One of the mortgage industry’s most respected lawyers has spoken out about recent news articles reporting on mortgage fraud and a property bubble.
Gadens partner Jon Denovan told Mortgage Business that recent reports in the Australian Financial Review about mortgage brokers and the housing market were “extraordinarily dangerous” and “sensationalist journalism at its worst”.
The leading financial services lawyer referred to a news article which appeared on the front page of Wednesday’s AFR, titled ‘Uncovering the big Aussie short’.
The AFR reported that hedge fund manager John Hempton and economist Jonathan Tepper posed as a gay couple with a combined income of $125,000, viewing housing developments and meeting mortgage brokers in Sydney’s outer suburbs.
“What they discovered repeatedly was that mortgage brokers were advising them to lie on loan application documents about the deposit for a house and about income,” the AFR reported.
Mr Tepper told the AFR that “Australia now has one of the biggest housing bubbles in history”.
However, according to Mr Denovan, the alleged fraud would have nothing to do with a bubble because the bank is still getting its valuation.
“It’s just that some people, if there was broker fraud, are getting put into loans which they can’t afford, which is bad stuff, but that doesn’t cause a bubble,” he said, noting that the AFR ran follow-up stories in yesterday’s paper about the issue.
“It’s extraordinary. In yesterday’s paper they put about three pages into it.”
Commenting on reports of broker behaviour, Mr Denovan said no serious mortgage volumes are being written except through the big aggregators, which have “good checks and balances” and high standards among their brokers.
“At the same time, the banks are reviewing loans more carefully than they used to because the regulators have been on their back,” he said. “There has always been fraud, but to suggest that fraud could be on a level to create a housing bubble, it’s not possible.”
Much of the hysteria this week has referenced The Big Short, a newly released Hollywood film that explores the US sub-prime mortgage crisis.
“What happened in America wasn’t to do with fraud,” Mr Denovan said, “it was about responsible lending requirements and no personal recourse. It’s completely different.”