Contact: Graham Mott
Deloitte
Partner - Securitisation
+61 (0) 2 9322 7970

Contact: Louise Denver
Deloitte
Financial Services Media Relations
+61 (0) 2 9322 7615

The inquiry by the House of Representatives Standing Committee on Economics, Finance and Public Administration on home lending practices and processes used to deal with people in financial difficulty has thrown the confusion in the lending market into stark relief.

The conclusion of an independent review of the 26 public submissions to the Committee undertaken by Deloitte is that this confusion is caused by misunderstanding a complex and increasingly sophisticated lending industry.

“Whilst reviewing the submissions it became increasingly clear to us that there was something of a blame game going on,” said Graham Mott, Audit Partner and Head of Deloitte’s Securitisation practice.

Mott explained that in Deloitte’s opinion "many of the issues in this fog of distrust around Australia’s lending are not so much to do with poor lending processes and practices, but more to do with a lack of clarity around the types of products on offer and the different specialisations developed by the industry participants.

“The types of lenders, their pricing, and in particular how to price for risk were matters not clearly understood by all players.

“These confusions were tending to give rise to consumers and their advocacy groups blaming the lenders.

"The banks and their regulators claim their standards remain robust.

"And the well established non banking lenders point at the few renegade fringe operators of the industry who all agree are in danger of bringing the industry into disrepute.”

Who are these fringe players engaging in predatory lending?

“That question is the very essence of the need for this inquiry.

"The reality is this is the area everyone agrees that there is insufficient data to clearly identify this very small and predatory element.

“Currently this data is not available,” Mott said.

“The lack of clear and reliable data and getting a better understanding of whether there is a link between repossessions and engaging in predatory lending is an issue raised by many of the inquiry’s contributors.

“What is needed is more transparent data around enforcement activity in Australia.

"The data needs to be clear enough for players to see through the complexity to the underlying source of the problem.

“In general the market has not fully understood the complex management of arrears,” Mott said.

He explained arrears no more lead to eviction than court action does.

The ABA pointed out the lack of disaggregated data means it is very hard to determine the reasons behind consumers filing for bankruptcy or the numbers of consumers who sell the property themselves to clear the mortgage as opposed to being a mortgagee in possession.

In fact the RBA graphs show there are just over five million loans in Australia of which less than 12,000 are more than 90 days in arrears, representing an arrears rate of about a quarter of a per cent or so.

Prime full doc loans of course make up the majority of arrears.

“When you consider these facts, predatory lending as a poor behaviour can only be a smaller subset of what is in fact a very small problem,” Mott explained.

For the full press release please view the attachment below.