Loan application fraud 'more widespread than Storm Financial collapse'

Loan application fraud `more widespread than Storm Financial collapse'

LOAN application fraud -- the process where lenders or mortgage brokers artificially inflate a borrower's income or assets -- spreads far wider than the Storm Financial crisis, consumer advocates have warned.

The concession late last month by Commonwealth Bank of Australia that many Storm clients had been stung by the practice has shone the light on a problem that has been largely ignored by authorities, said veteran advocate Denise Brailey.

``We have seen loan application fraud involved with a string of failed groups, including investors in Westpoint, investors involved with Kovelan Bangaru's Streetwise and in the failed Mortgage Miracles,'' Ms Brailey said.

``I have spoken with more than 100 people who have been struggling with their home loans and have subsequently discovered their home loan documents have been altered or filled in without their knowledge.''

In an unprecedented settlement, CBA announced it would make payments to thousands of victims of the Storm collapse, many of whom were duped into taking our margin loans they could not afford. The bank said that where loans had been given based on inflated valuations of underlying homes, those loans would be lowered to the size that should have been granted.

CBA would review its loans to Storm customers applying ``prudent'' lending criteria.

Borrowers found to have inflated income levels would also have their loans reduced and some interest payments refunded.

Townsville Vietnam War veteran Steve Reynolds was one of the first victims of the Storm Financial model, losing his home and hundreds of thousands of dollars in life savings in December 2008.

Mr Reynolds, who received a disability pension of $850 a fortnight, was given a loan of $1.2 million, despite having no ability to make interest payments.

``How can a 60-year-old war veteran get into this position on the advice of a licensed financial adviser and how can the banks lend that large amount of money to this bloke who is on a pension?'' Mr Reynolds asked amid the collapse.

In the subsequent months it became evident Mr Reynolds was far from alone -- hundreds of other Storm victims discovered their ability to make loan repayments had been substantially overstated.

Retiree Ian Jones, 65, is in danger of losing his two-bedroom flat after investing with Storm.

After hitting turbulence when investments funded by a $700,000 margin loan soured, Mr Jones applied to his lender for a copy of his home loan application and found his income was hugely overstated at $3564 a month.

CBA spokesman Steve Batten said the issue of inflated incomes being entered on to loan application forms was ``a matter for Storm Financial''.

CBA has admitted some of its lenders inflated the loans they could write to customers, predominantly by overstating the value of the client's family home used to secure the loan.

Mr Batten declined to comment on what action, if any, had been taken against employees for overstating property valuations.

According to the Australian National Consumer Credit Protection Act 2009, lenders or mortgage brokers providing ``false or materially misleading'' information can face fines of up to $220,000 or up to two years' jail or both.

Ms Brailey said she had spoken with ``over 60 per cent'' of the 144 clients of failed WA-based mortgage broker Mortgage Miracles.

``I have told all of them to go and get a copy of their loan application form from their lender and every single form had overstated the person's income,'' Ms Brailey said.

The offices of Mortgage Miracles were raided by WA's Major Fraud Squad in October 2008.

A fraud squad spokesman said investigations into the broker were continuing and were expected to be completed by August.

No charges have been laid.

Among those to have been burned by Mortgage Miracles, which encouraged clients to take out loans against their homes and invest in property developments, is Ann deWit. Ms deWit, a Dutch immigrant, and her elderly husband have been forced to rent out their house and move into a flat after an investment associated with Mortgage Miracles soured.

The deWits, who receive an aged pension, were encouraged to borrow against their home -- which they had completely paid off -- to buy a parcel of land for $279,000 and to invest $110,000 in a property development.

After they were unable to meet the repayments on those loans the couple engaged a solicitor, who allegedly discovered someone else had partly completed their loan form.

The form claimed both were employed as ``investment consultants'' and earned $135,000 a year.