APRA AT LAST....Having a BIG BO PEEP!!!!
Wonder if they will find the trust as BFCSA Members have or whether they will parrot ASIC and follow the lie-line: "no evidence to suggest?"
APRA warns banks to review mortgages for dodgy details
The Australian 12:00am October 21, 2016
Michael Bennet
The banking regulator has ordered the major banks to have their fraud systems externally reviewed amid concerns mortgages are being sold on flattering assumptions, including inflated incomes and undercooked living expenses.
Appearing before the Senate’s Economics Legislation Committee, Australian Prudential Regulation Authority chairman Wayne Byres revealed the regulator had informed the “largest institutions” to get their external auditors to review fraud control mechanisms to ensure they are working.
A survey from UBS released this month flagged that 28 per cent of mortgage customers stated their application was not factually accurate, with a higher proportion of misrepresentation among those who used a broker than through bank channels.
Asked yesterday if banks approving inaccurate loans may be systemic or isolated cases, Mr Byres said APRA was taking the issue “seriously” and had homed in on verification processes, such as evidence of income, as part of broader efforts to strengthen lenders’ serviceability assessments.
“We have told the larger institutions that we’ll be asking them to have their external auditors do a review of what are essentially fraud control mechanisms to ensure that there are mechanisms in place and … are working,” he added.
According to UBS’s survey this month, of 1228 people who recently took out a mortgage, 344 misrepresented parts of their application, with 26 per cent undercooking living costs and 14 per cent overstating income. More than a third who used a broker and misrepresented their application claimed they did so based on their broker’s suggestion, compared with 13 per cent through bank channels such as branches.
“Unfortunately survey results suggest misrepresentation is systemic with findings similar across the 2015 and 2016 (loan) vintages, price-to-income levels, loan-to- value ratios, owner occupiers and investors,” said UBS analyst Jonathan Mott.
“We believe these results are disturbing given the recent housing market reacceleration, elevated household leverage (186 per cent debt to income) and mortgages accounting for 62 per cent of bank loans.”
The survey builds on concerns about lending standards, amplified in February when US research house Variant Perception claimed Australia had “one of the biggest housing bubbles in history” fuelled by “very poor” bank underwriting standards plus fraudulent behaviour by mortgage brokers.
Brokers and banks have rejected the claims, and JPMorgan analyst Scott Manning this week dismissed the idea that similar fraud was occurring as in the US before the subprime mortgage meltdown.
Referring to bubble fears, Mr Byres said he was reluctant to use the “b word”, but conceded there was “heightened risk” and APRA was trying to embed improved lending standards into standard industry practices.
“Prices are very high, household debt is very high and income growth is relatively subdued, so it’s an environment in which a fair bit of caution is needed,” he said.
While noting risks in the apartment market, Mr Byres said improved lending standards had reduced potential problems.
In December 2014, APRA told banks to limit lending growth to property investors to 10 per cent a year and ensure borrowers could repay under interest rates of 7 per cent. The regulator has also pressured banks to curb lending to foreigners, met with bank boards, conducted “mystery shopper” tests on lenders and adjusted capital requirements.
Mr Byres said tightening lending standards had contributed to the slowdown in housing credit growth, but labelled this a “good thing” as some segments had been too hot and intense competition was inspiring poor decisions.
“We think we have improved lending standards, that has had the effect probably of meaning that there are a few less housing loans being given, particularly to marginal borrowers and we think that’s on balance a good thing for the system,” he said.
Moody’s this week warned mortgages more than 30 days in arrears had risen to the highest level in three years, while jobs data showed the loss of 53,000 full-time jobs in September — the biggest monthly fall in 5½ years.