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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: Mandate to ensure 'financial stability' ~ sits on CFR, APRA, ASIC, Treasury.

Posted by on in Reserve Bank of Australia
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Stop talking, RBA, and do something!!! 

-- By Leith van Onselen --

The Reserve Bank of Australia’s (RBA) Financial Stability Review, released yesterday, contained at least three unambiguous warnings that Australian lenders should not seek to relax lending standards in a bid to increase market share and boost profitability:

“With demand for credit likely to remain moderate, a challenge for firms in a competitive banking environment will be to resist the pressure to ease lending standards to gain market share in the pursuit of unrealistic profit expectations…”

“While there is little evidence over the past year that they have been imprudently easing lending standards in a bid to boost their credit growth, they are seeking ways to sustain the growth in their profitability, including, in some cases, through cost cutting. Such strategies will need to be pursued carefully to ensure that risk management capabilities and controls are maintained…”

“…it would be undesirable if banks responded [to low credit growth] by loosening their lending standards or imprudently shifting into new products or markets in a bid to boost their balance sheet growth…”

Following the RBA’s warning, it is interesting to note that low-doc lending appears to be making somewhat of a comeback:

HIGHER-RISK pre-GFC-style lending practices are flooding back with non-bank lenders scrambling for their share in the burgeoning sub-prime lending market.

Non-bank major lender Resimac has embarked on a campaign to capitalise on the growing sub-prime sector and is offering low-doc loans to borrowers of up to 90 per cent of the value of a home.

Others, such as Rams, a subsidiary of Westpac, are lending borrowers up to 97 per cent of a property’s value, after adding in lender’s mortgage insurance premiums…

Now Westpac, St George (owned by Westpac) and the CBA will lend to borrowers holding just a 5 per cent deposit, lending up to 95 per cent of the value of a home…

Resimac is offering the 90 per cent loan-to-valuation ratio for low-doc loans of up to $1.5m to self-employed people who are unwilling or unable to provide tax returns and other information usually required for premium loans.

“We see more and more borrowers falling outside of what is considered ‘traditional’ lending guidelines,” Resimac chief operating officer Allan Savins said in a recent advertisement for the group’s sub-prime products.

“This may be due to the borrower themselves having a credit-related issue or simply because lending policies and lenders’ mortgage insurance guidelines have tightened.”

Let’s recall that it was the entry of non-bank lenders into the mortgage market in the early-1990s that led to the introduction of “innovative” (read risky) loan products such as low-doc loans and no‑doc loans. Naturally, Australia’s banks responded in kind by reducing deposit requirements to 5% or less (from 20% previously) and significantly increased the amount that they would lend on a given income.

My question then is as follows: If the RBA is concerned about underwriting standards, then why doesn’t it do something about it?

After all, “financial stability” is stated explicitly in the RBA’s mandate. The RBA also sits on the Council of Financial Regulators (CFR), along with the Australian Prudential Regulatory Authority (APRA), the Australian Securities & Investments Commission (ASIC), and the Australian Treasury.  Why doesn’t the RBA work directly with these agencies – APRA in the case of banks, building societies and credit unions, ASIC in the case of the non-bank lenders, and Treasury as the gatekeeper – to implement macroprudential tools, such as higher minimum deposit requirements, tighter loan servicibility requirements, and debt-to-income requirements, that work to limit high risk lending and mitigate the credit cycle?

Simply stating over and over again that you don’t want lenders to relax standards is not enough. Blind Freddie can see that interest rates are going to fall at some point. If the RBA is concerned about lower interest rates raising household debt levels and inflating home values, how about following the lead of other jurisdictions and actually doing something about it?

 

 

 

 

 

#Note to editor: denise researching RBA 'low-doc' records.....'a work in progress'

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Comments

  • doyla66
    doyla66 Saturday, 24 November 2012

    RBAs mandate goes MIA on a regular basis, sometimes going completely AWOL

    It may be stated implicitly in their mandate for financial stability but what do they actually DO to meet their stated mandate? Regulate interest rates? Well, actually they only TRY to do that for as we have seen, heard & read regularly they are getting ignored by the big 4. So, what else do they do?

    They sit on the Council & do what exactly? With the massive salaries that get paid, what do they really do? Advise all & sundry at regular monthly talk fests? This is just another one of the many layers of cotton wool that fluff out protection for "regulators", government, et al. How many degrees of separation again?

  • doyla66
    doyla66 Monday, 26 November 2012

    I wonder if the RBA are afraid that any open criticism or openness about due process against Bank fraud or RMBS might adversely impact "stability"?
    Is excessive tolerance of lending and financial misconduct the price we pay for "stability"?
    Isn't this delaying the inevitable: that the misconducts will be greater and more widespread when eventually the present system can no longer contain them?
    With other parts of the world apparently going off the deep end of debt (according to reports) while Australia is quite well behaved (!) the objective since the GFC has been stability.
    And what do the RBA do? Tweak, fine tune, adjust ... in response to the changing financial environment. Few great moments of elation and celebration in the RBA camp - just steady as we go ...
    So long as we're actually pointing in the right direction in the first place that may work ...

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