Why you're never too old for bank loan
It may seem an act of supreme optimism by Westpac to be providing a $440,000 loan facility to a customer who would soon receive her letter from Her Majesty. Yet it is not beyond the realms of possibility that Ms Simmers may have met her obligations.
The greatest authenticated age to which any human has ever lived is French woman Jeanne Louise Calment, who was born on February 21, 1875, and died at a nursing home in Arles in the south of France on August 4, 1997.
Had Jean Louise signed up for Westpac's Rocket package at the age of 98, she could plausibly have met her obligations by the time she passed at the age of 122 years and 164 days - assuming she made early repayments. It is an attractive option of the Rocket facility that extra repayments can be made at any time without charge.
Incidentally, nine of the 10 oldest people in the world ever are women. But the man is still alive. He is Jiroemon Kimura, who lives in Japan and is 116 years and 43 days old.
Born on April 19, 1897, the supercentarian has survived the rule of no less than 61 Japanese prime ministers. And, as it happens, he is also a client of Westpac, having signed up for a Rocket facility (available with a special 100 per cent offset transaction account for a limited time only, conditions apply).
OK, just kidding, sorry. Mr Kimura is not a client of Westpac, as far as we are aware. He may be. As long as he could sign a piece of paper, he would certainly be eligible.
To be fair to Westpac, though, it is by no means alone in attending to the centarian market. If you are a mature reader of this column, and you are concerned that a Westpac bank manager is about to stride past your nursing station at any moment, toting a clipboard, a pen and a loan application form, fear not!
He could be from ANZ. When challenged during a legal dispute as to its practice of signing up an octogenarian - these are mere ankle-biters by Westpac standards - ANZ declared: "We don't discriminate against our customers on the basis of age."
Dignity hath no bounds.
It would be remiss to omit the celebrated case of Storm Financial too, where the Commonwealth Bank was stitching up pensioners with margin loans.
When it comes to usury, as long as there is a potentially deceased estate as security for the loan, a customer's age is no barrier. Though longevity is a nuisance for the banks when the "buffer money" runs dry. This buffer is the extra loan that is structured into the package, for those with little or no income, to meet the interest payments on the main loan. Many of these are coming up for a refinance now.
Perhaps, like the insurance companies who fret about population age, the banks could consider "longevity swaps" to hedge their rising exposure to the more, er, life-experienced demographic.
Europe's biggest defence company, BAE Systems, recently struck the largest ever pensions insurance transaction, a £3.2 billion longevity swap to cover 31,000 pensioners. Legal & General and Hannover Re agreed to take on 30 per cent and 70 per cent of the risk respectively.
There is also a risk for the banks that somebody might invent a longer life pill.
Returning to the case of Heather Simmers, Westpac recently and quietly forgave the loans to both Simmers and her 70-year-old daughter, Del Black.
They had been inveigled into borrowing to invest in a dodgy Gold Coast property play touting 15 per cent returns. That quickly blew up.
Westpac executive Jim Tate told the Senate banking inquiry last year: "It was an outright fraud. There is no question about that. Obviously the bank will be disgusted about it, and we would want to take action against the person involved, if it has not already been taken."
Senator John Williams pointed out that Westpac had even provided oral references for Heather Simmers' banker, David St Pierre, who had left the bank to work for another mortgage broker. Zero action taken, apart from the provision of job references.
As in the US, it is hard to think of a single action against a banker, by regulators or by the banks themselves, although the abuses of the credit boom are prolific. Bankers are clearly off limits, a protected species.
On Monday, we will reveal the results of an investigation into low doc lending in Australia, along with emails between banks and brokers - and claims of widespread forging of loan documents.
The banks and regulators have their stories ready. They question the credibility of those making the claims and say any irregularities can be blamed on "rogue" mortgage brokers. The victims say the banks are the puppet-masters in a widespread systemic rort and the brokers are merely their agents.
Frequently Asked Questions about this Article…
Yes. The article describes Westpac signing a 98‑year‑old (Heather Simmers) to a 30‑year Rocket investment loan, and notes banks such as ANZ say they do not discriminate on the basis of age. In practice eligibility often comes down to the ability to sign and meet loan conditions rather than a strict age cutoff.
Westpac's Rocket was an investment loan package that made headlines when a $440,000 facility was opened for a 98‑year‑old customer. The product allowed extra repayments without charge, which was highlighted in the article. The loan later featured in controversy after the borrower and her daughter were caught up in a dodgy property scheme and Westpac ultimately forgave the loans.
Lending to older customers can increase a bank's exposure to longevity risk and to loans structured with 'buffer money' for borrowers with little or no income. If the buffer runs out or loans are tied to risky schemes, refinancing problems and defaults can arise—issues that affect lender balance sheets and, indirectly, investors.
Buffer money is an extra loan component built into some packages to cover interest payments for borrowers who have little or no income. The article notes many of these buffer arrangements are coming up for refinance now. If the buffer depletes, the borrower may struggle to meet payments and the bank bears greater risk.
Heather Simmers and her 70‑year‑old daughter were persuaded into borrowing to invest in a dodgy Gold Coast property play promising 15% returns. Westpac later quietly forgave their loans, and an executive described the scheme as 'an outright fraud.' The article also notes concerns that despite this, little appears to have been done against the banker involved.
The article references the celebrated Storm Financial case as an example where pensioners were placed into margin loans, citing the Commonwealth Bank's involvement. It uses this case to underline historical concerns about banks and advisers pushing risky borrowing on older, vulnerable customers.
A longevity swap is a financial transaction that transfers longevity (long‑life) risk from one party to another. The article suggests banks could consider longevity swaps to hedge rising exposure to older borrowers. It cites BAE Systems' large £3.2 billion longevity swap covering 31,000 pensioners as an example from the corporate/pensions world.
The article warns of widespread problems: an investigation into low‑doc lending was due to reveal emails between banks and brokers and claims of widespread forging of loan documents. Banks and regulators dispute some claims and blame 'rogue' brokers, while victims allege systemic rorting. Such practices can undermine lender asset quality and investor confidence if they prove widespread.
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