Mortgage Stress Mainly due to increasing rates ?

[WinstonWolfe]

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.

Ask yourself whether 'market forces' would have caused a more severe contraction in the docklands if insurers were lending at 80-100%.

If property market price escalation and more importantly, its rate of growth, is not controlled by insurers and lenders, then what is it caused by? 99.8% of the market borrow to buy property. Take the question to the logical extreme and ask yourself what property growth would be if lenders stopped lending altogether for a few years.

And keep in mind 'market forces' aren't just how many people want to buy and sell property, but also how many people want to lend money to Aussie borrowers at a particular perceived level of risk.

Further, I don't think valuers have much to do with it, because in the middle of the heat of 2003, Brisbane prices were going up 10% in some weeks. That's not due to a valuer, that's due to a lender approving a loan to a guy who put a property under contract for an all time high price 10% above last week's. Was that approval based on similar property sales? Hardly. In making that approval, did the lender and insurer take into consideration how much more untapped debt serviceability there might be in the economy? I think so.

 

[DavidMc]

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.

Very interesting. I've been paying premiums for years never knowing if I might as well just take the cash and go to the casino. In your experience are there 'better insurers' and ones to avoid? Or are none of them worth bothering with? PM me if you prefer.

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.

I am with ING. Pays to 65 with a 30 or 60 day wait (can't remember). Single, 30, non-smoker. It's stepped (i.e. gets more expensive every year, other option is 'level', right?).

I'm pretty sure the wording on the policy is I went for is 'unable to perform my 'regular' duty'' (as opposed to others that say 'any' duty).

I went with stepped as I don't plan on having an income to insure till I'm 65 either.

This policy was recommended by two different 'assigned (free) financial planners' I had at an old job. I do know ING pay high comissions on their home loans so who really knows what. They said that ING 'has paid out no problems' in the past with an accountant who fell off his roof whilst painting it and broke his leg. Maybe they do, maybe they don't.

It's an imperfect market as there is lack of information. I'd really love to setup some kind of website that independently reviews claims, payouts and rates the insurance companies.

 

[caz]

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.

I've heard this too.
I hate to say it but bad things happen to people who have sense and plan. An injury hence no income, no insurance or insurance won't pay up ( I think this happens more then we know) and everything falls apart. If Dh was injured and couldn't work and our insurance didn't pay we woulc loose our porfolio. Luckily our house would be safe. Who can inverst thinking they may have no income at all ? maybe in the day of positive gearing but now if we were all that conservative starting off would we get any where ?

 

[FelixL]

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.

Actuaries can only assess the risk from historical data, which is why at 2006 when the market is still strong, it won't have a case to reduce exposure. Even if they do, the management has the final say. Now that we have a few years of downturn. You will shortly see GW and PMI upping rates and/or cutting off high lvr bands

 

[buzzlightyear]

.......Now that we have a few years of downturn. ....

Some parts of Sydney aside, where are these few years of downturn?

A few months of stagnant sales & falling prices, and everyone seems to get collective amnesia of what has actually occurred in the past few years.

Don't get blown away with all the hype people (good or bad!)

 

[WinstonWolfe]

Some parts of Sydney aside, where are these few years of downturn?

A few months of stagnant sales & falling prices, and everyone seems to get collective amnesia of what has actually occurred in the past few years.

Don't get blown away with all the hype people (good or bad!)

definitely not a few years of downturn, but definitely a downturn in demand....
http://www.somersoft.com/forums/showpost.php?p=412050&postcount=28

 

[BayView]

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.

Totally agree Ev.

My guess it is the classic case of too much mortgage and lifestyle for the income, and these "surveyees" are just lying and are too embarrassed to admit the truth - especially the high income earners.