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BFCSA investigates fraud involving lenders, spruikers and financial planners worldwide.  Full Doc, Low Doc, No Doc loans, Lines of Credit and Buffer loans appear to be normal profit making financial products, however, these loans are set to implode within seven years.  For the past two decades, Ms Brailey, President of BFCSA (Inc), has been a tireless campaigner, championing the cause of older and low income people around the Globe who have fallen victim to banking and finance scams.  She has found that people of all ages are being targeted by Bankers offering faulty lending products. BFCSA warn that anyone who has signed up for one of these financial products, is in grave danger of losing their home.


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RBA: "about $50 billion worth of low-doc loans ~ 5% of bank balance sheets.

Posted by on in Reserve Bank of Australia
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RBA exposes low-doc loans risk:

BORROWERS using "low-doc" home loans are four times more likely to default than people on standard mortgages.

The Reserve Bank said yesterday there was about $50 billion worth of low-doc loans, representing 5 per cent of bank balance sheets.

A tightening in credit standards and the introduction of anti-predatory-lending laws following the global financial crisis had contributed to a drop in new low-doc loans, which now represent only 1 per cent of the new home loans being written, the RBA said.

The RBA's analysis of low-doc loans came as new research at the central bank's annual economics conference suggested Australia's mortgage market might be about $100bn larger than the legal system, economy and credit checking systems required.

The Sydney conference was also told there may be a case for greater use of hard limits on lending. Low-doc loans and "no-doc" loans involve lenders requiring little or no evidence of a borrower's ability to make repayments, and generally carry higher interest rates.

The RBA said 1.6 per cent of low-doc loans were more than 90 days in arrears, compared with 0.4 per cent for standard loans. According to ratings agency Standard & Poor's, low-doc loan default rates have doubled in the past two years.

Standard & Poor's analysis shows 6 per cent of "prime" low-doc loans were more than 30 days past due, compared with 1.33 per cent for full documentation loans for May. Low-doc loans were originally used by a small proportion of self-employed people who were unwilling or unable to provide tax returns and business statements.

However, their use ballooned to about 20 per cent of all loans written during 2007.

Because they required borrowers to provide little to no evidence of income, the loans were widely abused by mortgage brokers, some of whom inflated borrowers' incomes, and by borrowers doing it themselves to get loans approved.

Low-doc loans typically required a major asset -- usually a family's home -- to be provided as security. This was because the secured assets could be sold, often covering most of the losses faced by banks if loans soured.

The new research, involving the analysis of 61 national mortgage markets, said the Australian mortgage market -- valued at about 80 per cent of national income, or $850bn -- had performed well since the global financial crisis compared with those of Europe and North America.

However, excessive lending remained "apt to create instability and substantial volatiltiy" as Australian lenders had less access to reliable information on borrowers than lenders in Japan or South Korea, whose mortgage markets were far smaller, while borrowers' and lenders' legal rights in Australia were weaker than those in New Zealand or Singapore.

To rein in excessive lending, conference participants urged regulators worldwide to make greater use of hard limits on bank lending, such as maximum loan-to-house-value ratios or strict limits on banks' total exposures to the property sector.

One of the Reserve Bank's senior staff, Luci Ellis, argued tighter constraints on housing supply, widely believed to push up the cost of housing in Australia, could in fact help reduce the severity of recessions by limiting house price falls and therefore falls in consumer confidence.

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  • doyla66
    doyla66 Saturday, 24 November 2012

    Only 5% of balance sheets? I doubt that figure is correct.

    RBA is only using the figures that the banks provide them with. And, those figures are 100% correct aren't they? As if! We've all read about the 'mistakes' when the truth gets an airing. Who was the last bank to provide fudged figures to the RBA that had to admit an embarrassing 'mistake' or was it an 'error' in the figures they provided? Yes, we do remember.

  • doyla66
    doyla66 Monday, 26 November 2012

    Good point. How accurate are the figures, from Banks who have an investment in keeping regulators at bay by producing golden figures to allay fears? And, of course, everyone around the world knows that the Australian Govt will back up the banks and the Banks have largely US/International shareholders. Good global citizens? Probably. Good for Australian consumers? Probably not.
    I get the impression that there are two forces at work in Australian lending: one to reduce the household debt; the other to increase home loan borrowing for the building industry. I guess that's a form of stability, like spinning opposing wheels to keep the machine upright, even if it's going nowhere in particular. More likely the result of opposing lobby groups and political appeasement. Juggling trick.

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