http://www.smh.com.au/articles/2004/05/21/1085120120184.html?from=top5
Hi All
Above is an article from SMH on what can go very, very wrong when the boom stops. The question is:
How many others are out there like this couple and what will it do to IP market?
It is a long article but worth reading. I will insert sections of note in italics.
It talks about a high income couple, gearing into property who are about to lose everything including each other due to unfair loan practices with some brokers.
At one stage Moran was earning $250,000 a year and Leighton was on a $125,000 package. They were awash with cash, and like so many Australians "looking for some tax-effective way to invest our surplus for the future . . . negative gearing seemed the way to go".
The couple was naive, bought site unseen, and having big incomes didn’t bother to make every cent work. When things got tight they left the safety of regulated banking to a mortgage broker firm introduced by the developer called AAA and then the problems started.
When Moran went to King-Orsborn for a loan - it was all done by phone and fax, Moran never met him or went to the AAA office - he was offered $120,000 (which included more than $10,000 in expenses and commissions) at 6 per cent a month (72 per cent a year), rising to 8.5 per cent a month (102 per cent a year) if he defaulted on the loan, secured by unregistered second mortgages over the apartments at Neutral Bay, Surry Hills and Bondi Junction.
72%! This was meant to be a two month bridging loan but when the typical circumstances of risk (lost job, baby came along, and the end of the boom) finally caught up with them they got stuck there.
And because Moran was required to sign a declaration that it was a "business loan", he can't interest the Office of Fair Trading.
The article essentially uses this example to comment on the complete lack of regulation in the mortgage broking industry. This is very true and hence worth knowing especially the newbies out there who never experienced 1990 like property crashes.
Personally I had a similar (but much more minor) experience with a broker. They continually stuffed up in taking more money each month and made my life hell when I finally refinanced with the CBA. Tried to overcharge me $4k 3 times!
The problem was I found there was no one to complain to except the MIAA (members association) and even if successful here all they would do was chuck them out!
Phil Naylor (MIAA), while sympathising and conceding the AAA interest rate is "a rip-off", says that because the broker is not a member of the industry association, there is nothing he can do.
I now use a Bank knowing the Banking Ombudsman is there to "keep the bastards honest".
In closing this is where the couple is at now:
only hope is to fight the case in court - claiming that the transaction is "unconscionable". But his money is running out, and his attempt to sell the Bondi Junction property failed when the highest bid at auction was less than he paid for it.
Inviting comment for and against my post and especially from mortgage broker members on what problems they know of in the industry?
Lastly here is a statement on dodgy dealers that we all need to know!
Mike Barrett, Macquarie Bank's is on the MIAA's council and says in recent times the bank has detected more than 30 cases of fraud among brokers it dealt with - mostly mis-stating income or employment on loan applications from borrowers who do not fit the bank's lending criteria. He says he has taken three cases to the police - but they took no action "because the fraud wasn't big enough, or it didn't fit their criteria".
Barrett says he would be surprised if other lenders, particularly so-called low-doc lenders who require less evidence of repayment capacity, were not being harder hit - particularly as there is relentless pressure on lenders to offer "one-hour approvals", where the application may be processed electronically and not checked by a human being until later.
According to a report by the APRA, each Australian bank has stopped dealing with an average of 70 brokers in recent years because of malpractice. However, their names and the nature of their transgressions are not made public, and there is nothing to stop them continuing to do business
Regards Peter 147
Hi All
Above is an article from SMH on what can go very, very wrong when the boom stops. The question is:
How many others are out there like this couple and what will it do to IP market?
It is a long article but worth reading. I will insert sections of note in italics.
It talks about a high income couple, gearing into property who are about to lose everything including each other due to unfair loan practices with some brokers.
At one stage Moran was earning $250,000 a year and Leighton was on a $125,000 package. They were awash with cash, and like so many Australians "looking for some tax-effective way to invest our surplus for the future . . . negative gearing seemed the way to go".
The couple was naive, bought site unseen, and having big incomes didn’t bother to make every cent work. When things got tight they left the safety of regulated banking to a mortgage broker firm introduced by the developer called AAA and then the problems started.
When Moran went to King-Orsborn for a loan - it was all done by phone and fax, Moran never met him or went to the AAA office - he was offered $120,000 (which included more than $10,000 in expenses and commissions) at 6 per cent a month (72 per cent a year), rising to 8.5 per cent a month (102 per cent a year) if he defaulted on the loan, secured by unregistered second mortgages over the apartments at Neutral Bay, Surry Hills and Bondi Junction.
72%! This was meant to be a two month bridging loan but when the typical circumstances of risk (lost job, baby came along, and the end of the boom) finally caught up with them they got stuck there.
And because Moran was required to sign a declaration that it was a "business loan", he can't interest the Office of Fair Trading.
The article essentially uses this example to comment on the complete lack of regulation in the mortgage broking industry. This is very true and hence worth knowing especially the newbies out there who never experienced 1990 like property crashes.
Personally I had a similar (but much more minor) experience with a broker. They continually stuffed up in taking more money each month and made my life hell when I finally refinanced with the CBA. Tried to overcharge me $4k 3 times!
The problem was I found there was no one to complain to except the MIAA (members association) and even if successful here all they would do was chuck them out!
Phil Naylor (MIAA), while sympathising and conceding the AAA interest rate is "a rip-off", says that because the broker is not a member of the industry association, there is nothing he can do.
I now use a Bank knowing the Banking Ombudsman is there to "keep the bastards honest".
In closing this is where the couple is at now:
only hope is to fight the case in court - claiming that the transaction is "unconscionable". But his money is running out, and his attempt to sell the Bondi Junction property failed when the highest bid at auction was less than he paid for it.
Inviting comment for and against my post and especially from mortgage broker members on what problems they know of in the industry?
Lastly here is a statement on dodgy dealers that we all need to know!
Mike Barrett, Macquarie Bank's is on the MIAA's council and says in recent times the bank has detected more than 30 cases of fraud among brokers it dealt with - mostly mis-stating income or employment on loan applications from borrowers who do not fit the bank's lending criteria. He says he has taken three cases to the police - but they took no action "because the fraud wasn't big enough, or it didn't fit their criteria".
Barrett says he would be surprised if other lenders, particularly so-called low-doc lenders who require less evidence of repayment capacity, were not being harder hit - particularly as there is relentless pressure on lenders to offer "one-hour approvals", where the application may be processed electronically and not checked by a human being until later.
According to a report by the APRA, each Australian bank has stopped dealing with an average of 70 brokers in recent years because of malpractice. However, their names and the nature of their transgressions are not made public, and there is nothing to stop them continuing to do business
Regards Peter 147