Australia's biggest banks have been badly caught out in an alleged home loan fraud believed to be the nation’s single biggest banking sector swindle.
The corporate regulator alleges that hundreds of fake home loan applications totalling $110 million have been drawn up as part of a scam involving two low-profile, Melbourne-based mortgage brokers.
The scale and unsophisticated nature of the alleged fraud has raised questions over the internal controls of each of the big four banks, their subsidiaries and several smaller rivals.
It has also reinforced fears that the banks have again engaged in the aggressive lending practices that were seen in the lead up to the global financial crisis.
The two men, both of whom were originally from Pakistan, have been charged with defrauding major banks and other financial institutions in the alleged home loan scam. It is unclear at this stage whether the alleged scam involved drawn up loans without the permission of the people listed on the loan documents or providing a service to people who would not usually be able to obtain a home loan in Australia due to being unemployed or not being Australian residents.
The men — Najam Shah, 55, of Glen Waverley, and Aizaz Hassan, 34, of Truganina — were arrested late last week following an investigation by the Australian Securities & Investments Commission. They have been charged with conspiracy to defraud, which carries a maximum penalty of 15 years’ imprisonment, and released on bail. Mr Shah’s partner, Afghan-born Manija Zayee, has also been charged with obtaining property by deception over her involvement in the alleged scam.
The alleged conspiracy involves more than 300 loan applications to several banks including Commonwealth Bank of Australia, Westpac, NAB and ANZ.
St George, Bankwest, Adelaide Bank, Bank of Queensland, Citibank, Pepper Home Loans, Mortgage Choice and Suncorp are also embroiled in the alleged scam.
A further 50 loans using false information were lodged through other financial institutions. The Australian Prudential Regulation Authority, which overseas licensed financial institutions, declined to comment.
Mr Shah yesterday declined to comment when approached by The Australian at his double-storey family home in the eastern Melbourne suburb of Glen Waverley. “I don’t want to talk to you. Could you please leave,” Mr Shah, who arrived at home in the afternoon driving a four-wheel drive Mercedes Benz, said. Mr Hassan, an employee of Melbourne-based mortgage broker Cigna Financial, could not be contacted. Cigna Financial managing director Kent Leicester said Mr Hassan had been suspended from his role as finance manager at the firm pending the investigation.
Mr Shah and Mr Hassan allegedly operated the scam through an unassuming mortgage broking business, Myra Home Loans, in the Melbourne western suburb of Footscray. The now defunct Myra counted Ms Zayee as a company director.
ASIC alleges that between April 2008 and December 2011, Mr Shah and Mr Hassan conspired to defraud banks and other financial institutions by creating and using false documents to support loan applications that were submitted on behalf of Myra clients.
The allegedly fake documents included bank statements, pay slips, citizenship certificates and statutory declarations. “These were predominantly used in support of applications for home loans for house and land packages as well as for the purchase or refinance of existing homes,” an ASIC spokesman said. Both men previously had full accreditation to broker home loans on behalf of Australia’s biggest banks, though it is understood those accreditations have been cancelled.
Ms Zayee has been charged over allegedly submitting false documents in support of a loan application for a home loan in her own name in September 2009. She will appear at the Melbourne Magistrates’ Court on January 27. The men are to reappear at the Melbourne Magistrates’ Court on April 17.
It is understood the banks are tracking down the allegedly doctored loans. Sources close to the financial institutions said it was too soon to say if any of the loans were in delinquency.
This article first appeared in The Australian Business Review.