The co-founder of financial technology company Fortiro, Sean Quagliani, which is utilized by big banks and lenders to detect fraudulent documents, highlights the extent of this issue. Quagliani explains how individuals manipulate pay slips and alter bank statements to misrepresent their financial situation in hopes of gaining credit. With rising interest rates, escalating living costs, and soaring house prices, borrowers are facing significant financial pressure, leading them to resort to deception in their loan applications.
Financial Pressure Fueling Deceptive Practices
Prospective borrowers who are desperate to secure a home loan face a difficult decision. They must choose between telling the truth to the lender and potentially being denied credit or embellishing their financial information to improve their chances of approval. This heightened financial pressure, coupled with the plans of getting a property and a roof over their head, is driving more individuals to take the deceitful path.
However, it's important to note that doctoring loan documents or lying on the loan application can have severe repercussions. It can lead to the invalidation of the loan contract, resulting in mortgage defaults and potential legal consequences for fraud.
Mortgage Cliff and Rising Arrears
Australian homeowners already grappling with financial stress are facing greater challenges as they approach the mortgage cliff. As low fixed rates expire, these borrowers will transition to higher variable rates, making their home loan repayments unaffordable. Market analysts and economists anticipate a surge in mortgage arrears, indicating that more borrowers will struggle to meet their repayment obligations in the upcoming months. This could lead to defaults and forced home repossessions.
Cost-of-living pressures are making it increasingly difficult for Australians to qualify for new home loans. This, in turn, is driving some borrowers to falsify information on their applications in an attempt to improve their chances of approval.
The Rising Accessibility of Fabricated Documents
One contributing factor to the increase in deceptive loan applications is the ease with which individuals can now produce falsified documents. The proliferation of free online tools has made it simpler for borrowers to fabricate pay slips and bank statements. Instead of physically visiting a bank and meeting with a loan officer, borrowers can now complete the application process digitally in a matter of minutes.
By downloading readily available bank statement templates or using editing tools to modify PDF pay slips, individuals can quickly create fake documents. Although lenders are making strides in detecting fraudulent documents, the constant evolution of online tools makes it increasingly challenging to combat deception.
According to a survey by investment bank UBS, a significant number of ANZ customers admitted to making factual misstatements on their mortgage applications. Out of the respondents who took out a mortgage with ANZ, 55% acknowledged providing inaccurate information, with 81% stating that their bankers advised them to do so to ensure loan approval.
Loosening Stress Tests for Refinancing
Simultaneous to the rise in "liar loans," banks have started relaxing the tests applied to borrowers looking to refinance their loans. As interest rates rise and borrowers find it more challenging to refinance their home loans, some lenders have reduced the "serviceability buffer" imposed by banking regulator APRA. This buffer assesses a borrower's ability to service a loan at rates 3% higher than current offers.
While this buffer remains in place for new borrowers, lenders are applying lower buffers of 1 or 2% to some borrowers seeking refinancing. This is generally reserved for borrowers who have a strong repayment history, a favorable credit score, and no desire to significantly increase the loan amount.
For instance, first home buyer Aleisha Watson and her partner qualified for a lower serviceability buffer when they recently refinanced their home loan. By doing so, they avoided the impending mortgage cliff and secured a lower variable rate. While loosening stress tests may offer relief for some borrowers, the overall stability of the financial system could be compromised if more borrowers default on their home loans.
