future of no-docs, equity lends

[Dunsborough]

Hi Everyone

Just wondering what peoples thoughts are regarding the future of No-docs/equity lends where there is clearly not enough servacibility for full docs or even lodocs.
Macquarie is the latest example, Will most peoples future investing be curtailed here or will people look at Cashflow mortgages etc? although arent they really ARM mortgages which have caused the sub prime chaos in the states?

Anyway great to hear the more knowledgable peoples thoughts and also people to throw in ideas for product options without any Spruiking?

cheers

 

[alexlee]

ARMs are different. ARMs have built in increases to the rate which can go very high. Even no-docs in Oz, while they have higher rates than fulldoc variable loans, don't have the same margin as the US exploding ARMs.

With tightening credit, lending criteria also tighten. So banks are certainly going to be more selective in lending money. That's going to be a problem for some borrowers.
Alex

 

[nonrecourse]

A dearth of available funds on reasonable terms

ARMs are different. ARMs have built in increases to the rate which can go very high. Even no-docs in Oz, while they have higher rates than fulldoc variable loans, don't have the same margin as the US exploding ARMs.

With tightening credit, lending criteria also tighten. So banks are certainly going to be more selective in lending money. That's going to be a problem for some borrowers.
Alex

Alex I would suggest that the problem will in fact be for most rather than some borrowers,

 

[Dunsborough]

Thanks gang, So the various "cashflow" loans available in Australia that some property mortgage brokers sell that start at 3% then go to 5% then 7% then the full rate (not sure of my figures) and basically capitalise the loan for several years arent ARMS? Have to admit i struggle with the mechanics of the ARMS in the US

 

[alexlee]

Thanks gang, So the various "cashflow" loans available in Australia that some property mortgage brokers sell that start at 3% then go to 5% then 7% then the full rate (not sure of my figures) and basically capitalise the loan for several years arent ARMS? Have to admit i struggle with the mechanics of the ARMS in the US

They are ARMs in the sense that they are Adjustable Rate Mortgages. The difference is that in Oz the 'full rate' would be roughly the standard variable rate. This is different from the US ARMs causing so many problems because the 'max rate' on the US version can be much higher. At a time when 30 year fixed rates are around 6% in the US, you can have ARMs rates going into the teens.

I think part of the problem is that many US ARMs (for some reason) are priced off LIBOR and not, say, Treasury rates. LIBOR has been persistently high because of fear amongst banks, even though the Fed has been cutting rates.
Alex

 

[RetireEarly]

in the short term we may see banks consider pulling no docs according to a conversation i had with a senior banker the other day.

we talk about ARMS in the US... whilst different here the banks are concerned about the number of customers rolling of 5 years fixed from 5-6% to 9.5-10%... for many this will cause some pain.

 

[Rixter]

whilst different here the banks are concerned about the number of customers rolling of 5 years fixed from 5-6% to 9.5-10%... for many this will cause some pain.

Im sure it will, but, only for the ones who have not managed them selves well enough to move through it unscathed.

People only find them selves in current situations as a direct result of their past thoughts, decisions & actions or lack there of.

 

[wylie]

Interestingly, Westpac just lent us a letter offering us a conditionally pre-approved top up of $100K on our housing loan.

Last loan we took was for an IP and was an equity lend type loan, as we don't have the servicing ability on paper for our loans, but we have enough assets for the bank to be comfortable.

We plan to take up the $100K offer and keep it tucked away for if we need money in a hurry, or at least take it up and, once approved, swap it under our package from housing loan to investment loan purposes.

When we come off our fixed interest, we will be faced with hefty increases in our repayments, so we may have to use this loan to help meet some of those. It will give us time to make a decision about what we do next without forcing us to sell something just to meet the higher interest payments.

I was surprised that they offered this, but I suppose they must think we are a good risk. Used unwisely, this type of offer could be real trouble for some people.