ASIC takes aim at dodgy mortgage lending

By Leith van Onselen

The noose is slowly fastening around Australia’s mortgage industry.

The Hayne royal commission found that mortgage lenders had not adequately assessed borrowers’ capacity before extending credit, instead relying on the Household Expenditure Measure (HEM) – a relative poverty measure that estimates expenditure at the lower end of the income scale. This reliance on the HEM resulted in a large volume of effectively sub-prime mortgages being issued across Australia, which helped fuel the bubble.

As part of its recommendations, the royal commission deemed the HEM inappropriate for assessing a borrowers’ capacity, although it stopped short of outlawing it outright owing to the pending Westpac vs ASIC case, which will likely determine the outright legality of using the HEM benchmark.

Still, lenders have rightfully taken the royal commission’s findings as a warning shot and have all but abandoned the HEM as a mortgage assessment tool, instead undertaking actual assessments of borrowers’ expenses.

Yesterday, The AFR reported that ASIC will now gather real-time data to target mortgage application fraud and irresponsible lending – a move that will likely further tighten standards across the industry:

The data that will be fed into the new ASIC system will include line-by-line detail on borrower loan amount, loan security, loan-to-value ratios and borrower income and expenses. It will also include loan performance data, including the repayment history and amounts held in offset accounts. The data may be published to improve market transparency…

ANZ said the additional information about customers may result in a short-term increase in the number of customers being knocked back for loans, but it expected this to normalise over time.

Obviously, more rigorous scrutiny of borrowers’ capacity points to tighter credit availability and further house price falls as Australia’s debt bubble slowly unwinds.

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Comments

  1. Brokers association apologists to show up on TV with the Pell defence in 3..2..1…

    ‘But it was just plain, vanilla, lending…”

  2. This is why no one should repay any of their debt; mortgage or otherwise, because if you do you mayn’t get it back.
    Keep socking the cash away by all means, in an offset account or whatever, but if you have debt – keep it. If you can increase it, do, and keep the proceeds unapplied – until later.

    • in the land of the non-creditworthy, the person with a huge mortgage with redraw facility is king ?

    • Jumping jack flash

      From an interest-sucking-the-life-out-of-the-economy perspective this makes sense as well.

      That non-productive debt doesn’t repay itself, and that’s the problem. It needs to repaid from the existing productive capacity of the economy, which is fine – debt flowed in, increased the money supply, and it can generally flow back out (ideally), but the interest on that debt requires additional capacity, and that’s not there, at least not due to that non-productive debt.

  3. fun fact about ASIC. Late last year they turned up at CBA for a 3 week onsite visit with Retail Banking. 3 months later and they were still onsite.

  4. wasabinatorMEMBER

    ASIC can do what they like, but no doubt the govt will introduce some sort of Help to Buy scheme like they did in the UK to great inflationary effect

    • the banks still approve the loans. Frydenturd has already been begging the banks to go back to the old ways, they are ignoring him. It’s all about self interest and self preservation.

    • There’s only about two sitting days between now and the election so if it needs legislation it won’t be happening realistically until after June some time.

  5. Jumping jack flash

    When the rubes were given the debt mountains they probably could just afford them. In some cases the debt-pedlar may have thrown in some line about wage inflation to make them feel better about buying such a gargantuan piece of debt. I know that line was trotted out to me a few times.

    but then we suddenly had no wage inflation and soaring cost of living. Both of these are related to the debt, as is the high immigration that is required in order to steal the wages.

    Although, curiously, productivity hasn’t risen as much as I thought it may with all the cheaper labour.
    The idea being that everyone first gets all grabby because of their debt burdens, then cheaper labour increases productivity, that then creates wage capacity which is stolen by those who can grab at it first, typically the higher organisational levels.

    Maybe the productivity gains from immigration are tapped out now as well?
    It would make sense because the stealing of the wages made it look like, on average, that wages were still increasing, and lately it has become completely obvious that they aren’t.

    • Lenny Hayes for PMMEMBER

      I don’t understand the concept that more immigration will make businesses and the economy more productive.

      If you have less labour then you will be forced to innovate to become more efficient, especially as the costs of that finite labour resource rises.

      Some businesses and industry will fall by the wayside but so be it.

    • productivity gains are now coming from replacing people with process automation (RPA). Was speaking with a client last week and the savings they are making by automating processes that were previously performed by (relatively well paid, but low trained) staff is crazy.

      Wiley has been banging this drum for 2+ years now – he seems to be ignored but redundancy through process automation and “AI” (machine learning etc) is very real and all the ASX50 are well down the path of applying it


      • all the ASX50 are well down the path of applying it

        So the people who are at risk of losing their jobs to this technology mostly already have?

      • can’t speak for all of the ASX50, but those places I have heard of are applying this RPA tech on an ongoing, iterative roll-out.

        So start in one particular area, trial it with some simple / low risk business processes; prove it and then expand it’s roll-out.

        I’d say most of them are only 1-2 years into the process of rolling this out in anger; and it will be a continuous / ongoing process.

        Those i know of have set up centres of excellence which are self-funding through the cost savings they are identifying and automating.

      • Seems funny to quote Andrew Thorburn on the topic of ‘outgoing staff’.
        It will be interesting to see whether the final headcount of NAB in September 2020 is actually 4000 lower as planned, and if so, how long it stays at that lower level once banks start lending again. For example, it’s pretty easy to imagine them hiring hundreds of additional compliance staff in the wake of the RC and the litigation, maybe even more.

  6. APRA should be collecting this data already as part of its prudential supervision role around the lenders. The irony in ASIC asking for it is that it will not have any internal resources to do anything with the info.

    Either way, it needs to be made publicly available (or at least some summary of it).

      • AI is just code for either a spreadsheet or a simple script, you realise, yes?

        The spreadsheet or script is then run by an idiot monkey and when garbage comes out of it, as it inevitably does, said monkey doesn’t even realise it. Computer says “blah”. Hail the AI computer.

      • That’s why they should make the raw data public and then you might get someone above monkey level to analyse it.

      • Yes, Jason.

        If the data is publicly available it will be analysed property. Because there will be money in analysing it “correctly”.

        I hope it happens. 94% sure it won’t.