Lawyer responds to property 'bubble' reports

Lawyer responds to property 'bubble' reports

29 February 2016 by James Mitchell 1 comments

A highly respected financial services lawyer has spoken out about recent news articles reporting on an Australian housing bubble built on fraudulent home loans.

Gadens partner Jon Denovan told REB's sister publication Mortgage Business that recent reports in the Australian Financial Review about mortgage brokers and the housing market were “extraordinarily dangerous” and “sensationalist journalism at its worst”.

The leading financial services lawyer referred to a news article which appeared on the front page of last Wednesday’s AFR, titled 'Uncovering the big Aussie short’.

The AFR reported that hedge fund manager John Hempton and economist Jonathan Tepper posed as a gay couple with a combined income of $125,000, viewing housing developments and meeting mortgage brokers in Sydney’s outer suburbs.

“What they discovered repeatedly was that mortgage brokers were advising them to lie on loan application documents about the deposit for a house and about income,” the AFR reported.

Mr Tepper told the AFR that “Australia now has one of the biggest housing bubbles in history”.

However, according to Mr Denovan, the alleged fraud would have nothing to do with a bubble because the bank is still getting its valuation.

“It’s just that some people, if there was broker fraud, are getting put into loans which they can’t afford, which is bad stuff, but that doesn’t cause a bubble,” he said, noting that the AFR ran follow-up stories in the paper the next day.

“It’s extraordinary. In yesterday’s paper they put about three pages into it.”

Commenting on reports of broker behaviour, Mr Denovan said no serious mortgage volumes are being written except through the big aggregators, which have “good checks and balances” and high standards among their brokers.

“At the same time, the banks are reviewing loans more carefully than they used to because the regulators have been on their back,” he said. “There has always been fraud, but to suggest that fraud could be on a level to create a housing bubble, it’s not possible.”

Much of the hysteria this week has referenced The Big Short, a newly released Hollywood film that explores the US sub-prime mortgage crisis.

“What happened in America wasn’t to do with fraud,” Mr Denovan said, “it was about responsible lending requirements and no personal recourse. It’s completely different.”

[Related: RBA flags 'increasing risk' in property market]

promoted content
Recommended by Spike Native Network
Listen to other installment of the Real Estate Business Podcast
reb top 100 agents 2016

With a combined sales volume of $13 billion in 2016, the Top 100 Agents ranking represents the very best sales agents in Australia. Find out what sets them apart and learn their secrets to success.

featured podcast

featured podcast
William Phillips on how agents can expand their database and grow their business

In this episode of Secrets of the Top 100 Agents, host Tim Neary is joined again by William Phillips to discuss the real estate database and...

View all podcasts

Are dodgy agents being punished enough?

Yes (8.6%)
No (55%)
Only in some states (2.3%)
Not all dodgy agents are being found out (34.1%)

Total votes: 220
The voting for this poll has ended on: April 15, 2017
upcoming events
REB Awards
Sydney The Event Centre 12 Sep
REB Awards
Sydney The Event Centre 12 Sep
Melbourne The Event Centre 14 Oct
Brisbane The Event Centre 18 Dec
View all events
Do you have an industry update?