Westpac Group is set to use three leading global credit agencies to blitz 'liar loans' in response to government and regulatory pressure on lenders to boost loan scrutiny.
Westpac will tell borrowers' their credit information will be screened by Equifax, Experian and illion, which is formerly Dunn and Bradstreet Australia and New Zealand, some of the world's major providers of credit reports and credit scores.
It will allow Westpac and its subsidiaries, Bank of Melbourne, St George Bank and BankSA, which already work with the agencies to check other credit issues, to systemically review all outstanding debts of the applicants, including drawn lines of credit, rather than just credit inquiries, and any defaults.
For example, Equifax, which is headquartered in the US, collects and aggregates information on more than 800 million individual consumers and 88 million businesses worldwide.
It is believed the agencies will be scrutinizing borrowers for new credit information including when accounts were opened, credit limits and history of up to 24 months of repayments.
Westpac is planning to alert customers with credit products that their credit information will be recorded from next month and refer them to creditsmart.org.au, which is a website that explains how borrowers can manage their credit history.
The federal government has been pressing for 'comprehensive credit reporting' to reduce existing lenders' exposure to defaults and open the lending market to new players by enabling them to better assess the credit risk of customers.
The Australian Prudential Regulation Authority, which has imposed speed limits and growth gaps on interest-only loans, also wants strengthening of assessments, capital requirements and credit assessments.
Westpac, the nation's second largest mortgage lender, last year introduced stringent tests on residential property borrowers' existing and future capacity to meet their repayments.
Mortgage brokers, who act as in intermediary between borrowers and lenders, have to quiz clients on on dozens of potential scenarios that might impact on their future capacity to repay, including having dependents with special needs that might require long-term spending on care and treatment.
It switches mortgage brokers' onus of proof from establishing whether a loan is suitable for a client to making a declaration as to why it is "not unsuitable".
One in five property borrowers are exaggerating their income and nearly half understating their spending, triggering new concerns about underwriting standards and vulnerability to sharp economic corrections, according to recent analysis of loan applications by online property lender Tic:Toc Home Loans.
The number of 'liar loans' exceeds original estimates by investment bank UBS that last year found about 30 per cent of home loans, or $500 billion worth of loans could be affected.
Other lenders are also tightening their lending criteria and toughening checks in response to pressure from prudential regulators to improve lending standards and lower demand in key property markets, such as Sydney and Melbourne.
For example, AMP, the nation's largest financial conglomerate, is updating its household mortgage expenditure criteria, which is used to assess borrowers' capacity to pay.
Read more: http://www.afr.com/business/banking-and-finance/westpac-recruits-equifax-experian-illion-to-blitz-property-liar-loans-20180319-h0xov4#ixzz5AHMnuh8g