ASIC hoses Costello push for mortgage fraud

Peter Costello covered himself in glory again this week:

Former federal treasurer Peter Costello says Australia’s monetary policy has probably run its course and believes some changes to responsible lending laws would stimulate the economy.

Mr Costello said there was “a lot of intervention” following the Hayne royal commission earlier this year, which may have “gone a little too far”.

Record low interest rates and tax cuts have failed to stimulate consumer spending, which has hit advertising spending.

…“That’s even if you can pass it on into the real economy, and query whether you can; query whether you can pass full cuts now through to business lending or for that matter even on mortgages.”

Given how loose lending standards remain, the only way for them to loosen further is to return to the pre-Hayne days of fraud. It is already clear that APRA has over-loosened macroprudential. See house prices.

ASIC treated Costello with the contempt that he deserves yesterday, via Banking Day:

Major misunderstandings persist – mainly in the media – on the detail and the consequences of responsible lending laws, ASIC Commissioner Sean Hughes told an industry conference yesterday.

“These claimed effects are either not supported by the facts or data, or, if they are real, they are the result of a fundamental misunderstanding and misapplication of the law.

“The first is the suggestion that small business lending is negatively affected by the responsible lending obligations.

Poppycock, he did not say, instead explaining that they “apply to credit provided to individuals” a word stretched by ASIC to rope in loans to strata corporations for these same purposes.

“Otherwise, a loan to a company (including small proprietary companies) for any purpose is not subject to the responsible lending obligations,” Hughes said.

“A loan to an individual for business purposes secured over a borrower’s home is not subject to the responsible lending obligations.”

Hughes rebutted the suggestion “that ASIC’s guidance and consultation has caused increases to credit application processing times or rejection rates … the evidence and data do not point to ASIC’s guidance in RG 209 or our consultation to revise this guidance, as having caused increases in credit application processing times or rejection rates.

The Australian Banking Association, he said, “recently disclosed information to ASIC that shows, on average, approvals for mortgage loans for ABA members in late 2018 took four days longer than they had in early 2018, but that by mid-2019 this had decreased to be just two days longer.”

Hughes again relied on ABA to data to argue that three APRA measures best explained the drift in processing times; “satisfying new risk limits imposed on certain lending by APRA”; the inspection of record keeping; and “an APRA review leading to internal changes to processes and procedures”.

Each bank’s culture may be shifting too, he said.

“Anecdotally, we have also heard of instances where front-line lending officers are seeking to escalate loan approval decisions to their managers, which may also have added to perceived delays.”

That is progress.

David Llewellyn-Smith

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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