ASIC Investigates Big Banks, loans

Investigations have begun over loans provided to overseas buyers based on what appears to be fraudulent income statements. It would seem that banks are having difficulty verifying the income of Chinese nationals that they are willing to lend money to for property purchases and as a result have decided to scale back on lending to this demographic.

Income statements from various Chinese mortgage customers simply appeared to be more fiction than fact. It does raise the question as to why these particular borrowers, who are said to number several hundred, were able to access loans in the first instance.

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In the first instance the borrowers don’t have deep relationships with the banks. They have a mortgage but no other accounts such as  credit cards, deposits or super.

Secondly tighter regulatory capital requirements for the banks that come into force mid-year mean that these customers are less attractive because their loans are more difficult to securitise.

loans, fraudulent loans, income statements, income tax, propertyAnd it will clearly throw a spotlight on some of the mortgage brokers that had been involved in sourcing these customers.

The Australian Securities and Investment Commission (ASIC) is investigating fraudulent mortgage documentation used by Chinese income earners to buy about $1 billion worth of property in Australia after Westpac and ANZ discovered they have each approved hundreds of home loans backed by such documents.

Westpac and ANZ have reported finding they had each written hundreds of loans backed by fraudulent Chinese income statements said to have been produced with the help of dodgy mortgage brokers.

This is what Westpac said on Monday in response to media reports about fraudulent income statements from Chinese borrowers:

“Westpac staff undertake income verification for foreign income, including obtaining payslips and bank statements in both the relevant foreign language as well as getting those documents translated. We have identified an issue with some loans that we are currently investigating.

“We take any allegation of fraud very seriously. Any potential fraud is thoroughly investigated.  This will involve contacting customers to seek further information and to verify the information they have provided in their application.  We also liaise with the appropriate regulator and the police as required.”

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There appears to be two separate issues around fraud regarding foreign buyers in the property market. One involves foreign-born buyers providing false information on their income to banks to secure loans they might not otherwise be eligible for.

Those people presumably pass muster with foreign investment regulation but need to falsify income statements to satisfy the banks that they have the capacity to repay.

loans, fraudulent loans, property, property investor, property investmentANZ said in an email that these people were mostly owner-occupiers with loans worth less than 80 per cent of their property’s value. They appear to be diligent about repayments with loans “performing better the portfolio average”, according to an ANZ spokesman.

The second is the use of false passports by foreign property buyers to establish a false Australian identity.

This would enable them to get around restrictions on foreigners buying Australian houses and apartments to secure the properties they want.

Banks Begin Tightening Access to Loans for Overseas Buyers

The Australian banks are increasingly wary about lending money to non-residents to buy property in Australia. Recent regulatory tightening means they must set aside more capital for such loans making them more expensive to provide.

As a result, three of the four big banks have declared that they will be tightening lending or refusing to lend money to foreign residents and/or foreign income earners.

The Commonwealth Bank has recently tightened its criteria for lending to foreign residents and foreign income earners as has ANZ.

Westpac has abandoned the practice altogether and will not lend to non-residents with “no connection to Australia”, a spokesman said. The bank now also insists buyers relying on foreign income for part of their repayments put up a 30 per cent deposit on any purchase, rather than the previous 20 per cent.

The involvement of dodgy investment brokers did not surprise one property market participant who did not want to be named.  “Some brokers are willing to fudge documents so people can get a loan.”


The move by these banks to take a fresh look at Chinese mortgage borrowers is not accidental.

Banking giant Westpac has stopped lending to foreign property buyers in a surprise move that is likely to spark concerns about a slowdown in residential construction, particularly in capital city apartments.

loans, property investor, foreign investment, big banksAustralia’s apartment construction boom is being underpinned by a wave of foreign buyers, with many borrowing from local banks to fund part of their home purchase.

Westpac said Wednesday that it, and subsidiaries St George, Bank SA and Bank of Melbourne, would immediately halt all home lending to non-residents and temporary visa holders.

The bank, one of Australia’s big four and the country’s second largest bank, said it was also tightening lending standards on Australian citizens and permanent visa holders whose main source of income was from overseas, reducing the maximum amount it will lend them for property to 70 per cent of the purchase price.

Westpac’s tightening of standards follows the Commonwealth Bank’s clamp down on home loans to foreigners and temporary residents not earning an income in Australia.

A month ago, the ANZ also reviewed its lending to offshore investors and temporary residents.

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APRA is concerned that banks are too exposed to the dwelling markets and they have leveraged it too far, so it has demanded extra equity be raised by the banks, which is also in ­accordance with global rules. But it also has warned at least some banks that if they allow their investor lending on dwellings to grow by more than 6 per cent or 7 per cent then extra capital will be required.

These actions may have a flow-on affect to the property market.

This hurts investors who purchased a dwelling off the plan at a certain rate, because when the market becomes oversupplied, almost overnight, values can drop sharply, as can the rental rates for such developments due to so much choice in the market.

Prospective tenants can become picky and this can leave some developments struggling to find tenants to occupy these buildings. This can significantly reduce the profitability of these dwellings and overall make for a bad investment.

If you are considering investing in property, particularly in the over-supplied apartment market, make sure you get independent financial and legal advice.

If you have questions about a contract, please contact us for a free, 10-minute phone consultation.