Falsified documents submitted to 11 Bank Branches

A report by the Asahi Shimbun newspaper on May 5, has alleged that that mortgage fraud scandal now extends to 11 Suruga Bank branches across Japan. The newspaper alleges that five companies are involved in obtaining loans from various Suruga branches that were based on falsified income statements, resulting in over-loans to borrowers. The Suruga branches that have discovered faked documents include Tokyo, Shibuya, Shinjuku, Midtown, Futako-Tamagawa, Kawasaki, Omiya, Tama Plaza, Sendai and Kyoto.

On May 7 the newspaper dropped another bombshell, reporting that the lawyers representing a group of investors had received an audio recording of a phone call that took place in April 2016 between a real estate agent and an alleged bank employee. In the recording, which was released to the public, the broker asked the bank staffer for advice on what to do if a sales agency was unable to tamper with the loan application documents. The bank staffer mentioned a company that takes on a lot of those requests. The broker then called the company in question and they confirmed that they could falsify documents. Suruga’s share price briefly dropped by as much as 11% the following morning before recovering.

The bank has claimed to have found no evidence its staff have been involved.

The scandal came to light in January when a share house operator and developer abruptly informed landlords that they would immediately cease making the guaranteed rental payments, citing low occupancy rates in the ladies-only share houses. The vast majority of the 700 or so landlords had obtained loans through a single Suruga Bank branch in Yokohama City. Investigations found out that the investors had been given loans of up to 10 ~ 20 times their annual salary, at high interest rates ranging from 3.5 ~ 4.5%, and had grossly overpaid for the share houses. After an outcry from the investors, the bank discovered that the loan application documents had been falsified at some point. Copies of bank statements submitted to the bank had been photoshopped to show a much higher amount of savings in a buyer’s account, and false entries of deposit payments to the seller. The share house operator is currently in the process of declaring insolvency after the Tokyo District Court rejected their application for bankruptcy protection.

Faced with enormous loan repayments, potentially as high as their gross salary, and no rental income, many of these investors are facing possible bankruptcy and have petitioned the bank to provide emergency assistance. Suruga has agreed to reduce interest rates to help these borrowers service their loans. Loans are typically full-recourse, which means the borrowers cannot simply walk away from these properties scot-free.

The Nikkei Asian Review reported on May 3 that Suruga had provided 120 billion Yen (approx. 1 billion USD) in loans to investors of this particular share house operator. The collateral is estimated at just 40 billion Yen (approx. 366 million USD).

The investment scam appears to extend beyond share houses, with document tampering found for four companies that broker or sell blocks of existing apartments to investors. Falsified loan documents from the Tokyo-based companies were submitted for 10s of clients to six different Suruga Bank branches, including Shinjuku, Sendai and Kyoto.

Sources:
The Asahi Shimbun, May 7, 2018.
The Asahi Shimbun, May 5, 2018.