Westpac in ‘liar loans’ crackdown

Westpac will start grilling home loan customers on their spending on everything from pet insurance to gyms and gambling.

Westpac wants mortgage brokers to collect more detailed information on borrower expenses. Pic: Hollie Adams

Westpac has launched a crackdown on declining lending standards in the $1.6 trillion home loan sector, and will start grilling customers on their spending habits for everything from pet insurance to Netflix subscriptions.

From mid-April, the second largest bank in Australia will ask brokers to collect more detailed information on borrower expenses including media streaming service costs and gym membership fees.

It comes as the banking royal commission zeros in on irresponsible lending and mortgage fraud, and as the banking regulator pushes the sector to more meticulously comb through borrower information.

Westpac sent out a note to more brokers and its branch staff telling them that the number of expense categories customers will have to fill out and verify will more than double.

Borrowers will be quizzed on their gambling, alcohol and tobacco consumption, and their telephone use.

“Westpac is committed to responsible lending and ensuring that we have a clear understanding of our customers’ financial situations,” a Westpac spokeswoman said. “We are updating Westpac Group credit policies to enhance the way we capture customer living expenses, commitments, and verify documentation. We recognise sometimes it can be difficult for customers to provide a complete picture of their expenses.”

The Australian Prudential Regulation Authority has found banks were far too reliant on living expense benchmarks, which in reality could undershoot living costs.

APRA recently revealed 100 per cent of loans sold to borrowers with low incomes used living expense benchmarks, while about 80 per cent of loans to borrowers on incomes above $100,000 used benchmarks. A common benchmark is the University of Melbourne’s Household Expenditure Measure, which APRA has criticised for being too simplistic.

Westpac will now use the higher of the benchmarks to assess borrowers’ capacity to pay.

Investment bank UBS has estimated there are around $500 billion worth of “liar loans” sitting on books of Australia’s banks, sold to customers who falsified information in order to meet lending criteria.

Kenneth Hayne’s royal commission into the finance sector has already revealed widespread home loan fraud among Australia’s biggest banks and mortgage brokers.

Westpac has previously told mortgage brokers it would unleash three global credit agencies to audit borrower credit information as regulators ramp up scrutiny over the lending behaviour of the banking sector. Westpac said it would be “enhancing credit assessments” with agencies Equifax, Experian and illion to be supplied with all consumer credit customer data from April.

The royal commission has revealed about 15 per cent of National Australia Bank home loans don’t comply with all the standards set out in its lending policy.

Commonwealth Bank-owned Aussie Home Loans came under fire after executives revealed it lacked a system to detect loan fraud and outsourced the responsibility to other lenders such as Westpac, Suncorp and Bankwest. One NAB branch in western Sydney was alleged to be part of a cash-for-loans bribery ring. ANZ has been accused of breaking responsible lending laws by failing to verify the living expenses declared by mortgage applicants.

Banking regulator chairman Wayne Byres late last year warned bad loans in arrears were nearing post-GFC highs, and told banks to collect more “realistic” living expenses data from borrowers. The regulator has been concerned about the erosion of lending standards while interest rates were at record low levels.