Sub prime mortgages green-lit by ASIC

I noted last week how the Australian Prudential Regulatory Authority (APRA) had abandoned its responsible mortgage lending case against Westpac amid pressure from the heads of the RBA and Treasury, who warned that continuing would cripple Australia’s economic recovery post COVID-19.

Today, ASIC chairman James Shipton has confirmed that the regulator does not want to hamper the economic recovery by requiring banks to lend responsibly:

Shipton said that “there were a range of factors” that influenced ASIC’s decision not to seek special leave to appeal the case to the High Court.

“One of them was that we are in a very different economic environment than we were when we started this case,” he said. “The world has changed”…

[Shipton] noted that “what we do at ASIC is vitally important for the economy and the economic recovery. I want us to be a force for certainty, a force for the recovery.

“But making the decision not to go to the High Court [in the Westpac “wagyu and shiraz” case] the responsible lending laws are now settled…

“I have spoken to the chief executive of each and every large bank… All the feedback is that the law around responsible lending is now settled, now their [the bank’s] job is to make sure their credit systems and lending systems are working to get on and do it [provide credit]”.

So there you have it straight from the horse’s mouth. The notion of responsible lending – a key pillar of last year’s banking royal commission findings – has been junked by a toothless ASIC, which has green-lit banks to return to irresponsible sub-prime mortgage lending.

History never repeats but it sure does rhyme.

Unconventional Economist
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    • Low rates forever, flat yield curve, low NIMs, high risk mortgages …

      I’m going to say, if you get your riming right (for a quick in-and-out) you could do well, otherwise I’d be happy to steer clear 😉

      Once the boomers realise that fat dividends could be a thing of the past they could beat a hasty retreat – who knows.

  1. the way I read it is – cut them (banks) some slack for previous sins but judge them from here on. Considering who is in charge and what an average punter expects, I am probably wrong and Leith is on the money but I have to say I am not interpreting that article the way Leit is.

  2. I’m currently on the fence again. I have a 50/50 bet of the outcome of housing. I read it as the banks can now define ‘responsible lending’ as they chose. Because the economy will NOT recover without the credit taps flowing freely.
    We won’t know until the stimulus is wound back, and if things are still not looking ‘V’ shaped there’s every likilhood that some stimulus will be extended for the forseeable future. Otherwise known at ‘kicking the can down the road’.
    No-one wants the history books to say the housing market crashed 50% on their watch with or without COVID!

    • Jumping jack flash

      Will credit flow free again though?

      I think the banks are holding out for NIRP. At least Bill is. He is sulking. Nobody gets any more debt out of Westpac until he gets his NIRP.

  3. In other words the banks with APRA’s blessing are saying….

    If your poor and broke and can’t pay the ridiculous mortgage we gave you, you should probably think about selling early, even at a loss to more fortunate people who we are happy to lend loads to in this very difficult time.

    • happy valleyMEMBER

      Nah – what they are saying to overleveraged borrowers with APRA’s blessing is: hang loose, we don’t want (nor does APRA want us) to take a write-down – to cover for you, we’ll just keep raping depositors as we have been doing it since the RBA legalised that years ago?

      • Jumping jack flash

        With renewed lending the overleveraged can simply roll their debt onto another debt patsy who is eligible for the correct amount of debt now, repay their balance, the interest, and probably have some left over.

  4. “But making the decision not to go to the High Court [in the Westpac “wagyu and shiraz” case] the responsible lending laws are now settled…

    What he doesn’t say is that they had no chance of winning anyway. Of course, the elephant in the room now is Hayne who recommended that the responsible lending rules be changed if ASIC lost the case. I can’t see that happening any time soon.

    • And Hayne also said the law (NCCP Act in this case) was clear , which it isn’t or else ASIC would not have lost twice. This obsession with correctly estimating future expenses as the primary means of not over lending was always going to be a dive down the rabbit warren. If you want to limit or reduce lending many easier ways . Like increase buffers (which APRA has demolished)

  5. Arthur Schopenhauer

    Sub-sub-Prime. It’s already on like Donkey Kong in Melbourne’s middle suburbs.

    There were 4 survey crews doing their thing in the neighborhood this weekend.

    • Agreed.. It’s insane here along Bridge Rd seeing all the Yarra Council planning notices for new mixed use appearing on empty shopfronts..

  6. happy valleyMEMBER

    In terms of totally useless and morally bankrupt, it’s very closely fought race to the bottom among the RBA, APRA and ASIC.

  7. They cannot stop lending now. Their internal legal counsel would be saying “if you stop lending now without any rule changes you are effectively admitting you have been lending irresponsibly prior and this could be brought against us at a later date”.

    The banks will have to use the existing regulation provisions to close off the dirty book and clean up their ledger. I.e. lend to those that don’t need it and remove those which default.

  8. I’m stating the obvious here: The Wagyu and Shiraz decision goes to interpretation of the law as it is written. Why fight it? Just change the law so there is no room for interpretation. Big dumb rules even an idiot could follow.

    and so on

    • Thou shalt keep the minimum assessment interest rate at 7%pa and not let banks make it up themselves would not go astray either

    • Nothing can stop it. And that they try to save it isnt the question. But neither is whether it will work.. it won’t.

  9. RobotSenseiMEMBER

    Sooo… if I have a reasonable deposit and secure employment, I am asking the bank to lend me as much money as I can get my hands on?

  10. Jumping jack flash

    Excellent. We certainly need much more debt to prevent the collapse caused by too much debt.

  11. If you’re holding out for a crash, then you should be cheering for irresponsible lending. It’s a very effective component to induce it.