Mortgage victims slam scrapping of responsible lending laws

Victim witnesses of the Hayne banking royal commission and consumer groups have united to oppose the Morrison Government’s announced axing of responsible lending laws:

The Consumer Action Law Centre, which helped many commission witnesses through the gruelling process, says changing responsible lending laws could lead to trouble.

“The Treasurer’s proposals are a real slap in the face to anyone who gave evidence at the royal commission,” said the centre’s policy director, Katherine Temple.

“The royal commission showed the banks can’t be trusted to do the right thing and these proposals are essentially giving them more power and less responsibilities”…

Baptist Minister the Reverend Grant Stewart spoke from the witness box on behalf of his adult son during the royal commission in 2018.

The then-26-year-old, who has Down syndrome, was aggressively and unwittingly sold several insurance policies he did not understand after answering an unsolicited call…

“Given the amount of effort that was involved in putting the royal commission together, in the amount of people who gave evidence … it does seem to me we should honour that process”…

“I am disturbed that the Government is now proposing to remove the responsible lending laws, which were introduced after the global financial crisis and that Commissioner Hayne found justified (given the evidence showed the banks were failing to comply with the laws) to attempt to protect consumers from the misconduct of banks,” he wrote…

Recall that the announced scrapping of the responsible lending rules directly contravenes the very first recommendation of the Hayne Banking Royal Commission, which only handed down its findings in February 2019:

Remember too that the decision to gut responsible lending laws bypassed Australia’s financial regulators, ASIC and APRA:

Commissioners from ASIC and APRA were questioned about the scrapping of responsible lending laws before a parliamentary committee last week, where they revealed they were given little-to-no notice and were not asked for their views on the decision.

“When was ASIC first informed of the government’s intention to scrap responsible lending obligations?,” Dr Andrew Leigh asked, shadow treasurer for Labor.

“I’m the commissioner with responsibility for credit,” Sean Hughes replied, commissioner at ASIC, “and I was first advised when I read the Treasurer’s media statement through the media on the morning of 25 September.”

“That’s extraordinary,” Dr Leigh replied. “So you got no heads-up … You weren’t asked to provide any advice?”

This decision has all the hallmarks of a grubby deal made between the Morrison Government and its financial and property backers.

Sure, enabling Australia’s banks to lend with near impunity to anybody with a pulse might stimulate some short-term economic activity. But it will further increase Australia’s eye watering levels of household debt and will come at the expense of long-run financial stability and productivity.

The lessons of the Global Financial Crisis and the Hayne banking royal commission must not be so easily discarded.

Unconventional Economist
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Comments

    • Arthur Schopenhauer

      Judging by the marketing coming out of the Big 4, it’s not a race to the bottom, it’s a race to the Centre of the Earth. 🌏

      Bloke & blokette, let us unlock your Equity! C’mon, youse know youse want to. 🥳

  1. reusachtigeMEMBER

    Wow you people worry too much. If someone wants the money and the banks are willing to give it then deal done. House prices always boom so everyone wins anyway.

  2. pyjamasbeforechristMEMBER

    This is all about systemic risk removal. If they don’t remove it before repos start to bite it’ll gets tested in the courts (remember the royal commission decided not to make a ruling either way if the banks had meet this law) and that could prove a massive risk to the system during a down turn puting the lenders at risk of thier loans being turned into none recourse on mass (also in breach of LMI contacts for not ‘must meet legal requirements’ clauses) and holding the bag on any negative equity positions.

    Removing the law is the only option at this stage, before loan deferrals stop and defaults start on any real volume. Otherwise the whole system could go.

      • pyjamasbeforechristMEMBER

        It’s the common issue with laws, they are often written in grey ‘the vibe’ language rather than clear specifics that work in the real world. Works for laws that get tested slowly for ever, but not if they never get tested, then all at one at the worst time.

    • “puting the lenders at risk of thier loans being turned into none recourse on mass”

      A court isn’t going to change existing loan loans from recourse to non-recourse.

      What ya talkin bout?

    • I can see your point but it can hardly be termed “systemic risk removal”. From a law standpoint you are removing the risk of being sued, sure, but from an economic standpoint you are just putting the banks at more risk than they already are.

      • pyjamasbeforechristMEMBER

        Basically if a bank is found to have issues the loan without meeting thier legal requirement they need to make good on the borrowers financial impacts, ie return the borrower to the position they would have been in had the loan not been issues. This generally would mean, the borrower would have rented rather than bought, so the bank generally takes possession of the house that never should have been bought, and sells it, but cannot come after the borrower for any remaining shortfall, and might also need to provide a refund of interest payments they paid if they where above reasonably expected rental costs that would have occurred.

        ie the loan goes from seemingly good quality and full recourse to low quality and (effectively) non-recourse overnight

        If the bank is found to have failed on a wide basis not just for a handful loans (eg using the HEM to approve a large % of thier loan when its by definition only applicable for a much smaller % of the population) then they would likely loose thier LMI protections and need to re-risk weight thier larger books accordingly.

        If its a wide enough failing the banks books goes bad very fast.

        To be honest if I was in government AT THIS STAGE I’d probably remove the law too. It just too big of a risk at this point to live in the ‘grey’ undefined risk state it currently resides in.

        an un grey version of the law (what should have been put in place after the GFC instead) would ideally have been a simpler debt to income % limit

        • But it’s hardly a real solution is it? Just another can kick really. And ultimately creating an even bigger systemic problem. It’s not like risk goes away if you transfer it from the lender to the borrower. In fact, since most Aussies can’t do basic math and borrowers tend to borrow as much as they can, you are ultimately creating a gigantic systemic risk.

          I tend to think this is the endgame personally. There’s no real way out for the government now and this is just desperation.

  3. Holiday In ScomodiaMEMBER

    Wife just offered dream job in another city, while we will rent a place there to suss it out and rent out our current place for the short term, figured Id ask the mortgage broker what was on offer in case we decide to buy there too, whether new job probation still mattered, LVR etc. Broker said 92% LVR fine, (new modest purchase would still be taking our total DTI across both homes to around 9-10x!), copping the LMI but all doable, 2 payslips no worries about how long in the job. Thats under the regs now. Really no need to lower the bar any further, already buckets of debt available to any mirror fogger who wants it.

    • Display NameMEMBER

      What could go wrong? If you think the current situation is sustainable go for it. On the other hand if you think 5 trillion in share buybacks in the US since the GFC and zero growth (exclude FANGS) is indicative of a robust world market then you are in the money. Or perhaps the decade of utter stagnation in Europe might be a good marker for things going forward. 9-10x is so all in you only need the wind to blow in the wrong direction and you are gone. But what would I know.

  4. For my clarity, Are the Mortgage Victims those who took out a Mortgage or those who didn’t?
    I feel that it is important to make this distinction and understand just who (or maybe what) is the victim of this change in policy.

    • FUDINTHENUDMEMBER

      I didn’t bother to read the article, and have forgotten all about the royal commission. But my take is that the alleged victims, if there really are any, just haven’t had enough of a go.

      • In that sense it’s a bit like walking along the beach at night and tripping over some drunk passed out bimbo.
        If you have to ask yourself “will I have a go or not?” then you’re just not trying, the government can’t be expected to help those that don’t help themselves.

          • Morality be damned etc
            When social morality becomes a regulatory matter then we’re all F’ed however you look at it.
            In this sense these Mortgages are like randomly f”ing drunk strangers, they are a social cancer. However, rejecting this immorality needs to be a personal choice.
            Reality is that the Aussie working class is failing the Aussie working class in their quest for self betterment.

          • Jumping jack flash

            “However, rejecting this immorality needs to be a personal choice.”

            Yes and no.
            And its a terrible analogy. You don’t NEED to f drunk strangers.
            But you do NEED an unfathomably huge pile of debt to obtain the things to attain a socially accepted and reasonable standard of living in this fine country.

            Try to save up the whole asking price of a median property from scratch (without using someone else’s debt) and see how you go. Come and see me in 30 years when you’re only halfway there at most.

            If there was no access to debt, and houses needed to be bought outright from a reasonable amount of savings from a reasonable income over a reasonable amount of time, then house prices could only ever rise to a mere fraction of today’s housing prices.

          • Since yous seem a little confused here, “having a go” at an unconscious woman on the beach isn’t “fvcking drunk strangers”, it’s rape.

    • Correct me if I’m wrong but what you’re asking is: are the victims the ones that were refused a mortgage while responsible lending laws were in effect — and now they’ve missed 10% of house price appreciation and want to be compensated?

      • Yes and No,
        The main group that needs to be compensated is the young whose future labour is devalued by this process.
        How many median work hours are required to buy a median house, if this number is not constant over time then labour is being defrauded as capital extracts value through the lack of social coherence.

        • My initial comment was made in jest but turning serious, the younger generations are being defrauded, IMO, by the inflation dividend extracted by capital from endeavours like the housing bubble. In other words, the expanding money supply (inflation) all but guarantees higher house prices, the appreciation of which is pocketed by the owner of capital (including the Boomer generation) while the youngsters are saddled with the bill for that transfer by taking on ever larger debts. Debts they wouldn’t have been able to incur by the way, , without the assistance of the RBA.

          • You are both right but it also goes beyond AU borders. Whenever foreign capital which has no laundering checks can compete with legitimately earned AUD by locals, the youth, but also every semi honest local currency earner loses. In a battle of capital, those who are closest to its production (high net worth) or those with ill-gotten gains will triumph in the race to secure hard assets.

            If we got the housing price drop of our dreams, foreign capital would rush in and secure large swathes of that asset base. Ownership laws need to change before the fall otherwise massive amounts of asset bleed will occur.

          • I see the problem as much simpler than either of you.
            If constructing a house from greenfield to occupation requires 4000 man hours of labour then the logical value of said house is approximately 2 man years of work. (assuming median house and median labour rates and that all construction materials are readily available).
            If we also assume that any reasonable farmer would gladly sell their farming land for 10 times it’s value to farming (say $10k/acre farm value translates to $100k/acre Residential ). or $25K per1/4 acre.
            everything we pay above this price is either a Tax, a price for the capital goods required for manufacture, a cost of goods themselves (imported things) or it is some type of sanctioned rort (the extraction of value by some group for providing permission to build this house) .
            It is the application and focus of this labour which enables a collection of building materials to be transformed into a house.
            Notice that Capital is only essential for two stages (construction of a factory to make materials plus economic support of this function ) and Importation of materials. You can go one step further and conclude that Capital plays a role in enabling the venture by assuming risk and providing working funds, however beyond this Capital play no role in the process.

  5. pfh007.comMEMBER

    These “victims” need to understand that we can relax the responsible lending laws and cut interest rates because

    APRA!!!!!!!!!!!
    APRA!!!!!!!!!!!
    APRA!!!!!!!!!!!
    APRA!!!!!!!!!!!

    It is not the job of the government or the RBA to be concerned about the consequences of their monetary witchcraft as accordingly to some they are just trying to devalue the AUD by printing scads of it so they can resurrect the manufacturing industry that they closed down with free trade ideology.

    It may not work but that is not the point.

    I am sure the victims of predatory bankers will understand.

  6. Display NameMEMBER

    APRA’s alleged mandate (from their web site)

    Our mandate is to protect the Australian Community by establishing and enforcing prudential standards and practices designed to ensure that, under all reasonable circumstances, financial promises made by institutions we supervise are met within a stable, efficient and competitive financial system

    Can we reconcile APRA’s actions (or lack thereof) over the last 5 years to this mandate?

      • Display NameMEMBER

        There is a reasonable argument that banks are wards of the state to some degree regardless.
        – No other type of company company trades at the multiple of debt (liability) to asset that banks do
        – No other type of company creates money out of thin air.
        – No other type of company pitches a product whose worth is so entirely based on trust.

        This, to me implies that there has to be a social contract and as such responsible lending is the least we can expect. Personally they should be run as cost plus utilities.

  7. Jumping jack flash

    The problem isn’t the amount of debt that you can get, well, it kind of is, but you can get an astronomical amount of debt. For example I’m earning less than what I was back in 2005, and I can access an extra 200K of debt!

    But more relevant to the health of the ponzi is the ponzi buy-in fee that is far too high at 5% of the amount of debt you need.
    If they lowered this to 2.5% or 2% so we could have 98% LVR or more, then we’d really see some debt fly!

    There is no risk, of course. If the debt grows fast enough then the new debt magicked into life will be able to be used to pay the old debt plus the interest, plus the expected amount of capital gain, and make the whole thing work.

    When the median house price gets to around 10 million, sometime around 2050 if my calculations are correct, then people will be somehow expected to come up with at the very least 500,000 as the ponzi buy-in. That is simply impossible to save up right now on a median or even above-median income, can you imagine how much more impossible that will be to save in 2050, with an additional 30 years’ worth of price gouging of living essentials, and probably very, very negative deposit rates by then?

    They’re going to need to think of something, and reasonably quickly.

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