NAB bosses ad­mit mort­gage bro­kers ‘by­pass’ rig­or­ous re­pay­ment tests


MORT­GAGE bro­kers are us­ing a ques­tionable for­mula to as­sess bor­row­ers’ liv­ing ex­penses and “by­pass” more rig­or­ous tests ap­plied by banks, the bank­ing royal com­mis­sion has heard.

And National Aus­tralia Bank is yet to pay any re­me­di­a­tion to bor­row­ers af­fected by a scan­dal that sur­faced in­ter­nally al­most three years ago.

As the probe con­tin­ued yes­ter­day, the com­mis­sion heard mort­gage bro­kers were fre­quently us­ing a sta­tis­ti­cal bench­mark to de­ter­mine the liv­ing ex­penses of mort­gage ap­pli­cants.

The bench­mark — called the house­hold ex­pen­di­ture mea­sure — is broadly re­garded as a le­git­i­mate test of ex­penses.

But in­dus­try ex­perts are con­cerned that in many cases, it is be­ing used in place of a more rig­or­ous as­sess­ment of bor­row­ers’ ex­penses as a means of over­stat­ing their abil­ity to re­pay loans.

That means home buy­ers may have been given mort­gages they will not be able to re­pay.

The com­mis­sion heard the bank­ing reg­u­la­tor, the Aus­tralian Pru­den­tial Reg­u­la­tory Author­ity, last year started re­view­ing the use of the for­mula.

Coun­sel as­sist­ing the com­mis­sion Rowena Orr, QC, yes­ter­day raised con­cerns about its use. Ques­tion­ing NAB ex­ec­u­tive gen­eral man­ager of con­sumer lend­ing An­gus Gil­fil­lan, she asked if mort­gage bro­kers were us­ing it to “by­pass” the bank’s more rig­or­ous lend­ing stan­dards.

“Yes,” Mr Gil­fil­lan said, agree­ing that the bench­mark needed to be strength­ened.

Com­mis­sioner Ken­neth Hayne asked Mr Gil­fil­lan if banks were hes­i­tant to tighten stan­dards as there would be a “first mover penalty”.

Mr Gil­fil­lan said that was some­thing to con­sider.

It also emerged yes­ter­day that NAB was yet to pay any re­me­di­a­tion to cus­tomers given loans based on doc­u­ments that had been fal­si­fied.

On Mon­day, the com­mis­sion heard that rogue staff at five branches across greater west­ern Syd­ney had fal­si­fied doc­u­ments to help se­cure loans for cus­tomers.

In re­turn, they re­ceived cash bribes — handed to them over the counter in white en­velopes — from busi­nesses who re­ferred the bor­row­ers un­der the bank’s “In­tro­ducer” pro­gram. So-called in­tro­duc­ers

“There was $139.78m in to­ta­to­tal loans from these fo­four in­tro­duc­ers to 2015 ... This is a very sig­nif­i­cant vol­ume of loans for foufour in­tro­duc­ers CCOOUUNSEL AS­SIST­ING TTHHE COM­MIS­SION ROWENA R ORR

then re­ceived a com­mis­sion from the bank.

NAB ex­ec­u­tive gen­eral man­ager for bro­ker part­ner­ships An­drew Wal­dron said 1360 cus­tomers were po­ten­tially im­pacted by bankers abus­ing the pro­gram.

Mr Wal­dron said the bank had pro­cessed 71 per cent of af­fected cus­tomer files and 26 would be re­ceiv­ing of­fers in the “next week or two”.

The bank ex­pects to pay out about $10 mil­lion to vic­tims — mostly peo­ple who ended up with mort­gages they have had trou­ble ser­vic­ing — although $23 mil­lion was ini­tially set aside. By early 2016, NAB had iden­ti­fied six cus­tomers with $3.5 mil­lion of loans in ar­rears, and 90 with $50 mil­lion in loans where there were con­cerns over their abil­ity to ser­vice their debts.

Ms Orr was scep­ti­cal of the tim­ing of the re­me­di­a­tion pro­gram. She asked if “the fact the royal com­mis­sion was com­ing and you were fil­ing a state­ment” in­creased the speed of the process.

Mr Wal­dron — who only started in his cur­rent role af­ter the scan­dal was un­earthed — said no ex­tra staff had been added to process files since the com­mis­sion was an­nounced. But he added the com­mis­sion was “cer­tainly top of mind” as he moved to re­solved the is­sue.

The In­tro­ducer pro­gram is tar­geted at busi­nesses such as fi­nan­cial plan­ning, real es­tate and ar­chi­tec­tural agen­cies.

But Ms Orr re­vealed a tai­lor and a gym in­struc­tor were among four peo­ple who sup­plied leads for al­most $140 mil­lion worth of loans is­sued by NAB. “There was $139.78 mil­lion in to­tal loans from these four in­tro­duc­ers to 2015,” she said. “This is a very sig­nif­i­cant vol­ume of loans for four ‘in­tro­duc­ers’.”

The tai­lor alone re­ceived $488,000 in com­mis­sions for pro­vid­ing leads, Ms Orr said.

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