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ABC: Fraud rife in banking system, loan application numbers fudged: economists
Article: http://www.abc.net.au/news/2016-04-21/fraud-rife-in-banking-system-economists-say/7348176
Video: http://www.abc.net.au/news/2016-04-21/are-the-banks-massaging-their-numbers-to-make/7348286
Extract: Fraud is rife in the banking system as banks systematically fudge the numbers on loan applications to make borrowers look more creditworthy than they really are, according to an explosive submission to a Senate inquiry on white collar crime.
The economists Lindsay David and Philip Soos argue that the practice, together with a dramatic lowering of lending standards, is responsible for a massive housing bubble and threatens the stability of the entire financial system.
"The banks have trashed their lending standards over a prolonged period of time with significant evidence of banks massaging people's incomes in their loan application forms to make them look a lot more creditworthy than what they really are, which is essentially fraud," Lindsay David of LF Economics told the ABC's Lateline program.
"The banks would do this for various reasons. One is the highly competitive environment between the banks. Second of all is profitability.
"The safer your mortgage book looks, the lower it costs you to do business — simple as that. If you show that your borrowers are very creditworthy then you are going to get cheaper funding costs, and that's a win-win for the bank — until the whole system breaks down, obviously."
But at some stage, they argue, an economic shock will expose the decline in lending standards and cause a loss of confidence in international markets, undermining Australian banks' access to the cheap offshore funds they rely on to maintain their lending.
"I don't think that Australians realise the risks the banks have taken in order to get house prices as high as they are," Mr David said.
Comment: Good to finally see this information appearing in the media, although is this really still 'news' to anyone out there? Surely it isn't to anyone who's lost their home or run foul of a mortgage lender. This has been going on now for two decades and all of a sudden, now, the media decides to come to the rescue. It's 20 years too late to start running these stories as 'news', isn't it? Maybe Bill Shorten has arranged for the government gag orders, previously suppressing media reporting on how mortgage lenders brazenly defraud the Australian Public, to be lifted to gain the political mileage he needs to win the next election on his promised financial sector royal commission, or something? Will Bill next be seeking extradition orders for one, M.I.A., ex-CEO of ANZ, Mike Smith, who did a runner shortly after 60 Minutes exposed him and ANZ for the crooks they are? Come home, Fat Mike! We've got some questions we need you to answer about how you willingly ruined this country for a short-term profit!
If all of this is going to be fixed anytime soon, it will require all of us to accept that the average housing price needs to be no more than 3.5 times the average annual wage in that area. So, no major capital city house should be over $300,000. A lot of people won't like hearing it, but that's what it's going to take if we want to get out of this mess in the quickest, safest way. Worried about your losses? Just sue the banks.