Big banks forgive Aussie sub-prime debts

MANY of the nation's biggest banks are being forced to forgive debts granted on the basis of false information about borrowers.

MANY of the nation's biggest banks - including Westpac and Macquarie - are being forced to forgive debts granted on the basis of false information about borrowers supplied by mortgage brokers during the last property boom.

Under the scams, which draw parallels with US sub-prime lending practices, a number of mortgage brokers have been found to have substantially inflated incomes of low-income earners to allow them to borrow far more than they were able to repay.

The Weekend Australian has also obtained dozens of emails between lenders and brokers that show the aggressive tactics of lenders used during the boom before the global financial crisis.

There include spruiking "ABN for one day" strategies, which helped borrowers on low incomes get bigger loans by providing them with an Australian Business Number to give the impression they were self-employed.

Under other schemes, typically asset-rich but income-poor homeowners were encouraged by brokers to "unlock" the equity in their homes by borrowing against them to buy investment properties. Because banks require evidence of a borrower's ability to repay loans, information such as income levels have in many cases been falsely inflated by brokers before being submitted to banks.

A string of recent court cases have found in favour of borrowers caught out by such behaviour, and ordered the banks -- who ultimately made the loans -- to forgive the debts on the basis they did not abide by their own lending practices in too easily accepting falsified broker applications.

In light of such findings, banks are scrambling to settle with those borrowers who are aware they have been wronged. In many such cases banks have agreed to a reduction in debt owed, rather than a full waiving of mortgages as judges have ordered in some cases.

Westpac spokesman Danny John yesterday confirmed the bank had received "a number of claims" and that "these were resolved on a confidential basis".

Denise Brailey of the Banking and Finance Consumers Support Association, who has been tracking loan application fraud over the last six years, said she had received about 200 such complaints and there were likely to be "thousands" of such cases across the country.

Financial Ombudsman Service director Philip Field said the organisation had received a number of such complaints.

In a worrying turn for Australian banks, which have long held themselves out as having the most stringent lending practices in the world, Mr Field said the problem involved "a range of lenders".

"These sorts of complaints are made across a range of brokers and lenders, its not confined to any particular lender," he said.

An investigation by The Weekend Australian, in conjunction with Ms Brailey, has uncovered hundreds of emails illustrating aggressive practices of the lenders during the property boom.

In the emails, some lenders, including Macquarie Bank, spruik a low-documentation loan, which requires only a "1 Day ABN".

Lo-Doc loans were created to be used by self-employed borrowers who were unable to show traditional proof of income, such as pay slips or income statements. To safeguard against abuse of such products, borrowers are required to show they have an ABN to prove they are self employed. However many borrowers were encouraged to apply for and hold an ABN for just one day so as to meet that legal requirement.

Macquarie Bank declined to comment yesterday.