Borrowers, banks can't afford recklessness
What should banks do in cases where they lend to customers who are victims of mortgage fraud or sharp property dealing, which the banks could have prevented?
OPINION: It is a contentious question, and one that brought a mixed reaction from a reader survey last week, with nearly four in 10 readers saying borrowers should live by the rule of "caveat emptor" and pay back every cent they owe.
We asked readers for their views on the case of "a couple who borrowed money to buy an investment property only to find that the price they had paid was far too high" after valuations they were provided were misleading.
In the case we posed, the mortgage application was filled in by the seller, and the bank made no effort to verify its contents, not even speaking to the borrower.
But while there were many expressions of sympathy for borrowers who had got themselves into such a mess, many readers - 38 per cent - said the borrowers should repay all of the money, feeling the bank should not have to take responsibility for their customers being duped.
"I do feel sorry for people in this sort of situation," said one reader, "but it's their responsibility to look into these sort of things - I thought that's why we had things like lawyers."
Another was tougher: "Personal responsibility people! To then say it's the bank's fault I didn't read any of these documents/know what I was signing is a bit rich. Sure the banks can have some checks in place, but at the end of the day it's up to the individual. If you're too dumb to understand the fine print then maybe you shouldn't be buying property."
At the other end of the spectrum, 24 per cent of readers felt that banks that could have prevented terrible outcomes by making basic checks, should not be allowed to collect the debt owed to them.
"Banks need to re-learn the meaning of risk," one reader wrote.
"For far too long everything has been loaded in their favour and yet we've been paying fees and charged interest at rates purporting to reflect associated risk. But if the proverbial hits the fan, it is always the borrower who takes the bath. The bank loses nothing."
One reader who is a former banker said it is "complete negligence" on the part of the bank not to undertake basic checks of potential borrowers.
"Fancy not interviewing/meeting people you propose to lend to! It is ridiculous. I would say the purchasers could make a case to have the whole agreement nullified - the law should exist to protect the general public from such appalling behaviour."
Another said: "I find it hard to believe that banks would loan money without establishing the value of the home on which they are loaning the money. It's crazy. It's obvious that they don't expect to lose any money they loan."
Of the remaining 38 per cent of readers, 13 per cent felt the banks should not get all their money back, but get back more than half; 18 per cent felt that only half the debt should be repayable; and seven per cent felt that the borrowers should be made to pay back less than half the money.
There is a feeling among readers that it is time New Zealand had responsible lending laws.
Eighty-one per cent felt that lenders should be required by law to carry out basic checks that could prevent such frauds, and there was incredulity that it might not have been happening.
"Borrow money without doing your own checking is very silly and a bank that does not have safety checks in place for borrowers should be widely publicised," said one.
"Banks are reckless with their lending. There are not enough checks in place to see if the lending is affordable," another wrote.
"My wife and I were told that we couldn't top up our mortgage to do some work around the home, because we did not have enough equity in the home, but the bank were happy to lend us money on a separate loan - as much as we wanted! We borrowed $15,000 and that has really stretched us."
- Sunday Star Times