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BFCSA investigates fraud involving lenders, spruikers and financial planners worldwide.  Full Doc, Low Doc, No Doc loans, Lines of Credit and Buffer loans appear to be normal profit making financial products, however, these loans are set to implode within seven years.  For the past two decades, Ms Brailey, President of BFCSA (Inc), has been a tireless campaigner, championing the cause of older and low income people around the Globe who have fallen victim to banking and finance scams.  She has found that people of all ages are being targeted by Bankers offering faulty lending products. BFCSA warn that anyone who has signed up for one of these financial products, is in grave danger of losing their home.


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BFCSA: ASIC's Greg Medcraft is on a mission to avoid a US sub-prime repeat. A decade TOO LATE

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ASIC's Greg Medcraft is on a mission to avoid a US sub-prime repeat

Australian Financial ReviewApr 3 2017 11:00 PM

Jonathan Shapiro, Jacob Greber


The chair of the corporate watchdog is leading a crackdown on home lending practices in order to avoid the mistakes that led to the 2008 house price crash in the United States.

Greg Medcraft, who is in the final months of his tenure as the chair of the Australian Securities and Investments Commission, will target lenders and brokers that are encouraging borrowers to take on riskier and "more expensive" interest-only loans and lenders that have understated living expenses of borrowers when assessing their ability to afford a loan.

"We want to make sure we don't have a surge in defaults when rates go up, and the misery that comes with that," Mr Medcraft told The Australian Financial Review.

Mr Medcraft, who says he witnessed the trauma in the months before the US housing market collapse, fears an increasing number of local borrowers are "in over their heads".

His comments comes as the Federal Treasurer Scott Morrison backed efforts of the regulators to force more borrowers to pay down their home loans as low-interest rates pushed household debt levels to historic highs.

"We've got household debt-to-GDP running at about 125 per cent, or thereabouts," Mr Morrison said. "Now, in a time when interest rates are low, what you want to be doing is paying down your principal. You want to be reducing your principal on your debt."

ASIC's measure follows the steps taken by the Australian Prudential Regulation Authority on Friday to force banks to lower the proportion of interest-only loans to below 30 per cent of all loans, from 40 per cent at present. It adds to an existing 10 per cent "speed limit" on investor loan growth that APRA has been enforcing since early 2015.

The coordinated moves to restrict credit and enforce responsible lending are aimed at cooling what many believe has become a dangerously overheated housing market.

Mr Medcraft, who stated last month that the property market was in a bubble, at odds with APRA chair Wayne Byres who, while concerned, was loath to use the 'B' word.

With interest rates at record lows Mr Medcraft said this was a time to be "proactive" and "careful".

"We don't want the banks to stop lending – just to make sure they are responsible," Mr Medcraft said.

The Treasurer described the latest regulatory crackdown as a "very sensible measure, both in terms of dealing with a hotter demand around investor lending, but it's also a sensible measure to try and address the issues of household debt, which is an external liability in many respects, and does put pressure on people via the stability of the Australian economy.

"Now we know that household debt is backed up by real prices, real values in the Australian real estate market, but nevertheless it's never a bad thing, particularly when rates are low, to be paying down your debt," Mr Morrison told Sky TV on Monday.

Mr Medcraft served as the head of securitisation at French bank Societe Generale until 2007.He co-founded American Securitisation Forum whose 2008 conference was famously upstaged by short-seller Mark Baum – a scene portrayed in the film The Big Short.

While comparing the state of the Australian property market to the catastrophic consequences of the US sub-prime crisis may sound alarming, he noted some emerging similarities.

One is a ramp up in housing credit on the presumption by borrowers that interest rates would stay low.

"You have these loans originated in low-interest rates and it can come back to bite hard. So lenders need to look at it now and consumers need to be aware."

Over 40 per cent of new loans are to investors or owner occupiers that are opting not to repay the principal on their loans – partly to reduce the annual cost of servicing a loan.

It's a trend that has caused anxiety among regulators fearful that households will struggle to absorb rising interest rates.

And as the regulators have targeted these loans, banks have responded by increasing rates on interest-only loans.

ASIC is at pains to point out that interest-only loans are "more expensive" over the life a loan as borrowers will pay more interest if they delay paying back the principal.

"It's not neutral in terms of the cost of buying your home," Mr Medcraft said.

Another similarity with the conditions in the US housing market was the prevalence of incomes being overstated and expenses being under-stated.

ASIC said that as part of its 2015 investigation into mortgage lending, it found up to 30 per cent of loans written had not properly considered the requirements of borrowers.

As a result, eight lenders, including three of the major banks, had agreed to take "remedial action" in instances where borrowers had been granted loans that they should not have and find themselves in a position where they are struggling to meet payments.

Westpac, the one major bank not named in Monday's statement is contesting proceedings brought against it by ASIC.

One of ASIC's findings is that lenders were using an index of living expenses in assessing a borrower's capacity to service a loan, which often understated their real living costs.

Mr Medcraft said that irresponsible lending practices created potential dangers to borrowers across the wealth spectrum who may find themselves over-extended.

It said lenders would be expected to apply higher living expense tests to those with higher incomes.

"A higher expense [test] should reflect the reality that people with higher incomes have higher expenses," said ASIC senior executive leader Michael Saadat, who has oversight over lenders and mortgage brokers.

In March, ASIC released a report on the mortgage industry, in which it identified several issues that could be improved. It pointed out that brokers were rewarded with commissions that were based on the volume of loans generated rather than the quality of the loan.

To encourage more responsible lending the incentive structure should be changed.

Mr Saadat said ASIC was doing more work across the consumer credit spectrum to ensure there borrowers weren't overstating their incomes.

"The headline indicators are that it's not a problem because arrears are low and people are servicing their debts – but we do have record low interest rates," he said.

If interest rates are to rise, the extent to which lenders have acted responsibly will become evident.

"In the US [arrears] started flowing through in the second half of 2006 and 2007. There was a lag effect – this is what is worrying us," Mr Medcraft said.

To Mr Medcraft the idea that banks should aim for higher accuracy in assessing actual expenses while rewarding brokers for writing safer loans is obvious – particularly since it is lenders that are taking the credit risk.

"As a former underwriter, I'm surprised we have to be ones coming up with ideas."

 DO NOTHING MALCOLM HAS NONE............................



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