The Royal Commission into Financial Services Misconduct, yesterday spent time with ANZ, and examined their expenses validation and verification processes, especially when applications were made via the broker channel.
Astonishingly, it appears that the bank may ignore the expense data from the broker as submitted (so the Commission asked why they capture the data at all!). Household Expenditure Measure (HEMs) figured in the discussion, as a test which was used by the bank in the assessment process. It will be interesting to see if the Commission views this approach is compliant with their responsible lending obligations.
It begs the question more broadly, are mortgages held by the banks supported by appropriate expense calculations? Some are saying that up to 40% of loans on book may have issues.
We also note that the “mortgage power” type calculators available on bank web sites to give an indication of a borrowers ability to get a mortgage, on average now gives a mortgage figure some 20% lower than a couple of years back.
So, many borrowers would not now get the mortgage they did then. Think about the implications for existing borrowers seeking to refinance, or to move from interest only loans to principal and interest loans!
There was also more data on lower auction clearance rates. Plus predicted falls in home prices, from Moody’s.
When you overlay the Commission findings, with the sales trends (deep discounts are now a feature of current sales, see above), it seems to me home prices are set for more falls in the months ahead.
We discussed this in our latest video blog.
More broadly, the Commission shows the massive repair job the banks have to do on their reputations and culture. No wonder their share prices are down. Of more significance are the structural risks to the economy, as households continue to struggle with over-committed budgets thanks to lax lending. This is unlikely to end well.
The purpose of the Commission was to remove uncertainty from the banking sector, but as it goes about its business, in fact the levels of concern are rising. It has royally back-fired!
But there is a good chance that customer outcomes will be enhanced as the consequences are digested. This would be an excellent outcome. But not an intended one.
