Although the loan contract itself is between two parties, the banks contend that the brokers are not their agents.

KATE Thompson was one of Australia’s top 10 mortgage brokers. She wrote more than $100 million in loans in a single year and, by her own account, was more likely to close a deal with a “hug and a kiss” than a handshake. Now she faces multiple charges of theft and fraud in a Perth court and her broking operation, Mortgage Miracles, has closed.

Thompson was one of the more vivacious vendors of low-doc loans. The actual loans for brokers such as Thompson came from the likes of Perpetual, Westpac, Suncorp, Macquarie, RHG, ANZ and Commonwealth Bank.

Things may soon get uncomfortable for some in this low-doc star-chamber, should recriminations arise between the banks and their brokers.

Defiant and desperate to spread the blame, Thompson promised the State Administrative Tribunal in Western Australia last month she would deliver 15 witnesses to show how bankers beat a path to her office and wrote loans for her customers.

”The banks gave Australia these products so anyone with some equity and a pulse could qualify for a loan,” she said. ”As a result, tragically the banks are now the owners of that equity and as far as I am concerned the banks stole it from them.”

It won’t be as simple as that. When it comes to low-doc loans, there are six degrees of separation between the banks and their borrowers.

Julia Eastland is a 71-year old pensioner from Perth and one of Thompson’s clients. Eastland took out a “low no-doc loan” on the advice of Thompson for $248,500. She used her family home as collateral. As she had very little income, she was unable to afford the repayments.

She defaulted.

Consumer rights advocate Denise Brailey helped Eastland petition the Financial Ombudsman Service (FOS), which is itself funded by the banks.

FOS found that the loan application had been doctored by the broker. It also found “maladministration” on behalf of the lender, Macquarie. However, it saw no evidence that Macquarie was the agent of the mortgage broker, Kate Thompson’s Mortgage Miracles.

So FOS recommended – despite the doctored loan documents and the fact that Julia Eastland should never have been lent the money in the first place – that liability be apportioned 75-25.

The bank would not change the locks on the Eastland

family home, but its septuagenarian borrower would still owe one-quarter of the loan.

For their part, the banks are distanced from the low-doc borrowers by a fancy structure that entails six degrees of separation.

Although the loan contract itself is between the two parties, the borrower and the lender, and article 25 of the banking code says the banker ought to establish whether the borrower can afford the loan, the banks contend that the brokers are not their agents.

It is this agency issue that lies at the heart of the handful of low-doc disputes that have made it to court. As low-doc loans squarely targeted those at the lower rungs of the credit food-chain, few can afford to sue. And how do you sue a “structure” anyway?

A letter from Perpetual about the Julia Eastland situation describes “the structure”: the banks and other lenders are the “investors”. The investors lend money to the “trust”, of which Perpetual is the trustee. The “program manager” and the “servicer” of the trust is Macquarie Securitisation Limited.

Using this money from the banks, the trust then buys a pool of loans from the “mortgage managers” (parties such as Mortgage Ezy, Macquarie Mortgages and AFG).

These “mortgage managers” then organise finance for the “loan introducers” such as Kate Thompson’s Mortgage Miracles.

There you have it, six degrees of separation. There is a corpse but no murderer, just a mute multi-headed structure-beast lurking nearby the crime scene.