Lending clubs are searching for borrowers who have used a loan to buy a house but not a property, or whose repayments are not paid back, as they look to reduce the risk of the financial system crashing.
The banks are using a computer program called ‘lender ghost’ to track the repayment history of the borrowers.
They also look for those who may be using a “ghost loan” to buy property.
“It can be very frustrating for borrowers, especially those who are trying to pay their bills on time,” the head of one of Australia’s largest mortgage lenders, John Hancock, said.
“The banks say it’s a small risk, but there are people who have not been paying their bills, are not paying their repayments, are struggling with their mortgage.”
In recent years, lenders have been tightening their lending rules to reduce fraud, as the cost of mortgage insurance and the lack of a market for subprime mortgages led some lenders to stop lending to people who had borrowed money from payday lenders or credit card companies.
While the banks say ghost loans are rare, many are warning of the dangers of using the system.
“If you borrow $100,000 in a loan and you repay it, then you get a loan of $10,000 to repay the debt, you’re not getting the full value of your loan,” the CEO of a major bank, David Hine, told the ABC.
“That’s a huge risk to people’s credit.”‘
Ghost loans’ used by lenders to boost loan repaymentsThe banks also use ghost loans to boost borrowers’ repayments.
“A loan will be paid off when the borrower pays back the debt,” a lender’s chief executive, Paul McWilliams, told ABC Radio Canberra.
“In the case of a loan, the borrower is given a cash deposit that is paid back within a certain period of time.”
However, there are some issues with ghost loans.
The lender must prove the borrower has paid back the full amount of the loan and that the loan is legitimate.
“What you’ve got to understand is that if the borrower goes out and buys a property for $500,000 and the loan was $25,000, that’s a ghost loan,” Mr McWilliams said.
The loan is not considered legitimate if the person did not repay it in full, but if the loan has not been paid back in the specified period of times, it is deemed illegitimate.
“And then, if it’s the borrower who’s trying to get into a property loan, that can also be a ghost debt,” Mr Hine said.
There are some caveats.
If the borrower does not repay the loan in full within the specified time, the lender can still charge the borrower interest for that period.
The lender will then be required to pay interest on the ghost debt, which can then be used as collateral for a mortgage or other loan.
“Once you’ve used the ghost loan to finance the loan, if the repayment is not paid in full it can be considered a debt,” John Hancock’s Mr McWilliam said.
He said the banks were “very careful” about using ghost loans for borrowers with outstanding debts.
“We do not use ghost loan programs to fund loan repayment programs.
If you’ve taken out a loan that has been outstanding and you’re owed money, that will be a loan payment that is considered to be outstanding,” Mr MacWilliams said, adding that ghost loans can only be used by borrowers who meet certain criteria.”
Lenders do not want people to get in trouble for doing that,” he said.
Some banks are also raising concerns about ghost loans that have been used to buy properties.
“There are a number of people that have taken advantage of these ghost loans,” Mr Hancock said.
Topics:financial-trends,housing-industry,financial-market,mortgage-industries,housing,australiaFirst posted May 08, 2019 08:47:25Contact Jacqui WahlContact David Hines