Banks overwhelmed by rabid mortgage demand

RBA Governor Phil Lowe last year endorsed Treasurer Josh Frydenberg’s proposal to axe responsible lending rules, telling the Standing Committee on Economics that Australian mortgage restrictions had become too strict and were constraining the economy:

“We can’t have a world in which, if a borrower can’t repay the loan, it’s always the bank’s fault. On a portfolio basis, we want banks to make some loans that actually go bad, because if a bank never makes a loan that goes bad it means it’s not extending enough credit”…

“The pendulum has probably swung a bit too far to blaming the bank if a loan goes bad”…

Lowe went on to say that the way the responsible lending legislation had been interpreted needed looking at:

“If we can’t do that properly, maybe we need to look at the legislation”.

Later in October, Lowe reiterated this view, stating that the removal of responsible lending rules “would support the supply of credit”.

Since these infamous claims, the notion that the supply of credit is constrained has been completely obliterated by the ABS’ lending data, which has reported the biggest ever boom in mortgage commitments:

New mortgage commitments

Australia’s biggest ever mortgage boom.

Now Australia’s banks are calling for “compassion” from mortgage brokers as they struggle to process applications:

Loan approval times at large lenders have blown out to a month or more as some work through a deluge of borrowers seeking to refinance at record low rates and first-home buyers scrambling to get into the property market…

Bankers accepted their systems and processes had not held up under a 50 per cent increase in applications through the broker or third-party channels, with many speaking of the additional resources they had put on to clear the bottlenecks…

Commonwealth Bank general manager Adam Croucher said… “Our application volumes almost doubled in the second half of 2020, something we could not have anticipated to happen during a once-in-100-year pandemic”…

This doesn’t sound like an economy suffering from constrained credit, does it?

Of all Phil Lowe’s calls, his endorsement of Josh Frydenberg’s planned abolition of responsible lending rules must rank amongst the worst.

Unconventional Economist

Comments

  1. “…On a portfolio basis, we want banks to make some loans that actually go bad, because if a bank never makes a loan that goes bad it means it’s not extending enough credit…”
    and the shareholder cohort tear the board to shreds

  2. BubbleyMEMBER

    Phillip Lowe needs to be sacked. He must be corrupt to say this. Not stupid, corrupt.
    “We can’t have a world in which, if a borrower can’t repay the loan, it’s always the bank’s fault.”

    The banks are BUSINESSES – the sole job of a bank is to assess risk when loaning out money.

    If a borrower can’t afford to repay the loan, yes, it is the banks fault. The bank failed to assess the risk properly.

    I’m so angry my head has turned into a flaming skull.

  3. Ailart SuaMEMBER

    It seems as though the secret, once upon a time known only by politicians – but now the ‘bleed’n-obvious’ – that Australia’s property sector and major banks are ‘too big to fail’, has well and truly trickled down to the ‘peasants’. I suppose a lot of the blame for that is down to people like Warren Mosler and Stephanie Kelton. Anyway, “Welcome aboard the MMT Express!” The big issue, of course, is that the driver and crew are the same incompetents who drove the Neoliberal Express…

  4. Jumping jack flash

    “Of all Phil Lowe’s calls, his endorsement of Josh Frydenberg’s planned abolition of responsible lending rules must rank amongst the worst.”

    Depends on your perspective.
    While wages remain stagnant and debt eligibility a function of wages, what else is there to grow the debt except make debt easier to become eligible for?

    The interest of the existing debt needs to be paid at the very least, and that is traditionally paid by people taking on new, larger piles of debt. The yearly interest bill for Australia’s mortgage debt pile is somewhere around 100 billion dollars each and every year.

    If nobody is eligible for the new, larger piles of debt to service this debt wad, the whole show stops. The banks are paid their interest from existing money and that effectively shrinks the economy as the money that could have been used to consume and pay wages is used for interest and given to the banks.

    Scomo and Joshy-Boy arguably missed their one (at least for the foreseeable future) opportunity to kickstart CPI and wages growth. In my opinion this is the next best thing.