GREG RAY: Borrowers left in lurch

WHEN it comes to sucking money out of customers for the benefit of shareholders and executives, Australia’s banks are world beaters.
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The government boasts of the strength of the nation’s private banking sector and, by golly, it seems pretty happy to let the bankers get away with just about anything to keep it that way.

Take, as just one example, the slowly emerging details about Australia’s very own ‘‘sub-prime’’ mortgage scandal.

It’s just like the American one, where banks lent money to people with little or no prospect of paying it back, and while the Aussie lenders keep insisting it didn’t really happen here, the evidence is mounting against them.

Parramatta lawyer Geoff Robertson, of Champion Legal, has won a few important test cases for victims of the scam (he’s lost some too), and knows more about the subject than most people.

He told me that the worst of it happened just before the global financial crisis hit, when ‘‘dollars were flushing through the system and bankers were desperate to lend it out’’.

Helping the banks lend these floods of money was a contractor army of mortgage brokers, many of whom stood to gain hefty upfront and trailing commissions from every new loan they introduced.

According to Mr Robertson, the lending system was so ‘‘systematically corrupted’’ that the only possible losers were the borrowers, whose houses and other property were staked as security on the loans.

The brokers couldn’t lose, because they got their nice fat upfront commissions as soon as the bunnies were signed up, and kept enjoying the trailing commissions afterwards.

Former Western Australian ‘‘broker of the year’’ Kate Thompson is on the record saying she was earning $5million a year at the height of the lending frenzy.

And the bankers couldn’t lose either.

In fact, they are still winning nicely from the whole racket. While the borrowers are able to pay, then the banks are happy.

If they can’t, then the banks just take the security, turfing the borrowers onto the street and selling their property.

All the incentives were loaded to one end: sign up anything with a pulse to a nice fat, profitable mortgage.

And whistleblower Thompson claims the banks and other finance providers were actually driving the scam, helping brokers like herself fudge the paperwork to make all the dodgy loan applications look above board.

Denise Brailey, from the Banking and Finance Consumers Support Association, is alleging that the finance providers coached some brokers to lend money to pensioners and the unemployed by pretending those people were self-employed or had good incomes to service their debts.

Lawyers across Australia are reporting cases in which some distressed borrowers, armed with the falsified documents upon which their loans were granted, are being excused from large portions of their debts.

But Mr Robertson warned that winning against ‘‘the big end of town’’ is very hard.

If, for example, borrowers knowingly signed loan applications that falsely represented their finances, a court won’t usually have much sympathy.

On the other hand, those whose brokers – driven by their hunger for commissions – filled in the false figures without input from the borrowers, might have a chance.

If they can afford the huge costs of going to court.

Usually, however, the victims are already in serious financial strife, with the banks poised to take and sell their properties.

Even if they do try to fight, Mr Robertson said ‘‘the big end of town’’ works hard to make sure the costs spiral massively, appealing every point as far as it can.

Meanwhile, according to Ms Brailey, all the Australian Securities and Investments Commission (ASIC) has so far done for many distressed borrowers in this enormous mess is tell them to get a lawyer.

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