A mortgage lending showdown is brewing

In September MB was left flabbergasted when Treasurer Josh Frydenberg, out of nowhere, announced the government would abolish responsible lending rules.

This was a watershed moment in Australia’s transformation into the property equivalent of a narco state given this decision to abolish responsible lending laws directly contravened the very first recommendation from the Hayne Banking Royal Commission:

The Hayne Royal Commission came to this recommendation after it witnessed damning evidence of criminal lending and behaviour by Australia’s banks.

To add insult to injury, it was later revealed that Australia’s financial regulators, ASIC and APRA, were not consulted on the policy change:

Financial regulators weren’t asked for their assessment on the scrapping of responsible lending laws before the government’s surprise announcement, according to testimony, leaving the head of a leading regulator to learn about the controversial decision in media reports.

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…

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

Thus, the Morrison Government’s decision to abolish responsible lending laws reeks of a sleazy deal struck with its financial and property backers, supported by the corrupted Treasury and RBA.

With this background in mind, it is interesting to read in The AFR that the prudential banking regulator ASIC could be called upon to rein in lending standards if the property market runs away in 2021:

“If house prices do take off, the RBA will work with APRA to reintroduce regulations that limit bank loans for the purpose of investing in housing and tighten further bank lending standards; measures that were so effective squashing house prices back in 2018,” said QIC chief economist Matthew Peter…

“We suspect any moves by APRA in the macro-prudential space are more likely an issue for 2022. Any policies used will depend on what aspects of housing credit growth are becoming uncomfortable for the official family,” said Macquarie Group senior economist Justin Fabo.

Fancy that. The Morrison Government first neuters our financial regulators by green-lighting irresponsible lending. Then these same regulators will be called upon to rein-in lending standards once the property market inflates due, in part, to the very same irresponsible lending.

Australia is facing a case of closing the regulatory gate long after the mortgage horse has already bolted.

Unconventional Economist
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Comments

  1. SoMPLSBoyMEMBER

    Confirms that the ‘party’ that decides what happens in Straya is the ‘banking and property’ party.
    The Libs and Labs are there for entertainment only.
    Being required to borrow enormous sums to buy a dwelling which would get one three dwellings in other western cities reveals just how distorted things are.
    And, we celebrate this while simultaneously guzzling the propaganda that we’re property geniuses and not morons.

    • Exactly. You will never hear them talk of measures taken to reduce property prices, only vague mentions of affordability to certain segments, while the rest of housing melts up, and up, and up.

    • Come to Glen Waverley. Real estate signs, tradie vans, cafes with no English in sight. More non-English speaking grand parents child minding the little emperors/empresses than you could poke a stick at.

      Scotty sure knows to pick a fight that he has already lost. Gladys Liu probably rings him each morning to remind him that she is the swing vote 🙁

  2. happy valleyMEMBER

    “Then these same regulators will be called upon to rein-in lending standards once the property market inflates due, in part, to the very same irresponsible lending.”

    Never going to happen – Josh Rainbowberg and the private banksters will tell the regulators what they can and can’t do and when it comes to doing anything relevant, they are useless?

  3. “If house prices do take off”
    Pardon? We at at 40% over valuation already (according to Martin North).
    RBA should drop the inflation target and just embrace the property price targeting model of doubling every seven years. The nation holds that truth to be self evident.

  4. I tried this week to refinance a loan…

    was told that a couple, both working with no kids must be assessed with $4,000 / week default expenses (even though I spend half that)
    was told the default ‘buffer ‘ rate used in the assessment is north of 5% p.a.

    so even with a LVR of about 75% (as assessment with a valuation, a real one done at the property last week) the application was rejected…

    so my observation – credit is extremely difficult to come by currently and loosening it up will enable me to refinance and go to a lender with lower rates. thanks

      • applied with U-bank for the 2.29% offer on 3-yr fixed….

        Currently paying 3.3% with NAB on variable…I/O, inves’t… I have 4 years left of I/O with NAB, but more keen for a lower IR…

        Will try again end March once the rules are relaxed

    • I call complete BS on $4,000 / week, i’m assuming that’s a typo.
      208,000 after tax would mean most people couldn’t get even a $2 loan as they simply don’t earn that.

      Edit, I just refinanced a loan with no problems, tried to get IO a year or 2 ago and lending was tighter then.

      • well no, that’s the benchmark expenses figure used as a minimum for ALL applications from working couple no kids… the analyst crunching the numbers told me as much (said he shouldn’t even be disclosing the info but he told me anyway) they are rejecting more loan applications than they are approving…

        credit is super hard to come by currently. Too hard IMO

        • I noticed the same mid-last year, thought they were just managing credit risk and hoped it might change. NAB & WBC were able to offer the amount I was seeking, on the proviso they could access my partner’s assets as guarantee. I said no thanks, and they offered less than half the amount sought. Maybe they are so flooded with applications that despite the loosening of criteria, they are still able to be very selective of applicants.

        • “well no, that’s the benchmark expenses figure used as a minimum for ALL applications from working couple no kids”
          I again call BS, because what % of the population earns 208,000 pa after tax? presumably that is living expenses EXCLUDING mortgage repayments as well?
          I guarantee i didn’t hit a benchmark figure of 4000/week to refi an IO loan with suncorp literally a week ago, as I don’t earn that much.
          Although admittedly not no kids, 2 kids. I suspect you are being lied to about the reason for decline.

        • working class hamMEMBER

          Asked for max borrowing capacity 12 months ago and was offered 4 DTI.
          Same borrower last month, bought at 5.5. And they would have lended more.

  5. “Australia is facing a case of closing the regulatory gate long after the mortgage horse has already bolted.”

    It’s almost as though they want to look like they are doing something, while not actually doing anything? That couldn’t possibly be true, could it? I mean, they had a royal commission after all, which has no power to do anything other than make recommendations they can completely ignore.

  6. Basically the removal of this Act puts the onus of financial literacy on the borrower – and Australians don’t rate highly on that scale.

    The guys from APRA are probably worried more about their jobs because it pretty much makes them redundant.

    Interestingly, when this was first announced I read a few comments from the banks claiming to as surprised as everyone else. They claimed they hadn’t asked for this change.

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