Westpac is in the courts already, with a class action on the way. The mortgage market is getting crazy.
This could possible be the opening chapter in a whole world of crazy.
There’s a class action being brought against Westpac for breaching their responsible lending obligations.
Westpac is facing a class action for allegedly giving loans to people who couldn’t afford to pay them back.
The class action, in the Federal Court, is the first against one of Australia’s big four banks since the banking royal commission delivered its damning report.
Maurice Blackburn principal lawyer Ben Slade says Westpac will be accused of breaching its obligations to protect customers from financial harm.
“Westpac is required to comply with strict obligations which are specifically designed to protect consumers from irresponsible lending and the risk of financial hardship,” he said on Thursday.
“This case will seek to prove that Westpac failed to comply with these obligations and that this failure caused substantial losses for many consumers.”
The case could involve thousands of home loans issued after January 1, 2011.
The central issue here is the use of HEM – the Household Expenditure Measure.
What we learnt in the Royal Commission was that many banks were using benchmarks to calculate serviceability, rather than looking at people’s actual expenses.
One benchmark was the HEM – which was apparently pretty much set at poverty-line levels.
What that means is that if your actual living expenses were more than the HEM (and unless you were on the poverty line, they probably were), then the bank was willing to lend you more money than you would normally get.
That sounds great, but the flip side is that from the regulator’s perspective, the bank was giving people bigger debt burdens than they could reasonably be expected to carry.
That is, they breeched their responsible lending obligations and put people into undue hardship.
And that’s what Maurice Blackburn are going to argue.
I actually didn’t think it would come to this. It’s hard to imagine anyone who bought a property in 2011 now regrets the decision.
But that’s with prices at their current levels.
The further prices slide, the more people might start to regret their decision.
And if they slide far enough, people might suddenly feel like they actually would like a way out of their mortgage.
Now I don’t know what happens if you prove that the bank gave you more money than you should of got.
Do you just write off the mortgage and call it even. “I’ll just take the house thanks. I’m not greedy.”
It could happen.
Or does the bank owe you compensation? Do you just get to pay the amount you should of received and the monthly repayments that entails?
But then who picks up the difference?
And where does this end? Right now Maurice Blackburn are going after Westpac because we know that Westpac were using benchmarks (ASIC is currently in court proceedings against them.)
But you can be sure that they were not the only ones. If Westpac was doing it, it was probably rife across the majors but also across the smaller players as well.
Maybe there’s hundreds of thousands of active mortgages that could be up for review.
I’ve got no idea how this plays out. But if you’ve got a mortgage with Westpac, I’d be watching this one closely.