Home loan fraud, brokers in banking royal commission spotlight
The Australian 12:00am February 27, 2018
Ben Butler
Home loan fraud at National Australia Bank and Commonwealth Bank-owned mortgage broker Aussie Home Loans, together with CBA’s dealings with its network of mortgage brokers, are among issues to be examined by the royal commission into the banks at its first public hearing in a fortnight.
The commission, headed by former High Court judge Kenneth Hayne, is to turn its blowtorch on to all four big banks over consumer lending issues including home loans, car finance, credit cards and insurance add-ons.
CBA, which has been at the centre of many of the scandals that have engulfed the financial services industry in recent years, is to receive the most attention, with four case studies scheduled to examine its practices.
These included “Aussie Home Loans fraudulent brokers and broker arrangements” and “CBA accreditation of brokers and broker arrangements”, the commission said in a statement.
CBA’s technology is also set to be put under the spotlight, with the bank’s “unsuitable overdraft facilities and failure of automated systems” to come under scrutiny.
ANZ has the second-highest number of case studies scheduled.
These include “unsuitable pre-approved overdraft offers” and “account administration errors”. “Fraudulent loan applications” related to NAB’s introducer program would be examined, the commission said.
In November, NAB sacked 20 bankers and disciplined 32 more after providing more than 2300 loans that were based on incorrect information through its introducer program since 2013.
The bank also announced a customer remediation program.
It is not clear what the commission will be examining when it looks into home loan fraud at CBA and Aussie.
However, in October last year Melbourne mortgage broker Najam Shah was jailed for five years for helping organise about $170m in fraudulent home loans from CBA and other banks.
Some of the loans were obtained with the assistance of a mobile lender from CBA.
And in 2016, Brisbane Aussie broker Emma Feduniw was fined $8500 after organising fraudulent home loans worth $1.6m.
Opening the commission a fortnight ago, counsel assisting Rowena Orr, QC, raised concerns that borrowers in Australia’s $1.6 trillion home loan market “have not always enjoyed the right to be treated honestly and fairly”.
“Some of these events may have involved breaches of the law, while others may have involved departures from community standards and expectations,” she said.
Over the past two years, UBS analyst Jonathan Mott has raised concerns that banks are writing a large number of so-called “liar loans” based on incorrect information provided by customers.
Last month, Mr Mott said he had discovered large differences between borrower income figures disclosed by CBA, NAB and Westpac and government information including census and tax office data.
The discrepancies raised possibilities including that “many borrowers are materially overstating their household income to secure a mortgage”, he said in a note to clients.
“We believe mortgage mis-selling is likely to be a key feature of the royal commission, especially as the terms of reference have been widened to include mortgage brokers,” he said.
In its submission to the commission the Consumer Action Law Centre also tackled home loans, slamming the banks for using “benchmarks”, instead of hard data about individual customers, to approve loans and flagging concerns buffers against interest rate rises are not big enough.
“The combination of these issues means that much of the harm caused by irresponsible lending in the home loan sector is yet to come,” CALC said.
“Should interest rates increase, many people who have entered into loans where affordability assessments have been inadequate are likely to find themselves unable to make repayments.”
The commission said it also would examine case studies related to “car finance practices” at Westpac, including its subsidiary St George, and ANZ, including its subsidiary Esanda.
In credit cards, the hearings will probe Westpac’s “unsuitable credit card limit increases” and Citi’s “imposition of international transaction fees”.
Both of Westpac’s issues appear to date from 2016, when its subsidiary Capital Finance was fined $493,000 for failing to properly warn customers before repossessing their cars and it agreed to pay the Australian Securities & Investments Commission $1m after failing to ensure credit card holders could afford an increase in their limits.
The commission said “a number” of consumers would give evidence at the hearing. “The entities that are the subject of consumer evidence will be informed by the commission,” it said. “A representative of a consumer advocacy group will also give evidence.”