Citizens Electoral Council of Australia

Media Release Thursday, 1 May 2014

Craig Isherwood‚ National Secretary
PO Box 376‚ COBURG‚ VIC 3058
Phone: 1800 636 432
Email: cec@cecaust.com.au
Website: http://cec.cecaust.com.au

To save property bubble, desperado banks return to scene of low-doc crime

Australia’s banks got away with criminal fraud on a massive scale when the financial regulators ignored their role in the “low-doc” loans scam that ruined thousands of borrowers when the GFC erupted in 2008.

So, desperate to avert a collapse of Australia’s property bubble, the banks are again going low-doc—in a big way.

The banks are desperate because the bubble is completely stretched, with house prices at the extreme limit of affordability, despite record low interest rates. They know it is only a matter of time before rising unemployment, or the fall-out from China’s banking problems, forces a massive sell-off in Australian housing that will collapse prices, burst the bubble—and wipe them out!

The problem with a bubble is it has to always keep growing, or it will burst; therefore, to keep the bubble growing in today’s economy, the banks are resorting to making home loans to people who can’t afford them.

The banks and mortgage brokers—that in one way or another are all fronts for banks—are writing more and more loans that are 95 per cent or even 100 per cent or more of the property’s value.

It is now a matter of record that in the past, the way banks justified these loans was through fraud.

Denise Brailey of the Banking & Finance Consumers Support Association testified before a Senate Committee in 2012 in regard to 1200 cases where brokers and bank loan officers tampered with loan application forms to grossly overstate a borrowers income. This practice was blamed on rogue brokers, but around 30 per cent of the cases Brailey cited were committed by the oh-so-respectable Big Four banks.

The lenders also used fraudulent service calculators that would count the projected capital gains on the property as income; in some cases this would increase the borrowers stated income from $20,000 to $180,000. They also included “buffers” in the loans—a margin above the price of the property—which would be enough to make the first three or so years of mortgage payments, to give the appearance that the loans were being serviced.

The regulator, the Australian Securities and Investments Commission (ASIC), which is run by ex-investment banker Greg Medcraft, a specialist in securitisation which has turned mortgages into the basis for hundreds of trillions of dollars of derivatives bets globally, has refused to look at the fraud exposed by Brailey et al., so the banks have got away with it.

The fraud is known, because it all unravelled when the GFC erupted in 2008. To that point, low-doc and no-doc loans in Australia had grown from being 0.5 per cent of all mortgages in 2000, to almost 10 per cent in 2008. In the immediate wake of the GFC banks temporarily returned to making loans of 80 per cent of the house value.

So now the banks are going low-doc again, what ruses are they using this time to justify the loans? Or, thanks to ASIC, are they recycling the same fraud as before?

The desperation of the banks to again go big on low-doc loans underscores the need for Australia to impose a Glass-Steagall separation of retail banking from investment banking, before the bubble bursts!

To fight for Glass-Steagall and hold those responsible for this fraud to account, join the CEC.

Click here for a free copy of the CEC’s pamphlet, Glass-Steagall NOW!, plus the memorandum on “The Great Australian Mortgage Bubble” submitted to the government’s Financial System Inquiry

Click here to join the CEC as a member.

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