NAB Calls In Loans

According to the latest issue of the Australia Broker magazine:

“The NAB has provided an example of how important it is to direct a focus on the way lenders act.

“Australian Broker has sighted documents that show the bank has made demands for immediate repayment of at least three mortgages with a value in excess of $1m. The borrowers were given 30 days to repay.

“The big concern is that none of the loans were in default prior to the letters of demand.

“The borrowers were met with a refusal to discuss the matter when they approached the bank seeking a reason. One bank employee reassured the borrowers: ‘We don’t have to give you a reason.’

“In black-letter law the employee is correct. Most mortgage contracts include a clause allowing the lender to do just what NAB has done. Borrowers are generally aware of this clause in their mortgage [mh: hmmm, are they really?] but sign the deal in the belief that lenders do not act capriciously to foreclose mortgages.”

This raises a pertinent point on property portfolio risk management.

How many of you investors with multiple properties, with loans exceeding (say) $2M have used multiple lenders to avoid this problem.

By having many loans distributed over a number of lenders you are more likely to fly undernetah the radar, and less likely to be picked on when the bank wants to call in some loans.

Anyone?

Hiya

As always, if you can avoid it, minimise the one lender risk while balancing this with what that one (or the sucession of other lenders) has to offer.

The repayable on demand clauses is a feature of most (all ?) LOCs for NOTE though that while the bank may be legally correct, commercial reality and some level of social responsability.

ta

rolf

mmm... I seem to remember having this discussion with someone in a thread a couple of months back ... I insisted that banks can in many cases call in a loan with minimal notice - I was told that they would never do that. Told you so

Hi,

Surely if you've never missed a single repayment they wouldnt want to end business ties with you? If so, how would they pick 1 out of the 1 mil customers anyway?

Hi Dave

As my 4 year old would say

"because the can"

Ta

rolf

I guess the answer is relatively simple.

You write them a polite note asking them to reconsider. As you have not been in default, you would not like to raise it with the Banking Ombudsman at this stage. You also ask for a statement of reasons.

[DIAL THE MORTGAGE BROKER FAST]

They come back and indicate that they won't play ball. You write again asking for reconsideration due to your fine record and the lack of explanation.

[HOW'S THAT REFINANCE COMING??]

They send letter of final demand. You take complaint to Banking Ombudsman and (let's say) get no satisfaction after about 4 weeks.

[REFI IS JUST ABOUT THROUGH BUT HAS HIT A LAST MINUTE SNAG]

You write regretfully to bank and say "OK, you win but I'll need three months to dig up $1 million".

[NEW LOAN COMES THROUGH]

You refinance the house. Then call 60 Minutes. 60 seconds of fame and a lifetime of don't-mess-with-me reputation. Sevearl million dollars advertising for the bank down the tubes.

Fun for all the family.

Hi Quiggles

Cunning Plan Sire

One snag, in the instance where they are calling in their loan there is often some form of reason, which often makes it hard to refi, in a hurry or otherwise, especially if you are crossed.

The ombudsman wont get involved usually, since you are in default of your contract because the bank says so, and yew you loaded the gun by signing the contract, they just pulled the trigger.

This is another example of ya aaint got no choice, ya want the loan, you have to accept the sucky conditions.

Another great reason why one should avoid xcoll, and too much exposure with the one lender.

ta

rolf

Where no reasons are given it is possible that the customer may be being investigated for fraudulent activities, or the bank believes the risk exposure has been altered.

Just suggestions from my former life in banking.

Hulkster,

Do you think the bank made a conscious decision that an ensuing PR battle could easily have been won? It's generally not good business to antagonize what seems to be a good, paying customer.

I know I had a fight with CBA where they could have pressed an issue, but my prior research had uncovered enough dirt on the issue it would have been very embarrasing for them to do so.

I suspect there's much more to the story than meets the eye.

Jireh

If they're not lending money, they're not making it. So they tend to want to lend it. I had a long discussion with one of my lenders on this subject as they were lending me 75% on the prop & the contract said if they felt the loan went over 75% LTV due to changes in the value, they could call in the loan. They changed the contract to 80% for that clause to help my concerns. BTW I only drew down 65% & the rest is a credit line, so I'm not concerned at all.

But strictly speaking a bank expects it's borrower to meet the lending criteria today and into the future. Whether or not they do meet the criteria can change quickly when IR's move.

For example the customers on those 1 million $ loans may fall just within the lending criteria when the loans were issued and a few rate movements & suddenly they're outside the criteria. My own discussion with the lender mentioned above established that this happening would "trigger a discussion".

But in the case of the NAB loans mentioned, there may be factors like large overdrafts that affect the banks opinion on those customers. For example they may have breached the criteria, the bank manager see's that they all have large OD's as well, does a credit check (as the mortgage allows them to) and notices that the borrower also has other commitments outstanding (car loans, credit cards etc) and simply makes a decision.

The fact that they won't discuss that decision is really down to the rediculous nature of bank employees who once a decision like that has been made, don't want to get into the ins & outs of it. If you've ever been caught on the train after forgetting your travel pass, you'd know what I mean! They may also be entirely wrong on the position of the borrower & don't want to know about it.

If the borrowers position is stronger than the bank feels, they should be able to refinance quickly. Otherwise, they probably shouldn't have taken the loan in the first place.

It really is true to say that in the scheme of things it's the banks who are the investors & borrowers are only speculators. To keep investors in the market, they need to have their get out clause and they need to be able to excercise it if they want to.

BTW, think the loans aren't in default? When the bank says you've got 30 days, once the 30 days have passed, you are in default! It says so in black and white in the mortgage contract.