Houses falling down on high-risk mortgages

[House_Keeper]

article form today's smh.

It looks like the rising mortgage default is coming mostly from the non-bank lenders.

http://www.smh.com.au/news/national...hrisk-mortgages/2006/08/18/1155408025302.html

Cheers,

 

[alexlee]

The cycle continues. People just 'have' to get into the market at the top, and take out loans with payments right to the edge of the serviceability, expecting the perfect economic conditions to continue.

Reality hits and they can't make the payments. Crash.

Happens every cycle. Get ready, investors!
Alex

 

[Beach Bum]

Don't forget that they are relentlessly being told:

"Now is the time to buy"
"The quicker you buy, the more you gain"
"RE never goes down"
"You can't loose in RE"
"You can go wrong with RE"
"Anyone can make mils in RE"
"Leapfog your way to mils"
"Time in the market, not timing the market"
"It's a buyer market"
"It was listed for 300 but you can now buy it cheap at 260"
etc etc etc

After such a huge property boom, anyone who bought in has a success story, only few seem to remember the dowsides (and inflation).
Alex, I've been getting ready for 3 yrs, but we still got a bit more time I think.

 

[alexlee]

I agree we still have to wait a little longer, but you only need one full cycle to be rich.
Alex

 

[Peter Parker]

I agree we still have to wait a little longer, but you only need one full cycle to be rich.

Not sure about that; it may take average people three cycles.

1. During the first cycle you're just a spectator and watch others profit
2. During the second cycle you've built a small portfolio and a bit of equity, which you can use to expand your asset base
3. During the third cycle you can sit back and watch the equity rise on your (now substantial) portfolio

Peter

 

[yadreamin]

l also think it takes a cycle or 2 to really learn the way cycles go.And then make money from a cycle.

 

[Peter 14.7]

RANT AHEAD

These dodgy lenders of the 2000's are going to be like the two tier marketing scams of the 1980 and 90's. Legislation will be needed to weed them out.

How they loan 100 of $1000's to person on Centrelink is beyond me without some people turning a blind eye or having a vested interest. BUT Worst of all they prey on the most ill-informed, uneducated, etc...

Now I know some here feel well if you ill-informed that’s your choice but that is not fair.

As in the past posts, I can quote a recent go at my 75 year old mother (they love to target old ladies) by T#$%a offering a FREE mobile phone because she was “long term customer” and sadly her phone was about to be phased out and would soon be useless.

My mum read the (expertly) worded letter and assumed she needed to change straight over with no cost.

In the fine print the free phone cost an ongoing $20 or $30 per month as opposed to mum's present pre paid cost of almost always $0 because she never calls and only has it for driving emergencies.

And

The “imminent” phasing out was scheduled for 2008 (not even 2007) and from what I have read in last week’s AFR the new technology to make 3G system work everywhere (the key to the phase out) is a dud!

Experts both outside and inside the Company believe it will never work in the bush as it stands and certainly not by 2008.

So have a little sympathy for those less informed.

Another example is being in property I have had a number of younger friends approach me all excited they are buying (at wholesale) an investment in the booming town of (insert town) with finance all pre approved and even rent guaranteed!!!

They are so desperate to get a foot hold into a home they will believe anything.

Marketers also use statistics to fake growth like “did you know Maitland (Hunter Valley 3 hours from Sydney CBD) is one of the fastest growing areas in Sydney with 10 % growth last year”. Note: the growth is in homes, not value of homes. Being a small Town 10% isn’t that hard.
Central Coast is another favourite.

It is good to read overseas these operators are being hauled into the Courts.

Regards, Peter 14.7

 

[Rolf Latham]

Hiya

How much is journalistic licence, and how much is fact ?

Yes, there are loans that people get on pensions that they shouldnt, and Im not just talking home or investment loans.

Recently one Sheepish lender has removed their no doc loans from the Owner Occ market I believe for reasons that are potentially image related.

I believe the challenge isnt the lenders offering the products, but the way they are sold. Its at the coal face where you can make a decision, do I take this transaction or not ? Are these people already in throuble.......will I be helping them to dig the hole deeper

Are these borrowers aware of what they are doing, or can this transaction be seen as unconscionable ?

I dont believe removing this style of product from the market entirely is a reasonable thing. It would be akin to take cars from the road, because a small percentage of the population abuse their use.

In closing, once again I dont have any stats, but my experience is that almost all mortgagee auctions I have financed have been prime loans.

One of the things thats happening at the moment (in some parts if Sydney especially) is that people are simply walking away from mortgages .........." because who wants to pay for a mortgage on something thats worth less than the loan". That comment came from someone with 25 years in the lending industry..............not surprising then that borrowers dont know better.

ta
rolf

Ta

Rolf

 

[alexlee]

How they loan 100 of $1000's to person on Centrelink is beyond me without some people turning a blind eye or having a vested interest. BUT Worst of all they prey on the most ill-informed, uneducated, etc...

Now I know some here feel well if you ill-informed that’s your choice but that is not fair.

Peter, it may not be very nice, but the world ISN'T fair. If you keep expecting it to be fair, you're going to get eaten by the sharks. Some people aren't ill-informed by choice, but that's the way the world is. I also think it's really terrible that bad things happen to good people. Some people are born into war-torn countries. Is that fair? Of course not, but like it or not it happens.

On the other hand, I benefit from inequality, so to criticise too much would just be hypocritical.

We have to play the game by the rules as they truly are, not by the rules as we think they should be.
Alex

 

[Sootygirl]

Is this possible?

I had a conversation with a young single girl at work yesterday {she is 22}. She is buying a house and land package. She is up to the stage whereby she is about to pick the colour schemes for the house. She had just come back from the bank when I spoke to her and our conversation was about the purchase. She had told me that her mother is going to go 'halves' with the payments for the loan. Since she is so young and not working permanent {only permanent part-time, probably netting around $450 on a good week} I assumed her mother was applying for the loan as well but she said that the loan was only in her name. When I ask her how did she get a loan for $390,000, she said ''The broker got it for me". She sounded quite chuffed about that. She said it was with the Commonwealth bank!
How is it possible that someone earning only $450 pw can get a loan that requires payments of around $700 pw?
She has been really excited about the house and I dont know her well enough to say ''hey, do you really know what your getting yourself into"?

She had a deposit of $25,000 that her father left her when he died.
I have seen horror storied about brokers and people getting in too deep, but she said she's getting the money through the Commonwealth bank. Surely that bank has integrity {dont really know, just assuming}. and wouldnt even look at her application.
I once applied for a housing loan with my husband from Stgeorge. When I told them I was only working part time {30 hours pw} and had been in the same job for over 10 years, they wouldnt let me apply. My husband had to get it soley in his name.
Is this poor girl heading for a huge fall and will she lose her fathers inheritance money to these shonky lenders and brokers?
The girl told me that she will just have to live on $50 a week! Good grief, she doesn't even realize that it will cost her that much just for rates/insurance etc for the property.
I dont know her mother, but I have to wonder just how naive she is when it comes to borrowing money.
I know it none of my business but Im staggered that this can happen and feel bad for this girl and what the future holds for her. Should I just ignore it?
Any comments would be appreciated.

 

[alexlee]

The only way I can imagine is that they've cross-collateralised the mother's home into the mix. With enough equity some banks might overlook the serviceability (as we saw in a lot of the Gold Coast 2-tier marketing scams). I'm not saying this is a scam by the banks, but you have to wonder whether your friend knows the risks. More importantly, what happens if something happens and they can't pay?

 

[Rolf Latham]

Hiya

It is likely to be a family guarantee situation where mum is a guarantor.

She would not get such a loan on her own.

ta
rolf