APRA's loans call 'too late for Dad'

FOR Deborah Freebairn, this week's calls for banks not to increase risky lending practices came as cold comfort.

FOR tax agent Deborah Freebairn, this week's calls by the prudential regulator for banks not to increase risky lending practices amid record low interest rates came as cold comfort.

Following her father's death two years ago, she discovered that -- at the age of 79 and with no income -- he had been given two "no-doc" home loans with 30-year terms worth $250,000.

"My father owned his home outright and had an investment property but had no income and next to no cash: who could possibly think this was the best course of action?" Ms Freebairn told The Weekend Australian.

"The most appropriate thing would have been to get a reverse mortgage or sell his investment property but instead the repayments were being made from the loan -- the lender was even using the money to directly pay his bills for him."

The loans, made in 2005 in the heady days before the global financial crisis, have since ballooned and eaten heavily into the estate, causing the family "enormous difficulties", Ms Freebairn said.

This week's calls by the Australian Prudential Regulation Authority has again raised the question of how well connected those regulators are to what is happening on the ground, and how likely they are to rein in such activities in the next upswing.

In February last year, before a nationwide mortgage conference, Reserve Bank of Australia financial stability head Lucy Ellis commended the mortgage-broker industry for refraining from easing lending standards the same way their US counterparts had. "It is a key difference between the two countries," Ms Ellis said.

However, while dodgy lending practices were not as extreme here -- and had far more limited fall-out -- it has emerged that lax lending practices were widespread during the last boom.

Last year, The Weekend Australian revealed that major lenders including Macquarie Bank, Suncorp and GE Money had exploited relaxed lending practices via low-doc and no-doc loans.

Low-doc loans are loans made where a borrower is not required to provide any proof of their income, and the lender never asks.

No-doc loans are loans where borrowers were not even required to state their income level.

Ostensibly for self-employed businesspeople who were either unable or unwilling to provide financial details, those loan products were abused by many lenders and mortgage brokers. More than 20 per cent of all loans written in the year before the GFC were low-doc and no-doc, more than five times normal levels.

Following revelations of the widespread mortgage abuse, corporate regulator the Australian Securities & Investments Commission had said laws it introduced after the GFC would stop such activity next time around.

However, since then, not one charge has been laid against anyone making an unsuitable loan, raising questions over whether ASIC would be able to properly enforce the law next time around.