same lender, different loans, no x-securitisation

[htopg]

I am thinking of getting loan #2 with the same lender as my loan #1.
loan #1's security is IP #1
loan #2's security is IP #2
so there is no x-securitisation

I have asked the lender
1. will re-valuation of IP#1 occur if I re-valuate IP#2
the lender said NO
2. will the proceeds of sale of IP#2 need to pay down some debt of IP#1
the lender said NO

Have I missed any drawback of having separate loans with same lender?

Thanks in advance

 

[Jamie M]

It's possible to use the same lender for multiple properties and keep them uncrossed.

Check the loan offer documents carefully to make sure only one security is being used.

Cheers

Jamie

 

[Terry_w]

I am thinking of getting loan #2 with the same lender as my loan #1.
loan #1's security is IP #1
loan #2's security is IP #2
so there is no x-securitisation

I have asked the lender
1. will re-valuation of IP#1 occur if I re-valuate IP#2
the lender said NO
2. will the proceeds of sale of IP#2 need to pay down some debt of IP#1
the lender said NO

Have I missed any drawback of having separate loans with same lender?

Thanks in advance

Generally pretty safe, but what if this occurs:

You get laid off work, having financial problems and decide to sell property 1. You miss a few payments with property 2, but decide this isn't a problem because you have cash coming from the sale of 1.

But, on settlement the bank decides it wants to keep all your cash leftover from the sale of property 1 and apply it to property 2's loan.

Does the lender have the power to do this? This is what you should ask them, in writing. And seek your own legal advice on the loan agreements too.

 

[Aaron_C]

Yes keeping two securities separate with the same lender is possible and happens all the time. It all depends on how the loan is submitted.

 

[Aaron_C]

Does the lender have the power to do this? This is what you should ask them, in writing. And seek your own legal advice on the loan agreements too.

Usually far more important for business banking rather than residential home loans...pertinent but a remote possibility rather than a real one.

 

[Terry_w]

Usually far more important for business banking rather than residential home loans...pertinent but a remote possibility rather than a real one.

Yes, very true.

However I was contacted by someone recently for legal advice where this has actually happened to them - but they did have their loans cross collateraised.

 

[Rolf Latham]

However I was contacted by someone recently for legal advice where this has actually happened to them - but they did have their loans cross collateraised.

3 to 4 times a year......... usually but not always ends in tears

ta
rolf

 

[Blacky]

Generally pretty safe, but what if this occurs:

You get laid off work, having financial problems and decide to sell property 1. You miss a few payments with property 2, but decide this isn't a problem because you have cash coming from the sale of 1.

But, on settlement the bank decides it wants to keep all your cash leftover from the sale of property 1 and apply it to property 2's loan.

Does the lender have the power to do this? This is what you should ask them, in writing. And seek your own legal advice on the loan agreements too.

In most security documents there is an "all monies" clause which basically means that the property secures all money owed to the lender - despite there not being a direct charge (mortgage) over the property. Which is why the bank is able to isolate the funds from the sale of one property to repay a loan against another property.

Technically the bank could hunt you for equity in a property it doesn't have any interest in, which is one major difference to the Aus law and the US.

Blacky

 

[Marty McDonald]

In most security documents there is an "all monies" clause which basically means that the property secures all money owed to the lender - despite there not being a direct charge (mortgage) over the property. Which is why the bank is able to isolate the funds from the sale of one property to repay a loan against another property.

Technically the bank could hunt you for equity in a property it doesn't have any interest in, which is one major difference to the Aus law and the US.

Blacky

Nothing like the other property(s) being 1st mortgaged to some other entity to discourage an over zealous lenders collection area.

 

[Peter_Tersteeg]

Firstly let me say that I completely agree with previous comments regarding lenders coming after other assets if you start defaulting. If you're behind on a mortgage, you don't want to have any other properties with that lender regardless of how they're structured.

That said, this is not the reason I recommend people avoid cross collateralisation. People certainly do default on their mortgage, but if the lending process is prudent and there's some reasonable risk mitigation strategy behind the loan (including not crossing), the chances that things will go so bad that it gets to this point aren't realistically that high.

The real reason to avoid cross collateralising is ultimately because the borrower looses flexibility and control. You loose the abilitly to easily move your loan from one lender to another. Accessing equity in the future may get very difficult if the market doesn't go your way on a single property, even though another one has done well. It even makes it difficult to sell a property in many instances.

Realistically the most common problems in cross collateralising aren't a problem if you avoid crossing yet still have a few properties with a single lender.

Practially speaking there aren't actually that many lending options available to borrowers if you want to consider extreme examples and trace where the money actully comes from. Between them the big 4 banks control about 90% of the market, most of the second tier banks are owned by the big 4. There's dozens if not hundreds of mortgage managers and credit unions in Australia but most can trace their money back to either one of the big banks, a major private funder, or one of the major superannuation funds. Realistically speaking there's probably less than about 20 serious funding sources in this country and 90% of it comes back to 4 of them who have ownership interest in the rest.

Putting no more than one property with a single lender has merits as a concept, but in practice it's difficult, expensive and limiting. The better solution I think is to understand the options, manage risk (including exposure to various lenders), and be strategic in your lending as well as your investing.

 

[Brady]

Firstly let me say that I completely agree with previous comments regarding lenders coming after other assets if you start defaulting. If you're behind on a mortgage, you don't want to have any other properties with that lender regardless of how they're structured.

That said, this is not the reason I recommend people avoid cross collateralisation. People certainly do default on their mortgage, but if the lending process is prudent and there's some reasonable risk mitigation strategy behind the loan (including not crossing), the chances that things will go so bad that it gets to this point aren't realistically that high.

The real reason to avoid cross collateralising is ultimately because the borrower looses flexibility and control. You loose the abilitly to easily move your loan from one lender to another. Accessing equity in the future may get very difficult if the market doesn't go your way on a single property, even though another one has done well. It even makes it difficult to sell a property in many instances.

Realistically the most common problems in cross collateralising aren't a problem if you avoid crossing yet still have a few properties with a single lender.

Practially speaking there aren't actually that many lending options available to borrowers if you want to consider extreme examples and trace where the money actully comes from. Between them the big 4 banks control about 90% of the market, most of the second tier banks are owned by the big 4. There's dozens if not hundreds of mortgage managers and credit unions in Australia but most can trace their money back to either one of the big banks, a major private funder, or one of the major superannuation funds. Realistically speaking there's probably less than about 20 serious funding sources in this country and 90% of it comes back to 4 of them who have ownership interest in the rest.

Putting no more than one property with a single lender has merits as a concept, but in practice it's difficult, expensive and limiting. The better solution I think is to understand the options, manage risk (including exposure to various lenders), and be strategic in your lending as well as your investing.

Hat off... Well said PT

 

[MIW]

I am thinking of getting loan #2 with the same lender as my loan #1.
loan #1's security is IP #1
loan #2's security is IP #2
so there is no x-securitisation

I have asked the lender
1. will re-valuation of IP#1 occur if I re-valuate IP#2
the lender said NO
2. will the proceeds of sale of IP#2 need to pay down some debt of IP#1
the lender said NO

Have I missed any drawback of having separate loans with same lender?

Thanks in advance

I have 3 loans with one lender (say Lender A) but whenever I refinance I make sure these are all stand alone loans as you suggested, no "all-monies" clause applying, and never ever "cross-collateralised".
I have another 3 loans with lender B, with all the same points as for Lender A above. Just make sure your legal representatives check your contracts well.
Also, I have never been in trouble (no default) so I cannot say what they would do in such a case.....
Instead most ask for more business (to change all the loans to them), which I would never do.
So depending on your portfolio, and once growing, keep it balanced between more lenders, however that really depends upon your timing and finances and what you are really wishing to achieve.
if I had just two loans I would go with another lender but if it means getting more $ for your new investment then perhaps that would outweigh that decision.
First, it's important to know what you wish to achieve, flexibility, portability, redraws, etc.. Sometimes, a slightly greater interest rate permits the flexibility to duplicate via different lender whereas the same lender may be more conservative with valuations.
So from my experience I was never just focused on interest rates (yes they do play a role) but sometimes it is less important if I cannot duplicate, right?
I thought this may help in your wealth building....

 

[blw101]

Thanks for that info MIW. Question though, did you have much difficulty in getting the all monies clause removed?

To the brokers out there, I wouldve thought this is something the bank would be very reluctant to give up?

Cheers,
BLW

 

[Rolf Latham]

To the brokers out there, I wouldve thought this is something the bank would be very reluctant to give up?

Most mainstream lenders we work with wont modify their highly vetted legal contracts for a few loans.

Some lenders dont have AMC in the first place.

Really an over rated moot point in most clients circumstances I find


ta
rolf

 

[Spectre]

I always thought it was a bit of a web how a bank could own an aggregator and an indirect ownership or share if you will, of another banks mortgage book. If that makes sense.

 

[Peter_Tersteeg]

I always thought it was a bit of a web how a bank could own an aggregator and an indirect ownership or share if you will, of another banks mortgage book. If that makes sense.

...and let's not even thing about fund manager. They're so convoluted in ownership and control I don't think anyone really understands it.

Thanks for that info MIW. Question though, did you have much difficulty in getting the all monies clause removed?

To the brokers out there, I wouldve thought this is something the bank would be very reluctant to give up?

Cheers,
BLW

BLW, there's almost no chance that a bank will amend a residential loan contract for an individual. Even if they were willing to consider it for you (which they probably aren't), it would be unlikely to be cost effective on an individual basis, it's simply not worth the effort to them to do this.

Realistically the best you can do is find ways to mitigate your risk. You're probably never going to get the perfect solution, but you can do plenty of things to reasonably protect yourself, the easiest of which is to avoid cross collatealising. If you take reasonable steps and don't engage in high risk credit activities, the chances that the, "All money's clause," will get you is extremely low.

If you do wish to stress out to the extreme, then consider that even if you only have a single property with any one lender, you are still at risk. If you owe a bank money, they can go through the courts to try get anything else you may own to recover the debt. In practice it's probalby not worth the effort, but they can do it.

 

[blw101]

Thanks PT,

You confirmed my thoughts. My situation is as you recommended, so not worried, just curious regarding MIW's position that the clause isn't in his loan facilities.

BLW

 

[MIW]

Thanks for that info MIW. Question though, did you have much difficulty in getting the all monies clause removed?

To the brokers out there, I wouldve thought this is something the bank would be very reluctant to give up?

Cheers,
BLW

Never had it removed as I asked for it from the start not to be there....(I always do that).
However, there's always something for something. Most wanted personal guarantees.
Once a bank asked for our "trust" guarantee for an overdraft loan, so I changed the bank. Another time they asked for it again, but I told the broker I would not have proceeded if I knew this condition would be imposed, so they managed to negotiate.
I suppose we have to be a bit more proactive in understanding what we want, but perhaps my equity position may have been more favorable than yours, so I am not sure on their reasons. Thinking about it now, it seems all to be a game that we play whether in life OR it's with the banks, right?

 

[Peter_Tersteeg]

Never had it removed as I asked for it from the start not to be there....(I always do that).

I'm going to be a little cynical here, but you're saying they re-wrote and re-published the booklet that they provide with the loan offer documents? Or have they given it to you in writing that they will not peruse equity in any other property if they can't recover costs from the primary security and this document has been signed off by their legal department?