Jonathan Mott's got Westpac dive 5%

Banks dive as UBS raises home loan concerns

 

Is it just a PR issue? and not discovery of 'riskier that thought' #Liarloans on their books

 

There's no widespread data showing this - other than anecdotal interviews from 0.00000000001% of total customers. Does a sob story from Susan who blames the bank for her woes mean that there is systemic large scale unreported instability in the lending market which is of concern? Not particularly.

 

Hmm it looks like it was across the board (the stock price hit). Pretty sure UBS has bank stocks shorted or are incentivised to do it, they do their best to grab a headline where they can. Kudos to them, they're very good at it!

Nonetheless, going of credit quality differentials between lenders, i suspect they're right about this one. Westpac's credit verification processes over recent years, foreign income weight, and greater skew of IO lending means they're loan book quality is likely the poorest of the big 4. APRA/ASIC have come down hard on them in recent years and those audit tests seem to indicate the same. In saying that, i suspect the overall quality of loan books from major lenders is reasonably good (lowish LVRs, relatively stringent policy).

 

Released today

WESTPAC REAFFIRMS PERFORMANCE OF MORTGAGE PORTFOLIO

Cheers,
Oracle.

 

I am pretty sure there are regulatory laws against plain dump and pump by the vested interest
If report details are false/wrong, do you think big4s would just sit and take it?

 

The banks would never come out and say they have given out to much easy money ,deny ,deny and deny , could you imagine the damage that would happen if they did admit to widespread irresponsible lending practices, as a last resort they could just point the finger at mortgage brokers that are not directly employed by them .
But as long as interest rate stay really low for the next few years , its all a beat up.
It will only become a big issue if interest rates start going up and up.

 

Here is a quote from the article itself: "In 29 per cent of the loans, he said the bank had not completed minimum income verification such as checking a borrower's payslips."

This isn't an anecdote from someone who borrowed too much. This is from a study of just 420 Westpac loans.

Given the other findings of the RC so far, it's difficult to understand how you conclude there isn't systemic large scale instability in the lending market which is of concern.

You do understand there is a building that people are walking into each day and sitting down to study what has been happening with the banks, right? This Royal Commission Lite has found a shocking amount of malfeasance and it's on billions in loans. It's not anecdotes. It's literal study.

When a study shows 29% of loans were issued without even basic income verification... that absolutely is a systemic problem. It absolutely is a large problem. It absolutely casts a huge amount of doubt as to the quality of those loans.

Westpac's pathetic excuse that of those 420 loans, only a few had "gone sour" doesn't hold water. The big problems from a stupidly inflated housing bubble aren't apparent while things are going up. We're barely into price falls and I/O changing over to P&I.

29% of Westpac's $400 billion mortgage book is $116 billion. They issued $116 billion in loans without basic income verification if the percentage holds across the book. There's no reason to think it won't. I don't think they handed over their worst 420 loans for study.

The big question is how much of that $116 billion will go sour when economic conditions change. Even ten percent means $11.6 billion gone entirely.

It's astonishing with the evidence coming out of this very shallow and lite Royal Commission that you're saying it's anecdotes. Really not sure what reality it is you're living in.

 

All these tightening is an effort to de-risk the financial system from growing speculative froth. Its targeted strike more towards those who are highly leveraged based on ever growing CG as their only exit strategy.
I think its a smart move as against bluntly raising interest rate for every one which has higher probability of choking the economy.

I like to see it as.....
The Cartel boss 'RBA' was threatened by DEA 'intl rating agencies', which activated its Scicarios 'APRA', who is now on a mission to clean the Juarez city (Sydney/melbourne) from its cowboy Narcos (IO loan holders).

 

The guys on the bikes with guns ?? Brokers ? Peter Teersig can be popeye

 

Its a risk mitigation strategy not a disaster recovery action.

 

I cannot comment on the whole group but the ones that I know (Asians purchased in Australia) they do not have any issue to pay the mortgage. Their real income is really high but they cannot show that hence they used some false docs to apply for the loan.

 

This is not the first time these 'analysts' have misinterpreted data to get headlines the media. It happened last year also in regards to broker commissions where they inflated the average commissions per loan. Then it came out that their data was not accurately collated which gave false averages far higher than the actual average.

Here are some excepts from an article published today in the AFR which makes some interesting arguments as to why the UBS analysis was not accurate.

"Westpac demolished Mott's allegations on loan quality, revealing that of the 420 loans in the sample file just one borrower (0.2 per cent of the total) was three months or more in arrears, which is 'well below [Westpac's] portfolio average for delinquencies'."

"The bank further reported that the 90-day default rate on its $400 billion mortgage book was a low 0.67 per cent and a fraction of what comparable US, UK and European banks report even though Aussie home loan rates have historically been higher".

"PwC found that 38 of the 420 loans failed APRA's loan assessment standards and should not, on this test, have been originated. On Thursday Westpac disclosed that PwC used a limited data file on each borrower, and once Westpac applied its full data file 37 of the 38 loans were, in fact, appropriately approved. And the one loan that should not have passed its credit scoring system is "currently ahead on its repayments".

Here is the full article for those interested -

Westpac demolishes UBS criticisms

 

@York be interested to know why PwC as a part of APRA review would only use limited data and what was the full data....

Was that full data available at the time of PwC / APRA review or was it collected after...

 

I don't know, but it could be due to the fact that time is limited and there is such a vast amount of information to sort through, so they might have agreed on limited data for the purpose of the investigation.
In this case, it would seem that the limited data requested was lacking critical elements which were misrepresenting the complete file. So Westpac might have offered the complete files to get a better, clearer picture of the actual compliance & verification protocols to show that indeed their files are in order and not as described previously.

 

I simply do not believe the report. I can not believe from my 15 years of experience they didn't check income on 29% of loan applications. That is absurd.

The answer is probably in the detail ie for 29% of application they verified income from bank statement deposits, super statements, employment letters etc etc. payslips are not the only way to verify income.

 

Re your math, it doesn’t quite add up. If it did, there’d be a whole lot more worry from the people in charge of financial stability. The RBA would be freaking out. So will APRA. 10% of loans going sour is disastrous and would be a sign of economic meltdown.

Unpacking your general concern though, its important to remember where the information is coming from. The RC puts a spotlight on certain issues. They're lawyers asking questions about how things are done. They are not credit risk specialists.

While income verification on some loans can be deemed poor, these are generally tied to risk. Westpac clearly identified foreign low LVR lending as a lower risk by examining their loan book and seeing that loan performance was generally very good. Without understanding what the ‘income verification’ issues are, it’s difficult to make proper judgements about credit quality. They didn’t have 95% lending with poor income verification, that would be very risky. It’s largely foreign income loans which have good performance, low LVRs, and allowed an employment letter verification instead of payslips. Also, there's plenty of loan options in the market that don't require a payslip. That doesn't mean their bad loans. It likely indicates theres a greater risk and that risk needs to be managed.

If lawyers or media reps are going to be the ones proclaiming credit risk expertise, than the financial system would crash tomorrow. Just because lawyers, UBS, or an institution says credit risk should be managed in one way, it doesn't necessarily mean its right. If you apply hurdles so high, than credit quality will be bulletproof and there'd be little lending. If the RC set hurdles, than you can just multiply your income x 2/3/4 and you've got your total borrowing capacity. This isn't necessarily a good outcome (especially if you want growth, activity, etc).

While the RC has certainly brought to light some issues in incentive structures/underwriting processes, a conclusion that the lawyers and media are best placed to make decisions about how loans should be underwritten isn't necessarily right. Conclusions about the quality of Aussie loan books may not be right either. Its not perfect, there are some issues, but i suspect the banks are very well protected against losses and will ride through changes in economic circumstances reasonably well (APRA stress test this).