Banking system "blighted" by fraud

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The banking system is being blighted by fraud as banks manipulate numbers on loan applications in order to make borrowers appear more credit-worthy than they actually are, says a submission to a Senate enquiry into white collar crime.

Economists Lindsay David and Philip Soos say that the fudged numbers, along with a lowering in lending standards, has led to a massive housing bubble with consequences for 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,” David, of LF Economics, told the ABC.  

The reason banks would do this, says David, is to remain competitive, as well as increase 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 credit-worthy 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."

It is argued that the false numbers will eventually be exposed, with the consequence being a loss of confidence in international markets that will undermine Australian banks’ access to the offshore funds they require to maintain lending.

Commenting on the report, Jeff Morris, the whistleblower who was responsible for exposing the financial planning scandal at the Commonwealth Bank, echoed its sentiments, saying, “You've got [mortgage] brokers and lenders, who are remunerated on the number of loans they write, simply massaging the figures to put it through the computer system, and then it spits out an approval.”

The submission to the Senate enquiry on white collar crime is released this week.

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Comments
  • Rob says on 27/04/2016 03:07:06 PM

    I refer to Jeff Morris' comment “You've got [mortgage] brokers and lenders, who are remunerated on the number of loans they write, simply massaging the figures to put it through the computer system, and then it spits out an approval.”
    What Mortgage Broker submitted loan is approved on the basis of a number that the broker types in? - NONE. Brokers provide the supporting documents such as payslips, to the lender, the lender cross checks broker input with their own assessment and adjusts accordingly if needed. It has always been like this as brokers are not Credit Assessors. This is common knowledge so it concerns me deeply that a Whistle Blower gets such detail incorrect. As a broker of 16 years I can honestly say I've never had a credit assessor go outside the evidence provided in order to provide an approval. I can't speak for the branch channel however.

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