The Australian Democrats 'jump the gun' on low doc loans
The Mortgage and Finance Association of Australia (MFAA) has hit back at recent claims made by the Australian Democrats that a large number of borrowers were coerced into low doc home loans during the global financial crisis (GFC).
MFAA chief executive Phil Naylor said that since 2004, the association's disciplinary tribunal has dealt with 350 complaints against members - none of which "have been specifically related to low doc loans".
Australian Democrats housing spokesman David Collyer recently called for a Royal Commission into the Australian mortgage finance industry after evidence was given to the Senate Economics Committee on low doc loans.
The committee was told borrower incomes and assets were regularly and systematically inflated to make loans appear appropriate and repayable when they were not.
"Apart from confusing 'low doc' with 'sub-prime', the spokesperson has jumped the gun," Naylor said.
While he supports the Senate inquiry, he said that a Royal Commission is not necessary because, for one to be called, "there would have to be massive evidence of systematic low doc fraud".
"In our view and on the experience of our members who in the main are mortgage brokers (and comprise about 75 per cent of all mortgage brokers) there is no evidence of this," he said.
Naylor said he believes the arrears rate for low doc loans has not performed "materially differently to prime loans", albeit at a rate which is slightly higher due to the greater risk associated with the low doc loans.
"Had there been massive fraud it would be reasonable to expect the arrears rate to be going through the roof, and it is not," he said.
According to Collyer, of the $14 billion worth of residential mortgage backed securities (RMBS) acquired by the Government since the global financial crisis (GFC), 10 per cent of these might be low doc loans.
Naylor said at their greatest penetration pre-GFC, low doc loans made up around 7 per cent of the market. By the time RMBS was being acquired, the penetration would have been "considerably less than that".
"We estimate the low doc loans now are less than 2 per cent of all loans so the 10 per cent assertion cannot be even close," he said.
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