The term ‘liar loans’ has been coined on the back of the Banking Royal Commission. This is because studies have shown almost 40 per cent of loan applications completed through mortgage brokers contained at least one factually incorrect statement.
Whether mortgage brokers are providing lenders with incorrect information, or information that is out-of-date, they are putting themselves – and their clients – at risk.
What behaviour should I look out for?
A recent study conducted by the Consumer Credit Legal Centre in New South Wales identified some mortgage brokers were breaking the law when filling out loan applications for their clients.
Common examples included brokers suggesting their clients provide a different answer in their loan application from to the answer they initially provided. This includes suggestions to overstate income, not declaring a spouse or child, or providing outdated salary figures.
Mortgage brokers were also found to be asking clients to sign blank loan application forms. They then proceeded to fill the forms and sent them to lenders without giving clients the opportunity to verify the accuracy of the information. This is problematic because it gives the mortgage broker an opportunity to provide the lender with false information about a client’s situation.
Some brokers have also been incorrectly declaring loans to be for investment purposes when, in fact, they were for personal use. This is an issue because a client loses protections offered under the Consumer Credit Code, such as the right to lodge a hardship application if struggling to make repayments.
What happens to ‘liar loans’?
Lenders ask applicants questions because they want to determine their ability to repay a loan. While lying on a loan application form may seem like a good idea at first if someone is concerned that they may not be granted a loan, it can create a lot of problems down the track. If the lender notices someone has lied in their loan application form, they are likely to reject the application. If the lender doesn’t notice false information is given, and approves a loan, then a homeowner may obtain a loan that they’re unable to pay. If they default on the loan, both their credit score and any property the lender has a security interest over will be at risk.
Mortgage brokers who lie in loan application forms may be brought to court by the Australian Securities and Investments Commission. For example, in late 2013 the Sydney District Court convicted a former mortgage broker of making false statements and providing false documents to banks to secure approvals for home loans totalling almost $7.5 million. The mortgage broker was sentenced to two years’ imprisonment to be served by way of an intensive correction order.
How we can help
Slater and Gordon can help you by:
- Advising you in relation to a complaint against a mortgage broker
- Assisting you to negotiate a resolution to your dispute
- Representing you in any subsequent legal proceedings against a mortgage broker
The contents of this blog post are considered accurate as at the date of publication. However the applicable laws may be subject to change, thereby affecting the accuracy of the article. The information contained in this blog post is of a general nature only and is not specific to anyone’s personal circumstances. Please seek legal advice before acting on any of the information contained in this post.