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ABC's Four Corners misses the real story on dodgy lending practices

David Bassanese
Wednesday, August 30, 2017

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By David Bassanese

Don’t get me wrong: I think the ABC public broadcaster is one of Australia’s most treasured public institutions. And the long-running Four Corners program often does a tremendous public service in regularly exposing cases of public or private business misbehaviour.

That said, the premise of a recently aired Four Corners program - that Australian house prices and household debt are dangerously high and this has been largely caused by dodgy home lending – is simply wrong.

Worse, the story glided past a real public policy issue that it could have explored in more detail.

Of course, the Four Corners premise is a great story angle as it fits so neatly with what happened in the United States – and parts of Europe – more than a decade ago and led eventually to the global financial crisis. And sure enough, it’s always possible to find a few hard luck stories or cases of extreme greed and ignorance.

But it’s a big stretch to claim poor lending has driven up Australian house prices alone, and that the economy and banks are dangerously over extended.

Not mentioned in the program were the role of super low interest rates, strong immigration, restricted Sydney supply due to inner-city development constraints and poor transport links to more affordable regional areas, and the boom-bust mining cycle that did lead to regionally specific housing bubbles in certain parts of Western Australia and Queensland.

Unlike in the United States, Ireland and Spain moreover, Australia overall has not been swamped by housing supply in response to high prices in a way that would force prices down. Unlike in the US, moreover, our mortgage lending is recourse – meaning banks can come after any other assets you might own if you default on your mortgage. Indeed, even in Perth where property prices and employment have slumped in recent years, default rates are hardly catastrophic.

The great pity of the Four Corners program is that it tried to portray dodgy lending practises as the cause of a nationwide housing bubble - i.e. a macro-economic problem – and missed the real story that it’s nonetheless still a serious micro-economic problem that hurts the most financially vulnerable and gullible in our community.

Indeed, in one of the major cases in the Four Corners report, one lady nearing retirement claimed she was goaded into buying an investment property by a telephone sales pitch. She also claimed she provided no information regarding her income on the broker-completed mortgage application which was eventually accepted by the ANZ Bank.

It begs the question: was the loan document falsified or not, and does the ANZ – and other banks for that matter - simply take such provided information on faith or do its own checking? On camera, ANZ CEO Shayne Elliott claimed the bank does a “thorough due diligence on [borrowers] ability to repay their loan.” How thorough – are the income statements verified with the borrower or not?

Following the glare of Four Corners publicity, the ANZ Bank appears to have reached a compromise settlement with the lady in question. Four Corners in turn noted on air that “the Bank conceded [she] was targeted by aggressive sales tactics by the broker and developer.” We were then invited to read ANZ’s full statement on the Four Corners website.

But although curiously not mentioned on air, this statement included the startling fact that ANZ “had written to her advising she was overpaying for her investment”. That’s nice of the bank, but it still went ahead and lent her the money!

ANZ also claimed she “also acknowledged that she was responsible for declaring her estimated expenses and advising ANZ her financial position was not likely to change in the near future.” I could be wrong, but this suggests the ANZ does not independently verify the financial data on applications submitted by brokers. ANZ also had to explain to her that it was not their job to “provide her advice on her investment plans.”

This is the real story that Four Corners glided past. Even though the conflicts associated with financial product commissions have been largely eliminated, compliance burdens continue to make sorely needed financial planning services so expensive in Australia that only 25% of households seek it out – the rest are left to fend for themselves and often end up victims in the less regulated property sector.

The bad news is that this can lead to immense grief for the overly greedy or gullible. The good news at least, and contrary to what Four Corners claim, these investors still seem rare enough that they have not placed the whole economy – or more specifically the banking sector – in peril.

Published: Wednesday, August 30, 2017

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