ASIC says it is going through Australian banks to crack down on dodgy mortgage lending practices.

ASIC chair Greg Medcraft has confirmed that a majority of the big lenders are on its radar.

The corporate regulator recently laid charges against Westpac for allegedly failing to adequately assess clients, but now up to 10 more institutions are in the firing line.

“When we are talking to lenders, it usually means we think they have broken the law,” he told the ABC.

Mr Medcraft was asked whether the majority of Australian lenders were in breach of the law.

“What we've said is that we are looking, we believe there could be problems but at this stage until we actually charge someone, there can be no inferences drawn,” he said.

“Most importantly, it's actually a shot across the bow, we are out there, we are looking. You do the right thing, you've got nothing to worry about.”

ASIC has been looking across the sector for incentives for mortgage brokers to distort lending patterns.

Mr Medcraft said the commission system could be a source.

“They [the banks) do need to think about fine tuning it, perhaps thinking about paying, rather than simply on the size of the loan, perhaps think about the risk to the underlying loan,” he said.

A recent ACI report recommended scrapping bonuses “which increase the risk of poor customer outcomes” and removing ‘soft-dollar incentives’.

The report found the loans written by brokers tended to be larger and riskier than those coming directly through lenders.

Mr Medcraft said brokers had not created the system.

“The lenders still are the responsible parties doing the lending,” he said.

“Let's not blame the brokers. Let's look at, not the channel, but back to where the lending occurs.”

Investment bank UBS has issued reports saying borrowers who use mortgage brokers tend to be the ones with the highest incidences of fraud, as brokers can encourage borrowers to falsify loan applications.

Mr Medcraft says that practice is not widespread in Australia, where mortgage brokers provide an important service.

“Often the problem occurs when ... it's actually when rates start to rise and volumes fall and people want to maintain volumes is when you need to become even more diligent in terms of misstatement of income, understatement of expenses, overstatement of valuations, it all comes into play much more,” he said.