Mortgage Stress Mainly due to increasing rates ?

[Rolf Latham]

Doesnt look that way from some data offered by Genworth, one of the larger mortgage insurers.


The main causes of hardship identified by Genworth from over 1000 applications to its Hardship Solutions team are:
• Illness or injury 38%
• Unemployment 15%
• Decreased income or earning capacity 15%
• Maternity leave 11%
• Relationship breakdown 4%
• Over-commitment to mortgage 2%

Genworth is calling on the 250 lenders on its books to do more to help people keep their homes and is encouraging them to think laterally regarding solutions for mortgage hardship.


Obviously would be coloured a little , but still interesting numbers

ta
rolf

 

[GoAnna!]

Obviously Genworth don't want people losing their homes. That's when they have to fork out money.

Yes, the numbers are interesting.

Basically people don't plan for the unexpected and the unexpected does happen - often.

 

[evand]

Maybe people just dont want to say the can't afford to pay their mortgage. If those stats are to be believed it begs the question why the sudden increase in illness/injury, unemployment etc......doesn't make sense.

I think there should be some regulation that doesn't allow lenders and MB's to allow borrowers to borrow up to the limit of their income capacity at that time.

A couple of interest rate rises and/or slight economic downturn and they are in big trouble.

I know a couple who are getting divorced and they had their house valued for settlement and guess what....negative equity. They can sell it and both share the outstanding loan without a house...great..as if divorce wouldn't be bad enough.

 

[GoAnna!]

Maybe a greater reliance on two incomes to cover the mortgage especially with rising interest rates?

 

[PrimeCommercial]

I dont know about those figures but my mortgage repayments has gone up by nearly $800 a month and my wife has been on maternity leave for the last 4 months and will be for the next 6 or so months.....I am somewhat surprised that maternity leave is so far down the list

 

[WinstonWolfe]

Genworth is calling on the 250 lenders on its books to do more to help people keep their homes and is encouraging them to think laterally regarding solutions for mortgage hardship.


Obviously would be coloured a little , but still interesting numbers

ta
rolf

As Evan points out, where's the increase in distress coming from?
That would only be clear via a historical trend.

And the figures would be highly rubbery, based on how Genworth conducts the survey. A borrower is more likely to say he was distressed because he got injured, rather then admit he paid so much he can't afford repayments when income drops 5-10% or he maxed out the credit cards. I think a lot of borrowers would want to mask financial incompetence from lenders and insurers to protect their credit rating as much as possible.

It would be interesting to know whether Genworth or lenders seek medical evidence (as employers do) when people use medical conditions as an excuse.


Anyway, a bit rich of Genworth to comment without admitting their role in building the house of cards.

Seems their actuaries have muffed risk assessment, due to whatever cause. They are solely responsible for setting their risk exposure, and unarguably have superior resources to determine that risk.

Warren Buffett and Charlie Munger have been highly critical of US mortgage insurers for the same reason.

Ultimately, insurers have considerable power over the growth rate of property by approving ever larger loans with ever larger real DSRs. If Genworth and PMI had started to say no to ever higher property loans, say in 2006, then sure, some other insurance crowd could have been found to cover the risk, but not in the same volumes...and they probably would have gone bust by now.

 

[alexlee]

I'd assume it's because people have a bit of time to plan for maternity leave. Illness and job loss would be more sudden.

Just goes to show how stretched households are.
Alex

 

[Rolf Latham]

Hiya Evan

Good point, at what point do we draw the line for borrowings though

To give u an idea the latitude of current breathing space with say Commbank

On a 100 k variable mortgage your IO repayment would be say 731 for an SVR pro pack or basic loan

Many banks will actually assess this at a repayment of 872 a month.

141 dollars or 16 % above current actual, thats a fair bit of space.

But how much is enough, and at what point do you start to discriminate against 2 income families etc

Now if the client was a marginal case, they may be advised to fix...that would help eliminate one risk

Having said all that, I have often found clients personal capacity to repay to be different to what the banks say, in both directions.

BTW, Brokers dont make credit decisions


ta
rolf

 

[evand]

I remember reading a quote from the great Mr Buffett that went something like:

"Having too much debt is like driving around with a knife taped to your steering wheel"

Everything's fine until things turn a little bad. And then....BIG trouble.

Why are people allowed (and why do people) get into debt right up to their capacity. Do they think things stay rosey forever? I suppose its just human nature. Madness.

Rolf, i get your point but it is in the MB's interest to 'get' the loan for the applicant. For obvious reasons.

Nothing against you personally of course. Referring to the whole finance industry. (especially the commission based component)

Warren Buffett and Charlie Munger have been highly critical of US mortgage insurers for the same reason.

 

[joeygbh]

I'd assume it's because people have a bit of time to plan for maternity leave. Illness and job loss would be more sudden.

Just goes to show how stretched households are.
Alex

How stretched they were before the incident or how stretched they are now? If they were stretched before the incident, because they didn't plan for it, then certainly it is their fault for not factoring this in.

I know we missed a lot of oppurtunities over the years because we were very cautious about making sure we had a large enough buffer everytime we bought, we are as such largely unaffected by the state of events.

Those numbers still look like people over comitted and didn't plan well enough rather than just because of unexpected events.

 

[DavidMc]

If illness/injury is the main cause, maybe complusory income protection insurance for borrowers 'close to the edge'?

I pay around $750 per year. Peanuts in comparision to the other costs when buying a home.

 

[alexlee]

How stretched they were before the incident or how stretched they are now? If they were stretched before the incident, because they didn't plan for it, then certainly it is their fault for not factoring this in.

Presumably they were already stretched before, probably already in debt, and losing one income just pushed them over the edge. I agree it's their fault.

I know we missed a lot of oppurtunities over the years because we were very cautious about making sure we had a large enough buffer everytime we bought, we are as such largely unaffected by the state of events.

Those numbers still look like people over comitted and didn't plan well enough rather than just because of unexpected events.

By definition if you have a buffer you're preparing for the unexpected. In good times most people simply don't do that.

Ah well. More for us.
Alex

 

[Rolf Latham]

Hi EvanD

I hear you, perhaps I should reword that

Brokers dont make credit decisions in the affirmative, most do make decisions on the negative.

When a client comes to you and says they can pay 1000 month, you dont put them into a mortgage thats 1500 a month, even though they service on the banks criteria.

ta
rolf

 

[letiha]

In the line of work I do, personal injuries law I see many people with good jobs and insurance who come into a lot of financial difficulties because of their accident. Reason why:

Accident insurer gets medical reports done that say no injury, and then the income protection insurance gets their hands on the report and say, look you have no injury you should be able to work.

Its not fair, and when these claims get dragged on by the insurer for sometimes years you can loose everything.

 

[boomtown]

I get a little cranky when I read posts or articles calling for greater regulation and limits on lending.

Whatever happened to self responsibility?

There are plenty of us out there that do, on occassion, push serviceability limits and do just fine because we plan. Australia is one of the most regulated nations on earth.

We dont need more nervous nellies telling us we cant have a 100% LVR when the property is turning a 6.2% gross yield and exhibiting solid 10%+ capital gain per annum.

 

[steveadl]

If illness/injury is the main cause, maybe complusory income protection insurance for borrowers 'close to the edge'?

I pay around $750 per year. Peanuts in comparision to the other costs when buying a home.

Plus it's tax deductible.

 

[evand]

I agree but unfortunately (or fortunately depending on your outlook) society isn't full of intelligent, responsible, savvy investors who understand this stuff.

I get a little cranky when I read posts or articles calling for greater regulation and limits on lending.

Whatever happened to self responsibility?

There are plenty of us out there that do, on occassion, push serviceability limits and do just fine because we plan. Australia is one of the most regulated nations on earth.

We dont need more nervous nellies telling us we cant have a 100% LVR when the property is turning a 6.2% gross yield and exhibiting solid 10%+ capital gain per annum.

 

[steveadl]

I agree but unfortunately (or fortunately depending on your outlook) society isn't full of intelligent, responsible, savvy investors who understand this stuff.

True, some people need protection from themselves.

Problem is, we get lumped in together as one big bunch.

 

[asdf]

If illness/injury is the main cause, maybe complusory income protection insurance for borrowers 'close to the edge'?

I pay around $750 per year. Peanuts in comparision to the other costs when buying a home.

Hey David, Who you with? Trying to sort out the minefield of policies out there. Certainly don't make it easy do they? Are you limited to 5 years or to aged 65? Stepped?

Did you also check the policy wording? I heard you need the one that will pay out if you can't do just one of your duties rather than "all your duties". ie virtual vegetable state.

At the moment not planning to be working till 65 but thinking that maybe a better policy just in case something happens in the near term before I throw in the 9-5 gig.

 

[buzzlightyear]

Ultimately, insurers have considerable power over the growth rate of property by approving ever larger loans with ever larger real DSRs. If Genworth and PMI had started to say no to ever higher property loans, say in 2006, then sure, some other insurance crowd could have been found to cover the risk, but not in the same volumes...and they probably would have gone bust by now.

Chicken or egg though?

Happened in the Docklands (Melb), where MI for a while at least in (2003-5) limited loans to 50-70% LVR (across various lenders)

Were the price falls caused by these policies or was it market forces alone thta caused these polic shifts ie oversupply? If you believe the property market price escalation is primarily caused by the liberalisation of lending policies of MI & banks, then it follows their tightening (if that is what is actually happening) will cause a contraction in prices.