Another funder quitting

[Rolf Schaefer]

Societe Generale is withdrawing from the Australian securitisation market.

Most affected are:

• AMP
• Members Equity
• Resimac
• Plus some smaller lenders/mortgage managers

 

[alexlee]

Rolf, how big a book are we talking about? Guess SocGen needed the money to fill in that rogue trader hole.
Alex

 

[Rolf Schaefer]

sorry, no exact figures have been given;

they talk about 17 staff affected

Allco Max Securities and Mortgage Trust $300m facility is affected as well and won't be extended beyond 30 June 08.

There is a 12 month transition phase to soften the blow.

 

[alexlee]

As investors we all understand that buying and selling property cannot be done without loans. What's often not understood is that we need total loan volume to GROW. It's not just person A sells to person B, person B takes out a mortgage and person A pays off theirs. It's not a zero sum game. For prices to increase, for people to be able to sell their homes for more than they bought it for, and in turn buy homes for more than THAT seller bought it for, loan volume must increase.

In this current environment, some lenders are ceasing to write new business, or withdrawing from lending altogether. That basically means supply of money is decreasing. The weird thing about money, of course, is that demand is almost always there. If you make money cheap enough, someone will go for it. That was the problem with the US credit boom, which influenced us as well.

So if this continues, you might get to the point where some people can't get loans, and people who can get loans don't get as much as they thought. The impact on property is of course negative.

But markets do eventually work themselves out. How long will that take? Your guess is as good as mine.
Alex

 

[ffc1883_1996]

The impact on property is of course negative.

Overall, most people who are investing for capital gain (like me) will agree with your statement but one mitigating fact will be even more upward pressure on rents. Could CF+ property investing be back on the horizon again?

 

[alexlee]

Overall, most people who are investing for capital gain (like me) will agree with your statement but one mitigating fact will be even more upward pressure on rents. Could CF+ property investing be back on the horizon again?

About time, too. It wasn't THAT long ago that you could find +ve CF property in capital cities, without reno. While rents may well go up, it doesn't change the fact that less credit available --> price rises are less likely.
Alex

 

[Nth Brisbanite]

In this current environment, some lenders are ceasing to write new business, or withdrawing from lending altogether. That basically means supply of money is decreasing. The weird thing about money, of course, is that demand is almost always there. If you make money cheap enough, someone will go for it. That was the problem with the US credit boom, which influenced us as well.

But markets do eventually work themselves out. How long will that take? Your guess is as good as mine.
Alex

I realise that some lenders are quitting lo doc and no doc loans but what percentage are they of the total market? Are they big or just very minor players? Until we know this, it is going to be hard to work out the effect on the property market. Does anyone out there know this percentage?

 

[Spectre]

Hmmm... a Darwinism of the industry......

 

[DavidMc]

So if this continues, you might get to the point where some people can't get loans, and people who can get loans don't get as much as they thought.

Do you think it would be prudent to revalue / refinance now?

 

[Rolf Schaefer]

DavidMc,
that is a very good question.

I would try and access as much equity as I can before funding dries up even further - but do not go for a LOC rather get an Offset or a Redraw product.

 

[ffc1883_1996]

do not go for a LOC rather get an Offset or a Redraw product.

Is there really that much difference? I mean, if a bank can lower your LOC limit to reduce the potential LVR, what's to stop them from canceling your redraw funds to do the same?

Genuine question - I'm interested in your opinion.

Regards - Ben

 

[alexlee]

Is there really that much difference? I mean, if a bank can lower your LOC limit to reduce the potential LVR, what's to stop them from canceling your redraw funds to do the same?

Genuine question - I'm interested in your opinion.

Regards - Ben

A redraw or offset is an actual account BALANCE, the same as a bank deposit. A LOC is more like an approved (but not settled) loan. I suppose it's like having a credit card limit (which can be arbitrarily decreased) and going a cash advance and putting it into a bank account.
Alex

 

[ffc1883_1996]

A redraw or offset is an actual account BALANCE, the same as a bank deposit. A LOC is more like an approved (but not settled) loan. I suppose it's like having a credit card limit (which can be arbitrarily decreased) and going a cash advance and putting it into a bank account.
Alex

True enough. But to arbitrarily lower the limit on ANY type of investment loan, without agreement from the client, without any history of late or default payments, would be a dog ugly way to treat a customer.

If a lender decided that they needed to stoop to such depths then why would they bother considering the semantics of LOC vs. offset vs. redraw.

 

[Rolf Schaefer]

The difference is in the small print of the contract.

The LOC contract will explicitly mention the possibility of adjusting your limit, whereas the Offset or Redraw facility usually does not have that built-in functionality.

 

[ffc1883_1996]

The difference is in the small print of the contract.

The LOC contract will explicitly mention the possibility of adjusting your limit, whereas the Offset or Redraw facility usually does not have that built-in functionality.

Good advice! I took a moment to read over my loan contracts last night. I have a mixture of LOC, offset and redraw type accounts spread across four different lenders.

The first contract I looked at was my LOC. Couldn’t find any clause that explicitly allowed the lender to reduce the limit.

Then I checked out my loan offset account from another lender. Once again, found no specific wording to that effect (in fact, the contract even stated that the lender may allow a withdrawal that EXCEEDS the loan limit).

Lastly, I had a look at all of my other loans – the ones that only have redraw (no LOC of offset). Each of those documents DID state that the lender could for any reason REFUSE A REDRAW REQUEST.

So, what conclusions can be drawn. Well, as Rolf suggested, always check the fine print. Secondly, perhaps it would be prudent to spread my spare cash across a number of different institutions, regardless of type of facility (LOC vs. offset vs. redraw), to diversify the risk.

Regards - Ben

 

[GoAnna!]

Some contracts also have "reviews" built into the loan contract. They can, and have in the past, reviewed the situation and equity and demanded full repayment of the loans even though no payments had been defaulted on.

Most of us are investing at the banks pleasure and while the good times roll its not so easy to remember this.

With the shortage of funds what will happen with rates exactly even if the Reserve Lowers rates? Will banks lower by the full amount?

Interesting times.....