So-called predatory lending is said to be behind the mortgage crisis in the US. But has this practice infected Australian mortgage brokers?
There is some evidence that there is at least some predatory lending occurring in Australia. According to a report by management consultancy Fujitsu, commissioned by Wizard home loans, predatory lending practices do exist in Australia. However they are not widespread, with only 0.56% of Australian households affected.
Unfortunately, those who are least able to afford it are most often targeted by unscrupulous lenders. While consumers in poorer areas have the highest rate of predation, those on higher incomes such as professionals do not seem to be targeted. So what are the hallmarks of predatory lending? According to the Fujitsu report they include:
Take the example of a Canberra mortgage broker who was found to have written a $360,000 home loan to an unemployed, dyslexic and homeless man. The broker was yesterday ordered by a Federal Court judge to pay over $30k in compensation to the 20-year-old man. The Australian Securities and Investments Commission alleged that the broker submitted two "substantially false" loan applications in 2004 and 2005 for the homeless man. On current evidence, predatory lending appears to be less widespread than in the US. Further shocks such as an increase in interest rates might expose more shonky practices as more households cannot keep up with their repayments.