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Mortgage fraud is a time bomb under Australia’s housing bubble

Mortgage fraud is a time bomb under Australia’s housing bubble

The bank apologists at the Australian Financial Review went down the rabbit hole on 21 September with Christopher Joye’s claim that “droves of Aussies are indeed defrauding banks by lying on their home loan applications”. 

Citizens Electoral Council of Australia
Media Release Wednesday, 26 September 2018
Craig Isherwood‚ National Secretary
PO Box 376‚ COBURG‚ VIC 3058
Phone: 1800 636 432
Email: This email address is being protected from spambots. You need JavaScript enabled to view it.

Mortgage fraud is a time bomb under Australia’s housing bubble

Don’t take out a home loan until you’ve watched

‘Mortgage Fraud Explained’!

The bank apologists at the Australian Financial Review went down the rabbit hole on 21 September with Christopher Joye’s claim that “droves of Aussies are indeed defrauding banks by lying on their home loan applications”.

The complete opposite is true. Denise Brailey of the Banking and Finance Consumers Support Association (BFCSA) and others have exposed that the banks committed the fraud, not the borrowers.

For the truth on mortgage fraud, watch Denise Brailey’s explosive presentation “Mortgage Fraud Explained”, delivered to a 30 June 2018 Citizens Electoral Council seminar in Perth. No borrower should take on a mortgage without seeing this presentation!

This is the most urgent issue in the Australian banking system today, with the most far-reaching implications. Mortgage fraud is a ticking time bomb under the housing bubble, set to detonate as borrowers default on loans they could never afford, and implode house prices that were never real, but were inflated by “demand” faked by the banks through mortgage fraud.

In September 2017 banking analysts at UBS estimated that $500 billion of the $1.7 trillion in Australian mortgage debt is from so-called “liar loans”, which were based on false estimates of the borrowers’ living expenses. As Denise Brailey has exposed, however, the liars were the banks, not the borrowers.

The banks deliberately estimated the living expenses of all borrowers against the benchmark poverty index. In a 26 August 2018 post, Digital Finance Analytics principal Martin North reported UBS’s figures that no matter the borrowers’ annual income, whether $80,000 or $500,000 or anywhere in between, the banks estimated the borrowers’ expenses to be the same—$32,400. This allowed the banks to lend far more than they should have. For borrowers on $80,000, for instance, estimating living expenses at $32,400 enabled the banks to lend 42 per cent more than if expenses were more realistically estimated at $50,000.

In her presentation, Denise Brailey explains how the banks accomplished this fraudulent underestimation of borrowers’ expenses, using loan application forms (LAF) that borrowers only saw a few pages of.

The banks had to resort to this fraud, to feed the housing bubble. From 2000 to 2004, Australian house prices almost tripled as banks concentrated more and more of their lending into real estate. To continue lending for increasingly unaffordable houses, the banks changed their definition of affordable. The bank regulator APRA allowed the banks to lower their lending standards from an “affordability” criterion that repayments should not exceed 30 per cent of gross income, to “serviceability” criteria based on the assumption that borrowers should live on the equivalent of the poverty line

in order to service their loans. The banks fraudulently lowered borrowers’ expenses to this poverty line benchmark, unbeknownst to most borrowers.

By March 2007 an internal APRA report warned that as a consequence of the lowered lending standards, the amount of housing debt outstanding was three and a half times greater than it would have been under the older, more conservative, lending standard. Instead of addressing the problem, APRA kept this report secret—it only came to light in a 4 April 2016 ABC report by Stephen Long—and a decade later, Australian mortgage debt has more than doubled.

The danger that Australia faces as a consequence of this mortgage fraud is a massive crash of the housing bubble similar to the US subprime mortgage meltdown that caused the 2008 global financial crisis. 

One of the relatively few people who foresaw the 2008 crash was Dr Michael Burry, the character in The Big Short movie played by Christian Bale, who was the first to bet on the crash. As author Michael Lewis recounts in the book on which the movie is based, The Big Short: Inside the Doomsday Machine, Burry based his prediction on the level of recklessness and fraud in the banks’ lending practices:

What Burry couldn’t understand was why a person who lent money would want to extend such a loan [to subprime borrowers]. “What you want to watch are the lenders, not the borrowers,” he said.

“The borrowers will always be willing to take a great deal for themselves. It’s up to the lenders to show restraint, and when they lose it, watch out.” By 2003 he knew that the borrowers had already lost it. By early 2005 he saw that lenders had, too.

Lewis quoted a letter Burry wrote to investors to justify his bet that the housing bubble would crash:

“It is ludicrous to believe that asset bubbles can only be recognised in hindsight,” he wrote. “There are specific identifiers that are entirely recognisable during the bubble’s inflation. One hallmark of mania is the rapid rise in the incidence and complexity of fraud…. The FBI reports mortgage-related fraud is up fivefold since 2000.” Bad behaviour was no longer on the fringes of an otherwise sound economy; it was its central feature. “The salient point about the modern vintage of housing-related fraud is its integral place within our nation’s institutions,” he added.

This is precisely the crisis situation that Australia is in today. The government, however, is in denial of this crisis because it is in denial of the extent of mortgage fraud, and the banks’ culpability in that fraud. The Financial Services Royal Commission only touched on the fraud briefly in its first round of hearings; for the full picture, all politicians and regulators should watch Denise Brailey’s “Mortgage Fraud Explained”.

To avert a financial crisis, fight for Glass-Steagall banking separation! What you can do:

1. Forward the YouTube link to Denise Brailey’s “Mortgage Fraud Explained” to your local MP and Senators, and ask them for a written reply on what they intend to do about it.

2. Ask your MP and Senators to support the Banking System Reform (Separation of Banks) Bill 2018, to enact a Glass-Steagall separation of deposit-taking banks from financial speculation, so that the savings of Australians are protected from a financial crisis.

Click here for a free DVD of two presentations from the CEC’s 30 June seminar in Perth: the BFCSA’s Denise Brailey on Mortgage Fraud Explained, and Australian Alert Service editor Elisa Barwick on China’s Glass-Steagall standard.China’s Glass-Steagall standard.

Click here to join the CEC as a member.

Click here to refer others to receive regular email updates from the Citizens Electoral Council of Australia.

Last modified onFriday, 28 September 2018 00:45

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