Banks Cheated on Home Loans, Enquiry Told

Herald Sun 4.41pm Wed 8th August

AUSTRALIAN banks have been accused of giving home loans to people who can't afford them,

and doctoring the paperwork so the loans looked OK.

A consumer advocate has told a Senate inquiry into the banking sector this has serious implications for the federal government, which has invested billions of dollars in residential mortgage-backed securities (RMBS), which are repackaged home loans.

Banking and Finance Consumer Support Association president Denise Brailey said that in the past six weeks she had seen low-document or no-document loan applications from 400 people, and each one had been tampered with after being signed.

"Not one of them is a clean document," Mrs Brailey told the inquiry in Canberra on Wednesday.

In some cases, the loan application documentation showed someone on $40,000 a year was earning closer to $180,000.

She claimed this had occurred under the guidance provided by banks to brokers.

The government has invested just over $15 billion in the RMBS market in its attempt to restart securitisation in Australia and provide cheaper funding for the banking sector after the market effectively shut down because of the global financial crisis (GFC).

Mrs Brailey said international credit ratings agency Fitch Ratings had estimated that eight to 10 per cent of RMBS's comprised low-doc loans and some $2 billion of loans were obtained fraudulently.

"The government is holding tainted securities," she said.

"The government cannot be seen profiting from that fraud."

She said the Australian Securities and Investments Commission (ASIC) had failed to regulate the financial industry.

"ASIC did nothing before the GFC, nothing during the GFC, and refused by letters to me and to other people within our group, to do anything since the GFC," she said.

Ms Brailey called for a royal commission into the banking industry to examine the problem.

Loc-doc loans are mainly used by people who are self-employed and cannot provide the breadth of financial information held by those who work for someone else.

Full story: