An elderly couple in Western Australia found themselves to be victims of a mortgage fraud that ultimately cost them about $200,000 and their marriage, when a door-to-door salesman on behalf of a real estate developer pushed them toward an overpriced home purchase – and one of Australia's "big four" banks, Westpac reportedly modified the couple's disclosed income in order to get them a loan that they shouldn't have qualified for. Internal documents from Westpac shows that the bank's staff inflated the income of the couple in order to approve a $464,000 loan in early 2012.

After the couple's monthly income was changed from $4561.67 to $5797, modified using a one time bonus the husband received, the couple quickly started struggling to make repayments on the new property. They were also unable to find a tenant for the property for long periods, which exacerbated their financial situation.

Below is a photograph of internal documents from Westpac showing that the couple had been initially denied the loan in January 2012. The couple then was able to get the loan after Westpac employees made modifications to their income. Here's the original denial:

And the modification:

LF Economics founder Lindsay David stated: "This is how the banks do fraud. (The tracker) is a basic timestamp style, it shows who touched what, and all of the employees on that list I believe are still working at Westpac.” He called Westpac a "chop shop" and continued, "You know how they get all the stolen cars, cut them up into pieces and put them back together? That’s why you have so many borrowers getting loans they can’t afford.

"The founder of Australia's Banking and Finance Consumer Support Association, Denise Brailey, became an advocate for the couple for four years until they reached a settlement with Westpac, which she called “spectacular", in 2016. The details of the couple's settlement with Westpac are confidential. She stated: "They were in their 60s and 70s, [the salesman] told them they could get $20,000-$30,000 a year in extra income and they would be able to eventually go off the pension. That’s the spiel."

The couple - unsophisticated real estate investors - agreed to $465,000 for the property without checking comparables in the area or getting any type of independent valuation. After Brailey convinced them to finally speak at a local real estate agent for a valuation, the property's value was estimated to be just $330,000. After a formal complaint was filed with the Financial Ombudsman Service, Westpac insisted it had done nothing wrong and the couple wound up eventually selling the property for $290,000 which left them with about $200,000 in debt.

Brailey continued, telling news.com.au: "They’ve lost $150,000 to start with. The banks tell me this is the only way it works for (them) because everyone in between, the developer and the reps, they’ve all got to be paid a commission. They were in hospital three times, the stress on them was unbelievable. It led to the marriage collapsing."

Brailey concluded that the banks, government and FOS were "all in unison like a big bloody club trying to convince the public that these people deserve what they get because they’re greedy, sophisticated investors. That makes me so angry because they’re not sophisticated at all. A sophisticated investor would go on to Google and (check property prices in the area). Who would buy a property sight unseen?”

The separated couple then sold their original Western Australia home, using part of the proceeds to help pay down the remaining debt on their "investment" home.

The scariest thing about this situation is that it may be a microcosm of a much larger problem in the Australian mortgage market. An analyst from UBS, Jonathan Mott, has estimated that as much of $500 billion worth of Australia’s $1.7 trillion mortgage book could be made up of similar types of loans, often referred to as "liar loans".

Brailey called this couple's case the "quintessential" kind "happening across Australia" and something she "see[s] every day of the week”.

Unlike the US, Australia hasn't had a recession in decades, which has allowed pervasive fraud such as this to slip under the rug. However, with half a trillion in liar loans on the books, one wonders just how many of Australia's "big four" banks will be left standing once the economic fairy tale finally ends.