ANZ admits to HEM abuse in mortgage approvals

By Leith van Onselen

Appearing before the banking royal commission in its seventh and final round of hearings, ANZ CEO, Shayne Elliott, admitted to being a serial abuser of the Household Expenditure Measure (HEM) – a relative poverty measure – in lieu of a comprehensive credit assessment, but also vowed to significantly wind-back its use to a third of overall mortgage applications. From The Adviser:

In round one of the commission’s hearings, ANZ general manager of home loans and retail lending practices William Ranken admitted that the bank did not further investigate a borrower’s capacity to service a broker-originated mortgage…

Counsel assisting the commission Rowena Orr QC pointed to a review of ANZ’s HEM use by consultancy firm KPMG upon the Australian Prudential Regulation Authority’s (APRA) request.

The KPMG review found that 73 per cent of ANZ’s loan assessments defaulted to the HEM benchmark…

When asked if there was a disparity between the use of HEM through the broker channel and branch network, Mr Elliott revealed that prior to the bank’s move to reduce its reliance on the benchmark, the use of HEM was less prevalent for broker-originated loans.

“Perhaps surprisingly, when we did the review, when we were talking about the mid-70s [percentage], the branch channel actually had slightly higher usage or dependency on HEM as opposed to the broker [channel].

“[That] actually is counterintuitive,” he added. “I think it would be reasonable to expect that if [ANZ] knows these customers, one might expect to use HEM less.”

Mr Elliott attributed the disparity to the higher proportion of “top-ups” for existing loans through the branch network, noting that ANZ’s home loan managers would be more likely to “shortcut the process” through the use of the HEM benchmark…

Mr Elliott noted that since the review, ANZ has taken steps to reduce its reliance on HEM, with the CEO stating that the bank plans to reduce the use of HEM for loan assessments to a third of its overall applications…

“[It’s] changing as we speak,” he said.

“As in the latest data I saw, the branch network is now lower in terms of its usage or reliance on HEM versus the broker channel. And that’s because we are in, if you will, greater control of that process in terms of our ability to coach and send signals to our branch network.”

As noted previously, CBA was using HEM on 75% of loans and is pulling that back to 40-50%. So ANZ is being even more conservative. WBC was pinged for having as much as half of its loans inappropriately deployed using HEM.

This the credit crunch in action, with something like one quarter of loans that were formerly rubber stamped no longer available or much smaller as income and expenses are assessed properly.

And this comes on top of the interest-only reset, macroprudential 3.0, out-of-cycle rate hikes on funding costs, negative gearing reform, fleeing Chinese capital and aging cycle headwinds.

The Australian housing bubble is facing an almost certain bust.

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Leith van Onselen


  1. This is why the theory of mini boom of investors buying ahead of NG changes doesn’t hold.
    The answer is that investors want to NG to claim tax deductions but unfortunately can’t get a loan and paying 5% with falling property prices isn’t going to work even if property were to stay flat.
    NG is finished either way.
    Westpac have a new division called “expenditure varification team” they have investigators following you around to see where you spend money

    • strange economicsMEMBER

      The EVM team is a 6 month phase – It will disappear as “cost cutting” as soon as the Royal Commission fades away, and the govt announces a need for more credit.

      The banks assumptions are simple, pay everything into the mortgage and live on the poverty HEM. Nobody cares as property goes up 10 % a year forever….
      Still your business plan of switching providers to a lower rate once inflation takes you to 20% equity are gone now…

      • C.M.BurnsMEMBER

        this is not what’s happening within one of the other big 4. They are spending serious, serious money on all sorts of compliance, audit and risk teams and capabilities. Nothing about their investment or their internal communications to staff implies “short term / token effort”

      • Well he is having a g0ddamn ball himself, showing Tony Abbott how you actually go about wrecking your successor! – Abbott thought he was good but he averages two years to bring down a PM. Malcolm is going to do it in one third of the time!

  2. Demands for loans is dropping fast. I was speaking to someone who works at a big 4 bank in the digital team and the conversion of their website for home loans has dropped from circa 15% last year (people clicking to making calls with the bank to talk about a loan) to sub 5%. Yep, down 2/3.

      • You typed “worry” but I think you meant to type “fantastic f#cking popcorn munching crash tard dream come true”.

    • Funny 2 properties have caught my eye, both want $1m and I’m thinking of offering $800-$850k max. This is good to know.

      However with Santa on his way I’ve heard banks will be on skeleton crews and loan approvals may not be made until new year. So I expect price falls to continue to Xmas and perhaps get a lot worse for those who cannot HODL due to switching to P&I.

  3. Why should the HEM be used at all? As said its a relative poverty measure, its not an assessment of an individuals circumstances or expenses. Ban it from use in assessing ability to pay.

    • My thoughts too! Do the due diligence or don’t doll out credit. Maybe HEM is suitable for smaller loans though, say $100-$200k only? That’s my only thought.

    • Disagree. Banks should be allowed to assumed that borrowers cut expenditure in order to repay loans (because in reality they will).

      • I agree there is probably a set of discretionary expenses list they could reasonably cut. Of course everyone here wants credit tightened severely so house prices crash down even if that is an unreasonable over tightening – I assume they are in a job where they are safe from any housing downturn which is getting rarer and rarer these days as the FIRE sector grows and many jobs are contract/casual based. I assume after all most readers here are high income earners relatively who never believed in the housing market and are saving diligently so when the market crashes they can clean up (i.e. wealthy individuals that can afford to sit it out). Most other people will still need debt to buy a house (can’t save a deposit after rent) and will suffer from a lack of credit access sadly.

    • People took what the market price was; very few people can accurately predict the future and the timing of anything. They thought and said “we need a house; and no one can predict the future”. Especially when everyone is saying migration and policies mean it will keep rising; and the Government in that time just kept lowering the rates. To the average young family it has put them in a desperate situation and many bought in. The problem isn’t that they can’t afford the mortgage payments (at least at the low rates); most people can do a budget – the problem is negative equity for the people who bought in the last 3 years or so. I unfortunately know quite a few young people that I suspect will be in this predicament very soon. That raises a whole lot of other problems/issues.