It was 9am Monday, in late February this year, when Denise Brailey arrived at the offices of the Australian Securities and Investments Commission in Perth for a meeting with Victorian Commissioner Warren Day and lawyer Robert Allen.
Allen and Day had flown from Melbourne to find out what information Brailey, a veteran campaigner for victims of financial fraud, had about the banks and their low-doc loans. Brailey claimed to have the last bits of the jigsaw puzzle which would prove that mortgage brokers were acting as agents of the banks in foisting loans on customers who could not afford them. Though interest rates had fallen to historic lows, there were family homes on the line, lives ruined.
This $57-billion, low-doc loan sector required urgent investigation, said Brailey, who had brought a stack of documents to the meeting to prove her point.
Brailey claims credit has been overextended through mortgage brokers - in many cases when it wasn't asked for - and now some borrowers are facing deep financial stress.
But the meeting did not start well. Brailey, who had driven 200 kilometres to St Georges Terrace from her home in the rural town of Dowerin in Western Australia's wheat belt, got up and almost stormed out. Both parties concur on this detail. Otherwise, accounts of the meeting diverge.
"The only significant thing which occurred at that meeting," says Brailey, "was Warren Day admitting to me, in the presence of Robert Allen: 'Yes Denise, there is no doubt the banks are the engineers."' That is, the banks had ultimately engineered the blow-out in low-doc loans, and were to blame for the slew of defaults, rather than the mortgage brokers.
Warren Day denies this. "I didn't use those words," he told BusinessDay last week, reiterating the commission's position that the Brailey emails were merely "marketing by the banks" and did not constitute evidence of banks exploiting the brokers as their agents, or of fraud.
"ASIC has not received any documents from her in the form of LAFs [Loan Application Forms] which show any evidence of fraud," he said.
Brailey accuses ASIC of being cute on this point - of concocting excuses for its failure to investigate. "Ten minutes after Robert [Allen] received the pile of 300 emails across the table, he simply said: 'It's just marketing,' after flipping up one or two top ones".
She says the emails which are being released - sent from 30 banks and other lenders into the 20,000-strong mortgage broker "channel" - prove banks are calling the shots. The emails examined by BusinessDay suggest some banks orchestrated the reckless fall in lending standards as the credit boom approached its crescendo in 2007.
One after another, they show business development managers working for banks telling mortgage brokers what to do, from the "ABNs for a day" lurk for small business people, to providing reams of detailed advice on figures to enter, and figures to ignore, as inputs in the internal computer system of the banks which determined the loan approval.
Among the data dump to be released by Brailey are the passwords used by the brokers to get into the banks' computer systems.
Officially, the regulators are yet to accept that any of this constitutes evidence of an investigation into the banks - only the brokers have faced scrutiny.
Further to the stand-off between the activist and the regulators, Brailey fiercely rejects ASIC's claims that she had failed to provide them with Loan Application Forms [LAFs]. She instructed her members to send more than 100 formal letters of complaint to the regulator last year. Roughly half of these had LAFs with them, most with the discrepancies highlighted - usually the borrower's income had increased.
ASIC confirms it received 70 letters from Denise Brailey's BFCSA members. It declined to investigate however, instead writing back to advise the Brailey members to secure the services of a lawyer.
These "bugger off" letters, says Brailey, were an insult to aggrieved borrowers.
In many cases - and this is another significant bone of contention - many of the 30 banks and non-bank lenders who provided the loans in the first place have refused to release the LAFs to the borrowers when asked.
Neither has ASIC, or the Financial Ombudsman Service which is adjudicating many of the claims, exercised their powers to demand the LAFs be released to the customers. And this, despite Denise Brailey's claim, "There is not one clean LAF among my 1200 members".
ASIC refers many of its lending complaints to the FOS, which is a private complaints bureau funded by the banks and financial institutions. At the moment the FOS is dealing with a "spike" in low-doc matters, the Financial Ombudsman Philip Field said.
He said the banks, in some individual cases, may be responsible for flawed low-doc loans but mostly - and critically in a legal sense - the mortgage brokers, who introduced the bulk of the loans, had acted as the agents of the customer rather than the bank. Taking a broader perspective, the banks and non-bank lenders, ASIC and the FOS are on one side of this argument and Brailey is on the other.
It is the might of the corporate establishment and the government versus the 70-year old pensioner from outback WA. But this lone ranger is onto something. For one, the banks and regulators are not handing over information to borrowers about their own loans: principally, the LAFs.
Field conceded that, in some cases, the FOS had not used its powers to demand the lenders release the LAFs. There are some cases where we "haven't compelled the discovery of the LAFs and some cases where we have. The LAF is just one piece of the puzzle," says Field.
Plaintiff lawyers who have acted on the few cases which have made it to the courts (fighting the banks is an expensive business) contend the LAF is a vital part of the contract and should be available to borrowers.
But there is another more intriguing part of this byzantine puzzle: - the "Service Calculator". Harking back to the meeting between Brailey and the ASIC heavyweights in February, Brailey said she told both Warren Day and Robert Allen: "We both agree 3 per cent of brokers [mortgage brokers] and planners [financial planners] are rogues and 97 per cent are doing the right thing.
"I advised that my 1200 BFCSA members have unclean LAFs - there is not one clean one among them. Does this mean that 100 per cent of brokers had an epiphany one morning and developed this fraud?
"Did 100 per cent of the bank BDMs [business development managers] and credit assessors wake up one morning and 'tweak' the customer's income figures after the fax was sent?
"Did credit managers and sales managers [in the banks] all decide to do this and tell their BDMs what to do in marketing these loans?
"Do you not agree this came from the highest level of each participant bank ... and that the bankers at the top level were pushing these low-docs through a computerised system?"
Enter, as Brailey, has dubbed it, "Skippy the Computer". Whistleblowers have provided Brailey with the mortgage brokers' passwords to access the Service Calculator online in the bank system and get approval for low-doc loans. It is this Service Calculator which determines the loans and is the proof, says Brailey, of a systemic problem.
Without any action by regulators however, the secrets to this mysterious calculator - who devised it, who is running it, and who authorised it - may never be unlocked.