Banks Still Continuing to Profit From Fraud
Banking and Finance
Consumer
Support
Assoc (BFCSA Inc)
FOR IMMEDIATE RELEASE:
07
August 2012
Consumer Group Reveals Banks Still
Continuing to Profit From Fraud
PERTH WA. It’s no secret
that consumers are not happy with the performance of the
‘big 4’ banks in Australia, with only 76% of people
recently polled, saying they were happy.
Mortgage default and foreclosure are becoming
more prevalent every day in Australia, but most people
don’t realize that many large banks and non-bank lenders
are using mortgage and loan application forms to make a grab
for peoples’ homes and the Titles to their properties.
Banks use ‘Loan Application Forms’ (LAF’s) and ‘Service Calculators’ to determine a person’s ability to repay a loan by using their income, expenses and assets and calculating a maximum amount they can borrow.
Award-winning consumer advocate and President of the Banking and Finance Consumer Support Assoc (BFCSA Inc), said, “We have looked at over 400 Loan Application Forms so far and in every case there is evidence of alterations to documents after the signature was obtained and without the clients' knowledge or consent.”
Alterations include exaggerated incomes and assets, understated expenses, and sometimes up to three different sets of handwriting on a single application. “Our main priority is to save the homes of those people whom have been caught by the use of fraudulent documentation.”
Many of the thousands of members of BFCSA Inc have expressed frustration at not being able get copies of their original LAF’s from their lender and are being told that the docs are either lost, not available, or that they have no rights to request or receive a copy for their own files.
A recent statement by ASIC outlined banks’ and lenders’ obligations to provide customers a copy of their LAF’s at the time of signing. Of particular importance to customers is the Loan Service Calculator Form that rides with the mortgage docs and assesses the customer’s ability to repay.
Mrs Brailey has recently been invited to
be a witness at:
Parliament House in Canberra on
8th of August at 2.15pm – 3.00pm, and to deliver
a Senate Submission.
“We will be calling for an end to ‘Low Docs’ and ‘No Docs’ loans and for a ROYAL COMMISSION into the BANKING SECTOR. We want to highlight the seemingly unchecked practice of impudent lending on the part of many of our major banks and lenders, as a result of non-affordability and possible LAF fraud.”
“The other serious issue for Australian home owners is the selling of the RMBS (Residential Mortgage Backed Securities) packages and the securities fraud, known as ‘double-dipping’ that goes hand in hand with the process of mortgage securitization”, Mrs Brailey adds.
About BFCSA (Inc)
Founded in 2009. Led by award-winning consumer advocate Denise Brailey, BFCSA (Inc) Members are a group of people who are concerned and appalled with the growth of Loan Fraud in Australia. Their work is entirely voluntary in the spirit of community concern and they investigate cases and empower consumers who are caught up in finance or banking scams. For more information visit: http://www.bfcsa.com.au/
BELOW: BFSCA Submission to the Senate
Economics Reference Committee - Parliament of
Australia.
Note page 2, Paragraph 1 - where it is stated
that New Zealand people are also affected.
Submission
from: -
Denise Brailey, President of the Banking
and Finance Consumers Support Association
(Inc)
I am responding to the Senate Economics
Reference Committee 2012.
I refer specifically to the
Terms of Reference: d), e) and f).
Results of my
research 2003 – 2012 into Sub Prime Lending have revealed
a disturbing trend that clearly shows a potential for high
volume Loan Application Fraud and Maladministration in
Lending.
IN BRIEF:
In 2005, a number
of key ADI Lenders boasted of an Asset Rich and Income Poor
(“ARIP”) market. Using information seminars, our banks
flagged the ARIP Model to a large number of Financial
Planners, Mortgage Managers, Mortgage Originators,
Introducers and Brokers. Commissions flowed down from
various Banking Institutions to all players. The ARIP’s
were in fact Pensioners, Centrelink recipients, disability
pensioners and Low income families who were unwittingly
being heralded as a “new market.”
Since 2001,
emails from lenders direct to the Broker Channel databases
clearly urged brokers to seek out potential clients from
those with equity in their homes.
The
strategy provided to Brokers by the banks was clear: “you
will be assisting people to climb out from poverty circles
and become self sufficient. We can teach you how to gain
equity loans to help people invest in property. We will
provide you with calculators which permit serviceability
levels to be reached.” Later these calculators were
abandoned to some extent in favour of No Doc products. From
2005 onwards all home owners became the suggested target and
the grand prize became the largest number of TITLE DEEDS
held by the banks as “assets”.
A few alarming
key factors have emerged from our
research:-
1. Low Doc Loans in 2000, and No Doc
Loans in 2005, were being promoted directly to Brokers by
over 36 lenders: Banks (ADI’s) and Non Banks
alike.
2. No verification of income occurred, either via
mail or telephone. Clients were unaware that income figures
were being grossly exaggerated by persons
unknown.
3. Clients never received a copy of the Original
Loan Application Form.
4. Clients who are affected are
mostly low income families and Centrelink recipients.
5. The financial products used as the major vehicle were
designed for self-employed persons.
6. Lending Policy
Guidelines were breached as a matter of routine.
7. All
lenders used Business Development Managers (“BDMs”) as
bank officers to teach Brokers certain strategies to lead to
successful volume of loans and thereby maintain quotas of
sales.
8. Certain Lenders have recently instructed their
brokers to “Shred the original Loan Applications” which
contain the signatures of the clients.
All Loan
Applications to date that I have reviewed during the past
eight years of research, have shown at least two and three
people’s hand writing in place and grossly exaggerated
information placed on the document by persons unknown and,
after the document was signed and without the borrower’s
knowledge or consent. All Application Forms reveal fraud.
In eight years of research, I have yet to discover a
‘clean” one. New Zealand people are also
affected.
Lenders urged Brokers to apply online for an
ABN number for those people targeted in this campaign. The
“ABN need only be valid for one day” and “no GST
registration required.”
Whilst the Lenders publicly
suggested the borrowers were checked for excellent credit
references, identification documents did reveal the
borrowers were in fact pensioners. These activities are in
fact asset lending according to members of our judiciary
and, maladministration in lending according to the
Commonwealth Banking Ombudsman.
Due to the impecunious
position of the borrowers, the only court cases that have
been heard to date, are those funded by consumer protection
groups and state government agencies. These are now six in
number affecting 8 families, heard in four states and
decisions written by 12 Judges (including the appeal Judges
in two cases).
One lender boasted in 2005, “The
ARIP’s are a $50 billion market. “ The average size of
a Low/No Doc loan has climbed to $600,000 per family
according to our research. Lenders ensured that “Jumbo
Loans” were made available and indeed encouraged: No
income, No financials, No LMI, No GST registration of ABN
and 90% LVR.
Brokers were encouraged to offer “the
plan” to their own family members and maximise these
loans. Brokers were taught not to leave “dead equity”
in the home.
The escalation in the amount of the loans
ensured the actual lending activity fell outside the Banking
Ombudsman’s $500,000 limit in terms of investigations.
The split of duties between the two EDRs COSL and FOS
ensured that three links in the bank engineered chain, could
never be properly investigated, as both COSL and FOS were
limited to one link in the chain and would not investigate
the all important BDM, or bank officer. Nor would they
permit a double investigation. I complained to authorities
in 2002 that the EDR limit of $100,000 was grossly
inadequate. Today the $280,000 limit is woefully
inadequate. The EDR system is therefore dysfunctional as
they both had the powers (and budget) to discover the same
revelations that we have, during this past 8 years.
We
have found multi cases of pensioners being given $1 million
loans on the strength of their asset and no regard for their
modest incomes. The payments were made by a series of
refinancing of buffer loans,
effectively ensuring loan payments were being met by
the banks’ own funds. The buffers ensured
secrecy of otherwise defaulting loans.
Brokers were
encouraged to maximise loans and suggested the customer
perhaps take a trip overseas. The strategies have been
found to be direct and poor quality financial advice, as
evidenced by the expected losses. The Brokers believed the
strategies and financial products were bona fide due to the
extensive promotion by our Major Banks via their BDMs.
We
have found the marketing strategies in play were engineered
by the banking sector and promoted to the broker channel.
The loans were engineered by the banking sector as a
grab for Title Deeds .
I would suggest
that if one purchases a washing machine and the manufacturer
is found to have knowingly engaged in malpractice by
producing faulty goods, we as a society do not see that such
behaviour should be rewarded. We consider therefore, that
it reasonable for the manufacturer to make good the loss.
It appears the Banking Industry believes that the
customer should be blamed for purchasing the faulty product
in the first place. This attitude is unacceptable.
With
a probable saturation of $50 billion in loans and the
obvious averaging of $600,000 in lending policy up to $2
million per person in some cases, the true depth of losses
may have affected up to 100,000 Australians.
Evidence
recently gathered now reveals that the above activities in
Australia commenced at least a decade prior to the GFC and,
the No Doc Loans three years prior to the GFC.
In
response to the terms of reference we recommend the
following: -
d) the impact on borrowing
and lending practices in the banking sector both during and
since the global financial crisis.
I am sure it
will be up to the Economic Advisers and experts to quantify
the damage to Australians and Australian businesses as a
result of the GFC. However, since APRA and ASIC are
continually stating they have seen no evidence of
asset-lending and no systemic issues, our BFCSA Team
respectfully recommend a Royal Commission into our own
Australian Banking Sector.
We further recommend, based
upon our own investigations, that an immediate ban be sought
in relation to Low Doc and No Doc lending.
Due to the
evidence of the lenders’ direct involvement in the
engineering and control of the products and service chain,
that the NCCP laws are altered to have the onus of
verification of income data and other
details, rest with the manufacturer: our banks and non
banks.
To place the onus of verification on
the shoulders of the Brokers is to suggest that the
Government has not been fully briefed by any person on the
actual Model being used in these particular lending
activities. That causes the BFCSA Team to be concerned at
the enormity of the regulatory failure to properly identify
the cause and magnitude of such losses.
The impact of
the GFC on our markets would under normal circumstances be
manageable. However the banks have been coy at revealing
how much of their loan books in Low/No doc Mortgages make up
what % of their profit margins. One bank did admit to 62%
in 2005.
e) the need for further consideration
of the state of the broader finance and banking
sector;
We recommend that the Senate Committee
consider the urgency required in asking the Australian
Federal Government for a Royal Commission into the Banking
Sector. The Terms of Reference must be broad commensurate
with the magnitude of the number of loans that have been
tainted by malpractice during the past decade.
f)
any other relevant matters
Of considerable
concern is the packaging of these tainted mortgages for sell
in global markets. The suggestion that these borrowers are
not a credit risk is absurd.
We recommend that the
instance of mortgages sold in RMBS packages also be
investigated and incorporated into a Royal Commission into
the Banking Sector.
Members of our BFCSA Team suggest
that responsibility of the banks to verify a consumer’s
financial position must be an open and accountable process.
The mere fact banks abrogated their responsibility to
investigate a consumer’s income & assets would, according
to the courts, make the lenders liable for the loss.
We
also note that a Broker was acting as an agent of the Bank
for the purpose of lender obligations relating to the
collection of Identification Documentation required under
the Anti Money Laundering and Counter Terrorism Act (2006)
has also been passed on to the Brokers and
Introducers.
Our submission is truly a brief description
of what we have found to be occurring in the banking sector
in Australia. Evidence points to an alarming regulatory
failure in monitoring the banks and the express enforcement
of existing laws 2003 - 2012.
Everything alluded to in
our submission can be backed by evidence consistent with
that presented in recent court cases as mentioned. We have
uncovered further evidence to enhance those
verdicts.
Please note that as a public service, I
conducted the original research, which led to the very first
cases being funded and placed before the courts in 2003,
2005 and 2009.
I will make myself available to the
Committee, should they wish to question me on these findings
and latest revelations.
On behalf of all
consumers of banking products and services in Australia, the
two key questions we are seeking answers to are
these:-
• Which Bank flagged a hybrid Low
Doc Model to all the other lenders so that the product
miraculously appeared on every lender’s books at the same
time?
• Which Bank designed the six
degrees of separation between lender and borrower and
ensured the plans were identical?
If it wasn’t for
the Banks intended ‘arms length’ to claims from down the
chain, why was the same arms length, otherwise necessary?
Yours sincerely
Ms Denise
Brailey
President
Banking and Finance Consumers
Support Association (Inc)