Possibly the Most Important Thing You Will Ever Read in Money Morning.
Do you have a mortgage? There is a 1 in 10 chance you have been tricked. We’re not sure if we can use the word ‘defrauded’ instead of ‘tricked’, although that was our first thought. The trick is the very same one played on borrowers in the US, Spain, and Greece.
And that turned out to be devastating, not only for the borrowers, but for the entire world economy.
There is something you can do right now to find out if you have fallen victim. It’s probably better to know now than learn the hard way later.
But first, credit where it’s due. Your editor didn’t uncover this disgusting development. Although we can claim to have suspected something of the sort. Instead, it is Denise Brailey of the Banking and Finance Consumer Support Association who has uncovered the dirty secret of the Australian lending industry.
For those of you who think you are informed about this, think again. Denise has discovered that the rot extends to the full-doc loan market, not just the no-doc loan market we wrote about previously.
For those who don’t know the story so far, we better start at the beginning. The climax of the tale, by the way, takes place when you finish this article and ring your bank three times.
Hopefully that hasn’t put you off reading the explanation of why you need to do so.
These were supposed to be for people who didn’t have the typical documentation you need to apply for a loan. Business owners, for example, don’t get a regular pay cheque.
But anyone who couldn’t get a loan because their documentation showed they couldn’t afford it simply applied via the no-doc loan route instead. The banks provided an ABN to make it look like the applicant owned a business.
On top of that, they threw in imaginary income and assets and, as simple as that, the loan was approved.
What’s crucial to understand here is that this happened without the borrower knowing. They just knew they were getting the cash. And the lender knew they were getting the commission or bonus for doing so many deals.
The key to the mystery is the Loan Application Form (LAF). On it, a bank will include your financial information, and the loan is approved based on what’s on that form.
If bankers and mortgage brokers add on a couple of assets after you leave their office, nobody will be the wiser. But the banker will be the richer after he gets his commission.
To be clear, the borrower is the victim here. You might feel like borrowers are getting what’s coming because they borrowed too much. That’s partially true. But you might want to make the three phone calls we suggest below before you feel self-righteous about this one.
You might not be the banks’ stereotypical victim (a 98 year old lady was given a 30 year mortgage). But you may yet find yourself caught up in the mess anyway.
Apart from that, for bankers to lend to people who can’t afford it, they had to get around their own lending standards. To do that, they fiddled with the Loan Application Forms. And that, as far as we’re concerned, is document fraud.
Legally it might not be, because the LAF is an internal document. We don’t know the legal situation.
Here’s the real question: If bankers were willing to invent income, assets and dodgy documentation for no-doc loans, were they willing to do it for full-doc loans?
First things first, here is the warning Denise Brailey’s consumer association has put out:
Consumer Warning! DO NOT BORROW: Daily revelations show that borrowing for a mortgage in particular, is extremely hazardous to your financial well-being and you risk losing everything! Until the Australian Government initiates a ROYAL COMMISSION into the banking sector, any loan you take out with any of the 36 major banks or lenders, is most likely to be fraudulent. Loan Application Forms and Service Calculator Forms (to calculate affordability) are being doctored and changed without your consent or knowledge.
Source: Banking and Finance Consumer Support Association
If you want to find out whether you’ve already fallen victim to the banks tactics, here’s Denise’s hard learned advice. We wanted to reveal it to subscribers of our soon-to-be launched financial newsletter, but the faster this gets out there the better.
We asked her how to get access to a Loan Application Form and here is what she wrote back, with some edits for readability:
‘Ah yes, the key question. I recommend they do not write to the bank as it gets nowhere.‘The trick is to phone the bank customer relations service and ask for their 11 page document known as LOAN APPLICATION FORM. (Most people only signed 3 pages when they applied!)
If there is an excuse given, for example, ‘it’s an internal document’, hang up and dial again. You might have to do this three times. Eventually, one will say yes and send it.
‘We think this is due to confusion in the bank and not set instructions with staff. Collections departments are told to say NO you cannot obtain this.’
If you’re sceptical whether this works, check out the email we received from one subscriber below. Once (or if) you do get your LAF, check the income and assets it claims you have.
The bankers most commonly artificially increase your income. They’re quite shameless about it, because they figure nobody will ever check the LAF.
There is a vast amount more to this story than we can cover. For example, Denise pointed out to the Senators on the Economic References Committee that the government is currently profiting from this behaviour, as it owns a huge amount of the dodgy mortgages.
It’s also extraordinary to hear about some of the individual victims of the practice, many of them the perfect targets for predatory lending.
In America, former investment bank Bear Stearns had some internal emails released in which it called its mortgage based investment products things that would put the Bulldogs rugby league team to shame.
Using banking terminology, it’s safe to say that Australian mortgages aren’t the only ‘sack of sh*t’ in the banking industry.
You can find out more about Denise Brailey and the Banking and Financial Services Consumer Support Association here.
Let her and Money Morning (firstname.lastname@example.org) know about your experiences making those phone calls.
Note that this article first ran in The Daily Reckoning. Here is some feedback we have received since:
‘Ha! My phone call with bank played out as predicted!
‘…a real reluctance! finally got it after speaking to the supervisor’s
‘I am an avid fan of your emails, but felt I should send a letter regarding the ‘three phone calls ‘ article. You can see from my email address I work for one of those 36 banks.
‘I did Home Lending for a number of years, and can say that the statements made by Denise Brailey simply don’t happen. They are the exception rather than the rule.
‘I can honestly say that throughout my years I never used any of the methods suggested by Ms Brailey. In fact there were mechanisms in place to ensure the data was accurate. If it wasn’t then it was pretty much it would cost my job if it happened a couple of times.
‘What advocacy groups like Ms Brailey’s should concentrate on doing is educate people about entering into loan contracts. I can count on one hand how many people took the time to read the contract and terms of a loan offer. I found it amazing that people would commit to huge loans without hesitation.
‘Anyway, keep up the good work. I thoroughly enjoy reading your emails.
Thank you for helping to expose the ‘low-no doc loan’ scandal in Australia. We were 64 and 75 year old pensioners when the CBA gave us a 30 year $520,000 loan. We requested a re-finance of $360,000 but they pursued us relentlessly to take on the extra figure. Our loan application form is full of errors entered by bank staff without our knowledge or consent. My husband and I are listed as stock brokers on the form (which we’re not) and I am listed as a solicitor which I’m not, the list goes on and on.
We are now unable to keep up the payments as our savings are completely depleted through mortgage repayments.
Thanks and please more exposure.
Contributing Editor, Money Morning.
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