60 Minutes story - Irresponsible bank lending

On Sunday evening Channel 9 aired a story on 60 minutes about irresponsible bank lending. Looking at the details of the investigation quite a few points reported simply don’t add up.

Story 1. Investor buys 10 properties in Moranbah.

An extract of the story: A 24 year old on ordinary income manages to borrow $6.1 million from an unnamed bank to invest in property. What is wrong with this statement?

1. No lender will lend someone on “ordinary” income that much money. To borrow $6.1 million she would have to earn in excess of $1 million a year!
2. Assuming she borrowed 80%, she would have to come up with about $1.3 million of deposit or equity. At 90% she would need about $700K minimum. For an “ordinary” earner, this does not add up.
3. Also, mortgage insurers get very nervous when people borrow too much over 80%. Today they would start getting nervous over $1.0 - $1.2 million. In the past it was a bit more generous but still there is no way that she easily could borrow more than 80% unless she used a complex web of lenders who self insure. Very hard to do.
   

The whole venture goes wrong as she bought 10 properties in the same mining town (clearly greed set in) and the market collapsed. She then blames the bank, but since we don’t know how she obtained that much money – not enough information was given - it is hard to have an opinion about the lender.

Overall this story just does not add up. Something is missing or someone is lying….

Story2: Renowned investment expert Jonathan Tepper predicts property crash by 30%-50%.

Firstly, I never heard of him. Secondly, why does Channel 9 needs to produce an American “expert” to analyse our market. Don’t we have any Australian experts? What about REAL experts like Tim Lawless (RP Data) or Craig James (Commsec)? Jeremy Grantham (another American) made the same dire predictions during the GFC and we have not heard from him since.

Story 3: Simone and Shane James borrowed $2.3 million to buy apartments in mining towns. It went sour.

This story is more believable than Story 1. Number are more realistic. The big mistake they made was to invest all their eggs in one mining basket. Are banks to be blamed for this? I’d love your opinion about this!