Mortgage Shopper

Are Australian Mortgage Loans turning Japanese? Yes I think so

Japanese banks prepare to launch a surprise attack on Australian Mortgage Profit margins

Australia's big four banks, CBA, NAB, Westpac and ANZ are the envy of the banking world.

Yet Japanese banks have been in operating successfully in a recession economy for twenty years.Then something happened. A big Japanese builder bought out Iconic Australian project home builder AV Jennings, and the secret profits got back to Japan.

The interest rates they operate on are puny compared to Australian Home loan rates and bank margins. So its natural that they want a piece of the action.

Some say that Japanese banks could get a $100 billion of the Australian home loan market in double quick time.

At the February RBA meeting most financial analysts are punting on a further rate cut to the official cash rate. That normally translates to a similar reduction in mortgage interest rates.However some of the big four banks are hinting at not passing on all of the rate difference, citing rising fundings costs as the reason.

A cynic might suggest that the real reason is maintaining profit levels in a shrinking home loan & credit card finance by Australians.

Japanese banks are all cashed up with nowhere else to go.

Japanese lenders are brimming with low cost cash because of the recession, and the Japanese savings ethic.

Australia's trillion dollar mortgage pie

Australia's trillion dollar home loan market looks ripe for the picking and snaring just a 10% slice of Australia's Mortgage pie. That would give them a $100 billion dollar windfall.

A Japanese Bank raid a cakewalk for four good reasons

1. Australians have no loyalty to their banks. They will change lenders, and do so often.
2. Money talks. Australian home buyers and homeowners are hurting financially mainly because they paid too much for property on the basis of low interest rates.
3. An open Mortgage Broker channel. Single unit and franchise mortgage brokers have established channels that the Japanese raiders can tap into instantly.
4. They could also operate an online channel, as this is how a lot of Australians looking to refinance do their research these days.

2012 may prove to be a tough year for mortgage lenders in Australia, and that means a better deal for Aussie home loan borrowers.

That has to be good news for anyone where home affordability is important, including the real estate industry, the home building sector, land developers, mortgage brokers, as well as homeowners and home buyers looking for a better mortgage deal.

 So will Japanese banks succeed in turning Australian home loan Japanese? yes I think so!

Mortgage Lenders: Small U.S. home loan lenders have reform concerns

Mortgage lenders and community bankers across the US are lobbying lawmakers over proposed new federal home loan credit rules as the end on the discussion period looms.

The new mortgage rules seek to reduce risk-taking on mortgage lending, but mortgage lenders say the guidelines could hurt small banks and would be bad for credit markets. The Securitized Lenders rules are part of the recently passed Dodd-Frank "Wall Street overhaul bill".

Mortgage Securitization and home loan lending Rules under contention

Now US finance regulators need to establish guidelines for originators of securitized loans, to prevent the problems that lead to the US financial meltdown.

One of the key aims of the legislation is to reduce risk-taking.

The legislation proposes to do that by enforcing mortgage lenders/originators to hold a 5 percent stake in any debt instrument pooled in the secondary market.

Will small banks leave mortgage lending?

Many people believe that making the lenders partly responsible, and tied to the home loan outcomes will see many banks leave mortgage lending, fearing the consequences of being saddled with "hurt money".

The fear is that many home buyers will be denied access to mortgage credit should mortgage lenders leave the housing market.

Is the 20% down & equity rule too harsh or a healthy safety lending margin?

The law gives an exemption for mortgages deemed to be safe enough and gave regulators the task to define such suitable loans.

Regulators have proposed an exemption for the so-called qualified home loans when borrowers make 20 percent or more down payments or equity in the home for refinance purposes.

Some believe that this should be reduced to 10 percent as 20% would kill home loan lending and home values would sink lower still.

 

Source: Mr Mortgage

Reverse Mortgages: Why Are Big US Banks Exiting The Reverse Mortgage Business

Bank of America and Wells Fargo are not only two of the biggest banks in the US, they are in the top 25 Enterprises in the World. So why have have left the reverse mortgage business within months of one another?

SImple Economics have driven Wells Fargo and Bank of America from the reverse mortgage business.

Both Wells fargo and Bank of America have ceased originating reverse mortgages because the economics of that loan product have come under pressure.

With the two biggest players originating nearly half of all reverse mortgages their departure will leave a big dent in seniors being able to take advantage of these loans in the US.

What are Reverse Mortgage?

It is where the bank buys back the equity of your home, and a method for senior home owners [62+], can supplement their retirement incomes in return for that equity.

Our homes are generally our biggest asset and if you are over 62 years old and require supplementary income to live on then a reverse mortgage may be an option you might wish to consider.

Reverse mortgages allow older homeowners to tap into their their home equity. Instead of the homeowner making repayments, the banks pay the borrowers.

As before, homeowners continue to pay rates taxes and insure and maintain the property. And that is the fly in the ointment. Because many homeowners cannot afford the home insurance and the rates and taxes and maintenance, so the banks risk holding an asset with a falling value and having to foreclose on seniors. Not a good look for a bank, though this is yet to happen currently.

And the other problem is the continued slide of home values in the US, and rising taxes for the homeowner to pay. As a result, banks have noticed a rise in "technical defaults", when homeowners fall behind on their taxes or homeowner’s insurance and maintenance, all of which need to be met to avoid foreclosure. About 5 % of reverse mortgages are apparently in default on at least one of those items.

Falling home prices mean less people can qualify for a reverse mortgage

Less borrowers can qualify right now in any event.  Because falling house prices mean that fewer properties will qualify for reverse mortgages. In many cases a loan modification would make more sense, to save the homeowners from foreclosure.

The final straw is that lenders cannot assess a borrower credit and ability to repay, so banks were flying blind in approving these loans. In fact a lender cannot decline the borrower, because the loan is deemed an asset loan, and as such based solely on the value of the property.

Why Reverse Mortgages used to be such a great idea for lenders and borrowers.

Before the Global Financial Crisis and mortgage meltdown in the US, the typical borrower would get the reverse mortgage, and equity in the home would continue to build as the asset value increased.

This would provide borrowers with more options — like refinancing — should they fall on hard times. Declining home values have changed that paradigm for both bankers and consumers. Borrowers have not been able to pull out as much money.

The final nail in the coffin for reverse mortgage loans

At the same time, the government has also tightened its withdrawal limits, and minimum equity levels. SO with house prices falling it means that the homeowners will get less if anything for a reverse mortgage. This looks like continuing as more home equity goes "under-water".

Both Wells Fargo and Bank of America will continue to service their existing reverse mortgages. Thye just will not originate more of these loans.

Where to go for a reverse mortgage now?

Finding a reverse mortgage lender will be more difficult, but not impossible. The exit of Bank of America and Well Fargo will be felt as they provided nearly half the loans. But the other players are expected to raise origination volumes to cover about half the shortfall. The other borrowers may miss out. For many of them the loan modification route may make more sense.

Reserve Bank of Australia: Rate rise likely due to inflation

RBA ask home buyers & homeowners to carry the "interest rate" can for the economy again.

Australian home buyers and mortgagor homeowners might get punished By the Reserve Bank of Australia with higher mortgage repayments for the mining boom, the Queensland floods and Cyclone Yasi.

Real economy is going backwards

This grim analysis is based on the wider economy going backwards, with house prices falling in all areas except mining boom towns, fruit and vegetables are growing in price rather than in the fields, and the devastation of the Queensland floods will divert construction to remedial and refurbishment damaged buildings and away from building new homes.

These events have given Australia an inflation rate of 3.3% per annum, and that is over the 3% ceiling the Reserve Bank has set as the top line within its framework of control.

Whilst tightening of credit is an important consideration to keep a lid on the housing inflation , I have always thought that in times like these the RBA would do better to make finance and home loans harder to get, by controlling the lending practices of the banks to require higher deposits. The mining industry is relatively small when you look at the employment side of things. But small business and retailing are huge employers collectively and any rate rise will hit them hardest and not do anything to control the investments made by the mining industry.

Is the Consumer Price Index is a "crock".

How do they work out the CPI in the first place? Food, water and utilities is becoming a diminishing part of the CPI basket and food prices, water and electricity have gone through the roof in recent years. So inflation for families is possibly 10% per annum, not 3.3% that the RBA claim it is for the economy. These fake inflation figures more about controlling demands for higher wages than about reporting the rising cost of living in my view. Where are the unions when you need them? Making credit card repayments and mortgage payments higher on top of the highre food and electricity bills burden burden, and at the same time as family payments and welfare payments are targeted for reduction and savings, could fracture the economy down the middle.

Is the RBA toolbox is too skinny.

My biggest beef with the RBA is it likes to keep it simple, too simple in my view. Interest rate control has been its blunt hammer for decades. Haven't we evolved a more complex economy since then that has better more refined solutions. Interest rate rises hurt too many people these days for the result that they give. Controlling banks lending policies seems a much fairer way to control lending and money circulation. Another method might be to offer a rate reduction for people that set a shorter term to repay their home loan. This would force mortgagors into "saving" and take money out of the economy without the need to make homeowners carry a bigger burden without saving money. So whilst economists say that the RBA rate rise is going to happen sooner rather than later, I ask the question why?

Author: Mr Mortgage

Big banks to profit from market muscle in 2010

Australian home buyers and homeowners will feel the squeeze of the big banks' market muscle in 2010. 

 With the demise of sub-prime lending, the collapse of the non bank lenders and the securitised lending brands now being controlled by the banks,  and tighteneing credit rules by the Reserve Bank of Australia, the scene is set for higher lending margins by the big banks. 

And that means higher interest rates for homeowners with a mortgage, as well as mortgage shoppers.

According to recent Australian Prudential Regulation Authority data The commonwealth Bak and Westpac wrote nearly 60 percent of the home loan mortgage business between them in 2009.

When you add the ANZ and NAB figures in that 90% of all home loans written be the top four players. That is what I call market muscle on steroids.

Small fry, Bank of Queensland, Suncorp-Metway and Bendigo Bank have been left with 1.8 per cent, 2.9 per cent and 2.2 per cent of the mortgage market, respectively.

As you can see there is no space left for the rest of the players in the micro-bank, international bank, credit union, building society, and non-bank home loan sectors.

If I were buying shares in 2010, I would seriously look at the potential rise of profits that this market position offers the big four banks.

On the other hand, if I were looking for the best loan deal, now and next years, I would be looking at a non bank lender.

Rick Adlam, Mr Mortgage

Mortgage Rates: Reviewing 2009 and what's ahead for 2010

The lowest mortgage rates ever in 2009 have given home buyers and homeowners a welcome relief in 2009, with the Reserve Bank of Australia delivering the lowest cash rates in history.

 With the unchartered waters of the World Financial crisis, ironically created by US banks in the mortgage industry, house prices remained flat in Australia, and started to rise again in the second half of the year, when it became clear that Australia had dodged the Recession bullet, and unemployment fears had evaporated, the Australian property market was in a business as usual mode.

And for that we have to thank the Rudd Labor Government's swift action on economic stimulus packages, and its execution of the roll-out, which continues into infrstructure building for the next few years.

Looking back on 2009, one thing that joe public did not see was the demise of the non-bank mortgage sector, with capital raisings for mortgage securitisation on the nose, the mortgage securitisation industry was on it knees.

The Rudd Government rescued the mortgage securitisation industry with a couple of large cash injections, and now the industry has sprung back to life.

But not before the damage was done. The non-bank mortgage sector has less than 5% market share right now, when you take out all the brands that the banks have recently acquired, including RAMS, Aussie and Challenger. The sub-prime mortgage market was virtually wiped out in 2009, though its now making a comeback.

Most of the big origination players were picked up for peanuts by the big banks, and now the Australian mortgage borrower will pay, with banks moving to improve their margins by rising their rates above the recent increases of the base rates by the RBA. [Why the ACCC allowed this to happen is beyond me. The banks have bought out their biggest competitors.]

Wespac in particular were rapacious in their price increases. This just goes to show that Australia's mortgage industry in controlled by the big banks, and as soon as the opportunity presents they will sting you.

So for 2010 the message is clear. Banks put you second to their shareholders profits. By supporting your local mortgage originator, and refinancing away from the banks, you will secure better mortgage rates for yourself, and bring margins at the banks down nationally. A well supported non-bank mortgage sector like Mr Mortgage is your best guarantee for lower mortgage rates in 2010, regardless of how many rises the RBA imposes this year.

Mortgage rate alert. CBA increases fixed interest mortgage rate

Mortgage rates tipped to increase as CBA ups fixed rate mortgage ahead of RBA rises.

Mortgage rate alert: Mortgage Rates are now tipped to rise several times as the Australian economy strengthens. Whilst The National Australia Bank and the Commonwealth Bank of Australia might both claim that they are the biggest bank in Australia, in terms of mortgage home loans, the CBA grabs first place.

And as Australians relish the fact that they missed out on the World recession and have renewed their love affair with residential property the banks are tipping the Reserve Bank of Australia will be raising the cash rate anytime soon.

This was verified by the Commonwealth Bank raising interest rates on its new fixed-rate loan offers. 

Raising interest rates on future fixed-rate loans without any increase by the Reserve Bank, is an indicator that variable rate increases are coming. 

The Commonwealth's one-year fixed rates will rise by half a percentage point to 6.19 per cent.

Its two-year fixed rate mortgage is going up by 30 basis points, while three-year fixed home loan rates will increase by 15 basis points.

Treasurer Wayne Swan said today that "banks usually increase their fixed rates in response to higher global funding costs, while their variable rate changes tend to track the RBA's movements."

"It's a measure of what's going on in international markets as much as anything else," he said.

In the meantime The Governor of the Reserve Bank made the point yesterday that the increasing strength of the Australian Dollar and economy are pointing to rising interest rates in the near term.

Author: Rick Adlam Mr Mortgage

Are Mortgage Brokers honest with home buyers and refinancing Homeowners

Mortgage brokers are in the firing line of late, and now Westpac bank and the Commonwealth bank are putting pressure on accredited mortgage brokers, telling them that if they don’t have a certain number of loans settle with them within a 6 month time frame, they will lose their accreditation with the lender. This brings into question a brokers relationship with his or her customer.

The mortgage brokers have responded by saying that their “Independence” is in jeopardy, because many brokers will bow to the pressure and set loans for clients for the home buyers or refinancing homeowner with these lenders, rather than the best loan for the customer.

In my prior article I was a little harsh on mortgage brokers, and this brought up the question of the meaning of the "honesty" of the dealings of the Mortgage brokers.

So here is my revised take on this important topic.

The Mortgage Brokers Intent indicates his or her honesty.

Honesty in this context should not be taken on a legal or literal definition of the relationship between the mortgage broker and the lender and the home buyer or refinanced homeowner, but on the intent of the mortgage broker when they are helping their customer select the best loan for them.

If the Mortgage Broker has the intention of always selecting the very best mortgage lender and mortgage loan product for their customer, then its obvious to an impartial viewer that the mortgage broker can be considered an honest mortgage broker.

If the Mortgage broker explains to the client that they are offering a no cost loan service to them, because the lenders are paying them a commission for introducing the loan to the lender, they are being honest in my view.

If on the other-hand the mortgage is selected because it favours the mortgage broker and his or her own personal interest, then the mortgage broker would have to be considered dishonest in my view.

Banks and other mortgage lenders that offer lenders inducements to put loans through them, compromise the brokers’ impartiality and their honesty, and the trust that a customer puts in them. So do lenders that force lenders to have sales targets. Doing so in my view makes mortgage brokers appear commission representatives of the lender. 

That has to be a bad thing for the mortgage broker industry and the customer than place their trust in a Mortgage Broker to do the right thing by them, according to Mr Mortgage

Mortgage Brokers: who do they work for, the client of the bank?

As Australia’s major banks are putting the squeeze on mortgage brokers to extract more deals out them, we need to ask the question “Do mortgage brokers work for the benefit of their client or the Banks? You may not like the answer.

Mortgage brokers can’t get you a loan for a lender that they are not accredited for. And right now Westpac and the Commonwealth Banks are starting to make brokers jump through performance hoops, in order to retain their accreditations with them.

The false assumption

Some in the mortgage broking industry claim that their “Independence” as a mortgage broking professional is in jeopardy due the pressure put to them by the major banks. This assumes that the mortgage broker is independent of the banks. This in my view is a false assumption. 

What is more if any mortgage broker claims to their client that they are “Independent”, they are guilty of deception and misleading the client by making fraudulent statements. 

How can that be you might ask? That's easy. Determine who the principal is and who the client is and who the customer is.

A principal in an agency is easy to spot. They are the one who pay the agent.

Who is the customer? Easy; they are the ones who buy the product or service from the agent.

Who is the client then you might ask. Good question! It can’t be the customer, because in the relationship, the customer is the one who pays for the goods or services.

The client pays the agent for bringing buyers and seller together. When a home buyer pays all the money to the lender, and the lender pays the broker, then the client in my view is the Bank!

Why do I say this? Because the mortgage broker is paid by the banks, not the client. So the mortgage broker is dependent on the Bank or Non-bank Mortgage Lender for his livelihood. So no broker can claim to be independent of the banks. They are the opposite. They are completely dependent on the Bank.

Mortgage Brokers also have to ensure that they look after the best interest of the lender.

Can you see anything wrong in this? Yes, the mortgage broker appears in fact a [non-exclusive] commission agent of the bank. He or she only gets paid if they bring a deal to the lender that settles. 

The banks of course will argue that “No”; they don’t employ the broker as an agent. He or she is merely an introducer to the lender.

If, just for the moment, we take a look at Real Estate Agents and their relationships with buyers and venders of property we can see that the real estate agents principal is the vendor [seller], because [in most situations in Australia] the seller is the one who hires the agent to effect the sales, and the seller also pays the commission on success to the real estate agent. Real estate agents in effect work for the seller to market and sell them property on the seller’s behalf. They have the skills and knowledge to get the best possible price in a given market to affect a good outcome for the seller.

What is the difference with a bank hiring a mortgage broker to sell their loans? I can’t see any. Maybe I have missed something in the home loan or real estate business, so if I have please explain it to me. Until that happens [I’ve been waiting eight years now] I am convinced otherwise. And I will stick with my long held view, that mortgage brokers are the agents of the banks that they represent.

And that brings up a question, and the question is this. What’s wrong with that? Nothing I say. As long as the client is made explicitly aware of this fact, by the broker in a statement, or in writing, before transacting a loan.

Mortgage Brokers get angry when you tell them this.

This notion will rile the many honest brokers who work hard to get the best deal they can for their client. But that is not the point. Yes, most brokers are honest, and will work to get the best loans for their customer [let’s stop calling them clients, OK in case we give someone the wrong impression.

But that is not the point. The point is they don’t have to be honest. They can if they wish sell the customer a worse than optimum loan for their needs. We have all heard of brokers who hire sales people and tell them to sell a particular loan, when they know that this is not best loan or outcome for the client, but benefits the mortgage broker instead.

What is needed is legislation that clears the air on these points so that customers know where they stand on this point, and who is the mortgage broker really working for. Any Mortgage Broker that tells you that he or she is independent, should be given a wide berth, or reported to the Office of Fair Trading as far as I am concerned.

Are Mortgage Brokers Honest?

The notion that mortgage brokers will lose their independence if the banks make them sell a certain number of loans is rubbish. To use the real estate agent analogy again, if you give the agency to a real estate agent, who then uses your home as a way to sell other people’s homes instead of yours, is he or she being honest with you, the client and principal? And can you sack the agent if they don’t perform? Of course you can!

Mortgage brokers need to take a good look at themselves, and start being more honest with their customers, and maybe they need to start with themselves and the relationships with their lending panel.

The final question about honesty is what is implied in a name. Does broker imply an agent client relationship? If it does maybe it should be replaced with Mortgage Introducer. That is a more honest name in the opinion of Mr Mortgage.

US and UK mortgage lenders green with envy as Australia's 'big four' Banks rake in the profits

As US and UK Banks and and Mortgage Lenders Fannie Mae and Freddie Mac struggle to stay afloat in the continuing Global Recession and mortgage meltdown, they must be green with envy of the privileged existence of Australia’s 'Big Four' Australian banks as they continue to rack up healthy profits. 

The Australian bankers at the top end of town at the CBA, the NAB, the ANZ and Westpac will tell you that they are better managed and regulated than their counterparts in America and Britain, and that is indeed true. As Warren Buffet once said, ‘all boats tend to rise on a rising tide, but you get to see who’s swimming naked when the tide goes out’. And American banks have been swimming naked for years in the home mortgage loan area especially.

Also Australia’s Rudd Government has played a beautiful hand in softening the blow for all Australians with a raft of stimulus packages that are starting to buoy retailing and the housing sector, so that many Australian’s are asking “what recession?”  And incidentally I believe that the opposition Liberal Government will suffer in the next election because of their continual attacks against these brilliantly managed packages. And the packages are only just starting to take effect. And a lot of the credit must go to the wonderful Australian Public servants in the Treasury for their modelling of these plans.

In my view Australia has a better set of values when it comes to social justice and fairness for the individual. We are not hung up on the notion of “invisible hand” economics, and Australian Governments of both colours proactively manage for better human outcomes. Great job Kevin Rudd!

The Reserve Bank of Australia has also played its part by reducing mortgage interest rates to historic lows, and the result is that there are no tent cities in Australia, unlike in American cities as homeowners are tossed in the street by desperate bank foreclosures because people were unable to meet their mortgage commitments. This has to be the dumbest thing any bank could do, as it has wrecked home values, and undermined the US bank’s collective security [mortgage property held as security]. Many of these loans were clearly unfair, and were not ever going to be repaid without hardship. But again the US legal system does not seem to operate with a sense of equity or fairness. In that I mean that a mortgage contract that is unfair cannot be challenged in law as it can in Australia. Or am I missing something as 10,000 families a day are being forced out of their homes?

But if all of the above were the real reasons, then why are Australia’s lesser privileged, regional and smaller and newer banks not in the same rosy financial position?

Like the Queensland real estate marketing of the 1990’s, where a two tier market was created that devastated many out of State real estate property investors sucked into the scam, there is also a two tier banking system in Australia that favours the big four Australian Banks, and that is at the core of their amazing performance in the financial crisis.

The latest official statistics on bank performance by Australia’s banking regulator, APRA, show a widening gap between the major banks and the rest.

The profit margin for Australian banks last year was 23.2 per cent, but the four major banks operated at a 30.6 per cent margin, while the other domestic banks ran at just 12 per cent.

Clearly, Australia’s Regional Banks, recently formed banks from building society roots, and Credit Unions, and non bank mortgage lenders are disadvantaged. And this needs to be addressed in Australia. 

Rick Adlam is Mr Mortgage