SARAH FERGUSON: Hello and welcome to Four Corners.

For the banks, regulators, politicians and for the public - it's the stuff of nightmares: what happens if Australia's debt fuelled housing boom comes to a crashing end?

It happened in Ireland, in Spain... and of course in the US with disastrous, long term consequences for millions of people.

Australians carry the second highest level of household debt in the world.

Many economists and market analysts say a correction is now inevitable.

While the regulators have recently forced banks to tighten up on lending - experts in tonight's program say the legacy of loose, irresponsible lending has many years to run.

Four Corners travelled across the country from Queensland to Western Australia to understand the day to day experience for those people on the edge of the precipice - the growing number of Australians living with mortgage stress.

Michael Brissenden's story begins on the fringes of Western Sydney where faith in the resilience of the market is unshaken.

Radio up sot, Neil Mitchell interviewing Prime Minister Turnbull (3AW)

ZAKI AMEER, INVESTOR AND PROPERTY ADVISOR: Even as a young child my parents would always take me to a block of land and My dad would say "we need to build a house here.

Someone's going to buy it" and the saying he had was "the land is owned by God and so it will always do well" and they're not making any more land."

MICHAEL BRISSENDEN (REPORTER): Australia's decades long housing obsessions has driven us here - to a subdivision on Sydney's urban fringe - 50 kilometres from the CBD.

Before long this paddock will be transformed - 21 separate lots.

Four-bedroom houses on 600 meter blocks that could sell for 850 thousand dollars.

ZAKI AMEER: Anyone who has owned property in say Sydney, Melbourne or even Brisbane have made money just by owning property.

The best thing is when I look at it we are still at the beginning. We have so much land. And fine, we're at the edge of Blue Mountains and if population keeps growing we'll go to the other side of the Blue Mountains and we'll keep continuing.

MICHAEL BRISSENDEN (REPORTER): Property has made Zaki Ameer a wealthy man.

From a humble start as an immigrant from Sri Lanka he started buying property ten years ago - within three years he had 15 properties - he's now got 25.

Zaki Ameer has surfed the wave of the biggest property boom we've ever seen.

ZAKI AMEER, INVESTOR AND PROPERTY ADVISOR: The houses I was buying out in the western suburbs of Sydney - they were probably not the best areas you know, around Mt Druitt.

But those properties have more than doubled in value and the areas are now part of home and part of lifestyle and the properties there are selling for more than $1.1 million already.

MICHAEL BRISSENDEN: But there's a growing chorus of opinion that says the dream run is about to end.

JONATHAN TEPPER, ECONOMIST AND INVESTMENT FUND ADVISOR: Price to income ratios are very high in Australia relative to other countries in the world.

If you're looking at New York, San Francisco for example.

Sydney is much more expensive on a price to income ratio.

Now Sydney's a wonderful city, right? But should people in Rooty Hill and Mount Druitt and Blacktown be paying higher multiples than people are paying in Silicon Valley on a price to income? Makes no sense.

SATYAJIT DAS, FORMER BANKER AND AUTHOR: Housing has never been rational.

In Australia, it's probably more akin to a religion or a cult so it's all about faith.

So, you're either a believer in property or you're not.

AUCTIONEER: buyers a terrific home we have the pleasure of offering you to you today.

The weather is so good here clouds don't even turn up.

You've got your own weather systems in Guildford.

It is just simply a wonderful place to live..."

MICHAEL BRISSENDEN (REPORTER): Guildford is a working class western Sydney suburb.

Today auctioneer Leon Axford is working his magic.

Pushing to get the best result he can for his retiring vendors and their small family home.

The opening bid is a strong one - but no surprise to those who've come to bid or just to watch.

This month the average house price in Guildford hit nearly $850 thousand dollars.

MARK BOURIS, YELLOW BRICK ROAD CHAIRMAN: I do think that there is a bit of a frenzy about, "How do I get my property if I'm not already in the market?" There definitely is a frenzy about that.

Or, "How do I get my investment property if I've already got a house to live in?" There is a frenzy.

MICHAEL BRISSENDEN: This house is an example of how heavily we've invested in the dream of home ownership and where it's taken us as a nation.

Australia's household debt is now the second highest in the world - just behind Switzerland.

Almost twice that of the United States.

For every $1 earned Australians on average have nearly $2 of debt.

And while debt has been increasing wages and incomes have remained relatively static.

In 2008 the Reserve Bank cash rate was 7.25% today it's just 1.5%.

But even with interest rates at historic lows, Australian households are stretched like never before.

Our national obsession with housing not just as a place to live but as a driver of wealth and investment has left us exposed and vulnerable to any external financial shock or even small cost of living increases.

MARTIN NORTH, DIGITAL FINANCE ANALYST: I've been studying the market here for a good number of years and I have never seen this perfect storm of issues coming together.

We've got very high household debt.

We've got very high house prices.

We've got households in some degree of difficulty already now and so it doesn't take much to see the tipping point such that then we get this downward spiral and boy if it goes it could be as bad as Ireland or the US.

MICHAEL BRISSENDEN: The rise in household debt has left the banks deeply exposed in the event of any downturn.

SATYAJIT DAS: I think the vulnerability comes from the fact that 60% of their loan assets are actually directly to housing.

Now to give you an idea, one of the biggest housing bubbles probably in the world, people think, is in Hong Kong but the Hong Kong banks have only got exposure to the housing market of around 15%.

So, if there is a downturn then, obviously, the losses will build up quite quickly because so much of your portfolio is in this one basket.

MICHAEL BRISSENDEN: 60% of the Australian bank's exposure is to loan mortgages, mortgages, loan exposure is to mortgages, is that too much, should people be concerned about that? Are you concerned about that?

SHAYNE ELLIOTT, ANZ CEO: Well ANZ's share of that is a bit lower than the average but I think that's not a healthy, that's a, it is a healthy mix at about 60%.

The reality is that housing loans are pretty good because they're quite diverse in terms of lots of reality small loans across ah across the country.

MICHAEL BRISSENDEN: Most bank CEOs were reluctant to speak to Four Corners.

ANZ chief SHAYNE ELLIOTT did agree to an interview - aware that he was putting himself up as the face of Australian banking.

MICHAEL BRISSENDEN: So it doesn't make the banks um vulnerable should there be any housing downturn given that you know more than half of your, your exposure is to ho-is to housing mortgages?

SHAYNE ELLIOTT, ANZ CEO: Well that would depend on what the nature of a downturn was.

Ah of course it's something that we look at um incredibly seriously, um because it's in our best interest to make sure that our risk is well managed.

So, we look at the diversification of that book to make sure that people when they do take out a home loan that they're prepared ah to be able to afford that in most circumstances.

MICHAEL BRISSENDEN: This exposure to mortgage risk has already caused some reassessments.

In June, Moodys downgraded Australia's banks.

FRANK MIRENZI, MOODY'S INVESTORS SERVICE: I guess some of our concern is around the fact that you've got households holding more debt.

That potentially makes them more vulnerable to a change in their circumstances, and if there's a shock to the economy, that potentially leads to a rise in sensitivity to the banking sector.

The banks could in fact experience higher losses because households are more indebted.

MICHAEL BRISSENDEN: Jonathan Tepper is one investment fund advisor who's been sounding the alarm about Australia's housing market longer than most.

He's an American based in London and a man with an international perspective.

He called out the Spanish housing collapse before it happened.

JONATHAN TEPPER: All bubbles really depend on loose credit, that's one of the things that's really fuelled the Australian housing market.

Anyone with a pulse could essentially get a mortgage.

I actually love Australia and Australians, nothing but wonderful things to say about them.

All I'm telling you is that this looks very much like previous housing bubbles, right? I go back to the analogy that I always use, which is insiders versus outsiders, right? If you're the insider, you're like the frog in the frying pan.

The temperatures been turned up very slowly on you.

If you're an outsider you might say, "Do you know what? That looks a bit too hot." I'm just the outsider sitting there telling people that the temperatures been turned up.

MICHAEL BRISSENDEN: There have been a number of Australian market analysts waving the red flag too.

GERARD MINACK, INVESTMENT CONSULTANT: Well, I think it's a powder keg, is the short answer.

The problem is, for 25 years we've had this increased willingness and ability, tax enhanced, to leverage up to buy houses and what we're left with now is clearly a massive affordability problem.

More importantly, I'd argue it's a huge policy problem because if we were to have a downturn, it would hugely exacerbate the pain associated with it and it makes it much more difficult for policy makers to control the economy.

MICHAEL BRISSENDEN: Gerard Minack is another market analyst who's been accused of crying wolf.... but he thinks he's close to being proved right.

GERARD MINACK: Timing is always difficult as they say about bubbles in financial markets.

You've either got the choice of looking like a fool before it pops or the choice of after it pops.

It's difficult to time them.

I don't know when we get a downturn that pops this, but sure as hell, one's coming.

MICHAEL BRISSENDEN: From his penthouse on the 78th floor Harry Triguboff has a good view of the impact he's had on the Sydney skyline and the nation's housing stock.

Australia's biggest developer dismisses talk of a downturn.

Triguboff's company - Meriton - manages six thousand properties and is currently building another 11 thousand.

MICHAEL BRISSENDEN (REPORTER): ...What do you say then to people who, I mean there's a lot of people talking about we've reached the top of the market, that it's overvalued, that there's a potential big downturn, what do you say to those people?

HARRY TRIGUBOFF, MERITON FOUNDER AND MANAGING DIRECTOR: I say to them I don't think it's overvalued.

Because if you buy the land at today's prices and you build then that's what you should charge.

So, it's not overvalued.

If they ask me if it's going to go up, I'll say in the immediate future I can't see it.

If they ask me if it'll go down, maybe a little bit.

There's no rule which says real estate must go up every year, by the way.

So, it went down a bit, it's not terrible.

MICHAEL BRISSENDEN: But the view isn't nearly as optimistic on Australia's west coast.

Even though here in Perth people have also been betting big on housing.

TOM ESZE, AUCTIONEER: Well good afternoon good people...this is really where life represents people's facebook profiles doesn't it?... every time you come home to this property here is like looking at your Rolex watch or close the door of a Ferrari it just has that beautiful feel to it.

MICHAEL BRISSENDEN: The mining downturn has hit hard here but Western Australia is an example of what can happen to property when a highly leveraged economy gets hit with an unexpected economic shock.

TOM ESZE, AUCTIONEER: So ladies and gentleman, it's up to you to be the king and queen of all you survey here in this beautiful part of the world, ladies and gentleman I'm in your hands, looking for an opening bid.

Where do we say go.

All fired up looking for an opening bid.

MICHAEL BRISSENDEN (REPORTER): Two years ago, this house sold for 2.6 million dollars.

Today WA's award-winning auctioneer is having a hard time getting a bid.

TOM ESZE: can I suggest somewhere around 1.6 million to start off with and get underway? somewhere there I would have thought...someone help an auctioneer out surely...can I say 1.6 million (SILENCE)...I know we've got buyers here looking to buy, 1.6 anywhere? Now is your time...thank you sir, if you wait long enough it'll come.

HAYDEN GROVES, PRESIDENT REAL ESTATE INSTITUTE OF W.A: People are anxious.

You know, people who are owning property, and if you'd invested in property in Perth, if you bought ten years ago as an investor, you'd be thinking perhaps why you did that.

TOM ESZE, AUCTIONEER: I'm going to formally pass the property in and I may I say to you all, thanks very much for nothing! (laughter) but it's nice to have hosted you regardless, have a good weekend Cheers.

HAYDEN GROVES: For a long, long time, generation after generation, not that long ago we were very used to people's values of their property asset doubling between seven and ten years, each and every year in the major capital cities in Australia.

And that hasn't happened in Perth in the last decade.

Prices are back to where they were.

MARTIN NORTH, DIGITAL FINANCE ANALYST: So household incomes are very much compressed in WA now.

Many people are suddenly out of work or have got much lower paid jobs.

Therefore, and it's that sort of disruption that's really triggered it but the net impact at the moment is very significantly negative.

If you look at some of the lender mortgage insurers, if you look at some of the banks, they've got pretty much double the losses now in WA, compared with other states.

MICHAEL BRISSENDEN: The Perth market has dropped 6% in the past 2 years...outside Perth the slump has been even more dramatic.

I'm on the road to Mandurah, about an hour's drive south of Perth, a few years ago it was seen as the perfect place to invest in the Australian housing dream, now it's an example of just how quickly things can change and how easily it can all go wrong, today in Mandurah there are more households at risk of default than anywhere else in the country.

When you come here now, when you do drive into Mandurah now, what are you thinking?

LYNN KOEHLER, PROPERTY INVESTOR: Well it's a sinking feeling for us, because you know, it reminds us of the enormous debt we have, and the burden that we're carrying constantly.

You can't get away from it.

We don't like coming into Mandurah, which really is a beautiful environment, because we're hit in the face with what we owe.

That's our reality.

MICHAEL BRISSENDEN (REPORTER): In 2006 Tim and Lynn Koehler were convinced by a mortgage broker to use the equity in a number of properties - including their own home - to expand their property portfolio.

But their investments are now worth half what they paid for them... and if they can't sell and settle their debts the banks will repossess all of their properties including the family home.

LYNN KOEHLER, PROPERTY INVESTOR: You constantly look at the bank statements that are coming in.

It's absolutely terrifying.

It's not a nice situation to be in at all.

Especially when you've worked all your life.

You try to pay your taxes.

You've tried to put money away.

You've raised your kids.

Also, you want to leave something for the next generation.

We can't do that.

TIM KOEHLER, PROPERTY INVESTOR: Yes, at times, you just have to ignore things and try to find something that's a bit more pleasant for a few hours.

LYNN KOEHLER, PROPERTY INVESTOR: But it is the nightmare that you live with all the time.

You wake up in the morning and you think, "How much longer will we be living here?" Constantly.

That is the most awful burden when you're supposed to go home to safety.

We don't go home to safety.

We worry about the knock on the door with the bailiff coming.

MICHAEL BRISSENDEN: But it's not just investors feeling the crunch in the west.

Mandurah is one of the top postcodes in the nation for homeowners suffering mortgage stress.

1500 households are struggling to meet their repayments.

And more than 380 households here are at risk of default in the next 12 months

MARTIN NORTH: You only need a small consequential change, a small increase in the cost of fuel and stuff to be able to actually really create that pain point.

Yeah, there are a good number of households who are really up against it now.

MICHAEL BRISSENDEN: Martin North conducts a continuous survey that maps the financial profile of individual households, their spending behaviours and their motivations.

His research can identify mortgage stress at a post code level.

Mortgage stress is a growing national problem.

MARTIN NORTH: It obviously varies by household, so we can run some scenarios.

Let's assume interest rates went up by 1%, which is still below its long-term trend.

We go from 800,000 to nearly a million households in some degree of mortgage stress, so another 200,000 would effectively fall into that category.

If you think of it in weekly cash terms, if you said, "Got to find another $100," you've got 800,000 who are in difficulty now, there's another 250,000 who would also probably fall into the category of being tipped over.

So, we're at a very sensitive point in the cycle here and only small changes in interest rates or small changes in cashflow could put more households into a significantly adverse position.

GERARD MINACK, INVESTMENT CONSULTANT: The remarkable thing now, is that anybody has mortgage stress, when you think that we've had 25 years without a recession.

We've got unemployment that's not at a cycle low but is relatively low by historical standards, and of course, we have interest rates at rock bottom low levels.

If you're under stress with that combination of factors, and we know there are a lot of people under stress, it can't get better.

That gets to the risk.

If you have a downturn and people lose their jobs, it almost becomes irrelevant what happens to rates.

If you have a mortgage of five or six times income, the RBA can cut all it wants, you're effectively toast if you lose your job or the main breadwinner does.

That's the point of fragility that we're at now.

MICHAEL BRISSENDEN: Butler - on the other side of Perth is another financially stressed slice of suburbia.

Nicole Ainger and her family are just one of Martin North's statistics.

Nicole's husband is a bricklayer who now can't get enough work as the construction industry stalls.

NICOLE AINGER: I thought we'd nearly have our mortgage paid off by now.

Yeah.

Unfortunately, things happen in your life that you don't plan and this is where we are now.

MICHAEL BRISSENDEN: They bought this house seven years ago.

They fell behind in their mortgage payments.

The cost of living and rising power bills have stretched things even further.

Nicole leaves the lights off.

NICOLE AINGER, MORTGAGE STRESSEE: We don't have the money for a budget.

We live from day to day, don't have any savings.

I'm paying per fortnight something towards the electric, something towards the water rights, just to keep that going.

Sometimes I have my sons say to me, "You don't buy anything good to eat."

It is really stressful and I find it really difficult because I'm worrying about it all the time.

So, I don't get much sleep.

I'm worrying so much that sometimes I worry at work you know so it does take its toll on you.

MICHAEL BRISSENDEN: Big pockets of mortgage stress are found all over the country.

Many of the worst are in outer suburbs of the big cities and in regional areas.

The sunshine coast in Queensland is really stretched - eleven postcodes here are struggling - one in four households are in mortgage stress.

In Nambour 74 households are at risk of default in the next 12 months.

When you're in that sort of stress what happens?

SCOTT DEMEIJER: You argue a lot.

KIRTHI DEMEIJER: Yeah

SCOTT DEMEIJER: You try and have a conversation about it, but you can't keep the emotion out of it

KIRTHI DEMEIJER: Nope

MICHAEL BRISSENDEN (REPORTER): Kirthi Demeijer bought a house in Nambour in 2007.

She borrowed $240 thousand dollars...even though she didn't have ongoing employment

KIRTHI DEMEIJER: I believe I had about a six month contract.

It was full-time and I had been working consistently for ten years and that was the only thing that was taken into consideration when I got the loan.

MICHAEL BRISSENDEN: So, you think they should have looked more closely at your situation?

KIRTHI DEMEIJER: Yes, yes.

In hindsight, they should have yes.

Yeah, I thought I was doing a good thing not renting anymore and investing in my future, but I didn't take into consideration myself that anything could happen

MICHAEL BRISSENDEN: The repayments became difficult for Kirthi and her husband Scott to meet and they were forced to sell.

SCOTT DEMEIJER: ...And then yeah you've got to try and balance everything out so you rob peter to pay Paul and the next week you pay Paul and don't pay peter and it's all yeah.

KIRTHI DEMEIJER: ...And you have to ask your family constantly, if you've got any family, to sort of help you out and you know you feel like a leper, constantly asking people to just give you a bit of emergency support, just so you can get through and know that you're gonna have a house next week.

SCOTT DEMEIJER: One week we did actually end up going to the salvation army and got a emergency Vouchers for the weekend.

Just so we had food for the week.

MICHAEL BRISSENDEN: And it's really the mortgage that put you in that situation.

KIRTHI DEMEIJER: Absolutely.

SATYAJIT DAS, FORMER BANKER AND AUTHOR: one of the ways people made banks more profitable, made them larger - was to make more loans.

Now, there's no problems with that.

But the real issue is, the person you're lending to has to be able to pay you back.

And the only way you can grow, is basically find more and more borrowers and so the temptation always is, is to stretch your standards of lending to, basically, go one step beyond people who can actually afford to pay you back.

MICHAEL BRISSENDEN: A big part of the story about how we became so leveraged in Australia is the role of brokers lenders and developers who encouraged people to borrow more than they could afford.

Well we're about to meet someone who's had exactly that experience.

In 2012 Carlene Stafford was convinced to borrow 445 thousand dollars to buy an investment property in Queensland.

CARLENE STAFFORD: I received an unsolicited phone call one night and the first question was did I own my own home? I said yes.

Was I working? Yes.

And I had a call from a developer and he told me that he could help be get into an investment property that would assist me financially when I retired.

MICHAEL BRISSENDEN: To do that she used the equity in her almost paid off home.

Before the phone rang and this guy got you into this how much did you owe on this house?

CARLENE STAFFORD: ...$153

MICHAEL BRISSENDEN: What Carlene didn't know at the time was that even the banks own estimates on her financial commitments left her with $9.17 at the end of each month.

CARLENE STAFFORD: The broker filled in the application for the bank and actually on the form it says for the customer to fill that in an I never filled in.

He filled it all in.

He just got me to sign it afterwards and there's a little box on there on one page that said could there be anything that would change financially coming up.

One of the questions was impending retirement sort of thing and I never ticked that either.

MICHAEL BRISSENDEN: Carlene has never been able to get enough rent from the property to cover the repayments.

She is now being forced to sell her investment property and the bank will repossess her own house when she dies.

CARLENE STAFFORD: According to the developer that was risk free for me.

The only person and only people that it was risk-free for was for the banks, for the bank, the ANZ Bank.

They've got nothing to lose.

They've got the house up there.

They've got my house here if necessary.

Or they've got a couple 100,000 to be paid back once I sell this or die.

So that goes out of my kids' inheritance.

MICHAEL BRISSENDEN: When you look back on it now do you think maybe you were a bit naive?

CARLENE STAFFORD: Absolutely.

I was gullible.

I was sucked in.

It just sounded so good.

I mean as a female that I didn't have a lot of super.

Still don't and I thought it was going to top that up a bit because I'd only have a pension.

You feel stupid, you feel absolutely stupid that you've been taken in like this.

MICHAEL BRISSENDEN: Knowing what you know about that.

Should she have been lent $450,000?

SHAYNE ELLIOTT: So, I can't really speak about an individual case here.

I don't think it's appropriate ah in this case, but I will say I have spoken to this customer and in fact I spoke to her just last week and I've arranged to go and see her to understand a little bit and hear it directly from her, so that so that we can learn um in terms of this case.

MICHAEL BRISSENDEN: ANZ defends the calculations used to assess Carlene's ability to repay the loan.

SHAYNE ELLIOTT: The reality is that when customers come to us, ah we do a thorough due diligence on their ability to repay their loan and that they understand the risks that they are taking and as I said that's totally in our interest.

PHILIP DEMPSEY, FORMER MORTGAGE BROKER: Someone once told me bank is a four-letter word, and it definitely is.

And I think there's a lot of greed

MICHAEL BRISSENDEN: Philip Dempsey works in the finance industry.

He was a mortgage broker for 25 years.

He left in 2013 after growing increasingly uncomfortable with the commission only payment system.

PHILIP DEMPSEY: Look, there'll be targets around providing, arbitrary number, two and a half million, three million dollars worth of lending a month, which you probably need to write as a commission only broker in order to survive financially, put food on your table.

But when that pressures on every month, and then there are cross promotions and cross sale requirements for insurances and the like that also come into play.

MICHAEL BRISSENDEN: And What happens if you don't meet those targets?

PHILIP DEMPSEY: Transitioned out of the industry basically.

You don't cut it.

You can't make it.

You can't survive financially, so there are some serious issues for the brokers.

MICHAEL BRISSENDEN: So, there have been brokers who've knowingly lent people too much money when they shouldn't have?

PHILIP DEMPSEY: Yes, there have definitely been cases where brokers have lent more money or encouraged people to apply for more money than they can comfortably afford to repay.

Yes.

MICHAEL BRISSENDEN: And Why would they do that?

PHILIP DEMPSEY: There'd be a variety of reasons, but one of the bottom lines is that's how they pay, so the more dollars they lend the more they get paid.

So, there's that immediate need to fill your own financial requirements, and it's very difficult sometimes.

The lines can become blurred as to what's right, right for the client or right for me.

MICHAEL BRISSENDEN: An industry standard for borrowing used to be between 3 and 4 times the amount of combined gross income.

Today it's now double that.

MICHAEL BRISSENDEN: What would you say the standard is now?

PHILIP DEMPSEY, FORMER MORTGAGE BROKER: I'd say seven and half, eight times.

Yeah, in a lot of cases.

Yes.

MICHAEL BRISSENDEN: So, if someone came to you and said "we need to borrow seven and half eight times that's not a big deal for most brokers.

PHILIP DEMPSEY: No.

It's encouraging to the broker, too, because they get paid a commission.

They're gonna get paid a commission on more dollars lent not on more clients in, just on more dollars lent.

MARK BOURIS: There are rogue brokers out there.

There's rogue in any industry, but there's definitely rogue brokers out there because you get industries growing really fast and there's money to be made, it's going to attract on the odd occasion, the wrong type of people.

There hasn't been a preponderance of fraud, but there has been an increase, I would say, of cowboy type mentality.

"Look I can get into this industry and I can make a big quick buck and get out of there."

MICHAEL BRISSENDEN: Mark Bouris was the founder of Wizard home loans.

These days he runs yellow brick road - one of the biggest mortgage broking firms in the country.

MARK BOURIS: 55% of every mortgage that's delivered to the system in this country comes out of a broker or a third party, not a bank.

But on the flip side of that, at the end of the day the banks are the ones that do the approval.

The brokers don't.

The only way where it is a problem is if the broker actually fraudulently fills out the forms or negligently fills out the forms.

But the banks are pretty tough now.

They just don't accept everything just because you put it there in writing or fill out the fields on the electronic application.

MICHAEL BRISSENDEN: Incentive payments and lending targets are also endemic within the banks themselves.

4 Corners has obtained Westpac's latest internal performance expectations for Bank lenders.

These include six to nice home loan requests completed per week.

If targets are exceeded bank staff can earn bonuses over $6000 per quarter.

It's not just staff selling home loans who have targets - their managers do to.

We've spoken off camera to a number of former and current bank employees who say that if they don't meet the lending targets they're performance managed out of the bank.

All the big banks have performance targets.

SHAYNE ELLIOTT, ANZ CEO: People get bonuses for good customer outcomes, so again we measure every branch every week, we measure something called a net promoter score which basically is a way of saying all the customers that have had an interaction with that branch that week how did they feel about it.

If we do the wrong thing by those people or they feel pressured to buy something, I can tell you those scores go down, so we're absolutely paying people for the right thing which is do customers feel that they got good service, they got an empathetic ear and they got given the right advice.

MICHAEL BRISSENDEN: Even the banking regulators admit lending has been too loose.

In 2014 APRA - the Australian Prudential Regulation Authority began examining interest only loans to investors.

Earlier this year APRA moved to further limit interest only lending.

APRA is also now forcing banks to assess new borrower's capacity to repay at interest rates at 7 per cent.

The regulators have asked the banks ah to tighten up their lending criteria.

Presumably that is a recognition in itself that lending had been too loose up until that point or that they thought it had?

SHAYNE ELLIOTT, ANZ CEO: I don't, I...

MICHAEL BRISSENDEN: -do you believe that lending [noise] had been loose?

SHAYNE ELLIOTT: No I I I don't and I don't know that it is a recognition of that.

I mean I think it's a recognition...

MICHAEL BRISSENDEN: Well why would they do it if they didn't think it was?

SHAYNE ELLIOTT: Well I think it shows that the system works.

You know as a bank, we only know what we know.

We know about our portfolio and about our customers, the Regulator is in a unique position, they have all the data for the whole market and so they have a different perspective.

The system works well when banks act in their own best interests of their customers and the Regulator ah puts in rules and guidelines to kind of manage the macro outlook.

That's why the system works.

MICHAEL BRISSENDEN: It's the loans approved before the tightening that are causing the problems.

Some believe the loan tightening has been too little and too late.

MARTIN NORTH: We've got a real big sleeping problem in the mortgage portfolio.

If the undermining standards were looser, and so people got bigger loans then, compared with now, that means they're literally underwater now.

Not surprising that a lot of the mortgage stress that we have are from households in 2012, 13, 14.

When in fact things were much looser.

GERARD MINACK: The only issue is, how long is the fuse? When the fuse burns down, I'm not sure when that happens, the fact that we have very indebted households with very high house prices will I think, hugely exacerbate the downturn when it comes.

MICHAEL BRISSENDEN: But despite the stricter loan environment banks are still lending for investment and investors are still betting on property.

ROWENA EBONA, PROPERTY INVESTOR: Everybody can do it, that's the thing, and if we can do it and I feel a little bit like Beavis and Butthead, then anybody can do it.

MICHAEL BRISSENDEN: In just two years Roy Pallesen and Rowena Ebona have bought 7 properties they've done it by leveraging more debt against the rising value of their investments.

MICHAEL BRISSENDEN: So, do you mind if I ask? How much debt are you carrying then?

ROWENA EBONA, PROPERTY INVESTOR: Currently, 1.2

ROY PALLESEN: 1.2, yeah

ROWENA EBONA, PROPERTY INVESTOR: ...across the five established properties, for the two land and build developments, they haven't registered yet, so when that comes then that'll increase.

Yeah, and their market value, if we were to just close up and sell all of them, would be around 1.5 in today's market.

ROY PALLESEN: ...Little bit higher, that's conservative, but yeah.

ROWENA EBONA, PROPERTY INVESTOR: ...I'm conservative

MICHAEL BRISSENDEN: How much do you both earn?

ROY PALLESEN: I earn about 60,000 a year

ROWENA EBONA, PROPERTY INVESTOR: I'm 75 grand a year, so average.

MICHAEL BRISSENDEN: These young speculators don't even own the flat they live in - but they see property as the best way to build a secure financial future - they're dreaming big.

So how many properties do you think you'll end up with?

ROY PALLESEN: Probably around 20 initially.

ROWENA EBONA, PROPERTY INVESTOR: Our goal is 20 initially.

ROY PALLESEN: That's our primary goal, to get to 20.

MICHAEL BRISSENDEN: where are you gonna be in a few years' time if things keep going the way they're going?

ROWENA EBONA, PROPERTY INVESTOR: Pina Colada! (laugh)

MICHAEL BRISSENDEN: The question being asked now though by many is If there is a downturn how bad it will be.

MARK BOURIS: I read what all the commentators say and I look at all the sorta hairy sorta could-be type scenarios.

And I have to say they do give me sleepless nights sometimes.

I do sit up thinking about them.

But I always revert back to the two regulatory environments.

The Reserve Bank and the APRA.

And I think they're doing a very good job.

And so far, so good.

Who knows what's gonna happen though.

SHAYNE ELLIOTT: I don't think that we've overleveraged Australia.

As I said, there's a total alignment of interest here.

The banks absolutely want to do the right thing because it's in our interest.

We can't, we don't want to lend to people who get themselves into difficulty because then we get into difficulty.

So, we have a responsibility and it just a, it's just prudent for us to do a lot of due diligence to make sure that people can afford the debt that they're taking on.

Does that mean that there aren't concerns that we shouldn't be always be looking, thinking, looking at possible risks? Of course.

You know it's a risky industry ah that we're in by the nature of banking, that is what we get paid to do.

MARTIN NORTH: I think it will be determined by what happens with interest rates, what happens to incomes, household incomes, whether in fact, households are able to keep that sort of lead weight of debt at bay for long enough.

I'm coming more to the conclusion though that it is unlikely to unwind in an orderly fashion and therefore perhaps we will see some disorder in the market in the next couple of years.

GERARD MINACK: What I would argue is looking at Australia with a household debt to income ratio of 190%, so for almost ever $1 of household income there's $2 of debt.

I cannot think of a single economy that's had a downturn with that much debt when it's not been a deep downturn.

MICHAEL BRISSENDEN: Despite the warnings most Australians are still hoping their faith in property will be rewarded - But for some the dream has already turned sour.

NICOLE AINGER: It's become a nightmare.

Yeah.

The struggling.

You're not living.

Actually, not enjoying life with having the struggle of trying to own your own home.

MICHAEL BRISSENDEN: What do you think now about the whole idea of home ownership?

KIRTHI: Oh, it's a nice pipe dream, yeah.

That's pretty much what it is.

'Cause I'm not sure if we'll ever achieve it again at the moment.

SARAH FERGUSON: After we brought Carlene Stafford's case to the attention of the ANZ bank, CEO Shayne Elliot met her in Perth late last week.

They have since reached an agreement in her debt, the terms of which are confidential.

In a statement, the bank conceded Carlene was targeted by aggressive sales tactics by the broker and developer.

You can see the bank's statement on our website.

The story continues at ABC news on line where we have mapped mortgage stress hot spots across Australia.

You can also find out what the impact of a rate rise would be on your own suburb.

Next week, the blood business, an investigation into the lucrative international trade in blood and plasma.

See you then.