New credit rules - 5 days late - black mark on credit filecredit file

[Beanie Girl]

These new credit rules may affect owner investors in a new way.
If tenants are late in paying rent, the bank that's direct debiting the IP mortgage may register that there were not enough funds in your account to be debited, hence non-payment of IP mortgage.

So through no fault of the owner investor, on the 5th day of non-payment of IP mortgage, a black mark will be recorded on the owner investor's credit file.

Unless these new rules only apply to PPOR mortgages and not IP mortgages.
But I do imagine that even owner investors can struggle to make PPOR mortgages on time occasionally, they do pay it eventually but can be late 5 days and over. It's quite a mainstream scenario.

Other possible consequences:
1. If all these new credit rules are going to make it harder for people to get loans to buy PPORs or IPs, (being retrospective from Dec 2012) then property markets around Australia could tank, at first almost imperceptibly, then perceptibly. This may then affect the valuation of investor's current holdings (PPOR and IPs)

2. These new rules may also affect your tenants, most of them may live from paycheck to paycheck and sometimes they apply for a few days credit just to make their rental payments for your IP, just to tide them over till their paycheck comes in. If these sources of credit are not available to them because their credit history is littered with black marks under the new system, then we may find that more and more tenants find it hard to meet rental payments and go into arrears. If they go into arrears, your IP mortgage goes into arrears with your lending bank and the cascading effect goes on. More little black marks for everyone.

 

[alexlee]

If tenants are late in paying rent, the bank that's direct debiting the IP mortgage may register that there were not enough funds in your account to be debited, hence non-payment of IP mortgage.

So through no fault of the owner investor, on the 5th day of non-payment of IP mortgage, a black mark will be recorded on the owner investor's credit file.

Uh, that's why we have buffers? You're not some independent waystation between the rent and the bank. You signed for the mortgage, so you're responsible for it. The tenants signed with you, so they're responsible to you. The two are separate. It's never been about whose fault it is. You violate the agreement, you violate the agreement.

But I do imagine that even owner investors can struggle to make PPOR mortgages on time occasionally, they do pay it eventually but can be late 5 days and over. It's quite a mainstream scenario.

That's why banks assess your salary and only part of the rent when you borrow for an IP. You're expected to be able to make the payment even if the rent is late. If you can't, you're not managing your finances properly. What happens if there is a vacancy? Or a big repair? None of those have ever been excuses for not paying the mortgage.

 

[The Fence]

So banks and big biz get to benefit from this as a standover to payers, yet if I invoice you and you dont pay me, do I get to black mark you...?

No... well, yes but not so easily. Will cost me more than the invoice on almost all occasions.

However, I do agree that good payers should be elevated much higher than bad payers when it comes to preferential lending practices.

Whether that is going to be the outcome remains unseen at this stage.

Big biz and gov will do with it what they want.

 

[Ausprop]

the situation with some credit providers is annoying because credit was never requested in the first place e.g. the council. To cop a credit default for being late on rates that are actually way in advance anyway for credit that was never requested would be quite irritating

 

[skater]

I have to say that I find it very harsh, to only give a lee-way of 5 days. I ALWAYS pay my bills, but to be honest, I am really bad at organisation, and a lot of minor bills get 'lost' among the paperwork on my desk.

I also have a really bad habit of not even opening my mail, until it's time for me to sit down & enter my stuff into MYOB. Then I'll sit down, open it all up. Pay anything that has arrived & not been recognised as a bill & file it away.

But, we never miss the loans on time. Never have.

Same! They are all on direct debits.

I find it harsh that if I pay 98% of my bills on time, I will have a black mark for the very few which are late.

I find it harsh that you can be a good payer, but go on holidays for a couple of weeks & you can get a black mark.

 

[wategos]

No problems if everything is direct debit/credit. I haven't written or received a cheque in many years, actually I destroyed my cheque book, no need for it anymore.

Anyone dependent on the tenants rent each month to pay the mortgage probably shouldn't be involved in property investment.

 

[weg]

I have to say that I find it very harsh, to only give a lee-way of 5 days. I ALWAYS pay my bills, but to be honest, I am really bad at organisation, and a lot of minor bills get 'lost' among the paperwork on my desk.

I thought the OP said this applied to credit providers only, ie. home loans, personal loans, CC, etc.

I'm 53 and have never, that i can recall, been late more than 5 days paying a credit provider but occasionally pay a bill late - because that relies on physically doing bpay.

 

[wylie]

No problems if everything is direct debit/credit. I haven't written or received a cheque in many years, actually I destroyed my cheque book, no need for it anymore.

I agree... except for when a new card is issued and the cardholder has to contact all the providers whose accounts are paid by card. This is the bit that annoys the crap out of me. Surely the banks could set up so that these automatic deductions can be carried from one card to another?

 

[skater]

I agree... except for when a new card is issued and the cardholder has to contact all the providers whose accounts are paid by card. This is the bit that annoys the crap out of me. Surely the banks could set up so that these automatic deductions can be carried from one card to another?

Annoys the crap out of me too. Just got a new Credit Card. Grrrrr....

 

[geoffw]

Although it can be annoying to renew all card payments, it can also be useful- to remind you of all the payments going out. Especially the small annual ones that you never remember until you see the money go out.

 

[Brady]

Plus sometimes the whole reason for the new card is that people want to cancel stop direct debits coming from the cards.

 

[wategos]

Direct debits to a normal bank account don't expire with the card so no need to renew anything if you don't use a credit card for these payments.

 

[MIW]

Looks like we may be copying the US way, with FICO scores, so the better the score the better loan rates, etc.... The worse the score, may limit many from borrowing or pay higher rates for the privilege???
I was told about it sometime last year, but the financial institutions are sending information about it with your posted statements, but how many read them, right?

 

[journeyman]

Just found out that your Repayment History Information (RPI) from Dec 2012 can be passed from credit providers to credit reporting agencies. This relates to whether you have made payments on time or have missed payments, usually on a loan or credit card (credit cards, mortgages, car loans, personal loans).

"From March 2014, credit providers can pass your RHI on to credit reporting bodies (Veda?). Credit reporting bodies can then disclose your RHI, along with other credit-related personal information, to licenced credit providers. Those credit providers may use this information to help determine your eligibility to be provided with credit.

This means that if you fail to make the full amount of a payment on time from December 2012 it may affect your ability to obtain credit in the future".

http://www.oaic.gov.au/privacy/priv...redit-reporting-repayment-history-information

Link - Office of the Australian Information Commissioner (OAIC)

 

[Beanie Girl]

This means that if you fail to make the full amount of a payment on time from December 2012 it may affect your ability to obtain credit in the future".

Pffffttt! That's nothing, the real deal is actually more insidious than just being punctual or late for payments.
And the 'positive' reporting system they're trying to sell us, that less risky customers will get lower rates (rewarded) and more risky customers will get higher rates (punished) that's spin and obfuscation too.

From 12 March, licensed credit providers have to hand over sensitive Repayment History Information (RHI) about you (backdated from Dec 2012) to credit reporting bodies/bureaus (like Veda)

Veda will then collate all that information about you and put that information together as a 'credit report'. Companies like Veda can then provide this credit report about you to any licensed credit provider who asks for it.

From the Repayment History Information pieced together from all the credit providers (from Dec 2012) Veda's credit report will contain: -

1. all the mortgages you possess - date opened, date closed, mortgage amount
2. all your credit cards - maximum credit limit, date opened, date closed
3. all your personal loans - maximum credit limit, date opened, date closed
4. all your car loans - maximum credit limit, date opened, date closed
5. Monthly repayments history - whether you paid the minimum amount required, when due, when paid

This is in addition to the existing information on your credit report such as:

• Personal details ? name, address and date of birth
• Consumer credit information:
• Credit or loan applications, known as enquiries
• Overdue debts like payment defaults (paid and unpaid)
• Serious credit infringements
• Publicly available information such as personal insolvency information, court writs, court judgements and directorship information.

To the bank, we are simply walking credit risks. Or credit scores. Suddenly your bank, you know.... the one that you have 2 property loans with, will suddenly be apprised of the fact that you have 10 other properties you didn't tell them about. Dearie me! Will your bank reward you for being so enterprising and having the smarts to try to ensure yours and your family's future? Or will they pull you aside and have a word with you, quietly, 'sell up, you're too high risk for us' or 'accept this high interest rate and we can make a deal'.

The ramifications and consequences for the property market, I can think of several, but I shall remain silent.

How risky or safe we are is truly in the lap of the Gods, I mean....the banks

Suddenly, the financial information we so fiercely guarded is so freely available to any credit provider who asks for it come March 2014

I mulled over the issue today and Eureka! a whole new picture emerged
This is my piddly post from a fetid, feverish mind, I apologise in advance if I have got it completely wrong......

 

[alexlee]

Banks are large, impersonal bureaucracies. Each of us are just one of millions of customers. Of course we're just numbers. How else can they handle that much business?

Banks have rules that you can learn to navigate and use to your advantage (e.g. borrowing from 'difficult' lenders first to maximise borrowing). Banks don't do things for malicious reasons, if only because of reputational risk. If they crush you, it's not personal (just as a wandering elephant stepping on you isn't targeting you specifically).

Personally, I don't see bankers in underground bunkers plotting my personal downfall, nor do I feel the need to scream hysterically and cower in the corner gnawing at a blanket.

I see what might be a big change in how we are assessed for loans. And change means opportunity. When new rules come into play, those who spend the time to understand and take advantage of the new rules will do better. Think of, say, financial deregulation back in the day and the opportunities that created.

I expect good brokers to start incorporating these changes into their borrowing plans for clients, as banks decide how they're actually going to use the new information.

 

[Fifth]

I've never been a day late on paying a loan (mortgage, personal or car) but a black mark after 5 days is a joke.

If they ever changed the rules to include utilities, I'd have a trillion black marks. Sometimes I simply forget, I figure that's why they call the reminder notice the 'reminder notice'.

I should probably feel bad about inconveniencing Origin Energy, but they don't seem to feel bad about subjecting me to third world phone connections and customer service staff with poor English comprehension skills so oh well.

 

[Peter_Tersteeg]

To the bank, we are simply walking credit risks. Or credit scores. Suddenly your bank, you know.... the one that you have 2 property loans with, will suddenly be apprised of the fact that you have 10 other properties you didn't tell them about.

The banks loan application already asks you what your assets and liabilities are. Are you seriously suggesting that it's okay not to disclose properties and debts held by other lenders? This would be considered mortgage fraud.

Ignoring the legal consequences of mortgage fraud, if your bank discovers you obtained funds by deception they could insist on immediate repayment of all the loans you hold with them and they could liquidate the security properties to enforce this.

You don't have to inform the bank about properties you purchase via other banks after you've taken a loan. If I buy property 1 with bank A, then property 2 with bank B 5 years later I don't need to go back to bank A and tell them about property 2. I do need to fully disclose my financial position at the time of any application however. I can't just ignore property 1 when applying for a loan with bank B to purchase property 2.

 

[Colin Rice]

If I was giving 100s of thousands or millions to some one I would want as much information as legally possible to asses the risk of the money being returned as agreed.

I to sometimes forget utility bills but have put simple measures in place to mitigate this.

 

[MTR]

There will be mountains of information to be added to files, this process will take time, it is not going to happen over night.

I was also advised that it is not compulsory for credit providers to supply this information to Veda.

If there is something negative placed on your file I read somewhere that you would be notified of this.



MTR