ASIC are winning at losing again. They lost their court case against Westpac where they alleged that Westpac breached responsible lending laws in approving 262,000 loans, you can read the article here. ASIC are winning at losing seems to be a common theme when it comes to the banking industry. This case is very important because every lender in the past has assessed loans in the exact same way.
When assessing borrowers’ living expenses the banking industry used the Henderson Expenditure Measure (HEM). HEM gives minimum incomes required to live off and this is what banks were using when assessing living expenses. This changed with the 2009 NCCP Act. However, it was standard practice up until 2015 which is how ASIC have taken Westpac to court.
Anyway, Westpac were in trouble because they were using HEM rather than the actual living expenses when assessing home loans.
Justice Nye Perram – “Knowing the amount I actually expend on food tells one nothing about what that conceptual minimum is. But it is that conceptual minimum which drives the question of whether I can afford to make the repayments on the loan.”
And that is the common sense approach our regulators don’t get. The whole point of borrowing is to bring forward a purchase. If you now owe the lender a debt then it makes sense that the borrower would reduce expenses to repay the home loan.
ASIC are arguing that lenders should assess current expenses, Justic Perram put it this way:
“I may eat Wagyu beef every day washed down with the finest shiraz but, if I really want my new home, I can make do on much more modest fare.”
ASIC have now appealed this decision. We will have a lengthy wait to see what the final verdict is but my opinion is they will lose. The reason is that if Westpac lose then lenders will double down on their efforts to verify living expenses. I can personally say from direct experience that this will put an instant holt to any chance of avoiding recession.
A signpost for the next boom
If I’ve read this wrong then the banks and governing bodies will have to figure out some other way of getting money into the hands of people. You can be assured of that happening. That’s what always happens for the cycle to move out of the trough and into the boom.
This signals the start of the next boom. Combine this with free money (zero interest rates) and record state infrastructure spending. Add the record population growth and the ingredients are coming together for this cake to be baked. I forgot to mention the probability of money flooding in from Hong Kong. They know their money isn’t safe being within the reaches of China, that can be the icing on this cake.
Will Bell Mortgage Broker is a mortgage and finance broker based in Melbourne specializing in residential home loans. Will is all about the average Australian understanding just enough of the broader economy to take action on your own personal economy. He is the host of the My Personal Economy Podcast which you can check out here
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