There are more interesting articles, commentaries and analyst reports on the Web every week than anyone could read in a month.
Each Saturday morning I like to share some of the ones I’ve read during the week.
The weekend will be over before you know it, so enjoy some weekend reading.
Banking royal commission to put liar loans in the spotlight, but what are they?
The time is up for liar loans – with a heavy crackdown on the way.
According to this article on abc.net.au the banking royal commission has begun it’s investigation into liar loans, with no loan safe from the magnifying glass.
The banking royal commission kicks off in earnest today, with the first hearings that will examine evidence and see witnesses questioned.
And what better place to start than looking at home loans.
It’s by far the biggest business in Australian banking, with more than $1.7 trillion in residential mortgages outstanding.
That’s about two-thirds of all the money lent by Australian financial institutions, dwarfing personal loans, credit cards and business borrowing.
Aside from making up the bulk of banking in Australia, the mortgage sector to date has been one of the less investigated areas in financial services.
Known knowns, known unknowns and unknown unknowns
To borrow a phrase from former US defence secretary Donald Rumsfeld, there are known knowns, known unknowns and unknown unknowns.
Given the royal commission’s limited timeframe, commissioner Kenneth Hayne can’t afford to waste time looking at the known knowns, that is scandals that have already been investigated (such as Storm, CommInsure or money laundering), or looking for the unknown unknowns.
We know there are some dodgy loans issued based on false information and fraudulent documents provided by mortgage brokers.
Since it assumed responsibility for enforcement in this area in July 2010, the Australian Securities and Investments Commission (ASIC) has undertaken more than 100 investigations, resulting in 15 criminal convictions and 60 personal bans or restrictions on providing financial services, many of which related to mortgage brokers.
‘Liar loans’ could be worth $500 billion
But that’s the tip of the iceberg if research from UBS proves to be accurate.
The investment bank’s research department has surveyed about 1,000 recent home buyers each year for the past two years.
Only 67 per cent of respondents to last year’s survey said their mortgage application was “completely factual and accurate” — that leaves one third who admitted to telling some kind of porky.
Most of those appear to have been white lies, with about a quarter of respondents saying their application was “mostly factual and accurate”.
But that still leaves 8 per cent who said their loan documents were only “partially factual”, and 1 per cent who refused to say.
If you multiply Australia’s $1.7 trillion home loan balance by a 33 per cent fraud rate, with a few adjustments here and there, you get to the attention grabbing headline that there might be $500 billion in what UBS calls “liar loans”.
The most common mistruth in the applications was understating living expenses, which makes sense because it is something that’s very difficult for a bank to verify.
That’s why banks are supposed to use a conservative benchmark for expenses as a baseline.
The problem is many banks have been, and some still are, using a poverty line measure of household expenses.
It just doesn’t make sense to expect a household earning more than $200,000 a year to have the same living costs as people surviving on the minimum wage.
This is something ASIC is currently taking Westpac to court over, and therefore an issue the royal commission will probably avoid going into for now.
Borrowers encouraged to lie, statistics suggest
Understating other debts, overstating income or overvaluing existing assets each accounted for about 15 per cent of the misrepresentations.
The rate of inaccurate applications went up dramatically for people who went through mortgage brokers compared to those who applied directly through the bank, suggesting many brokers are encouraging their clients to lie.
More than 50 per cent of loans are now obtained through a mortgage broker, so this is a worrying possibility.
In each of these cases, the royal commission will also need to consider whether the bank should have picked up the lies if it had done proper checks.
UBS is concerned that the documentation required to verify information such as the borrower’s income is inadequate.
In a case around car financing, the Federal Court has already found that relying on a few payslips may not be sufficient evidence to satisfy responsible lending laws.
A quick look at half a dozen of the more interesting housing finance slides for January 2018.
Total housing finance increased by +0.7 per cent in seasonally adjusted terms to $33 billion, but was pretty flat in trend terms, with investor loans continuing to decline and owner-occupier lending growing at +7 per cent per annum to fill the breach.
January is generally a quiet month due to summer holidays, but first homebuyers continue to be drawn into the market by concessions, now accounting for a market share of 18 per cent in the month.
The DIY Mistakes Interior Designers Wish You’d Stop Making
Let’s face it, ever since shows like The Block came on air, everyone thinks they’re an interior designer.
But often that’s not the case…
This article from The Huffington post looks at the mistakes professional designer wish people would stop making.
Deep down, we all fancy ourselves as a bit of an interior design/DIY guru. After all, pretty cushions are pretty cushions, and when it comes to painting a wall, how hard can it be? Right?
But if you take the time to watch pretty much any renovation reality show, you’ll quickly realise even the most capable (or not-so-capable) DIY decorators aren’t immune to making some pretty epic stuff-ups.
So we spoke to three Aussie interior designers at the top of their game to find out the most common DIY mistakes they see on a day-to-day basis… in other words, what NOT to try at home.
I truly believe the biggest mistake DIY’ers make is not setting a brief.
By working out exactly what they need to achieve, what their family requires and what they need to add or subtract from the home to make it work properly as well as considering things like style, mood and budget, people are able to create a plan and plot a path.
“Without the briefing process and having a document to adhere to along the way you can end up with a completely different, or at worst a completely disparate, result than you intended.”
Don’t just dive in head first without a plan.
Don’t spend more than you have or more than you should
Don’t worry about what your friends think if you love it
Don’t please only yourself if you plan to sell your property within the next 2 years.
Don’t fall in love with one solution. there are always myriad options and plan b is often better than your first intention.
Don’t be timid. Use your character and personality to inform decisions and commit to them wholeheartedly. It’s not the risks you take that you regret, it’s the chances you missed that keep you awake at night so just have faith, plan and commit to a bold solution that you are passionate about.
“The most common DIY decorating mistake that I see is not taking the time to space plan and draft a furniture floor plan before buying ‘big ticket items’ like a sofa.
Furniture needs space to “breathe” and often I see a too-big-for-the-room sofa pushed up against a wall because that’s the only way it will fit in the space or coffee tables that are difficult to navigate around.
“Pushing furniture away from walls and allowing the right amount of space to move freely makes a big difference to how a room feels.
“What you don’t have in a room is just as important as what you do have and a floor plan can help you work through any space planning issues by experimenting on paper before committing to the real deal.”
“I think something many people get wrong is being in rush! When you move house or decide to make over a room, it is so tempting to want it all done in a week.
We have all become too used to have things immediately!
“The worst thing you can do is go out shopping one Saturday (or worse, online) with the mission to get everything you need for your new kid’s bedroom or living room.
It will end in disaster!
Even worse if you try and get everything from the same shop.
“Great, authentic, unique interiors which you’ll love coming home to, take time.
The best decisions are the ones you sit on for a couple of weeks or even months and keep going back to.
This also gives you the time to save up for the couch you really want rather than making do with the cheaper one just because it’s on sale. So my top decorating tip is always to take your time and buy things you really love.
Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au