Westpac's mortgage books under fire

Analysts have looked at recent documents on a review of Westpac's mortgage serviceability requirements

Westpac's mortgage books under fire


By Rebecca Pike

Analysts have criticised major lender Westpac amid revelations over the four major banks' lending practices.

UBS has released a report in relation to the Australian Prudential Regulation Authority (APRA) 2016 industry review of certain controls on mortgage serviceability requirements.

Written by analyst Jonathan Mott, the report looks at data recently released by the Royal Commission.

The 2016 review specifically looked at the controls, and application of those controls, on the information used in mortgage borrower serviceability.

The review into Westpac Banking Corporation was completed by PWC and looked at 420 mortgages. It concluded that "while the Group has implemented a wide range of controls related to verifying certain categories of borrower information (particularly in relation to income) further consideration should be given to strengthening controls in certain areas, such as declared expenses and other debts".

PWC found that 8 out of 10 mortgage control objectives were "ineffective". APRA CEO Wayne Byres found the bank to be "significant outliers".

Mott's analysis of the report estimated that all minimum income verifications were not completed for 29% of the sample, 86% of the sample had assessed living expenses equal to the HEM benchmark, 66% had no itemised living expenses collected and 30% of the sample the borrower's financial position was suggested to have been misrepresented.

He added that the findings raised questions over Westpac's $400b mortgage book and suggested the bank further sharpen their underwriting skills.

Since the review was delivered, Westpac has confirmed it has reassessed the 38 loans that PWC believed would fail the standard using both the information on the credit files, which was available to PWC, and other information available to the bank at the time, which was not part of the PWC review.  On this basis all the loans would have been approved, apart from one loan which is currently ahead of its repayments.

Only four of the loans in the sample are currently greater than 30 days past due, of which only one is greater than 90 days past due.  This is well below the portfolio average for delinquencies.

Westpac confirmed that all of the loans in the sample were originated over 18 months ago and are now well matured.  Of the original 420 loans, 90 have already been repaid/refinanced.

Westpac says it has taken the findings of the PWC Report seriously and has used this to guide its ongoing continuous improvement work on its policies and application processes for mortgage origination.

 Westpac CFO, Peter King added, “Westpac’s mortgage book continues to perform well as outlined in our most recent Pillar 3 disclosures for 31 December 2017.  Our mortgage delinquencies and losses remain low both relative to historical and industry averages.”

 At 31 December 2017 Westpac’s mortgage 90+ day delinquencies in Australia were 0.67%.

Westpac will provide an update of its mortgage portfolio quality at its Interim 2018 results expected to be announced on 7 May.


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