Home loans on tap: no deposit, no inspection

Jessica Irvine July 13, 2007

THE mortgage stress crisis is being worsened by the boom in easy credit, with lenders approving loans without inspecting properties, offering large amounts to borrowers who have no deposit and encouraging buyers to take on debts that would eat up half their income.

Amid concern over the growing practice of loans being approved with no on-site inspection, the Herald discovered yesterday how easily customers can be seduced by quick and simple access to credit.

In a telephone survey of big banks and other lenders, one bank gave preliminary approval after an inquiry about a loan that would have eaten up more than half the borrower's pay, well above the official "mortgage stress" definition of spending 30 per cent of gross income to cover a home loan.

Fierce competition among lenders has added to pressure to extend loans quickly and cheaply, meaning more loans are being approved via a statistical analysis of local sales data, or a "fly-by" inspection of the property by a staff member to check its existence. More than half of standard mortgage applications are now done without an on-site inspection, according to mortgage valuers and industry observers.

The president of the Australian Property Institute, Gregory Preston, said the off-site assessment process was more prone to fraud. "It depends on the valuer ringing the borrower," and borrowers were prone to exaggerating the features of their house, he said. "Obviously the problem is that … there could be internal damage [to the property] which is just totally overlooked in the valuation process."

Figures from the firm Fujitsu Consulting show a quarter of "non-conforming" loans - to people with bad or incomplete credit histories - are also approved without an on-site inspection. The proliferation of these loans, which also include loans requiring no documentation, low documentation, or loan-to-value ratios as high as 105 per cent, has stretched borrowers to the limit. The average loan-to-value ratio of new loans in NSW has risen from 51 per cent in 2003 to 75 per cent this year.

Source:
http://www.smh.com.au/news/national/home-loans-on-tap-no-deposit-no-inspection/2007/07/12/1183833688039.html