APRA “misled Senate on mortgage fraud”

So claims the Citizens Electoral Council of Australia:

There is a case to be made that Australia’s bank regulator has colluded with the banks to hide massive fraud in mortgage lending. The Australian Prudential Regulation Authority’s (APRA) collusion includes suppressing its own research into lowered lending standards, and misleading Parliament about its knowledge of illegal misconduct by banks in mortgage lending.

In a 1 March 2018 hearing of the Senate Economics Committee, Greens Senator Lee Rhiannon questioned APRA chairman Wayne Byres on his knowledge of mortgage control fraud. The hearing was 11 days before the start of the first round of hearings of the Financial Services Royal Commission, which the issue of mortgage control fraud would dominate. Perhaps unaware of how much the royal commission knew, Byres responded to Rhiannon’s questions with APRA’s trademark obfuscation and deflection. Documents subsequently released by the royal commission, however, show that Byres lied.

Rhiannon asked Byres, “In relation to your investigation into mortgage fraud, which APRA has not made public, has APRA found any evidence of illegal misconduct in the mortgage market by the major lenders?”

Byres ignored the point of the question and instead denied that APRA was looking into mortgage fraud. “I wouldn’t say what we’ve done is specifically a review of mortgage fraud”, he said, adding that they have looked “generally” at lending practices and controls. He then claimed that APRA had not found evidence of illegal misconduct.

With this reply, Byres misled the Senate. APRA was investigating mortgage fraud. The proof is revealed in documents made public by the royal commission on 23 March, which included reports to the major banks by accounting giant PricewaterhouseCoopers, of targeted reviews PwC had conducted in 2017 into the banks’ mortgage lending controls. As PwC’s reports made clear, APRA had ordered the reviews.

Targeted reviews

In PwC’s May 2017 report to Westpac entitled “APRA Targeted Review of data used in residential mortgage serviceability assessments”, PwC states explicitly in the Executive Summary that APRA had ordered the reviews due to concerns about mortgage control fraud. “On 12 October 2016, APRA issued a letter to the Bank and 4 other large banks requesting that they undertake a Review into the risks of potential misrepresentation of mortgage borrower financial information used in loan serviceability assessments”, PwC noted. “In its letter, APRA referenced assertions made by commentators that ‘fraud and manipulation of ADI residential mortgage origination practices are relatively commonplace’.” (Emphasis in original.)

This proves that APRA clearly ordered the banks to conduct targeted reviews of mortgage fraud. Yet the royal commission is unlikely to have had this evidence, had it been up to APRA. Later in her questioning, Lee Rhiannon asked Byres if APRA should be proactive in providing information to the royal commission, but Byres replied, “We’ll wait and see what the royal commission asks.” His extraordinary excuse was he didn’t want to “swamp them with things that are not relevant to them”. Byres’ idea of what’s “not relevant” appears to have included PwC’s reports.

A few days before Byres’ testimony, Lindsay David of LF Economics had tipped off the royal commission about the targeted reviews. This was around two weeks before the royal commission’s first round of hearings, which were on mortgage lending. LF Economics specialises in forensic analysis of misconduct within the mortgage market, and has probed into the details of many of the numerous cases of mortgage fraud that the Banking and Finance Consumer Support Association’s (BFCSA) Denise Brailey, the leading expert on mortgage fraud in Australia, has exposed through her tireless advocacy for bank victims. (CEC Research Director Robert Barwick interviewed Denise Brailey for the 22 and 28 March 2018 episodes of the CEC Report, available on YouTube channel CEC Australia.)

According to David, LF Economics first became aware of the targeted reviews in mid-2017, but had been informed that they were “so unfavourable they would never see the light of day”, he recalled. At the time he was consulted by the royal commission staff, they were unaware of the existence of the targeted reviews—indicating that APRA had not revealed them. It was David’s tip-off that led the royal commission to request copies from the banks, and make them public on its website.

So why would Byres go out of his way to deflect the attention of the Senate committee away from the fact that APRA was looking into mortgage fraud? And why would APRA not share this with the royal commission? It goes to the collusive relationship APRA has with the big banks, which former ANZ director John Dahlsen denounced in the 21 August Australian Financial Review as “incestuous”. APRA is notoriously secretive, with the power to suppress information through strict secrecy restrictions. It has a track record of using its secrecy to cover up risks and fraud in the banking system. Due to its excessive secrecy, APRA is effectively unaccountable, which breeds the arrogance on display in committee hearings.

APRA is complicit in the banks’ reckless lending, which has created a dangerous housing and debt bubble that threatens the Australian economy. It allowed the banks to lower their lending standards in the early 2000s, to be able to massively expand their lending to homebuyers and investors who, like the US “sub-prime” borrowers whose defaults sparked the 2008 global financial crisis, couldn’t afford normal loans. In March 2007, APRA suppressed an explosive internal report which warned that the lowering of lending standards had led to the banks lending 3.5 times more credit for mortgages than would have been the case under the previous, higher standards. And APRA repeatedly lowered the so-called “risk-weighting” of mortgage loans to make them far more profitable than any other lending, and to fake the appearance that banks were raising their capital to the “unquestionably strong” levels of 14.5 per cent, whereas real bank capital stayed at less than six per cent.

In short, APRA incentivised the excessive mortgage lending that motivated the banks to resort to fraud. It’s a fair bet that Byres hoped to keep APRA’s awareness of the problem under wraps, to protect the illusion that it is a “sound” prudential regulator. He wasn’t banking on the royal commission process, however, which has destroyed this illusion and opened the possibility of fundamental reform of the banks and regulators.

More evidence that APRA has been captured by the banks.


  1. “More evidence that APRA has been captured by the banks.”

    But not the fund managers as yet:

    APRA pushes IOOF boss to quit

    The prudential regulator has heaped pressure on IOOF boss Chris Kelaher to quit, telling the banking royal commission does not understand his obligations as a superannuation trustee and made an important “untrue” statement in a letter to it.

    In a submission to the commission, the Australian Prudential Regulation Authority also said it would re-open investigations into IOOF, CBA subsidiary Colonial First State and Suncorp because of evidence at the inquiry’s most recent round of hearings, into superannuation.

    Meanwhile, AMP and NAB have denied serious breaches of the law, including crimes, while CBA emphasised it had made a “genuine misunderstanding” of its criminal laws, in their submissions to the commission, released today.

    “APRA agrees that on the face of the evidence from Mr Kelaher, he demonstrated a failure to understand the covenants under the SIS [Superannuation Industry Supervision] Act and obligations of a trustee under trust law,” the regulator’s counsel, Robert Dick SC, told the commission.

    Mr Dick also attacked a letter Mr Kelaher sent APRA last year in which the IOOF chief executive said a plan to remediate an overpayment to a super fund by clawing back distributions made to members “passed the pub test”.

  2. Pericles Alcmaeonidae

    This is the most important issue of the day.

    Your post the other day regarding Macquarie was also excellent.

    Mac Bank and APRA are, in my view, in deep collusion to maintain credit supply by lending to distressed or nonviable borrowers for the purpose of not avoiding a tipping point in the housing crisis – but prolonging it until the ALP can take the fall.

    I have NO DOUBT that the most obvious reality staring even the most basic amongst us is the inevitable housing crash hurtling towards the Australian economy – the real game is assigning blame.

    The Liberal Party would be putting everything in place to ensure that the most serious downturn takes place under the ALP stewardship – a down turn like we are experiencing right now is easily palmed off as a minor inevitable correction – a sharp, sudden and major downward inflection point is easily assigned to ALP.

    Postponing this inflection point until after the election would be critical and a master stroke.

    The MAC lending standards are so extreme and out of sync with the remaining banks that questions absolutely MUST be asked of APRA and they MUST answer. No point in seeking responses from MAC – a continued, sustained questioning of APRA is what is needed.

    And like we have here – a lie, a deflection, an obfuscation is all that is needed to open the stinking can of fermented Surströmming…….

      • Pericles Alcmaeonidae

        Its a nice meme – don’t attribute to malice what you can attribute to stupidity and all that. But if you think these types of people aren’t capable of working out that they need a bank (and the most corrupt one amongst them no less) to shoulder the loans to avoid a credit crunch then you are being entirely disingenuous.

        Sure Terrence Tao they are not – but they are not gormless tards either.

  3. Perhaps Bill Shorten needs to ‘do a Winston Peters’, who before the last NZ election said,
    “We in New Zealand First believe that an economic correction, or a slowdown, is looming and that the first signs are already here,”
    Peters is now part of the coalition running the country (Deputy PM), and can smile and say with certainty “I told you what was coming before we got in”. It deflects a lot of criticism, although not all!

  4. I hope when the Royal Commission comes to laying criminal charges that APRA and Byres are in the dock.

  5. Might be all true, but MB needs to look a little deeper at LaRouche related entities/information sources lest they become a useful pawn in someone else’s battle.

  6. That CEC article was very well written. I’m really surprised. Perhaps a few non-nutters have joined them.

  7. Jumping jack flash

    Of course they had to know what was going on.
    That’s not to say they orchestrated anything. Our banks were simply caught up in a global wave of cheap debt. Grasping the end of a firehose of debt.

    It was an OPPORTUNITY to cash in on the global debt bubble.
    So many instant millionaires with houseloads of other people’s debt in their pockets!
    Why would you deny the people of Australia access to that bounty because of some “regulations”?

    Once you were in, you had to pretend everything was ok. Deny, lie, whatever it took.
    It is all built on confidence and debt foam at the end of the day.