A consumer advocate has accused Australian banks before a Senate inquiry of providing home loans to those who can't afford home loans, and tampering the paperwork to make it look okay.
Banking and Finance Consumer Support Association president Denise Brailey said that in the past six weeks she had seen low-document or no-document loan applications from 400 people, and each one had been tampered with after being signed.
"Not one of them is a clean document," said Mrs Brailey.
In some cases, the loan application documentation showed someone on $40,000 a year was earning closer to $180,000.
They pointed out that this has serious implications for the federal government, which has invested billions of dollars in residential mortgage-backed securities, which are repackaged home loans.
The government has invested just over $15 billion in the RMBS market in its attempt to restart securitisation in Australia and provide cheaper funding for the banking sector after the market effectively shut down because of the global financial crisis.
Mrs Brailey said international credit ratings agency Fitch Ratings had estimated that eight to 10 percent of RMBS's comprised low-doc loans and some $2 billion of loans were obtained fraudulently.
Ms Brailey called for a royal commission into the banking industry to examine the problem.
Loc-doc loans are mainly used by people who are self-employed and cannot provide the breadth of financial information held by those who work for someone else.
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