More Evidence of Poor Mortgage Lending Practice

The Australian Financial Review is reporting that New ‘liar loans’ data reveal borrowers more stretched than some lenders suspect.

One in five property borrowers are exaggerating their income and nearly half understating their spending, triggering new concerns about underwriting standards and vulnerability to sharp economic corrections, according to new analysis of loan applications by online property lender Tic:Toc Home Loans.

The number of ‘liar loans’ exceeds original estimates by investment bank UBS that last year found about 30 per cent of home loans, or $500 billion worth of loans could be affected.

Tic:Toc Home Loans’ founder and chief executive, Anthony Baum, said loan applications are representative of larger lenders in terms of location, borrower and loan size, which range from about $60,000 to $1.3 million.

Mr Baum, a senior banker for nearly 30 years, said in many cases applicants did not have to over-state their income for the required loan.

“Our portfolio looks like other organisations,” he said.

Analysis of their applications reveals about 20 per cent overstate their income, typically by about 30 per cent, and 50 per cent state their expenses are lower than the Household Expenditure Measure, also by about 30 per cent.

Property market experts claim the latest analysis, although based on a smaller sample than UBS’s survey, are credible and consistent with independent analysis of the lending standards.

“They do not surprise me,” said Richard Holden, professor economics at University of NSW Business School, who argues the potential problems are compounded by more than one-in-three loans being interest only.

Martin North, principal of Digital Finance Analytics, an independent consultancy, also backed the latest ‘liar loan’ numbers.

Mr North said standards had slipped because of lenders’ readiness to “jump over backwards” to increase business and commission incentives for mortgage brokers rewarding bigger loans.

“Not all lenders are the same but these numbers do not surprise me at all,” he said.

Mr North said there was strong evidence that salaries are overstated by between 15 and 20 per cent by borrowers using a range of tactics, such as over-stating bonuses or, for variable income earners, using peak rather than average income.

Westpac Tightens Serviceability Requirements Again

From Australian Broker.

Consumers who use digital credit platforms like AfterPay and ZipPay will now have to disclose what they owe on these transactions if they apply for a home loan through Westpac.

Westpac announced in a broker note on 11 December that it would require borrowers to disclose these short-term buy-now, pay-later loans so the bank could better assess borrowers’ loan serviceability.

AfterPay and ZipPay allow customers to make and immediately receive goods and services purchased at a retail store or online without having to pay for it upfront. The digital credit companies pay on the customer’s behalf. The customer then has to make repayments, usually in installments over a short period of time with fees and charges incurred if they fail to do so.

“In the scenario above, the customer has created a liability which must be captured in the loan application along with the monthly repayment,” the Westpac note said.

“Where evidence is held to confirm the liability will be cleared in full before settlement or drawdown, a $1 repayment is acceptable to be entered against the liability.”

The bank said it expects detailed comments to be included in the application with evidence confirming the amount owing and the required repayments.

Banks are starting to zero in on borrowers’ spending habits and expenses, going above and beyond just looking into their credit and debit card charges.

In September, ANZ and CBA added extra checks to their application processes. ANZ’s updated customer questionnaire prompts brokers to ask prospective borrowers about their Netflix and Spotify subscriptions and whether they’re planning to start a family. CBA introduced a simulator to show interest-only borrowers how their repayments would change and affect their lifestyle. Customers wanting to proceed have to fill in an acknowledgement form.

Aren’t mortgage applications tough enough?

From Mortgage Professional Australia.

Amid regulatory and market concern, banks are scrambling to make mortgage applications tougher, leaving brokers to pick up the pieces, writes MPA editor Sam Richardson

Although ASIC and APRA didn’t exist, applying for a mortgage in 1960s Australia was a highly regulated business. The government controlled not only lending conditions but even your interest rate, and you’d have to head to a branch to apply for a loan. Now you can apply without ever setting foot in a bank or even leaving your computer.

It’s become easier to get a mortgage; for some, too easy. Over four days in late September two major banks added extra checks to an already-extensive application process. ANZ introduced a Customer Interview Guide requiring brokers to ask questions about everything from a customer’s Netflix subscription to whether they were planning to start a family. Three days later CBA introduced a simulator that would show interest-only borrowers how their repayments would change and affect their lifestyle. Customers would be required to fill in an ‘acknowledgement form’ to proceed with an interest-only application.

ANZ and CBA are trapped between a rock and a hard place. On one side is the mantra of customer convenience and choice, but on the other the lenders and regulators are desperate to avoid public embarrassment. Brokers have been caught in the middle.

Not tough enough

Two weeks before the majors took action, Swiss investment bank UBS published an alarming and controversial report. Surveying 907 recent borrowers on their experience of getting a mortgage, it argued that the “ease of attaining approval had improved over every prior vintage back to the 1990s”.

Therefore, UBS concluded, “we believe there is little evidence to suggest customers are finding it more difficult to attain credit or that mortgage underwriting standards are being tightened from a customer’s perspective”. That was a problem, UBS argued, because the banks had already written $500m of ‘liar loans’ based on inaccurate information, with ANZ the worst affected.

UBS’s conclusions have been met with intense criticism. ASIC senior executive Michael Saadat told the Senate that, because of the sophistication of the verification process, “we think consumers are probably not the best judge of what banks are doing behind the scenes to make sure borrowers can afford the loans they’re being provided with”.

Yet while it defends lending standards with one hand, ASIC has been strengthening them with the other. The regulator is currently embroiled in a long-running court case against Westpac over the bank’s estimation of customer expenditure, in addition to dictating tougher rules for interest-only lending in April and preparing a ‘shadow shop’ of brokers later this year. Additionally, the Consumer Action Law Centre told MPA that verification was “critically important” and that it supported high standards. For Consumer Action, ASIC and UBS, application standards are still very much a work in progress.

The cost of compliance
Brokers have a very different opinion. Mortgage Choice CEO John Flavell has publicly stated that “lenders are more scrupulous than ever”, explaining that “new legislation requires brokers and lenders to forensically examine a borrower’s assets and liability situation”.

While no friends of the broker channel, UBS noted that brokers “arguably do much of the application heavy lifting” and brokers can attest to the impact of tightening lending standards. Turnaround times have actually got worse over the past year, according to 40% of respondents to MPA’s Brokers on Banks survey. Compliance and bank mismanagement have negated the gains of huge investments in technology, the experience of one broker suggests: “I have been doing this for 20 years. Twenty years ago we were getting unconditional approval in five days. We are still struggling for that 20 years later.”

“If I go back four or five years, I was amazed at just how loose many of the processes were” – Martin North, Digital Finance Analytics

Easier, not shorter
Martin North, principal of consultancy Digital Finance Analytics, has studied mortgage applications for years and has observed an improvement in standards. “If I go back four or five years, I was amazed at just how loose many of the processes were and in fact what would happen is the information would be captured on the form but never used in the underwriting process,” he says.

Progress has been driven not by extra questions for borrowers, North explains, but by an increase in documentation required from applicants. North believes there is room for improvement, however, particularly when it comes to understanding borrower expenditure. Only half of households have formal budgeting, he explains, and “whether it’s a real lie that households have not been truthful with the lenders, or whether they’ve got the best estimate and it might not be accurate, is probably the moot point”.

Applications can be made easier, North argues, but “easier doesn’t necessarily mean shorter”. Improvements in technology could improve underwriting standards for banks while pre-populating interactive application forms for consumers and offering time-saving solutions to brokers.

This is already occurring.’s new home loans offering integrates an online calculator into its website, which indicates how a borrower’s lifestyle would be impacted by mortgage repayments on a particular property. When borrowers apply for conditional approval the calculator’s details are fed into the form, allowing a quick online form to lead to instant approval.

For brokers, Advantedge has introduced two mobile apps to make collection of identification documents faster. Looking further ahead, banks have committed to sharing data within two years, which according to Australian Bankers’ Association chief executive Anna Bligh means that “at the click of a button, Australians will be able to directly share their transaction data with other banks or financial services”.

Should technology meet these lofty expectations, today’s paper-heavy application process could eventually be viewed in the same way that we view the branch of the 1960s today. Yet until this technology kicks in, brokers should prepare themselves for more heavy lifting.

Warnings over home loans not meeting serviceability requirements

We discussed Mortgage Lending Standards on 6PR Today.

Banking analysts have raised concerns after the number of home loans being approved despite not meeting serviceability requirements jumped to its highest point since before the global financial crisis.

Digital Finance Analytics Principal, Martin North told Mornings with Gareth Parker, we could be headed for some strife if rates go up.

Listen to the discussion.

CBA announces major lending changes

From The Adviser.

CBA has today revealed a raft of changes including LVR caps and restrictions to rental income for serviceability that will impact mortgage brokers and their clients from next week.

On Saturday (2 December) CBA will introducing a new Home Loan Written Assessment document called the Credit Assessment Summary (CAS) for all owner occupied and investment home loan and line of credit applications solely involving personal borrowers.

“These changes further strengthen our responsible lending commitments related to the capture and documentation of customer information,” the bank said.

“The CAS will present a summary of the information you provided on behalf of your borrower(s) and / or that the Bank has verified (where relevant) and used to complete its credit assessment.”

It will include a summary of loan requirements and objectives, personal details and financial information, total monthly living expenses at a household level and information about the credit applied for.

CBA said the CAS will form part of the loan offer document packs for all owner occupied and investment home loan and line of credit applications.

“The CAS will not be issued for Short Form Top Up applications or applications involving non-person applicants (i.e. Trust or Company). The Document Checklist, which is on the last page of the Covering Letter to Borrower (Full Pack), will indicate when a CAS has been issued,” the group said.

“An application exception will be raised if the CAS is not returned or not signed by all personal borrowers. The application will not progress to funding until the exception is resolved.”

LVR and postcode restrictions

Meanwhile, CBA confirmed that it will introduce credit policy changes for certain property types in selected postcodes from Monday 4 December.

The changes include reducing the maximum LVR without LMI from 80 per cent to 70 per cent, reducing the amount of rental income and negative gearing eligible for servicing and changing eligibility for LMI waivers including all Professional Packages and LMI offers for customers financing security types in some postcodes.

“We continue to lend in all postcodes across Australia,” CBA said.

However, on Monday the bank will also introduce what it has called the Postcode Lookup Tool, which will be available under the Tools and Calculators section on CommBroker.

“This tool will provide you with detail on policies that may apply in certain areas. You should use this tool during your customer discussions to understand policies that may apply to postcodes in which they have expressed a home lending need. If policies apply, you should discuss these with your customers,” the bank said.

Fintech Spotlight – Tic:Toc:The 22 Minute Home Loan

This time, in our occasional series where we feature Australian Fintechs, we caught up with Anthony Baum, Founder & CEO of Tic:Toc.

Whilst there are any number of players in the market who may claim they have an online application process for home loans, the truth is, under the hood, there are still many manual processes, workflow delays and rework, which means the average time to get an approved loan is often 22 days, or more.

But Tic:Toc has cracked the problem, and can genuinely say they can approve a loan in 22 minutes. This represents a significant improvement from a customer experience perspective, but also a radical shift in the idea of home lending, moving it from a “specialised” service which requires broker or lender help, to something which can be automated and commoditised, thanks to the right smart systems and processes. Think of the cost savings which could be passed back to consumers!

But, what is it that Tic:Toc have done? Well, they have built an intelligent platform from the ground up, and have turned the loan appraisal on its head, through a five-step process.

The first step, when a potential customer is seeking a home loan, is to start with the prospective property. The applicant completes some relatively simple details about the home they want to purchase or refinance, and the system then applies, in real time, some business rules, including access to multiple automatic valuation models (AVMs) to a set confidence level, to determine whether a desktop valuation, or full valuation is required to progress, or whether the prospective deal is within parameters. If it is, the application proceeds immediately to stage 2. In the case of a refinanced loan, this is certainly more often the case.

In the second step, the business rules at Tic:Toc focus on the product. They have built in the responsible lending requirements under the credit code. This means they can apply a consistent set of parameters. This approach has been approved by ASIC, and also been subject to independent audit. Compared with the vagaries we see in some other lender and broker processes, the Tic:Toc approach is just tighter and more controlled.

Up to this point, there is no personal information captured, which makes the first two steps both quick, and smart.

In step three, the Tic:Toc platform takes the application through the eligibility assessment by capturing personal information and verifying it through an online ID check, and then makes an initial assessment, before completing a financial assessment.

In step four, for the application to progress, the information is validated. This may include uploading documents, or accessing bank transaction information using Yodlee to validate their stated financial position. Tic:Toc says their method applies a more thorough and consistent  approach to the financial assessment, important given the current APRA focus on household financial assessment and spending patterns.

After this, the decisioning technology kicks in, with underwriting based on their business rules. There is also a credit underwriter available 7 days a week to deal with any exceptions, such as use of retirement savings.

The customer, in a straightforward case if approved, will receive confirmation of the mortgage offer, and an email, with the documentation attached, which they can sign, and send the documents back in the post. So, application to confirmed offer in 22 minutes is achievable.

The lender of record is Bendigo and Adelaide Bank, who will provide the loan, and Tic:Toc has a margin sharing arrangement with them, rather than receiving a commission or referral fee. Of course the subsequent settlement and funding will follow the more normal bank processes.

Since starting a few months ago, they have had around 89,000 visits from some 66,000 unique visitors and in 4 months have received around $330m of applications, with a conversion of around 17% in November. Anthony says that initially there had been quite a high rate of people applying who were declined elsewhere in the first few weeks, but this has now eased down, and the settlement rate is improving. They also had a few technical hiccups initially which are now ironed out.

In terms of the loan types, they only offer principal and interest loans (though an interest-only product is on the way), and around 50% of applications are for refinance from an existing loan.  Around 75% of applications are for owner occupied loans, and 25% from investors.

The average loan size is about $433,000. However, there are significant state variations:

In the short time the business has been up and running, they have managed to build brand awareness, receive a significant pipeline of applications, and lay the foundation for future growth. The team stands at 40, and continues to grow.

The firm also has won a number of innovation awards.  They have been listed in the KPMG and H2 Venture’s Fintech 100 (as one of the emerging stars); was a finalist, Best Banking Innovation in the Finder 2017 Innovation Awards; and a standout (and case study), in the Efma Accenture Distribution & Marketing Innovation Awards.

Looking ahead, Tic:Toc is looking to power up its B2B dimension, so offering access to its platform to broker groups and other lenders. Whilst the relationship with Bendigo and Adelaide Bank has been important and mutually beneficial, they are still free to explore other options.

In our view, the Tic:Toc platform and the intellectual property residing on it, have the potential to change the home lending landscape. Not only does it improve the risk management and credit assessment processes by applying consistent business rules, it improves the customer experience and coverts the mysterious and resource heavy home loan process into something more elegant, if commoditised.

Strangely, within the industry there has been significant misinformation circulating about Tic:Toc, which may be a reaction to the radical proposition it represents.

Reflecting on the conversation, I was left with some interesting thoughts.

First, in this new digital world, where as our recent Quiet Revolution Report showed, more households are wanting a better digital experience, it seems to me there will be significant demand for this type of proposition.

But it does potentially redefine the role of mortgage brokers, and it will be a disruptive force in the mortgage industry. I would not be surprised to hear of other lenders joining the platform as the momentum for quicker yet more accurate home loan underwriting grows.

As a result, some of the excessive costs in the system could be removed, making loans cheaper as well as offering a quantum improvement in customer experience.

Time is running out for the current mortgage industry!

How ‘liar loans’ undermine sound lending practices

From The Conversation.

How truthful are we when it comes to negotiating loans in Australia?

With increasing pressure on the housing market, some of us might be tempted to stretch the truth to secure a mortgage on our dream property – but research shows that this practice can have serious repercussions.

Recent news reports have alerted borrowers to the dangers of “liar loans”, based on the findings of a new UBS research study. A liar loan is a no-documentation loan that is approved on the basis of unverified and possibly false information about income, assets or capacity to repay.

In the United States, where many loan applications have been approved without any information on the borrower’s income and assets – these liar loans have been implicated as one of the reasons for the global financial crisis.

Should we be worried in Australia?

The UBS study found that a third of Australian mortgage borrowers reported being “not factual or accurate” in their mortgage applications. Being “not accurate” is not the same thing as being a “liar”. However, we need to be aware and pro-active to avoid poor standards and practices.

They further estimate that there is roughly US$500 billion (A$657.95 billion) worth of factually inaccurate mortgages on banks’ books in Australia. This is worrying, because it could mean that borrowers are taking on bigger debts than they can actually afford, falling into financial stress or even losing their homes.

The Australian situation

In Australia, when borrowers apply for a mortgage they need to provide documentation that verifies their employment history, creditworthiness, and overall financial situation. Borrowers are required to provide a payslip or most recent tax returns, and show that they have been employed in the same job for at least 12 months.

Other documentation may include: credit card and bank statements; sales contract; confirmation of rental income if purchasing an investment property; and more. The mortgage originator may perform credit checks and bankruptcy or default searches.

Some mortgage borrowers may not be required to provide much documentation if they are existing clients of the bank and already have a strong credit history.

In my research I found that 88.8% of mortgage applicants were existing customers of the bank where they apply for a mortgage, and had been so for 9.3 years on average. But low documentation loans exist for self-employed borrowers.

Where accuracy of mortgage applications becomes difficult to determine is when estimating the expenses of the household. Mortgage applicants are asked about their monthly expenses to assess whether they can service the debt without major stress. Here, applicants may be “mostly factual and accurate” or even “partially accurate” when trying to calculate their monthly expenses. After all, how many people actually keep accurate and up-to-date spreadsheets of all their expenses?

Debts outstanding with other financial institutions or family and friends may also be misreported. In addition, mortgage lenders who receive commissions linked to loan size have incentives to overestimate borrower’s incomes and underestimate expenses.

Australian version of liar loans?

These arguments do not suggest that there is no “lying” or “truth hiding” in mortgage applications in Australia, but that it may not be comparable to the trend of “liar loans” seen in the US.

More importantly, banks do not rely only on their clients’ word. Banks estimate monthly expenses and uncommitted income for their clients based on borrower characteristics and solid financial records.

Data from previous research reveals that banks estimate on average A$1,637 more on monthly expenses than applicants report. Based on the bank’s calculations, housing investors underestimate their monthly expenses by A$1,932 on average, while owner-occupiers underestimate by A$1,560 on average.

Similarly, mortgage applicants report their monthly uncommitted income to be on average A$702.5 more than what the bank estimates it to be. Housing investors only overestimate their monthly uncommitted income by A$174 on average, while owner-occupiers overestimate by A$840 on average.

Due diligence required from both banks and borrowers

Research finds that mortgage features (for example fixed or adjustable rates, maturity, loan-to-value ratio, and so on) help borrowers select mortgage products that are affordable and safer for them, with the guidance of mortgage lenders and brokers.

The research further finds that lenders should make sure that borrowers have the financial capacity to repay their loans out of income or by selling assets under plausible conditions, and not by relying on the value of the collateral.

Mortgage delinquency and default may rise due to excessive risk taking in mortgage lending combined with deteriorating economic conditions; or due to falling income and rising unemployment during a housing downturn. This later case is more likely the potential threat in the Australian current environment.

The Australian Prudential Regulatory Authority (APRA) and the Reserve Bank of Australia (RBA) perform stress tests to check the financial system’s resilience. Along with APRA’s macro- and micro-prudential regulations, some lenders are introducing higher requirements and credit restrictions on potential borrowers.

These include obtaining more information on the clients, which helps assess credit and default risks and helps design and target financial products to specific type of borrowers. There is however risk of mortgage discrimination.

More careful monitoring needed

Mortgage risks often relate to mismatches between the products used by households and their financial capabilities and ability to bear risks. For that reason, mortgage product characteristics should be monitored carefully both by banks and borrowers.

The Organisation for Economic Co-operation and Development (OECD) suggests that financial authorities should make sure lending standards are sound, both in the banking and non-banking sectors. It is important that banks do not face incentives encouraging excessive risk taking.

Requiring more transparency, reinforcing consumer protection and financial education encourages sound lending and borrowing practices.

Author: Maria Yanotti, Lecturer of Economics and Finance Tasmanian School of Business & Economics, University of Tasmania

Westpac tightens up on responsible lending

From Australian Broker.

Westpac has brought in a number of responsible lending changes affecting how brokers enter in requirements and objectives (R&O) questions for clients.

“As a bank, Westpac is committed to responsible lending and meeting our conduct obligations under the National Consumer Credit Protection Act. Requirements and Objectives are a part of our responsible lending obligations,” the bank wrote in a note to brokers on Monday (30 October).

Effective from 14 November, brokers will be required to complete additional R&O questions and declarations for clients taking out certain loan types including but not limited to:

  • Fixed interest loans
  • Loans requiring lenders’ mortgage insurance
  • Loans with interest only repayments
  • Line of credit loans
  • Loans for refinancing or debt consolidation

The questions are designed to help brokers understand their client motivations, align the products to their needs, and prompt brokers to explain consequences around each choice of product to the client.

Additional R&O questions will also apply for each applicant of the loan, including for clients with foreseeable changes, special circumstances, current financial hardship, or those approaching retirement age.

“Westpac Group takes its responsible lending obligations seriously and is committed to ensuring good outcomes for our customers across first and third party lending,” Tony MacRae, general manager of third party distribution at Westpac, told Australian Broker.

“We’ll be working closely with all brokers over the coming months to support them with this new way of working – many had already adopted this approach and have been working this way for some time.”

From 8 January 2018, changes to submitted loan applications will no longer be accepted by email and will instead have to be completed through ApplyOnline.

“This will ensure that the correct R&O are captured accurately for all applications submitted and resubmitted and there is a central location that incorporates all the R&O information that has been discussed between yourself and the client with documented evidence of any loan changes,” the bank said.

MP grills CBA on brokers, offsets and big mortgages

From The Adviser.

NSW MP Kevin Hogan said that mortgage brokers have told him that it is in their best interest to get clients to borrow as much as they can.

Mr Hogan was on the parliamentary committee that questioned CBA chief executive Ian Narev in Canberra on Friday (20 October), where he was eager to find out from the CEO how brokers were behaving.

“You have one of the most extensive broker networks in the country,” Mr Hogan said, addressing Mr Narev.

“Brokers, as well as customers, tell me it’s obviously in the broker’s interest to get the customer to borrow the maximum amount of money they can get them to borrow — they get remunerated that way — even though they might not need that much money. And then they open an offset account and put the money they don’t need in that account, but they have drawn down the maximum amount of money they can borrow.”

The MP then asked Mr Narev if he has noticed “a big difference” in the number of customers who open an offset account, with money put in it straightaway, between the broker network and their branch network.

The CBA boss took the question on notice, but provided his thoughts on debt levels and the financial wellbeing of customers.

Mr Narev said: “You are raising a different and very valid point, which is: how much should people borrow? In the context of the broader regulation on general advice versus specific advice, we have a lot of discussion about that at the bank, and it is a very live discussion both through our own channels and through proprietary channels.”

Mr Narev noted that, historically, there has generally been a view that “whatever the bank will lend me, I should borrow”.

While he stressed that CBA lends responsibly for what people can service, Mr Narev said that the question of what level of debt somebody is comfortable with is “very personal”.

“The whole industry — and we are certainly doing it, including through behavioural economics in conjunction with academics from Harvard University — is working through how, within the constraints of the law on advice, we can have richer discussions with people to go down exactly the distinction you’ve drawn.”

Mr Hogan restated his belief that brokers get incentive to put customers in larger loans, saying: “It is obviously in the broker’s interest to get that person to borrow as much money as they can possibly get them to do — which might not necessarily be in the best interest of the customer — and you have an extensive network.”

Outgoing ASIC chairman Greg Medcraft also believes that brokers encourage customers to borrow more. In fact, he even admitted that he would do it himself if he was a mortgage broker.

Speaking at a Reuters Newsmaker event on 12 September, Mr Medcraft touched on a recent report from investment bank UBS, which suggested that around $500 billion of mortgages could be based on inaccurate information.

Mr Medcraft said: “The mortgage commission is based on [the fact that] the larger their loans, the more you get. So, logically, what would you do?

“It’s human behaviour. I’d do it.”

More Evidence Of The Risks Of Interest Only Loans

Citi has published a 54 page report on the highly topical subject of interest only (IO) loans, and we provided data from our Core Market Model to assist their research.

Even after recent regulatory tightening, they highlight that underwriting standards in Australia are still more generous than some other countries.

They conclude that there are vulnerabilities in the IO sector, both from property investors and owner occupied IO loan holders.

They say that tighter lending criteria and rising house prices has meant investors increasingly face net negative cash flows and investors face a growing household cashflow gap and reducing capital gains expectations.

The large levels of debt outstanding by borrowers aged in their 50’s and 60’s means many investors will need to sell property to discharge their debts.

Owner Occupied IO borrowers are more susceptible to interest rate rises given higher average borrowing levels and higher average loan to
value ratios. Our mapping of OO IO borrowers between 2011 and 2017 highlights the spread of these loans.

They conclude that:

all major lenders face a responsible lending risk – Westpac and CBA have more customers who will need to adjust to the new realities of investing in the residential property market in Australia. Given the widespread use of IO finance and the reduced prospects of discharging debt via means other than liquidation of portfolio holdings, banks must face an increased risk of mis-selling claims in future years. Mining towns serve as a microcosm of this threat.