Mortgage Freeze

Now this is great news:

HOMEBUYERS who lose their jobs will be eligible for a 12-month reprieve on mortgage repayments and could be granted concessions on car loans and other debt, as part of a new deal between the Federal Government and the major banks.

This is the type of things that the government should be doing in consultation with the banks.

Advertisements

66 Responses

  1. Absolutely! thumbs up Joni!

    I’ve been basing a lot of my assumptions on various stakeholders, like banks, being unwilling to offer relief hence my bleak forecasts. As I’ve maintained, I take a reality based approach in my analysis and unless appropriate measures are taken to address them I cannot offer any optimism.

    The Rudd Government are doing their level best . Turnbull’s unlikely to criticise this move and if he does he’ll simply prove he’s and idiot.

  2. Treasurer Wayne Swan has pressured the big four banks into helping families who fall victim to the global recession

    Swan pressuring the banks? That couldn’t be right. Swan is incompetent and only Tip Costello has influence with the financial sector.

    Another myth exploded. Lol.

  3. I actually find it a wee bit scary that this action has had to be taken. In the last recession, one could sell one’s assets albeit at a loss, but still have a roof over one’s head via renting or public housing.

    This recession we have neither affordable rentals nor public housing.

  4. Nature5

    I agree with your assessment. I also have another suspicion about their willingness to play ball right now. Banks know that their bottom lines are going to take a hammering and this offers them a legitimate way to reason away their declining performance as simply unavoidable and they’ll be seen as good corporate citizens.

  5. Min, on April 5th, 2009 at 9:46 am Said:

    I actually find it a wee bit scary that this action has had to be taken. In the last recession, one could sell one’s assets albeit at a loss, but still have a roof over one’s head via renting or public housing.

    This recession we have neither affordable rentals nor public housing.

    Hence our previous discussions as housing being the next major crisis if appropriate and timely action is not taken. They’re acknowledging that this situation is CRITICAL.

  6. Min

    You are so right there, we were living on the edge in a glut of money.

    I think it is merely an indication that the phrase ‘you have never had it so good’ was actually meant to read ‘you have never been had so good’.

    As John mentioned, this was the worying thing leading into this GFC, the level of debt people were under. Perfectly sustainable in good times, but entirely unrealistic in harder times.

  7. Tom R

    But wont the freeze give people (and the economy) a chance to recover?

  8. joni

    One would hope so. But it is hard to determine. I definitely think it is a good move, it is just unfortunate that it has come to this.

    Also, I note that interest payments will accrue, so people will be in for quite a hefty sum once they start paying again.

    Better than losing your house perhaps.

    I still wonder why the amazing tip allowed the unfrenzied borrowing to continue, given his keen insight into what was about to unfold. (sarcasm)

  9. I don’t know much about the level of pressure applied to the banks by Swan. This is probably related more to a press release than reality.

    It is not in banks self interest to have housing price decline, particularly a swift decline fed by sales forced on mortgage defaulters.

    Mortgage defaults lead to a crisis of confidence, further loss of asset value, and decline in the asset base underpinning banks. This is hardly in the interests of banks.

    We can be certain that banks have put this announced policy through plenty of actuarial analysis and decided that it is in their own financial interests to do it.

    Nonetheless, it is welcome.

  10. Tom R: but hasn’t Tip already got that one covered in his memoirs. He was trying to be responsible, but sigh he had to follow what The Boss wanted re spending.

    And back to the Magic Pudding thread re: From the SMH: http://www.news.com.au/dailytelegraph/story/0,22049,21948323-5001024,00.html

    John Howard said the heavier debt burden reflected rising affluence.

    JWH couldn’t see the writing on the wall, But what if the wife loses her job?

    Joni..it is excellent action from the government but a wee bit sad that we have come to this space in time so as have unmanageable personal debt. That minus this extreme action that so many people could lose their homes due to unemployment. And yet they will have nowhere to live..the social upheaval plus effects on our economy (homeless workers aka The Great Depression).

  11. Yeah TomM

    Unlike tip, who had them cowering every time he opened his trap lol

  12. Tom of Melbourne, on April 5th, 2009 at 10:17 am Said:

    I don’t know much about the level of pressure applied to the banks by Swan. This is probably related more to a press release than reality.

    Tom, it didn’t work that way during the last Recession. The banks were more than pleased to sell up people’s homes because they got a goodly portion of their money back.

    And this should hold true at the moment as house prices (low and middle) are still holding their own.

    And

    It is not in banks self interest to have housing price decline, particularly a swift decline fed by sales forced on mortgage defaulters.

    Most definitely not TomM, because if defaulters have to go to a Morgagees Auction, then obviously the higher the price of the house, the more money for the bank.

    This action is unprecedented and therefore can be attributed to pressure on the banks by the Rudd government.

  13. It’s good to see the banks, not the government, taking the lead. An article from 17th March, 2009:

    The Commonwealth Bank has announced it will give its unemployed customers the opportunity to defer repayments on their mortgages.

    It says it is offering a six-month break from repayments and 12 months in cases of extreme hardship.

    The bank will still charge interest on the loans.

    Interestingly, in the same article, Ralph Norris had this to say:

    “What has surprised me to date is that we haven’t seen a significant increase at this point in arrears rates, in fact our arrears rates are lower than they were probably two or three years ago

  14. And so its wasn’t the government at all… maybe this is a payback that the government got for the Bank Deposit Guarantee?

    But this is now going to be the talking point of the opposition to deflect the fact that this is a good move.

  15. But this is now going to be the talking point of the opposition to deflect the fact that this is a good move.

    It won’t stop Mr Rudd claiming full credit for the move at today’s press conference. (I’ll bet Ralph Norris isn’t mentioned once.)

  16. Gee Tony – a government putting positive spin on a story. I’m shocked.

    But do you think that the public would care?

  17. And here is an article from the 19th March that shows how the government was moving towards the agreement with all the banks and how Ralph Norris made a unilateral announcement to try and gain all the kudos for himself.

    Nonetheless, the banking world was abuzz with angst-fuelled speculation yesterday that Norris had angered the Rudd Government and befuddled the leadership of his competitors by announcing the scheme to help newly unemployed customers. The problem, apparently, is that the Rudd Government had plans of its own to take a position of leadership on banking’s biggest hardship issue, which is the expected impact of rising unemployment on the nation’s mortgagees. The Government was “incandescent” with rage, a senior banker commented yesterday. “The mood in Canberra is not very happy with Ralph. We were working to a Government announcement on an initiative maybe next week. Now we have Commonwealth sucking up the kudos.” All the majors but Commonwealth believe the Government had been talking to the industry about a hardship announcement with a focus on the industry-wide code of conduct under construction by the Australian Bankers Association.

    And so the story that the government is just following CommBank now seems to be a false meme.

    Doesn’t it suck when facts get in the way of a good story.

  18. Well found Joni. We should also note ralph Norris’s denial: “I know nothing about that at all,” Norris said yesterday. “That is total fiction.”

    One presumes, also, that
    “incandescent with rage” is an accurate description of the government’s reaction, given the recently reported behaviour of our Prima Donnae Minister.

    🙂

  19. Primma Donna Minister – that was funny Tony. I think we should use that more often. I like it.

  20. Are you sure it isn’t a Prima Donna hostess??

  21. And so there alternative scenarios:

    That the banks are doing this as matter of philanthropy/good will to their ever valued customers.

    Or that that the government said Do it or else..

  22. Min

    From reading the links, it looks more like both parties were moving in the same direction.

    Common sense prevailing perhaps.

  23. Tom R..I am not hugely positive about banks doing the right thing unless forced to do so. For example, fleecing customers.

    From: http://www.news.com.au/heraldsun/story/0,21985,25132331-661,00.html

    Among those double-dipping include the NAB, which will hit customers for 50c each time they use another bank’s ATM.

    And so now ‘amazingly’ the banks are prepared to forego the usual and will let mortgage defaulters off the hook…for 6-12 months anyway.

  24. Yes, I am not sure that they are doing this for the good will of their customers, but in this case, it is probably the most feasible.

    Imagine all of these people foreclosing, with house prices already falling. A glut of default mortgages will only make them worth less, which would mean the bank would not be able to get as much for the house. that is my interpretation anyway.

    This way, they will still have a valid loan, plus this accrued interest, when things turn around, instead a mess of what could be useless properties.

    Also good for marketing, which appears to be why the commonwealth chose to pre-empt this.

  25. So Tom R why didn’t they do this during the last Recession? Last Recession: why did they just forclose and not offer customers options even so much as weekly repayments.

    And what makes this Recession so different to the last one, so much so that banks are now offering mega concessions? The above is it in a nutshell.

  26. Min

    That would be because in the last recession, the amount they could get for the house would far outweigh the cost of the loan. Today, the loan amount is worth much more when compared with the cost of the house, particularly with the shadow of falling house prices.

    In my opinion 🙂

  27. Min, on April 5th, 2009 at 12:07 pm Said:

    And so there alternative scenarios:

    That the banks are doing this as matter of philanthropy/good will to their ever valued customers.

    Or that that the government said Do it or else..

    I go with choice #2, Min. The preemptive announcement by the Commonwealth Bank, whiffs a bit imo. Swan’s steel caps would have been aimed at a few well-padded rear ends.

    They jumped the gun to make themselves look kindly and concerned about the welfare of their borrowers.

    ToM, in a mortgagee in possession sale, the lender is only interested in recouping the outstanding debt. They don’t get to keep any monies over the outstanding debt.

  28. I’m bogged down with other pressing issues at the moment, but I’d like to say that the issues I’ve been raising over recent months are really starting to see the light of day due to their pressing nature.

    I enjoy seeing Blogocrats now getting more comfortably into debates that I may have tried to introduce a little prematurely simply because of the way I operate. I see the facts and patterns emerging and am usually pretty quick to see where they’re leading – no excess optimism or pessimism – just the facts and the most likely outcomes if not addressed openly and candidly.

    I’ll try to get back when time allows.

  29. Jane,

    ToM, in a mortgagee in possession sale, the lender is only interested in recouping the outstanding debt. They don’t get to keep any monies over the outstanding debt.

    And I guess that is what I am trying to say, very badly I might add, that the banks might not be able to recoup the loan from what the house is currently worth.

  30. Ya’don’t say Tom R that things might be so crook so that banks might not be able to recoup their losses? Therefore the lesser of 2 evils is to underwrite defaulters.

  31. Min, Exactly

    See, if I could enunciate it better in the first place…………

  32. Tom R, on April 5th, 2009 at 1:24 pm Said:
    Min

    From Tom R

    That would be because in the last recession, the amount they could get for the house would far outweigh the cost of the loan. Today, the loan amount is worth much more when compared with the cost of the house, particularly with the shadow of falling house prices.

    In my opinion

    Nooo, that’s why it was a recession when what you paid for is worth less.

    Which compares with Howard (eyes darting to and fro) but now your assets are worth so much more. **Proviso..unless there is a recession and then your assets are worth so much less.

    Tom, when it’s not a recession the prices are on the up-and-the-up. Get into trouble financially? Not a prob. Just sell your asset and choof onto your next investment experiment.

    (BTW..I think that you are pulling my leg. And given that I’m only 5′ and a bit, not much to pull).

  33. Min – when you suggest that the banks were pressed into this decision – ie ‘why didn’t they do it last recession?’ . It seems you are saying that Swan is more persuasive than Keating, Dawkins etc.

    This clearly cannot be true.

  34. Tom R, on April 5th, 2009 at 2:01 pm Said:

    “And I guess that is what I am trying to say, very badly I might add, that the banks might not be able to recoup the loan from what the house is currently worth.”

    Point taken, Tom. I did misunderstand your argument. I agree with what you say, but the lending institutions have only themselves to blame, particularly as it’s only 20 years since the last fiasco.

    Lending 100%+ is a recipe for disaster for both the borrower and the lender and of course those borrowing practices mean that the borrower has no equity at all in the property and if there’s a default the lender is also far more exposed. Lending practices will have to be tightened considerably in the wake of this little lot.

    Borrowers also have to shoulder a fair portion of blame, too. The obsession with having it all at once has proved pretty costly and I hope the lessons will be taken to heart.

    It seems neither party had the wit for a spot of what if? And they can point the finger at the previous government as much as they like, but eventually they have to take responsibility for their decisions.

    Bloody hell! I never thought I’d be defending the Rodent Regime, but even though they encouraged people to borrow themselves senseless, ultimately the responsibility rests with those who make the decision to get in over their heads and their facilitators.

    Am now going to put my head in the oven and turn on the g……. Bugger, it’s an electric oven!

  35. Tom. You have a wonderful way of twisting things around.

    Min – when you suggest that the banks were pressed into this decision – ie ‘why didn’t they do it last recession?’ .

    Does one thing lead t’other Tom?

    My thoughts: Why didn’t they do it last recession? (your query). Because although very many defaulters were indeed thrown out their homes, there was still such a thing as affordable rental properties and public housing.

    This Recession: there is no affordable rental properites and a 7-12 year wait for public housing.

    It seems you are saying that Swan is more persuasive than Keating, Dawkins etc.

    Absolutely no idea Tom. I’ve never mentioned Swan, Keating nor Dawkins.

  36. Min, I understand what you say about the term recession, but I think from the last one, peoples home loans did not envelope such a large percentage of their home value. As Jane says, 100% loans were not available. I think from memory, you needed at least 20% (for a single buyer at least) of the value up front.

    Banks have nobody but themselves to blaem.

    And yes, TomM appears to be writing statements for people again.

  37. Tom, I meant Tom not Tom R as per his post of 3.12 (not yet on standard time).

    Of course I know that you know what a recession is. As per above, the post was to TomM.

    The previous recession, there was no assistance for defaulters..however there were alternatives: rent or public housing.

    This rececession there are not these options.

    Anyway…enough from me on this topic.

  38. Recececession..sorry. Hiccups.

  39. Min – “Therefore the lesser of 2 evils is to underwrite defaulters”

    Min this is my point exactly. It is the lesser of 2 evils to ensure that there are not additional forced sales in a falling market.

    In this context, banks may not have required as much persuasion as Swan is suggesting and taking credit for.

  40. My point Tom is during the last recession, the banks had no probs with enforced sales and have had no problems with enforced sale up to this point in time. This is a newbie.

    http://www.smh.com.au/news/national/surge-in-families-forced-to-sell-their-homes/2007/06/29/1182624165339.html

    HUNDREDS of families have been forced to sell their homes, or lenders have repossessed and auctioned them..

    The year was 2007.

  41. Interesting development

    Banks slashing maximum loan ratios

    April 05, 2009 12:00am
    http://www.news.com.au/dailytelegraph/money/story/0,26860,25288384-5015795,00.html
    MORTGAGE lenders are slashing loan ratios in a bid to protect themselves against falling house prices.

    In the past fortnight, Commonwealth Bank, Bankwest, ING, Challenger, Citibank and Suncorp have all cut their maximum loans from 95 per cent to 90 per cent of the property value – and may cut further. ANZ cut its maximum loan to 90 per cent last November.

    The move is designed to ensure the bank can recover the loan value, if the house has to be sold in the event of a loan default.

    “There is a lot of talk about where house prices are headed and the possibility of price falls,” Peter Hayward, of Citibank Mortgages, said.

    “By reducing the maximum loan to 90 per cent, we are giving ourselves, and our borrowers, more of a buffer to ensure that if prices do fall, there is less risk of going into negative equity.”

    Challenger likened the move to when stockbrokers increased loan/valuation ratios on margin loans, when share prices fell.

    “What you are seeing is a staged pullback by lenders from the market, to reduce risk,” Challenger’s Stuart Barton said.

    Westpac and NAB say their 95 per cent maximum loans are “under review” and may be adjusted soon.

    Many experts fear that, by reducing the amount people can borrow, banks will trigger a fall in house prices because, if buyers cannot borrow as much as before, they will not be able to pay as much as previous buyers.

    This kind of credit rationing led to the US housing crash, with lenders progressively cutting maximum loans, so buyers could no longer afford to purchase.

    If the government cuts back the first home-buyer grant in June, this lowering of loan ratios by the banks may increase the chances of an abrupt fall in prices.

  42. …perhaps it’s the end of the line where easy lending is concerned? I think so. The first home owners grant can’t be classed as a down payment and in many cases the handout has now been factored into housing prices which has seen prices increase.

  43. Yes Min, banks will always act in their own interest. On this occasion, I’m simply pointing out that their own interests are best served by ensuring that there is a minimum of forced sales.

    Forced sales in a falling market will undermine the value of their own asset base.

    Banks won’t want to force additional housing sales in the current market.

  44. This move indicates how serious this depression is expected to bite. Yep, it will be a depression! Deny all you want…the banks – and our government know…

    Sorry, Min…the truth has dribbled out over the last 18 months we may as well have some more…

    …and the Opposition will know – and that makes the nonsense about Kevin Rudd’s bad temper (still don’t like bullies) and The Manchurian Candidate, tag, just a distraction from real world issues…sad

    Read between the lines – Min, has been asking “why is this different?” all day…

    For many reasons, Min, as JMc (and moi) have been saying since the Blogocracy days – this is another doosy, ah la 1930…not just “another recession”…

    We may have the best and most leak-proof boat (Australia) but we are still in the (OECD) convoy heading for the (GFC) whirlpool…

    China happens to have the “oil” to calm the waters and the Opposition attack Kevin Rudd for trying to create a liaison with the only nation that can control the whirlpool – dumb and dumber!

    Our biggest problem as a nation is the people who lose jobs – they will become either despondent and suicidal, or the have nots who will do anything to get what they believe they are entitled to…anyway they can…

    JMc – the truth will always out!

    This laptop is paranoid!

  45. Hi TB..hope that you’re high and dry. Still a wee big soggy around the edges here.

    Umm, yes. I think that this recession is different which is what you and John McP has been trying to get through our thick skulls.

    And I’ve been there with you and will continue to be so. I could see the writing on the wall also.

    Have to now choof due to dinner duties.

  46. Have to now choof due to dinner duties.

    I think this has become a classic Blogocrats – statement!

    Say hello to, J!

    I NEED MY COMPUTER!

  47. TB said ” For many reasons, Min, as JMc (and moi) have been saying since the Blogocracy days – this is another doosy, ah la 1930…not just “another recession”…” -I’d suggest that this one is part of a terminal trifecta, -peaked oil and a changing climate. The financial system was just the first symptom, a classic pyramid (ponzi) scheme that collapsed at the first signs of energy stress (Growth limiter). I expect a miraculous recovery before the bubble finally bursts, and I also note that the global petri-dish will only be half full one generation before the end… Interesting times.

  48. With regards to the Banks or the government creating this idea and some peoples belief that the Banks have a conscience I have the following to say.

    The Commonwealth Banks charter under government ownership was ” To provide a banking servide to the people of australia no matter where they live”.

    The charter under privitastion with changed to make a profit for shareholders and close branches which made a profit but did not meet the minimum return requirements under privatisation for shareholders.

    In addition our illustrious leader under privatisation at the time stated that Banks are a commercial enterprise and have no social obligations the last time our economy was in trouble during the recession we had to have.

    For people to now think the Banks have suddenly grown a conscience would amaze myself and the staff who were and some still are in employment during those turbulent years of sackings and branch closures in the name of profit at all costs.

  49. The banks didn’t have a conscience when they started charging extreme fees for counter service, knowing the the vast majority of people who use this on a regular basis are the elderly and disabled.

  50. Perhaps I’m excessively cynical here (and have possibly been watching too many youtube videos from khanacademy therefore making me think I know more than I probably do) but I have to say I think the banks would be doing this entirely out of self-interest and a keen awareness of what happened to all the mortgages in the US. I certainly don’t think they’d cave in to the govt and if they

    Surely lots of people defaulting concurrently = lower housing prices.

    Seems to me that what they’re doing isn’t a whole lot different to just hanging onto a house when its defaulted on and putting it on the market at a more opportune time, say in 6 months. This way they get a nice chunk of extra interest out of the people who do manage to get their situation back on track in 6 months and they hopefully get a higher price for the houses that end up defaulting anyway.

  51. Is anyone suggesting that banks are doing this to salve their “conscience”?

    I think the discussion has been over whether Swan persuaded them to do this (as he and several here seem to suggest) or whether banks acknowledge that the action is in their own interests.

    All they are doing is adding the interest to the principal. Once the mortgagee has exhausted any equity they have in the home, the bank will foreclose.

    Is anyone seriously suggesting that this is what Swan has persuaded them to do???

  52. Tom of M,

    Or maybe it will give the homeowner some time to recover and to get a job when the economy turns good?

  53. Tom of M

    Just wanting to make sure that people understand this is not some assistance package the Banks have instituted during the current economic crisis and they do not deserve praise for it either.

  54. That’s correct Joni, but it involves people taking a punt that the housing market won’t fall while they are unemployed.

    The banks are only reducing the equity in the home. They’ll still sell it when the equity reaches zero.

    They already do this, so what is it that Swan has persuaded them to do?

    I must admit I find the acceptance of some that this announcement is a result of Swan’s tough talking to be a long way from reality.

    Again, this is the banks acting in their own interests, it is not about Wayne Swan’s tough talking as some have suggested.

  55. Tom of M

    “Banks” and “conscience” aren’t two words I’d normally use in the same sentence (unless emphasising their lack of…)

  56. Exactly Shane. As I pointed out repeatedly yesterday, this is all about the banks acting in their own interests, not in the interests of consumers. Others preferred to attribute some form of glory to Swan!

  57. Tom of Melbourne, on April 6th, 2009 at 9:52 am Said:

    Is anyone seriously suggesting that this is what Swan has persuaded them to do???

    Tom you are not allowed to rain on tea-parties. Treasurers do best when they do as they are told by people like Ken Henry. Treasurers do badly when they think they are financial experts rather than political experts which is their profession.

  58. Tom

    A politician of any persuasion will ride the coat tails of any decision that appears favourable with the public.

    I agree with you, this is simply a Public Relations attempt by the Banks to make themselves look like heroes when it is all smoke and mirrors.

    A Judge will not evict a home owner who seeks mediation with their funder and is attempting to correct a situation even when we are not in a recession. Even Bankruptcy laws protect the family home under many circumstances.

  59. Tom, the banks cannot lose as low and middle priced houses are holding their own and therefore the banks will get their $s back if there is a mortgagee auction. Unless (revelation moment) this is aimed at the upper end of the market?? That is, people with $1m+ houses are going to be given a 12 month reprieve.

    Just a thought…

  60. reb

    There actually was a conscience before privatisation and I witnessed it regularly. After privatisation of the CBA it all went out the window to much of us old employees horror. It then became nothing but money for bosses and shareholders.

    The benefit chaqnged form the poulation of the whole country to the benefit of bosses and shareholders.

    I always get the reposnse, but shareholders are mums and dads and super funds. Big deal, the big question was why did we need to move the benefit from 20,000,000 australians having banking facilities to 500,000 shareholders leaving 19,500,000 people worse off in terms of service, branches, employees who pay tax, fees and charges and no longer a dividend being paid to the commonwealth.

  61. Shane

    the big question was why did we need to move the benefit from 20,000,000 australians having banking facilities to 500,000 shareholders leaving 19,500,000 people worse off in terms of service, branches, employees who pay tax, fees and charges and no longer a dividend being paid to the commonwealth.

    The profit motive vs the general good. Well said Shane.

  62. John

    In addition both Telstra and the CBA employed many disabled employees full time while they were under government ownership. That all flew out the window as well once privatisation necessitated the employment of staff with full performance capabilities to contribute to maximum profitability.

  63. Shane

    And hence the reason I know you to be a person with strong values Shane. It must really grate at you when you think how values have eroded as a result of privatisation.

  64. John

    It does grate me. I am a capitalist as I have my own business. But even I know the value and necessity of ensuring our community as a whole benefits. If the community as a whole does not benefit from the actions then the decisions made need to be reviewed.

    We saw Sol Trujillo a classic example, sack staff ( around 15,000 now) and provide a service that is utterly reprehensible but accepted because we have no choice. Give himself massive pay rises and then f**k off back to his own country without any thought of the mess left behind and the venemous conditions between a gvernment and a company. This is the type of capitalism I find abhorrent to say the least.

    When companies lose sight of the fact that their actions could destroy the very society and country they operate out of and make their billions out of, it is time to regulate.

  65. John,

    You’ll be pleased to know that your predictions of house prices collapsing have proven to be completely false by a “real estate expert” on Today Tonight.

    He reckons that house prices in all major centres will double or triple by 2020.

    He didn’t really have any explanation as to why, but if it’s on Today Tonight, then that’s good enough for me.

  66. You’ll be pleased to know that your predictions of house prices collapsing have proven to be completely false by a “real estate expert” on Today Tonight.

    He reckons that house prices in all major centres will double or triple by 2020.

    He didn’t really have any explanation as to why, but if it’s on Today Tonight, then that’s good enough for me.

    Lol Reb. I saw the ad and had a good chuckle.

Comments are closed.

%d bloggers like this: