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

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

Mega Bank profits: Are the glory days of mortgage lending profits over?

The big banks have never had it so good. Will new Government Reforms take this away from them?

Increased Mortgage Lending competition for the big four banks, and major banking reform from the Gillard Government could see the major banks profits shrink.

The problem is that every government reform aimed at the banks in Australia over the last 20 years have eventually added to the bottomline of the big mortgage lenders. Has this been more because of the banks wiles or the lack of foresight of the Government Policy? Maybe a bit of both.

Mortgage Exit Fees: The Fly in the ointment

 Before Christmas I wrote to the Prime Minister and advised her of the "fly in the ointment" of the Wayne Swan proposed solution to our mortgage woos. His solution was a simple one.

Make it a no brainer to switch lenders by removing exit fees on home loans and the rates would fall.

Mortgage Reform problem No 1

The problem was that mortgage managers, the securitised lenders that helped to reduce mortgage interest rates by 3% were the very ones that would be most hurt by the reform.

Why? Because mortgage managers charged the highest exit fees, by way of deferred establishment fees on their mortgages loans

These deferred fees had a sunset clause of about 5 years, so most people never paid these anyway. But it gave a way for lenders to pay mortgage brokers a commission to compensate them for their efforts. Any government reform must address this vital issue. Otherwise it could kill mortgage competition in Australia and set us back 20 years.

Ralph Norris cries Crocodile Tears over the Mortgage Managers plight.

The funniest thing is that the CBA who have all but destroyed the mortgage managers loan sector, with the help of Kevin Rudd's Banking Guarantee support, now says he is hurting for the small end of town. This is just a ploy, but Mr Norris does make the same point I rose last year. 

Australia's Banks. Are they too big to control?

Based on Ralph Norris's [CEO of CBA] comments and the reality of the power and control of the Big Four Banks, its time to ask the unthinkable.

1. Are the banks too powerful to control? 
2. Have they become the Mafia of Austalia, where they can do what they like and still be supported by the government? 

Sometimes the lines between the profit motive, the public good, and business ethics are blurred and this I believe is where we are in the banking debate right now.

The business Power of the banks

A case on point Norris claims that:

The moves to limit excess fees on credit cards and improve credit protections will have a similar perverse effect as far as the reaction from the major banks.

 The new national credit protection regulations means that banks simply have a higher cut off level for those to whom they are willing to provide credit.

Does this not smell of a lender who thinks he owns the lenders and credit space?

If so is he right. I say yes to both propositions!

The law of unexpected consequences

The best intentions of government regulations often create unexpected consequences.

The Government needs to focus more on the purpose of the reform and how it will affect the mortgage industry as a whole.

Any bank and mortgage reform aimed at lowering mortgage rates, and exit fees has to be balanced with the planned growth non bank lenders. That means a no bank involved sector. Not the miss-mash we now have. Allowing banks to own their competitors is a stupid idea that keeps repeating itself in the mortgage lending sector.

 Author: Rick Adlam, Mr Mortgage

Mortgage Brokers and MERS get the blame for Banks wrong doing

Why mentioning mortgage brokers in the MERS mess is so annoying!

I am casually following the mess that the US still finds itself shackled to in 2011 and have just read a New York Times article entitled:

MERS? It May Have Swallowed Your Loan

By MICHAEL POWELL and GRETCHEN MORGENSON

You can read the full article here

Whilst I recommend the article as it contains a lot of useful information, there is a annoying reference to mortgage brokers at the beginning of the article that riles me in quotes.

Mortgage brokers hip deep in profits handed out no-doc mortgages to people with fictional incomes.

Wall Street shopped bundles of those loans to investors, no matter how unappetizing the details. And federal regulators gave sleepy nods.

That world largely collapsed under the weight of its improbabilities in 2008.

But a piece of that world survives on Library Street in Reston, Va., where an obscure business, the MERS Corporation, claims to hold title to roughly half of all the home mortgages in the nation — an astonishing 60 million loans.

Why I believe that Mortgage Brokers aren't to blame?

Well hip deep in profits is a stretch of the imagination. The banks got the money,not the mortgage brokers. Most mortgage brokers are now "broke" 

Why do I find this objectionable? After all Mortgage Brokers were part of this scam.

right? I say wrong, dead wrong.

Firstly you'll see that mortgage brokers have been given primacy in the article, that is they are the first characters to be mentioned in the plot, and portrayed as the people would got the "profit." What a load of rubbish!

Who benefitted most from selling bad mortgage loans?

The Banks that created the loans, as well as Real estate agents and developers, new home builders, and home homers who sold on the highs of the market.

Mortgage Brokers come in a sorry last, but get to be mentioned first, because they seem to be at the front of the line.

Most of these sectors are not given a mention. They got the money and are seen as blameless. But we seem to forget that Real Estate agents made bigger commisions and drove the values of properties up to unrealistic highs. Heights that could only sustained with loans that were given to the buyers that they forwarded to home sellers. Buyers that could not afford to repay those loans.

We are all are finding out that what goes up [too high to make sense] must come down when the truth is outed. Whilst all works of fiction have a starting plot, this is not where the action starts in the mortgage business. It starts with the creation of the mortgage funds, for the purpose of making profit. That would be. let me think... be the banks?

So why weren't these real culprits not mentioned up front where they belong?

Maybe its because the big banks and insurance companies spend a lot of money with the New York Times, and nobody wants to bite the hand that feeds them?

And did Mortgage Brokers have to be mentioned at all? Mortgage Brokers are just comission sales people. I believe that Mortgage Brokers are less at fault in this than the Drug mules that they catch every day in airports around the world, are the cause of the drug problem that developed Nations such as Australia and the US are plagued with.

Because the drug mule is desperate and knows what he or she is doing is illegal and harmful, whereas mortgage brokers thought that they were in a legit business based on trust.

To further the drug analogy, the drug mules are just a small part of the distribution system that is the massive secret narcotic trade.

There had first to be growers and manufacturers of the narcotics and a ready end retailing distribution system of territories of the drugs dealers involved.

Doesn't this sound like the story that the New York Times just painted about what went wrong with the mortgage business in the US that started to unravel from 2006, not 2008 as mentioned in the article by the way.

Except that they are saying that the in their scenario the custom officers were not diligent.

The article made a reference no doc mortgages. If that was the case, then no mortgage broker would have to create fraulent documents to support the  loan application, because none wold have been required.

Why do I say that Mortgage Brokers were not guilty?

Mortgage brokers were basically sales people that had little training in finance. They were paid essentially commissions on sales. Yes they were well off when these "low hanging fruit" sales were being made.

But most did not grasp the big picture nor made the huge profits that the banks made.

There was a saying in the industry that if you did not have a college eduction, then you could still make over $100,000pa  as a mortgage broker.

Many of these mortgage brokers are now flat stoney broke!

So leave the mortgage broker out of the picture and focus on the real creators of this disaster. Make the heads of the corporations that actually got the profit for creating the mortgage mess in the first place, pay for their behaviour.

Article by 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 borrowers with newly floated RAMS face a rate hike

Shares in RAMS have more than halved, with investors panicking because the newly floated home-loans company failed to refinance its short-term debt overnight.

And the broader market is again down sharply. The All Ords was 205.5 points lower at 5596 a short time ago. The fall has wiped out the last of 2007's sharemarket gains.

A short time ago RAMS shares were down 70c to 65c. They were trading at more than $2 this time last week. The company floated at $2.50 a share just two weeks ago.

RAMS said this morning it was unable to complete a funding transaction overnight in the US.

The non-bank lender said a lack of market liquidity meant it was unable to sell so-called $6.2 billion of "extendable commercial paper" - it's main source of funding.

"The company is taking active steps to refinance the programs,'' RAMS said in a statement to the ASX.

RAMS has 180 days to find buyers for the debt. The buyers would get a rate that yields 25 basis points more than the London interbank offered rate. This debt yielded less than the London interbank offered rate only two weeks ago.

If RAMS financing costs rise sharply it could be forced to pass on the increases to the thousands of Australians who have borrowed a total of about $13 billion from the mortgage house.

RAMS said earlier this week that an increased cost of funding will have a material negative impact on its fiscal 2008 earnings forecast.

"The full extent of that effect will be only know when the refinancing has been completed, the result of which will depend on market conditions at the time,'' it added.

RAMS reiterated that it has no US sub-prime lending exposure and that all its loans are 100 per cent mortgage insured.

"The current issues being experienced are as a result of the tightening in the global credit markets and not the performance of the company,'' it said.

"The underlying business of the company continues to operate profitably.''

Source: Daily Telegraph

Mortgage Brokers lending skills blamed for mortgage home loan default rise.

[As the Howard Government tries to play catch up with the Labor opposition, they are looking for people to blame [don't they have mirrors in Canberra?] and have turned on the innovative mortgage brokers and non bank mortgage funders, blaming them as the source of Australia's Housing market meltdown and debt crisis, instead of the fact that Liberal's work choices scheme is preventing Australians from earning a decent wage so that they could pay their mortgage when due.]

A Howard Government inquiry into mortgage finance may [wait for it] recommend first time home buyers be required to put up a deposit of 20 per cent. [That would spell the end of the first home buyer in Australia. 20 percent deposit hasn't been the norm since mortgage insurance cam into the market thirty years ago, when homes and land on a quarter acre could be bought for $20,000 to $30,000 dollars. If people could not save $6,000 for a deposit then, how can they save $100,000 for a deposit and all the costs that Governments suck out of home buyers and developers now?]

The parliamentary economics committee has called the snap inquiry into home lending as the number of people defaulting on mortgages continues to rise.

Personal bankruptcies up 17 percent 

Despite low unemployment figures, economic growth and high consumer confidence, personal bankruptcies went up by 17 per cent in the 2006-07 financial year.

The chair of the committee, Bruce Baird, today said the inquiry would bring together banks, the Australian Securities and Investment Commission, the Reserve Bank of Australia (RBA), the banking regulator and consumer groups. [Not the 'villian' mortgage brokers and the non bank mortgage industry players.]

Discussions would focus on discovering the extent of the problem, the role of mortgage brokers and whether fierce competition between the banks was eroding prudent lending practices, Mr Baird said.

One outcome could be tighter controls on mortgage brokers, he said.

"Also some requirement there is adherence to a degree of equity, it's normally 20 per cent equity but if that's being eroded stricter controls can be brought in,'' Mr Baird said.

He said the inquiry would also consider whether the root of the problem lay with consumer attitudes.

The McMansion dream

"There's also the question of whether we have just normal greed coming in, where people want their McMansions.''

The RBA had been concerned for some time about the ease of securing home loan credit and the abandonment of the normal prudential requirement of 20 per cent equity, he said.

"We are seeing that eroded and we are seeing more of a 100 per cent of the value of a house being borrowed,'' he said.

Falling house prices in areas such as western Sydney left many homeowners with negative equity, saddling them with a debt if they were forced to sell due to financial shocks such as job loss or pregnancy, he said.

Debt explosion

The financial divide is growing between those struggling under debts and those with the resources to pay off their home, according to research by the Melbourne Institute.

Rising interest rates and the drought have led to an increase - from 10.8 per cent to 15.1 per cent over the past year - in the number of people running into debt or drawing on their savings.

The Melbourne Institute research also shows that the number of people devoting more than half their salary to debt has increased from 5.9 to 7.5 per cent over the past year.

Rural stress

Financial stress is greatest in rural districts, where the number of people running into debt or drawing on savings has soared from 9.9 to 20.8 per cent.

But there has also been an increase in metropolitan areas. The number of people succeeding in saving some of their income in metropolitan districts has dropped from 57.7 per cent to 50.7 per cent in the past year.

The study confirms Reserve Bank research showing that people with the highest debt service burdens are generally those with higher incomes.

More than 80 per cent of people earning less than $40,000 a year spend less than 10 per cent of their income on debt. Most are either in the rental market or, in the case of age pensioners, have a fully paid-off home.

The survey nevertheless found that 28.8 per cent of the people who spend more than half their income on debt service earn $50,000 or less.

Source: The Australian

[PS Someone needs to tell these Liberal and National Party pricks that mortgage brokers don't make decisions on who is accepted or declined a mortgage. It is the bank, the non bank lender and or the mortgage insurer who decide that. All the mortgage broker does is take applications and put them to lenders. How these Howard Govenment dunderheads believe that they can change mortgage defaults by blaming someone who has no control over the decision, explains why the Liberals are lagging in the polls. They don't know the problem, so how can they figure a solution?]

Mortgage market growth tipped to slide

Fewer Australians plan to take out a mortgage home loan over the next 12 months, leading to fears the mortgage market will slow.

A survey in May by the Mortgage and Finance Association of Australia (MFAA) and BankWest found almost one in five of the 814 respondents expected to take out a new home loan in the next 12 months, down from 25.9 per cent in November 2006. The number of people who are unsure or never expect to take out a home loan rose to 37.2 per cent from 32.6 per cent in November. MFAA chief executive Phil Naylor said the changes indicated more Australians perceived home ownership to be out of reach. The survey showed that 61.6 per cent of respondents expected residential property prices to rise in the next quarter, up strongly from 43 per cent in November. However, Mr Naylor said other findings showed a more positive outlook than six months earlier. "More people are confident interest rates will stay put for now ... and more people said they are in a better financial position than last year." Some 45.1 per cent expected interest rates to rise in the next quarter, down from 81.1 per cent in November. BankWest head of broker sales Phil Colton said the potential for a slowdown in home buying was likely to affect all states, as the survey showed no major difference in expectations between states. "We are coming off an active time in the home loan market in Queensland and Western Australia and there is some expectation that this will slow, which is further supported by this latest research," he said. Recent Australian Bureau of Statistics data showed the number of home loans for owner-occupied housing inched up 0.1 per cent in May to 66,040. The result was 5.5 per cent higher than in May last year.

Source: AAP