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Wednesday, 18-Sep-2013 04:20 Email | Share | Bookmark
Missing Pieces In A Low-doc Lending Trail That Shattered Lives

Low-doc loans a risky business

Further to the stand-off between the loans for small business Australia activist and the regulators, Brailey fiercely rejects ASIC's claims that she had failed to provide them with loan application forms (LAFs). She instructed her members to send more than 100 formal letters of complaint to the regulator last year. Roughly half of these had LAFs with them, most with the discrepancies highlighted - usually the borrower's income had increased. ASIC confirms it received 70 letters from Denise Brailey's BFCSA members. It declined to investigate however, instead, writing back to advise the Brailey members to secure the services of a lawyer. These "bugger off" letters, says Denise Brailey, were an insult to aggrieved borrowers. In many cases - and this is another significant bone of contention - many of the 30 banks and non-bank lenders who provided the loans in the first place have refused to release the LAFs to the borrowers when asked. Neither has ASIC, or the Financial Ombudsman Service (FOS) which is adjudicating many of the claims, exercised their powers to demand the LAFs be released to the customers. And this, despite Denise Brailey's claim: "There is not one clean LAF among my 1200 members." ASIC refers many of its lending complaints to FOS, which is a private complaints bureau funded by the banks and financial institutions. At the moment FOS is dealing with a 'spike' in low-doc matters, the Financial Ombudsman Philip Field told BusinessDay on Friday. Field said the banks, in some individual cases, may be responsible for flawed low-doc loans but mostly - and critically in a legal sense - the mortgage brokers, who introduced the bulk of the loans, had acted as the agents of the customer rather than the bank. <br>For the original version including any supplementary images or video, visit

7 things you should know about low doc loans

MAN: The loan amounts were wrong. My - and my job was wrong. The amounts I earned was wrong. A small business I had, the valuations was wrong. So there's 17 glaring mistakes that they had filled in that I didn't know about. WOMAN: The head office actually said to me, "Ms (inaudible) I've no idea how you got yourself into this mess. You've got $750,000 worth of shares and you've got $13,000 worth of income from rental properties you have rented out." And I said, "Well if you can find it, I'll give you half of it because it doesn't exist." WOMAN II: My total loans were $4.5 million with no income and a 30-year period, which would take me up to 103. WOMAN: From around the nation they gathered in Canberra as senators heard evidence on the low doc scandal. <br>For the original version including any supplementary images or video, visit

Low doc loans

And the regional banks are already there. Up to 30 per cent of Adelaide Bank's total home loans are low-docs; Suncorp's is more than 10 per cent; while St George Bank's is less than 5 per cent. The majors are all at or less than 1 per cent. The banks' push into the low-doc market is a marked turnaround from five years ago, when low-doc loans were dismissed as too risky. The risk-averse banks wouldn't touch them, which allowed specialist lenders Liberty Financial and Bluestone Mortgages to build up dominant positions in a fast-growing and profitable market. Both these businesses are considering a stockmarket listing or trade sale, following their success. While they do sell low-doc loans, the bulk of their lending is non-conforming, or loans to borrowers with an "impaired" or "uncertain" credit history. <br>For the original version including any supplementary images or video, visit

Allen and Day had flown from Melbourne to find out what information Brailey, a veteran campaigner for victims of financial fraud, had about the banks and their low-doc loans. Brailey claimed to have the last bits of the jigsaw puzzle which would prove that mortgage brokers were acting as agents of the banks in foisting loans on customers who could not afford them. Though interest rates had fallen to historic lows, there were family homes on the line, lives ruined. This $57 billion, low-doc loan sector required urgent investigation, said Brailey, who had brought a stack of documents to the meeting to prove her point. Denise Brailey. Brailey claims credit has been overextended through mortgage brokers - in many cases when it wasn't asked for - and now some borrowers are facing deep financial stress. <br>For the original version including any supplementary images or video, visit

Missing pieces in a low-doc lending trail that shattered lives

Enhanced features One of the best features of the low doc loan is that the borrower gains extended access to a range of loan features and options that were previously unheard of or available for him in the market. Such loans could also be termed as a time and money savers for the informal and self-employed workers who find it hard to avail loans. 5. Increased opportunities to earn credit At present, due to increase in competition in the lending market, majority of the big names in the lending business, including the banks now offer low doc loan services. Earlier, only non banking financial institutions with limited presence used to offer these loans to the aspiring candidates. 6. Lucrative proposal Usually as seen the world over, low documentation loans cover up to 80% or more than three quarters of the residential property in case the candidate intends to acquire one for investment purpose in the days to come. <br>For the original version including any supplementary images or video, visit

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