Bank lending has changed since I last got a loan it seems...
yes and no. The fundamentals are still "
Can you pay the loan with your remaining cash after expenses" and "c
an you afford multiple rate rises above the rate being applied for". Almost everything that is considered an input into these two questions is subjective, hence the drive to automate and standardise.
Banks don't even always ask for statements. Especially when stuff comes from brokers. There is a level of trust that what's provided is accurate. And if the broker hasn't been found to be dodgy, there is less scrutiny on what they submit. Its a balancing act. you may not agree with it, but its just risk appetite. not 100% of the loans will be fraudulent, or inaccurate in a way that changes the decision, so why spend time looking? Ever sent a feature without a second thought?
So this would have been a scenario of a client - probably considered prime (you know cos investment properties, high income etc.) that didn't need statements to progress the loan, but the statements were were provided none the less. SO any credit assessor would have looked at the system and realised they don't need to check the statements and moved passed them. My old workplace often didn't ask for statements, but had a policy that if the client did however provide them even if not required, they had to be assessed - you know, so what happened here could be avoided and liability solely shifted back to a lying customer/broker combo buster.
Most people doing this manual job are looking for big outliers in key areas, and only will delve deeper if there is any reason to do so. Not to mention some lenders have these roles performed by
juniors that dont require any formal education to perform as the systems do most of the heavy lifting. The employees just check off any flags the system spits out and follow up the exceptions. In this case, the broker provided a below bench mark living expense of 3000, that would have flagged, so staff would have adjusted the expense to the bench mark. Next!
One of my old colleagues in his time at a lender i worked for had assessed and approved in excess of 8B worth of home lending in about 5 years. The default rate of his assessments was around 1.2%. His peers over the same period were running at between 3-4%. Sometimes you have a knack for knowing when to look, etc.
There was also previously an issue with conflicted renumerations - bonuses paid for volume processed which forces people to speed through rather that be accurate. That historically added to poor outcomes too. But as a whole you need to understand that these outcomes are not the norm. Even for 100 people this happens to, there are literally thousands of people who arent in this position. If the banks were wantonly doing the wrong thing, the number of poor outcomes would be more significant.
I agree that too heavy a reliance on benchmarks is bad, that's been an ongoing debate. Banks do it one way, they get slammed, they do it another way, they get slammed. The bank is always the problem, not the continually shifting regulatory environment or the lying customer or broker (up to what, 50%?).
If you've ever had to asses some ones actual expenses from statements, you'll know the effort involved and the potential pitfalls and inaccuracies from doing so. Not all statements and habits are the same. Infact they are almost as individual as finger prints. What do you question? What if all the expenses are paid in cash after it is withdrawn from the account? Those would just look like discretionary spending, people do this all the time to hide loans, children, gambling, alcoholism, infidelity etc.. People also do this over a 6 month period to sanitise their spending so banks CANT tell what they are doing before applying for loans. Ive know brokers to give this advice to their clients. Is the occasional expense at a baby store an indicator that the client is lying about having a child or are they really buying baby shower gifts (discretionary). You can ask, but they can lie and you're back to square one. You cant fathom the level of complexity that goes into assessing somones statements until you've done it for a bit and realise that every time you do it, its never clean cut. Ever. That's why stuff like open banking and positive reporting is the future.
Dont feel sorry for the lead plaintiffs in this case.