not, as a responsible manager of my own finances, i’m not happy bailling her out or the banks.

      • @AB2110

        It is when the tide goes out that all of this is exposed. Maybe this is why some are so anxious about falling Sydney prices. Denise says that there are 2 MILLION like the nurse in the clip. A lot of them are in Sydney.

        Greed on everyone’s part, but the banks may be systematically breaking the law safe in the knowledge that regulators won’t do anything. Predatory lending on a mass scale. Check her twitter out.

  11. People should check out Denise Brailey’s twitter.

    She believes that there is systemic fraud INSIDE the banks and the regulators have been complicit.
    Note also that the Royal Commission has not extended whistle blower protection to bank employees. This is to prevent them from blowing the lid off the banks’ role in what she describes as the fraud of the century.

    Her point is that it is the banks themselves who are the predators, not the brokers, not greedy customers. She says they often tell the truth and the banks are the ones doing the fraud.

    • I like what Denise has achieved so far, but to suggest mum and dad investors and owner occupiers with eyes larger than wallets aren’t guilty parties in any of this is just plain wrong. The egotistical drive to keep up with the Jones’ and greed over the last 15 years has been palpable. Who in their right mind ever thought it was wise for a person aged 50+ to take on large volumes of debt, let alone people in their late 60s in this case? It is common and simple maths tells you 100% speculative. My fear is her push will lead us towards taxpayer bailouts. Heads I win, tails you lose. F them.

      • There was greed on both sides. Looking past the motives and naivety of the investors if the bank has committed fraud, then it bears a bigger share of the responsibility for the loan. The bank is also party to the loan and so it should show due diligence when handing across money. These things don’t remove blame from the foolish investor but moralizing about a foolish person when there is institutional fraud exploitation is to remove the focus from where it should be.

      • billygoatMEMBER

        Zero sympathy
        No one gave or gives a rats a$$ about the inflated rental costs as all these ‘investors’ took out bigger loans and paid over the odds to secure their retirements on the backs of individuals and families who didn’t buy into the hype and saved dollars.
        Zero sympathy

    • Of course there’s systemic fraud, as discussed here ad nauseum FIRB had a staff of 8 and never prosecuted anyone in over ten years.

      And that’s just one section of property regulation. The rest of the banking/real estate industry is deep in steaming fecal matter.

      Whether the Royal Commission actually accomplishes anything given its limited terms of reference is going to be interesting. Its more likely to be a white wash to hide the corruption.

  12. If the banks lose money, so be it. If the investors lose money, so be it. All parties have gone into these transactions, eyes wide open. Financial gain, the motivator.

    As for the savvy investors, I’m sure they were only to keen to inform others of their property portfolios and bank a tidy negative gearing tax refund each and every year.

    • If the banks, and the mortgage brokers, are found to have been committing fraud then prosecute them with the greatest severity available and send the executives in with hardened criminals. If they get the big money for the big decisions and the burden of big responsibilities then they can also take the big fall for what has occurred when they were in charge.

      • I expect fraud will predominantly be found to be the purview of keen brokers and their equally keen clients, clients who signed off on all documentation, explicit and complicit all the way.

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