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Prosperity Through Property

Two reports from the Australian Financial Review. “Sydney-based mortgage broker Zenik Finance Solution, which made nearly $1 billion in home loans for the big four banks and Macquarie Bank, has engaged in “widespread and systemic mortgage fraud” for years while the corporate watchdog ASIC watched on, a court has found.”

“Zenik brokers made fraudulent mortgage applications using fake bank statements and signatures, fictitious jobs and fabricated payslips and letters of employment. It highlights the seriousness of the inflation of income in applications for home loans, a potential sub-prime crisis trigger which has not been fully investigated by the banking royal commission, analysts LF Economics say.”

“Between 2013 and 2016, loans largely issued by Westpac and ANZ were used to fund apartment purchases, by mainly local and overseas Chinese buyers. While the case did not deal directly with fraud, evidence revealed the prevalence of fraud.”

“An external audit by Ashurst tendered in court showed anomalies in Zenik’s loan documents. Ashurst also noted that Zenik brokers spoke mainly in Mandarin and while they were given training in English, Zenik did not verify that the skills were understood or put in practice.”

“While Zenik loans suffered few arrears, LF Economics Lindsay David said that didn’t preclude them from being subprime and a greater ramification is how the supply of sub-prime credit market inflated the housing market.”

“‘If verifying income was not such a big issue, why are banks doing it now, and why is it that house prices are tanking at the same time?’ Mr David said. ‘This goes to show that there’s excess debt pumped into the market.'”

“It was a warm week in mid-October 2015 at the gaudy Sun City resort in South Africa when Sydney-based mortgage broker Zenik Finance Solution won the big plaudit from Yellow Brick Road’s Mark Bouris, taking out the broker of the year award.”

“At Sun City, the then Vow chief executive Tim Brown (who went on to become YBR CEO, lending) was lavish in his praise, declaring that Zenik, which had joined the Vow network only the previous year had taken ‘this year’s awards by storm.’ And then it all fell apart.”

“Zenik brokers who applied for loans at such a furious pace from 2013 to 2016 had faked bank statements and signatures, cooked up fictitious jobs by fabricating payslips and letters of employment, and engaged in other instances of fraudulent behaviour.”

“The regulator, ASIC, was informed but did nothing. Brokers were suspended but loans that were obtained fraudulently remain in the place. The trailing commissions they generated are still being collected by Zenik and Wang. And industry experts say there is probably billions of dollars worth of other loans, also obtained fraudulently, that lurk like a ticking bomb below the surface of the finance and property industries.”

“Less than six months after the fun at Sun City, Westpac, St George Bank and ANZ discovered they couldn’t validate the income listed in some of Zenik’s Chinese foreign buyer mortgage applications. NAB, CBA and Macquarie quickly followed suit with investigations that confirmed Zenik’s brokers and customers had used fraudulent documents to obtain loans for apartments.”

“In the months that followed, Zenik brokers were suspended – dropped by Vow and consequently unable to get any new loans from the banks. The only public hint at what was going on came when the the banks decided to call time on foreign lending, led by Westpac and ANZ, Zenik’s biggest lenders.”

“Meanwhile, behind the scenes, the banks were blaming Vow for Zenik’s fraudulent applications, Vow was blaming the banks and PIA’s Wang suggested Vow was responsible because it was in charge of training brokers.”

“Australia’s extensive residential market has created a complex financial ecosystem extending from real estate agents and banks to mortgage brokers, developers and, before property prices started their now full-scale retreat, cashed-up and eager foreign buyers.”

“At the top of the boom, PIA and Zenik were focused on foreign buyers, churning out about 4000 loan applications between 2013 and 2015 for Chinese borrowers based both in Australia and overseas. The total value of those loans, which averaged $500,000 each, is thought to be about $1 billion.”

“It is not clear how many of those 4000 loans were based on false documents but in one case, ANZ declined some 70 loan applications from Zenik for one single development because they were found to be fraudulent.”

“In an ANZ review of Zenik loans in 2016, 109 out of 120 foreign applications were suspected to be fraudulent and two-thirds of local applications were also fraudulent. At Zenik, in addition to false income and employment claims, applicants lied about buying the homes for owner-occupation and concealed outstanding debt from the banks. Self-employed borrowers pretended to be employees.”

“Internal Zenik audits and employee correspondences also showed some of the applicants’ overseas documents were ‘produced’ out of a factory in China. In some instances, Zenik brokers deposited large sums of monies in bank accounts in order to support fake balances. Three months prior to a settlement of a loan, Zenik brokers or sales agents deposited an amount equal to three months of salary of fictitious payslips.”

“Wang held ‘church congregation-styled’ seminars in Mandarin at PIA’s specially built auditorium at 2 Australia Avenue, Olympic Park, on Saturday evenings, attracting 700 to 800 people each night at the height of the boom. The company’s motto is ‘Prosperity Through Property.'”

“So prolific was PIA’s selling, even its sales agents and staff were hooked on apartment investments. One agent with a household income of $110,000 had four off-the-plan apartments all due for settlement in two years and a combined debt of $8 million.”

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  1. ‘The only public hint at what was going on came when the the banks decided to call time on foreign lending, led by Westpac and ANZ, Zenik’s biggest lenders’

    This is a revelation, and there’s sure to be more. Of course, nothing like this could ever happen in the US…

    1. You simply can’t get these high house prices without fraud. One could argue that the entire housing bubble, everywhere, is entirely due to fraud.

      1. How a Subprime Banking Workaround Could Crush Your Retirement
        Here’s the dirty little secret your bank doesn’t want you to know
        Pamela Yellen | December 11, 2018
        Photo: Picture Alliance | Getty Images

        The devastating housing crash of 2008 is now 10 years in the rearview mirror, but the danger of another financial crisis looms despite assurances to the contrary.

        We’ve been told that the housing bubble and collapse was about predatory lending and high-risk borrowers who were duped into loans they couldn’t afford. So, we can assume that the massive regulatory response to the subprime crisis meant that banks are no longer allowed to behave badly, right?

        If only it were that simple . . .

        I’ve previously written about the various warnings out there that say the current booming economy is on shaky ground and about some potential causes of the next crash. Looming large among the latter is the increasing economic clout of pseudo-banks and their ability to play outside the rules put in place to help prevent another housing collapse.

        In fact, the largest source of mortgage lending in the United States is these same non-banks — financial entities that offer unsecured personal lending, business loans, leveraged lending and mortgage services. Because these companies are not required to hold banking licenses, they’re not subject to standard banking oversight and can freely engage in risky lending.
        What are these “shadow banks,” and how do they get the money to make these loans?

        Shadow banks include all risky investment products and activities that flourish outside the reach of regulation. Think about those hedge funds, credit default swaps, collateralized debt obligations, and mortgage-backed securities (a/k/a derivatives) that triggered the subprime mortgage crisis.

        The list of Wall Street and banking villains is long, and their shady dealings have not gone away. Instead, they have morphed into new ways to skate around the rules which themselves were intended to prevent greed run amok from causing another collapse.

        Today, the list of players involved in shadow banking encompasses everything from pawn shops and loan sharks to elite art dealers. They include so-called peer-to-peer lending outfits and online lenders such as Quicken Loans, Loan Depot, PennyMac, Freedom Mortgage and Caliber Home Loans. They aren’t allowed to get money from direct deposits, the way traditional banks do, but that has not stopped big banks from dumping money into them, in the form of loans.

        In fact, loans to non-bank financial firms increased six-fold from 2010 to 2017, hitting a record $345 billion, The Wall Street Journal reported. Wells Fargo coughed up $81 billion, Citigroup and Bank of America ponied up $30 billion each, and JPMorgan Chase threw in another $28 billion.

        By funding these “shadow” banks, the big financial players are still in the risky loan business. It was precisely this type of under the radar, back-door lending that led to the soaring foreclosures, cratering home values, failing banks and dwindling retirement accounts of a decade ago.

        And it gets worse …

        An astonishing 6 out of 10 mortgage lenders in the U.S. are now shadow banks, according to the L.A. Times. And they operate online and peddle subprime loans. Shadow lending is now “larger than the world economy and poses a risk to financial stability,” Bloomberg News wrote.
        …

      2. The New Subprime Danger: Backdoor Lending

        To limit exposure, banking pillars of Wall Street shifted predatory loan practices to non-banks.
        By: Andrew Moran December 10, 2018Articles, Business, Economic Affairs, Taxes0

        A A A

        by Andrew Moran

        Subprime lending was one of the chief instruments that brought down the U.S. economy a decade ago. Too many with low incomes, bad credit, and few assets borrowed more than they could afford to buy that dream house, which was then used as an ATM to fund lavish purchases and exotic vacations to Biloxi, MS. In the aftermath of the financial crisis, lawmakers sprang into action, placing on banks new rules and regulations that limited lending to subprime customers.

        Ignoring the primary drivers of reckless lending – the Federal Reserve and public policy to make housing a right – these officials believed they reined in predatory practices. As politicians concentrated their efforts on plugging one leak in the sinking ship, new fissures formed that now threaten the foundation of the financial system and the roaring economy.

        So, what’s this new threat looming on the horizon? Backdoor lending by shadow banks.
        Subprime Backdoor Lending

        Subprime has made it to the forefront of the financial services sector once again. Banks are providing zero-down mortgages, lending standards are dissipating, and lenders originated 3.4% more subprime loans compared to last year.

        Because of legislation, big banks are not entrenched in subprime like they once were. That is not to say that they refrained from making subprime an integral component of the industry.

        Rather than directly involve themselves, they extended subprime to non-banks by funding financial entities that provide unsecured mortgage products, business loans, and leveraged lending. The pillars of Wall Street – Wells Fargo, Citigroup, JP Morgan, and Bank of America – have shifted tens of billions of dollars to these companies that do not hold a banking license.

        Between 2010 and 2017, the big banks loaned an all-time high of $345 billion to non-bank businesses. For example, Exeter Finance, which services customers with an average credit score of 570, received a $1.4 billion lifeline from Barclays, Deutsche Bank, and Wells Fargo.

        Overall, this has resulted in two interesting developments: 60% of U.S. mortgage lenders are shadow banks, and backdoor subprime lending is in the trillions.

        Bank executives say this move limits their exposure, but Marcus Stanley, policy director at Americans for Financial Reform, told The Wall Street Journal that “it’s very easy for people to deceive themselves.”
        …

  2. I’ve been so busy I didn’t have time to post this:

    “Secret police study finds crime networks could have laundered over $1B through Vancouver homes in 2016″

    November 26th, 2018

    “The stately $17-million mansion owned by a suspected fentanyl importer is at the end of a gated driveway on one of the priciest streets in Shaughnessy, Vancouver’s most exclusive neighbourhood.”

    “A block away is a $22-million gabled manor that police have linked to a high-stakes gambler and property developer with suspected ties to the Chinese police services. Both mansions appear on a list of more than $1-billion worth of Vancouver-area property transactions in 2016 that a confidential police intelligence study has linked to Chinese organized crime.”

    “The study of more than 1,200 luxury real estate purchases in B.C.’s Lower Mainland in 2016 found that more than 10 per cent were tied to buyers with criminal records. And 95 per cent of those transactions were believed by police intelligence to be linked to Chinese crime networks.”

    “They are also an indication of how — according to police intelligence sources — Canada’s narcos are hiding the huge amounts of cash they are amassing from the fentanyl crisis, which resulted in the deaths of thousands of Canadians last year.”

    “You know that Netflix show Ozark, about laundering drug cartel money?” said an expert, who could not be identified because of ongoing investigations in B.C. “I always think that if those characters came up to Vancouver, they could launder all their cash in just one day.”

    1. This is similar to the east side across from seattle – i.e. bellevue and redmond. the is considerable fraud from eastern european groups.

      regulatory agencies dont seem to care

      1. As long as the government gets their cut through taxes and fees, with some token fines here and there, they don’t care one bit.

        1. The Economist put out a good article this week highlighting just how far-reaching China’s Fentanyl operation is. China was the “sick man of Asia” because Britain forced it to allow opium sales. Now China is paying back the western nations by doing the exact same thing that enfeebled the population. There is a war going on between the US and China, but it’s not what most people think.

    2. “…more than 10 per cent were tied to buyers with criminal records. And 95 per cent of those transactions were believed by police intelligence to be linked to Chinese crime networks.”

      Can’t help but wonder if Canadian government officials at some level engaged in collusion with Chinese crime networks. How else could real estate money laundering on such a massive scale have played out in plain sight?

      1. Professor bear
        That’s exactly what happened. Look up David Eby of the NDP and report on collision of former provincial government in all of this. Hint the former government was not conservative if ya know what I’m saying. I love Garth’s blog here: greaterfool.ca though he wisely, and likely in fear, doesn’t believe the Chinese have been a problem with Vancouver housing market. It’s certainly difficult to get unbiased data on due to gov involvement. And now even the huge report that david Eby manager to get out there, is being silenced……
        Anecdotally: a greaterfool.ca reader has reported having acquaintance s who work at the ports who know of “Port employees” working for the triads, switching #’s on containers for example as they’re being queued for “inspection”, and so on. Greaterfool.ca for a good look at what’s happening North of the border in real estate. Cheers, dual citizen here. Ps always enjoy your comments and macro view but rarely have time to post.

  3. “Sydney-based mortgage broker Zenik Finance Solution, which made nearly $1 billion in home loans for the big four banks and Macquarie Bank, has engaged in “widespread and systemic mortgage fraud” for years while the corporate watchdog ASIC watched on, a court has found.”

    I am shocked, shocked! to discover our regulators and enforcers turned a blind eye to systemic fraud committed by these corporate grifters.

  5. Hey, this daily blog is amazing. Do you have an equivalent for California housing? specially bay area?

      2. Anyone remember the Cranston family, royalty in California for over twenty years. Everything they touched turned into gold, for them anyway. But alas, it still wasn’t enough, so Alan Cranston mixed business and politics with Charles Keating’s Lincoln Savings and Loan.

        1. Yep, the Keating 5. Glad someone remembers. The FIRREA act was later passed to safe guard banks and savings and loans from repeating.

          We know how well that worked!

          1. At least some of their political careers outlived the scandal by many decades:

            “The five senators—Alan Cranston (Democrat of California), Dennis DeConcini (Democrat of Arizona), John Glenn (Democrat of Ohio), John McCain (Republican of Arizona), and Donald W. Riegle, Jr. (Democrat of Michigan)—were accused of improperly intervening in 1987 on behalf of Charles H. Keating, Jr., Chairman of the Lincoln Savings and Loan Association, which was the target of a regulatory investigation by the Federal Home Loan Bank Board (FHLBB). The FHLBB subsequently backed off taking action against Lincoln.”

    1. Philosophically, I’m not opposed to increasing the EITC at all. The tax credit goes towards those who work. One could do a lot worse in terms of reforms.

  8. Yes Ben. I can and probably is happening here.
    Fannie has been investigating the rash of false income verification companies who, for a fee, will produce convincing income documents, pays tubs etc. Some even have staff who will answer phone inquiries and provide false data verbally.

    Buffet said it is only after the tide goes out that we see who has been swimming naked. Well tide is heading out here as in Australia, and I would bet a bunch of these schemes will come to light soon.

  9. Inquired on this property just for fun.

    https://www.realtor.com/realestateandhomes-detail/19450-Hidden-Lakes-Ln_Acampo_CA_95220_M26766-89590

    Realtor replied with this:

    “This is important to note: Buyer shall pay to Concierge Auctions a “Buyer’s Premium” in addition to the Purchase Price for the Property. The Buyer’s Premium on this property is 12% of the purchase price with a minimum amount of $175,000. The Buyer’s Premium is not a real estate commission; it is the fee that Concierge charges to bidders for bringing the Property to auction.“

    175k min auction fee wow!

  10. Price of bitcoin falls below cost to mine
    By Ed Zwirn
    December 16, 2018 | 1:29pm

    To add further misery to bitcoin enthusiasts, the act of finding or “mining” the cryptocurrency has become unprofitable as the price continues to crater.

    This raises further questions about the viability of the accounting system supporting the cryptocurrency.

    The volatile asset is now fetching under $3,200, off more than 84 percent from the highs seen during its “tulip mania” phase of a year ago.

    At that point, in late 2017, accelerating numbers of people were spending real dollars on computers and electricity to create (or uncover the “coins,” using advanced algorithms.

    As they engaged in the then-lucrative business of mining for bitcoin, these entrepreneurs were conducting the “blockchain“ transactions which in fact tell you how much is in your “wallet“ and allow trading to happen.

    Without mining, this system, which has no Federal Reserve or other financial institution backing it up, would cease to function.
    …

    1. Bitcoin Opinion December 17, 2018 01:55
      New US Chief of Staff: Bitcoin is Good, ‘Not Manipulable by Any Government’

      This week, following the scheduled leave of John F. Kelly, United States President Donald Trump has chosen the pro-Bitcoin Mick Mulvaney to serve as the acting White House Chief of Staff beginning 2019.

      According to the Washington Post columnist Matt O’Brien, Mulvaney has been vocal about his support of Bitcoin (BTC) and in a speech covered by Mother Jones praised the decentralized nature of Bitcoin as a consensus currency.

      In 2016, Mulvaney reportedly said that the Federal Reserve “effectively devalued the dollar” and emphasized that the exercise of such control is not possible with a cryptocurrency like Bitcoin that is “not manipulable by any government.”

      Is it Good For Bitcoin?

      Having a high profile official and an influential member of the Trump administration is certainly positive for the long-term growth of the asset class.

      While the neutral stance of Mulvaney towards the cryptocurrency sector could affect the mindset of regulators and lawmakers in the U.S. to a certain extent, it realistically cannot have a short-term impact on the roadmap implemented by commissions like the U.S. Securities and Exchange Commission (SEC) or the Commodities and Futures Trading Commission (CFTC).

      The presence of pro-Bitcoin and crypto officials in the U.S. government, however, could encourage other government officials to evaluate cryptocurrencies in a neutral way and analyze the benefits that the decentralized financial systems can bring.

      In Sept. 2017, the central bank of Finland, for instance, released a research discussion that explicitly described the inefficiency of regulating blockchain protocols. The research concluded that Bitcoin is not and cannot be regulated because the protocol operates under strict rules implemented by the community sustained by miners, developers, and node operators.

      The paper read:

      “Bitcoin is not regulated. It cannot be regulated. There is no need to regulate it because as a system it is committed to the protocol as is and the transaction fees it charges the users are determined by the users independently of the miners’ efforts. Bitcoin’s design as an economic system is revolutionary and therefore would merit an economist’s attention and scrutiny even if it had not been functional. Its apparent functionality and usefulness should further encourage economists to study this marvelous structure.”

      As seen in the paper of the central bank of Finland, it is possible for a central bank or a government to analyze the structure of Bitcoin in a neutral manner and create practical regulatory frameworks around it without restricting the growth of companies in the industry.
      …

    2. Bonner Bitcoin mining riding out cratering market
      KIM BRIGGEMAN kbriggeman@missoulian.com Dec 16, 2018 Updated 5 hrs ago

      BONNER — Bitcoin is taking a bath these days, dragging the rest of the volatile cryptocurrency world down with it.

      But despite the drop in value of those electronic coins by nearly 80 percent from an all-time high a year ago, operations keep humming along here at one of the largest crypto-mining centers in North America.

      “We’re still plugging away as usual,” Jason Vaughn assured.
      …

    1. Denver’s supervised injection sites would offer fentanyl testing for users’ drugs
      Fentanyl is becoming a more common killer among drug users in the U.S. With Denver considering safe injection sites, 9NEWS takes a deep dive into the drug and its effects on Colorado.
      Author: Anusha Roy, Jacob Rodriguez
      Published: 8:50 PM MST November 29, 2018
      Updated: 10:07 PM MST November 29, 2018

      After Denver City Council approved the ordinance to create a supervised injection site, the only thing standing in its way is a needed change in state law. 9NEWS has covered various aspects of the proposed ordinance, including a breakdown of how Vancouver has navigated the safe injection sites and what Denver envisions its supervised sites to look like.
      …

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