Earlier this week, we ran a story opining that we needed to stop blaming each other to fix the ongoing problems in the industry. However, a new document from investment bank UBS has arisen that has brokers, consumers and bankers pointing the finger once again.
It’s not new for UBS to take aim at the third-party channel. Its sector updates have been widely panned by the mortgage broking industry and this latest banking sector update is no different; the Finance Brokers Association of Australia (FBAA) has come out publicly questioning its "implied presumptions" and the “accuracy and integrity of the research”, which executive director Peter White said is “fundamentally divorced of market broker and lender marketplace data”.
But what is interesting about UBS’ latest banking sector update — UBS Evidence Lab – $500 billion in ‘Liar Loans’? — is that it shows that consumers are aware of factual inaccuracies in their mortgage applications.
According to the survey of 907 Australians that have taken out a mortgage in the past year, only around two-thirds (67 per cent) said that their application was “completely factual and accurate”, down from 72 per cent last year. Further, only 25 per cent of participants in this year’s survey said that their application was “mostly factual and accurate”.
Misrepresentations included over-representing or under-representing income (15 per cent and 30 per cent, respectively); over-declaring assets (16 per cent); and under-representing other loans or commitments (15 per cent).
It suggested that, overall, there could be around $500 billion of “inaccurate mortgages on bank books” (adding that the true figure of misrepresented loans could actually be higher, as respondents may have been hesitant to claim that their application was less than completely accurate).
Pointing the finger
Again, the question comes down to who is to blame.
The UBS sector update suggests that both brokers and banks are — with both channels seeing accuracy levels drop on last year (by 7 per cent and 3 per cent, respectively), according to respondents.
Three-quarters of bank customers stated that their mortgage was “completely factual and accurate”, while 61 per cent of broker clients said that theirs was.
However, a higher proportion of broker clients said that their applications were “mostly factual and accurate”, compared to 22 per cent of bank customers.
The UBS report went on to ask those who had said that their mortgages weren’t completely factual or accurate whether their broker or bank had “suggested” to misrepresent their information.
In response, more than a third (37 per cent) of broker customers said that their broker suggested they misrepresent themselves/their data. While this is down on the previous year’s figure (41 per cent), it’s still far behind the banking sector; just 8 per cent of mortgagors said that their banker suggested they misrepresent their documentation.
If this is an accurate representation of the market, the figure is alarming. But we should be careful about blaming brokers for this problem.
Firstly, we need to understand the word “suggested”. Was a customer outwardly told to misrepresent their information, or is this is a case of a broker client responding to a message/suggestion that was never actually given? And it still comes down to the consumer actually agreeing to misrepresent themselves.
Secondly, we need to consider that consumers could be more eager to blame a third party than their bank. After all, I’m sure few consumers would want to hold a mortgage with a bank that they think/know accepts loans with inaccurate information.
Lastly, and crucially, the UBS report fails to understand that, at the end of the day, the brokers and bankers are submitting information given to them by the customer.
A customer provides the broker/bank with the information required for their home loan. The bank checks the information for accuracy when it undertakes its credit and risk analysis for the mortgage application.
The mortgage broker has to trust the information that the customer gives them, and check it to the best of their ability. But, as Equifax BDM Steve Arsinoski said recently, customers are increasingly using more sophisticated technology that can fabricate certain documentation.
Thus, the report fails to ask one critical question: Did you misrepresent your documentation?
There is one point of the UBS report that I concur with, though: “More needs to be done by the banks to check documentation and verify mortgage applications.”