Banks at risk due to $500bn in mortgages lent on incorrect information, investment bank claims
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Banks at risk due to $500bn in mortgages lent on incorrect information, investment bank claims
‘Liar loans’ - mortgages that are based on incorrect information -account for almost $500bn of bank mortgage books, a controversial report by UBS has claimed.
UBS surveyed mortgage borrowers and found 67% stated their mortgage application was “completely factual and accurate” – meaning the remaining third contained at least some inaccuracies. Combined with similar surveys in 2015 and 2016, UBS concluded that between ¼ to 1/3 of the banks’ books were based on factually inaccurate information.
“Overall, we believe the accelerating level of mortgage misstatement by Australian borrowers is a substantial problem and more needs to be done by the banks to address it,” wrote analysts Jonathan Mott and Rachel Bentvelzen, “while the banks are attempting to tighten mortgage underwriting standards to comply with APRA's sound lending practices, there is little evidence to suggest this is working.”
Due to liar loans, the risk of defaults and the damage such defaults could cause to the Australian economy has been underestimated, UBS claims.
Brokers to blame
Broker clients were more likely to provide inaccurate information on their applications than those who went direct, according to UBS’ figures.
61% of broker-client applications were ‘completely factual and accurate’, compared to 75% for direct clients. The proportion of accurate applications declined for both broker and direct clients since 2016.
UBS claims that brokers are more likely to encourage inaccurate applications than bankers. Of the 39% of broker clients whose applications were not completely factual and accurate, over a third said the ‘broker suggested I misrepresent’. The equivalent for inaccurate direct applications was just 8%.
However, UBS concedes that “it is possible that customers who have knowingly misrepresented their loans would prefer to point the blame at someone else, even in an anonymous survey.”
Applications getting easier, not harder
Whilst UBS take aim at brokers they have also questioned the banks’ underwriting standards.
46% of those surveyed said the loan approval process was ‘much easier’ or ‘somewhat easier’ than their previous application, whilst 17% said it had got more difficult.
There were no significant differences between broker and bank customers when it came to approval difficulties.
Analysts Mott and Bentvelzen wrote that: “as the value of mortgage approvals has been broadly stable over the last twelve months and customers are not finding it harder to get approval it is difficult to conclude underwriting standards have been tightened from a customer's perspective.”
MPA will cover further aspects of UBS’ report, including industry reaction, in tomorrow’s newsletter
Are you a top broker? Prove it!
‘Liar loans’ - mortgages that are based on incorrect information -account for almost $500bn of bank mortgage books, a controversial report by UBS has claimed.
UBS surveyed mortgage borrowers and found 67% stated their mortgage application was “completely factual and accurate” – meaning the remaining third contained at least some inaccuracies. Combined with similar surveys in 2015 and 2016, UBS concluded that between ¼ to 1/3 of the banks’ books were based on factually inaccurate information.
“Overall, we believe the accelerating level of mortgage misstatement by Australian borrowers is a substantial problem and more needs to be done by the banks to address it,” wrote analysts Jonathan Mott and Rachel Bentvelzen, “while the banks are attempting to tighten mortgage underwriting standards to comply with APRA's sound lending practices, there is little evidence to suggest this is working.”
Due to liar loans, the risk of defaults and the damage such defaults could cause to the Australian economy has been underestimated, UBS claims.
Brokers to blame
Broker clients were more likely to provide inaccurate information on their applications than those who went direct, according to UBS’ figures.
61% of broker-client applications were ‘completely factual and accurate’, compared to 75% for direct clients. The proportion of accurate applications declined for both broker and direct clients since 2016.
UBS claims that brokers are more likely to encourage inaccurate applications than bankers. Of the 39% of broker clients whose applications were not completely factual and accurate, over a third said the ‘broker suggested I misrepresent’. The equivalent for inaccurate direct applications was just 8%.
However, UBS concedes that “it is possible that customers who have knowingly misrepresented their loans would prefer to point the blame at someone else, even in an anonymous survey.”
Applications getting easier, not harder
Whilst UBS take aim at brokers they have also questioned the banks’ underwriting standards.
46% of those surveyed said the loan approval process was ‘much easier’ or ‘somewhat easier’ than their previous application, whilst 17% said it had got more difficult.
There were no significant differences between broker and bank customers when it came to approval difficulties.
Analysts Mott and Bentvelzen wrote that: “as the value of mortgage approvals has been broadly stable over the last twelve months and customers are not finding it harder to get approval it is difficult to conclude underwriting standards have been tightened from a customer's perspective.”
MPA will cover further aspects of UBS’ report, including industry reaction, in tomorrow’s newsletter
Are you a top broker? Prove it!
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http://survey.keymedia.com/au/mpa/2017/top100/
