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Foreclosures to dramatically increase

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Australian Broker | 21 Sep 2012, 09:00 AM Agree 0
Severe mortgage stress is increasing, which could spell disaster for home owners and, ultimately, broker trails
  • Philthyo | 21 Sep 2012, 09:15 AM Agree 0
    The downturn in valuations is not the problem - the house could be worth zero but that's not a problem as long as the borrower maintains payments - lack of financial verification (eg low doc/no doc) loans are the cause.
  • Overtheborderbroker | 21 Sep 2012, 09:59 AM Agree 0
    Lenders have learned nothing. There are still lenders today who will gladly write a 90% LVR loan with 10% borrowed deposit and brokers lining up to find clients for them. More catastrophe just waiting to happen. In 1975 the average home loan was 24% of the average wage. Today it's 50%. Any broker writing a 90% loan with borrowed deposit is adding to mortgage stress and and could be liable under NCCP if the deal falls apart down the track.
  • paul | 21 Sep 2012, 10:04 AM Agree 0
    i do not think high lvr loans are to blame in essence. the issue is that a few of the larger lenders thought they could do high lvr loans but did not increase the level of paperwork required for assessment and treated them as 80% loans when assessing. A big issue is also the unsecured debt that people have and the ease in the past of obtaining them. I understand it will be hard for people to roll that debt into the home loan now due to price stagnation or even decreases but when stating the 100% or high lvr loans are to blame can the whole picture be looked at not just one aspect. We also need to stop using our homes as a giant credit card.
  • Ian | 21 Sep 2012, 11:20 AM Agree 0
    100% home loans are not the issue here, its the propensity to repay the mortgage. LVR is only an issue at the time of selling a home and where do you stop when looking at an appropriate LVR? Some cases in the USA, LVR lending restricted to 50% would not have saved people so i believe it unfair to blame high LVR loans.

    Banks have been lending 100% on cars and other equipment for decades which are depreciating assets. On the whole I think you will find what is really affecting borrowers is the debt they obtained after obtaining the mortgage (outside of losing your job of course). Rising cost of living and the attitude of keeping up with the Jones'. Financial literacy needs to be improved for the average household to allow better judgment in taking out debt.

    At the end of the day, i think you will find it rare for a borrower to be defaulting on today's interest rates if they have maintained their level of income and not increased their consumer spending/debt.
  • Philip StClair | 21 Sep 2012, 12:39 PM Agree 0
    What percentage of that 16% of the segment market was financed through 100% finance products? Mentioning lo doc and 100% loans, whilst they do present higher lending risk does not solely qualify them to be linked without proof and further investigation. The reversal in market values has been compounded tightening lending policy reducing the active market, and conservative valuations decreasing available and accessible equity into the market. When the purse strings open up a bit, market confidence and the next property boom will occur with an flood of buyers now able to buy again, with more equity, and the cycle continues. It's when you jump on and off, and picking which region has the right time to jump in when you are ready to go. Irrespective - mortgage arrears at those levels are high and could see a supply of distressed sales into the market providing a temporary regression of market and median pricing for a period of upto 12-18 months which is simply a market correction. This may have impacts and reduce new builds, due to an influx of discounted second hand properties, seeing an increase in the market of buy renovate sell, or buy and hold rental strategies. In any event, improved then rebalances the market at a higher value stablising the market given a reasonable period to unfold. Part of the cycle - once again.
  • Philip StClair | 21 Sep 2012, 12:49 PM Agree 0
    The down turn in valuations is a factor. If you consider that borrowers might not have sufficient equity to consolidate debts to be more affordable (where they would no longer be in arrears), due to reduced valuations. You can't look at only one part of the problem in isolation, without considering the whole!!! Market segments and data relating the claim and blame on lo doc loans have not been established. What percent of the 16% of the segment market were actually lo doc borrowers? To the end what percent were first home buyers? Lost their job? Spouse died? What are the local economic factors of the segment market, where we they taken from - if segment market was deliberately located in a region known for it's arrears and mortgage distress, then the data could be biased. To much information is missing to draw such conclusive statements.
  • 1martym1 | 21 Sep 2012, 12:54 PM Agree 0
    Ian well said excatly. Its the other debts that are the problem (any often not disclosed?)
  • John | 21 Sep 2012, 01:06 PM Agree 0
    There are any number of reasons. The level of debt is frightening. Heaven help us when rather than if we wake up to this fact. Everything is fine while there is faith that the economy will remain strong and unemployment remains low. But when that stops we may well have a better understanding of what contagion really means. That's when everyone starting with politicians starts blaming someone else rather than their own little role in the debate. That's not the kind of excitement I want to see.
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