Aussie banks sitting on A$500 billion of 'liar loans', UBS says

by NZ Adviser12 Sep 2017
(Bloomberg) -- Here’s something else for policy makers to worry about as they attempt to engineer a soft landing in Australia’s property market.

The country’s lenders could be sitting on A$500 billion ($402 billion) of “liar loans”, or mortgages obtained on inaccurate financial information, according to an estimate from UBS Group AG.

A survey by the firm of 907 Australians who took out a mortgage in the last 12 months found only 67 percent stated their application was “completely factual and accurate,” down from 72 percent the previous year.

The most common inaccuracies were overstating income and understating living expenses, the survey found.

These findings “suggest mortgagors are more stretched than the banks believe, implying losses in a downturn could be larger than the banks anticipate,” analysts including Jonathan Mott wrote in a note to clients dated Sept. 11.

UBS is underweight bank stocks. And “liar loans,” the analysts say, was a term coined in the U.S. during the financial crisis. An ominous moniker for Australian lenders.

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