The Commonwealth Bank becomes the second major bank to pass on Tuesday's increase in official interest rates by the Reserve Bank.
The National Australia Bank (NAB) was the first to pass on the increase.
And NAB chief executive officer John Stewart earlier said there could be more rate rises to come.
"Could there be more rate rises? Well that's clearly a matter for the Reserve Bank - they make that decision," he said.
"It would not surprise me. I think our chief economist is predicting another rate rise early next year."
Meanwhile, Prime Minister John Howard has reiterated his comments that the subprime mortgage problems in the US do not justify the banks hiking their lending rates.
"Well we don't think that there is a case for banks putting up their interest rates beyond official increases unless there is demonstrable evidence that the cost of their funds has risen, particularly when the bank is making a very big profit," he said.
Source: ABC
Sunday, November 11, 2007
Bad news for mortgagors as NAB chief ready to make homeowners pay before Christmas as global credit crunch bites
National Australia Bank has delivered bad tidings to its home loan customers, saying they can expect to start paying for the global credit crunch before Christmas.
The bad news for [mortgagors] overshadowed the good news for NAB shareholders who showed renewed enthusiasm for the bank, Australia's second biggest, which posted a 4.2 per cent rise in net profit to $4.6 billion.
The result was built on solid revenue growth of 8.3 per cent to $14.6 billion that dwarfed cost increases of 0.9 per cent to $7.4 billion.
But there were was no joy for homeowners when bank boss John Stewart delivered the news that yet another rate rise was likely before the end of the year.
NAB on Thursday was the first of the big four lenders to hike its variable home loan rate by 25-basis points - in line with the Reserve Bank of Australia (RBA) increasing its official cash rate to 6.75 per cent this week.
Mr Stewart warned his bank's willingness to absorb the higher cost of funding that followed the fallout from the US sub-prime crisis was fast coming to an end.
"There's a lot more bad news continuing to come out of the (United) States that (is) affecting credit markets," Mr Stewart told reporters.
He said NAB would wait a little longer for the increased cost of its own borrowings to "settle". The increase could potentially be as much as 20-basis points and would be in addition to Thursday's 25-basis point rise.
Mr Stewart said the additional increase would be passed on to customers within a "month or two".
"When that's clearer, then we can do that and I think it will happen and hopefully we can clearly articulate why it has to happen."
Householders should be ready to tighten their belts even further next year, with Mr Stewart predicting the RBA may decide on another rate rise to rein in an overheated economy.
"I think there will be at least one more (rate rise) and it think it will be in the autumn," he said.
The series of rate rises were likely to dent revenue growth in housing lending, but the bank was not concerned about a blowout in bad debt.
In fiscal 2007 the NAB's provisions for bad debts shrank to $1.36 billion, a 16 per cent decrease on the previous year's provisions of $1.62 billion.
As well, the bank expects the strong economy to encourage business to invest more, fuelling growth in its business lending by between 15 to 18 per cent - although the level may retreat from historic highs.
"That's good news for us because we're the dominant business bank in Australia," Mr Stewart said.
The bank plans to grow revenue at better than banking system rates in key areas, with organic growth remaining its preferred option although acquisitions would be considered.
Annual operating expense growth is forecast to remain within inflation as far as 2010.
Even so, there were some disagreeable numbers buried in the balance sheet, including the bank's group net interest margin, a key measure of its profitability, which slipped five basis points to 2.29 per cent.
While the Australian net interest margin was steady in 2007, net margins on NAB's British business tumbled by 48-basis points.
That prompted questions from analysts on whether the bank could get better returns on its capital elsewhere.
"Our inclination, and we have debated this a lot, is you stay with it - but nothing is forever," Mr Stewart said.
HTM Wilson bank analyst Brett Le Mesurier said NAB's revenue growth was the lowest among the big four banks, due partly to slow growth in its British assets.
He said that was offset by the limited growth in expenses.
"If they can continue doing that, then they will be the best-performing bank.
"But they (NAB) tried to do that before when (former chief executive Frank) Cicutto was running it and they came to grief."
NAB's cash earnings rose by 17.7 per cent to a record $4.4 billion, with total lending increasing 13.8 per cent to $394.7 billion, while the value of customer deposits rose 15.2 per cent to $268.4 billion.
In Australia, cash earnings totalled $2.87 billion, a gain of 22.8 per cent following strong growth in the banking and MLC businesses.
The nabCapital arm enjoyed cash earnings growth of 16.6 per cent to $715 million.
For the UK, cash earnings rose by 14.3 per cent to $592 million, despite turbulent market conditions.
NAB's cash earnings per share (EPS) was 268.5 cents in the year, up 16.4 per cent.
The bank declared a final dividend of 95 cents, up eight cents, taking the annual total to $1.82.
At 1514 AEDT NAB shares had risen $1.27 to $43.45.
Source: AAP
The bad news for [mortgagors] overshadowed the good news for NAB shareholders who showed renewed enthusiasm for the bank, Australia's second biggest, which posted a 4.2 per cent rise in net profit to $4.6 billion.
The result was built on solid revenue growth of 8.3 per cent to $14.6 billion that dwarfed cost increases of 0.9 per cent to $7.4 billion.
But there were was no joy for homeowners when bank boss John Stewart delivered the news that yet another rate rise was likely before the end of the year.
NAB on Thursday was the first of the big four lenders to hike its variable home loan rate by 25-basis points - in line with the Reserve Bank of Australia (RBA) increasing its official cash rate to 6.75 per cent this week.
Mr Stewart warned his bank's willingness to absorb the higher cost of funding that followed the fallout from the US sub-prime crisis was fast coming to an end.
"There's a lot more bad news continuing to come out of the (United) States that (is) affecting credit markets," Mr Stewart told reporters.
He said NAB would wait a little longer for the increased cost of its own borrowings to "settle". The increase could potentially be as much as 20-basis points and would be in addition to Thursday's 25-basis point rise.
Mr Stewart said the additional increase would be passed on to customers within a "month or two".
"When that's clearer, then we can do that and I think it will happen and hopefully we can clearly articulate why it has to happen."
Householders should be ready to tighten their belts even further next year, with Mr Stewart predicting the RBA may decide on another rate rise to rein in an overheated economy.
"I think there will be at least one more (rate rise) and it think it will be in the autumn," he said.
The series of rate rises were likely to dent revenue growth in housing lending, but the bank was not concerned about a blowout in bad debt.
In fiscal 2007 the NAB's provisions for bad debts shrank to $1.36 billion, a 16 per cent decrease on the previous year's provisions of $1.62 billion.
As well, the bank expects the strong economy to encourage business to invest more, fuelling growth in its business lending by between 15 to 18 per cent - although the level may retreat from historic highs.
"That's good news for us because we're the dominant business bank in Australia," Mr Stewart said.
The bank plans to grow revenue at better than banking system rates in key areas, with organic growth remaining its preferred option although acquisitions would be considered.
Annual operating expense growth is forecast to remain within inflation as far as 2010.
Even so, there were some disagreeable numbers buried in the balance sheet, including the bank's group net interest margin, a key measure of its profitability, which slipped five basis points to 2.29 per cent.
While the Australian net interest margin was steady in 2007, net margins on NAB's British business tumbled by 48-basis points.
That prompted questions from analysts on whether the bank could get better returns on its capital elsewhere.
"Our inclination, and we have debated this a lot, is you stay with it - but nothing is forever," Mr Stewart said.
HTM Wilson bank analyst Brett Le Mesurier said NAB's revenue growth was the lowest among the big four banks, due partly to slow growth in its British assets.
He said that was offset by the limited growth in expenses.
"If they can continue doing that, then they will be the best-performing bank.
"But they (NAB) tried to do that before when (former chief executive Frank) Cicutto was running it and they came to grief."
NAB's cash earnings rose by 17.7 per cent to a record $4.4 billion, with total lending increasing 13.8 per cent to $394.7 billion, while the value of customer deposits rose 15.2 per cent to $268.4 billion.
In Australia, cash earnings totalled $2.87 billion, a gain of 22.8 per cent following strong growth in the banking and MLC businesses.
The nabCapital arm enjoyed cash earnings growth of 16.6 per cent to $715 million.
For the UK, cash earnings rose by 14.3 per cent to $592 million, despite turbulent market conditions.
NAB's cash earnings per share (EPS) was 268.5 cents in the year, up 16.4 per cent.
The bank declared a final dividend of 95 cents, up eight cents, taking the annual total to $1.82.
At 1514 AEDT NAB shares had risen $1.27 to $43.45.
Source: AAP
Variable rate home mortgage loans among highest takeup in the world
Australians have indulged in a long running love affair with variable rate home mortgage loans, but as times get tougher is it time to fix or split?
The Reserve Bank has just raised the official cash rate by 25 basis points to 6.75 per cent - meaning the standard variable home mortgage loan rate is likely to rise to 8.57 per cent.
Fixing home loan rates can provide certainty about repayments and insure borrowers against future rate rises. On the flip side if rates fall, borrowers can be stuck with a high rate. Splitting a home loan gives borrowers a foot in both camps.
Timing is everything
Even the experts are reluctant to commit one way or another about fixing home loan rates, but in some circumstances splitting your mortgage into fixed and variable portions makes sense.
Shane Oliver, chief economist at AMP Capital Investors, says people who are on the brink of mortgage stress should think about splitting their home loan into fixed and floating portions as a way to make sure they don’t lose their house.
“If you’re at a point where you absolutely can’t afford another interest rate rise or it will tip you over the edge into default then having a fixed rate is a good way to cover it.”
Dr Oliver says while there’s a slight advantage in being fixed at the moment people still need to think ahead to where variable rates might be in a year’s time. He thinks the Reserve Bank is almost done with rate rises, meaning rates could come down over the course of a fixed term home loan.
Although Dr Oliver thinks further rate rises are unlikely, he warns economists have been picking the end of rate hikes for the past couple of years.
“The peak of the cycle has turned out to be a lot higher than people anticipated a couple of years ago, so there still is a risk that maybe we’ll be surprised on the upside and banks will have to continue raising the variable rate.”
Saul Eslake, chief economist at ANZ, thinks there could be two more rate rises in the pipeline, and agrees it makes sense for people to think about fixing at least part of their home loan.
“But people contemplating that need to be very confident about their future income and cashflows, both on the upside and the downside.”
If a homeowner’s circumstances change for the worse they may struggle to meet repayments, and if their circumstances improve they will be penalised for increasing payments.
“Because interest payments on mortgages are not tax deductible people have a strong incentive to pay it off as quickly as possible, including by using any money which happens to come into their hands unexpectedly – from a bonus, a win on the lottery, a pay rise or even from interest rates going down. Fixed rates exclude you from doing that," Mr Eslake said.
Fixed versus variable
A recent survey by mortgage provider QuickDirect found that 83 per cent of people with a fixed rate home loan ended up worse off then their counterparts. But quite a few NEWS.com.au readers disagreed with these findings.
“Worse off? How?” asked one reader. “Mine is locked in for five years on 7.79 per cent with the option of uncapped repayments, and a mortgage offset account. Just as long as I don't pay the entire loan off in five years.”
This view was echoed by another reader.
“In late 2002 I fixed a home loan at 5.9 per cent for 5 years ... this was taken out just before rates started to rise again . It will expire at the end of this year .Who has that rate nowadays? This has helped immensely in reducing the principal considering that we have been making regular extra repayments.”
While some readers liked the flexibility of being able to make extra repayments with a variable rate, others wanted the certainty of fixed rate loans.
“Last week I divided my loan into part variable part fixed for 3 years. This allows me the option of still having a redraw and to make extra payments while the bulk of my loan won't be touched by the rises,” a reader from Tasmania said.
While in most instances extra-repayments are not possible or are penalised on a fixed rate loan, in a rising interest rate environment, some banks and lenders will allow borrowers to make extra payments, if their fixed rate is lower than the market rate.
Australian fixation
According to the Reserve Bank of Australia over 80 per cent of home loans are on a variable rate.
Only Britain has a similar proportion of variable versus fixed rates.
Fixed rate loans were around in Australia in the 1960s but disappeared during a time of high interest rates. They were reintroduced to the market in the late 1980s at a time when variable rates were as high as 17.5 per cent. Home owners who fixed their home loans at between 13.5 and 15.5 per cent won out in the short term, but were burnt when variable rates then fell rapidly.
Before today's hike the major banks were offering fixed rates of between 7.67 and 7.89 per cent for fixed terms of between one and three years. This was lower than the standard variable rate of 8.32 per cent, but pretty much in line with basic variable rates – which range from 7.69 per cent to 7.82 per cent. Today's hike is likely to flow through to the market within the next few weeks.
Source: Newcorp
The Reserve Bank has just raised the official cash rate by 25 basis points to 6.75 per cent - meaning the standard variable home mortgage loan rate is likely to rise to 8.57 per cent.
Fixing home loan rates can provide certainty about repayments and insure borrowers against future rate rises. On the flip side if rates fall, borrowers can be stuck with a high rate. Splitting a home loan gives borrowers a foot in both camps.
Timing is everything
Even the experts are reluctant to commit one way or another about fixing home loan rates, but in some circumstances splitting your mortgage into fixed and variable portions makes sense.
Shane Oliver, chief economist at AMP Capital Investors, says people who are on the brink of mortgage stress should think about splitting their home loan into fixed and floating portions as a way to make sure they don’t lose their house.
“If you’re at a point where you absolutely can’t afford another interest rate rise or it will tip you over the edge into default then having a fixed rate is a good way to cover it.”
Dr Oliver says while there’s a slight advantage in being fixed at the moment people still need to think ahead to where variable rates might be in a year’s time. He thinks the Reserve Bank is almost done with rate rises, meaning rates could come down over the course of a fixed term home loan.
Although Dr Oliver thinks further rate rises are unlikely, he warns economists have been picking the end of rate hikes for the past couple of years.
“The peak of the cycle has turned out to be a lot higher than people anticipated a couple of years ago, so there still is a risk that maybe we’ll be surprised on the upside and banks will have to continue raising the variable rate.”
Saul Eslake, chief economist at ANZ, thinks there could be two more rate rises in the pipeline, and agrees it makes sense for people to think about fixing at least part of their home loan.
“But people contemplating that need to be very confident about their future income and cashflows, both on the upside and the downside.”
If a homeowner’s circumstances change for the worse they may struggle to meet repayments, and if their circumstances improve they will be penalised for increasing payments.
“Because interest payments on mortgages are not tax deductible people have a strong incentive to pay it off as quickly as possible, including by using any money which happens to come into their hands unexpectedly – from a bonus, a win on the lottery, a pay rise or even from interest rates going down. Fixed rates exclude you from doing that," Mr Eslake said.
Fixed versus variable
A recent survey by mortgage provider QuickDirect found that 83 per cent of people with a fixed rate home loan ended up worse off then their counterparts. But quite a few NEWS.com.au readers disagreed with these findings.
“Worse off? How?” asked one reader. “Mine is locked in for five years on 7.79 per cent with the option of uncapped repayments, and a mortgage offset account. Just as long as I don't pay the entire loan off in five years.”
This view was echoed by another reader.
“In late 2002 I fixed a home loan at 5.9 per cent for 5 years ... this was taken out just before rates started to rise again . It will expire at the end of this year .Who has that rate nowadays? This has helped immensely in reducing the principal considering that we have been making regular extra repayments.”
While some readers liked the flexibility of being able to make extra repayments with a variable rate, others wanted the certainty of fixed rate loans.
“Last week I divided my loan into part variable part fixed for 3 years. This allows me the option of still having a redraw and to make extra payments while the bulk of my loan won't be touched by the rises,” a reader from Tasmania said.
While in most instances extra-repayments are not possible or are penalised on a fixed rate loan, in a rising interest rate environment, some banks and lenders will allow borrowers to make extra payments, if their fixed rate is lower than the market rate.
Australian fixation
According to the Reserve Bank of Australia over 80 per cent of home loans are on a variable rate.
Only Britain has a similar proportion of variable versus fixed rates.
Fixed rate loans were around in Australia in the 1960s but disappeared during a time of high interest rates. They were reintroduced to the market in the late 1980s at a time when variable rates were as high as 17.5 per cent. Home owners who fixed their home loans at between 13.5 and 15.5 per cent won out in the short term, but were burnt when variable rates then fell rapidly.
Before today's hike the major banks were offering fixed rates of between 7.67 and 7.89 per cent for fixed terms of between one and three years. This was lower than the standard variable rate of 8.32 per cent, but pretty much in line with basic variable rates – which range from 7.69 per cent to 7.82 per cent. Today's hike is likely to flow through to the market within the next few weeks.
Source: Newcorp
Banks sidestep credit squeeze as business lending soars
The five major Australian banks have shown resilience in the face of a global credit squeeze and reported combined cash earnings growth of 14.7 per cent in fiscal 2007, an industry survey found.
The PricewaterhouseCoopers (PwC) survey also predicts the major banks' underlying cash earnings will grow 11.2 per cent in the current financial year.
The study comes just hours after the last of the big Australian banks, National Australia Bank, reported a 4.2 per cent rise in net profit to $4.6 billion.
Mike Codling, PwC's banking and capital markets leader, said the big banks had side stepped the credit crunch.
"They haven't been exposed to any direct credit losses and because of their diverse funding base they haven't suffered much from the liquidity squeeze," he said.
In fact the major banks had worked themselves into a "sweet spot" by absorbing additional funding costs and keeping variable home loan interest rates on hold to win market share from smaller banks and non-banks, he said.
The major banks had also benefited from an uptick in deposits in a flight to quality, the PwC study concluded.
Recent volatility has seen investors fleeing equity markets, opting instead for the certainty and security of savings accounts with the larger banks, it said.
Mr Codling said the main driver of the banks' results in fiscal 2007 was the growth in lending volumes.
"Business lending has been a stand-out on the back of a very strong economy, with system growth at 23 per cent which we haven't seen for almost 20 years," he said.
Volume growth was partly offset by continuing margin compression, which was down by 10 basis points across the major banks.
Mr Codling said the continued decline in interest margins was largely due to the intense competition.
"But in the last few months the credit crunch has undoubtedly impacted the margins by driving up the cost of wholesale funding," he said.
However Mr Codling warned the credit environment was likely to turn down over the current year after a long benign period.
After rising interest rates and costs were weighed against full employment and a strong economy, it seemed likely credit losses would increase, he said.
"However they are coming off a very low base and what we'll likely see is a return towards more normal long-run averages.
"There are plenty of threats but there are also plenty of opportunities. I'd back the banks to have another strong year."
Source: AAP
The PricewaterhouseCoopers (PwC) survey also predicts the major banks' underlying cash earnings will grow 11.2 per cent in the current financial year.
The study comes just hours after the last of the big Australian banks, National Australia Bank, reported a 4.2 per cent rise in net profit to $4.6 billion.
Mike Codling, PwC's banking and capital markets leader, said the big banks had side stepped the credit crunch.
"They haven't been exposed to any direct credit losses and because of their diverse funding base they haven't suffered much from the liquidity squeeze," he said.
In fact the major banks had worked themselves into a "sweet spot" by absorbing additional funding costs and keeping variable home loan interest rates on hold to win market share from smaller banks and non-banks, he said.
The major banks had also benefited from an uptick in deposits in a flight to quality, the PwC study concluded.
Recent volatility has seen investors fleeing equity markets, opting instead for the certainty and security of savings accounts with the larger banks, it said.
Mr Codling said the main driver of the banks' results in fiscal 2007 was the growth in lending volumes.
"Business lending has been a stand-out on the back of a very strong economy, with system growth at 23 per cent which we haven't seen for almost 20 years," he said.
Volume growth was partly offset by continuing margin compression, which was down by 10 basis points across the major banks.
Mr Codling said the continued decline in interest margins was largely due to the intense competition.
"But in the last few months the credit crunch has undoubtedly impacted the margins by driving up the cost of wholesale funding," he said.
However Mr Codling warned the credit environment was likely to turn down over the current year after a long benign period.
After rising interest rates and costs were weighed against full employment and a strong economy, it seemed likely credit losses would increase, he said.
"However they are coming off a very low base and what we'll likely see is a return towards more normal long-run averages.
"There are plenty of threats but there are also plenty of opportunities. I'd back the banks to have another strong year."
Source: AAP
Sunday, October 28, 2007
Mortgage Interest rate rise may be the only way to cool property market as Melbourne house prices soar
A mortgage interest rate rise may be the only way to slow Melbourne's rapidly increasing house prices, says the Real Estate Institute of Victoria (REIV).
REIV chief executive officer Enzo Raimondo said Saturday that Melbourne's median house price increased by 3.9 per cent in the September quarter to $431,000.
"Over the past year the median house price in Melbourne has increased by 13.1 per cent or $50,000, the largest dollar increase we have seen in a twelve month period," Mr Raimondo said.
"This confirms the worsening affordability of housing in much of Melbourne," he said.
The median price for an apartment or unit rose by 5.1 per cent in the quarter from $350,000 to $367,750.
Mr Raimondo said future increases in Melbourne house prices could slow if the Reserve Bank increased the official cash rate in November.
"Last time the Reserve Bank introduced two rate rises in quick succession it stopped the market in its tracks," he said.
"There's talk of that at the end of the year.
"That will be the only thing that will stop the market."
The REIV said the high demand for affordable properties had been highlighted by the fact that house values in the more affordable suburbs in Melbourne had increased by 25 per cent in the September quarter.
"Sunshine (in Melbourne's west) is an example of an affordable suburb which has increased in value dramatically," Mr Raimondo said.
"Its median increasing by $95,000 in three months from $240,750 to $335,000 or 25.9 per cent.
"In the more expensive (eastern) suburb of Malvern we saw the highest appreciation in the quarter, its median increased by 44 per cent, up $550,000 from $1,232,500 to $1,780,000.
The REIV said there were now 15 suburbs in Melbourne with a median price in excess of $1 million.
"New entrants to the list are inner-east and bayside suburbs, Camberwell, Beaumaris, Glen Iris, Malvern East and Brighton East," he said.
Australians for Affordable Housing spokesman David Imber said low and middle income earners were being priced out of the housing market in Melbourne.
With four weeks until the federal election the major political parties needed to outline strategies which would provide solutions to housing affordability, he said.
"These figures highlight that we do have a housing crisis in Melbourne," Mr Imber told Southern Cross Broadcasting.
"Despite the strong economy many people are missing out," he said.
"We do need to have a national housing plan to ensure that low and middle income Victorians do have a better future to look forward to."
Source: AAP
REIV chief executive officer Enzo Raimondo said Saturday that Melbourne's median house price increased by 3.9 per cent in the September quarter to $431,000.
"Over the past year the median house price in Melbourne has increased by 13.1 per cent or $50,000, the largest dollar increase we have seen in a twelve month period," Mr Raimondo said.
"This confirms the worsening affordability of housing in much of Melbourne," he said.
The median price for an apartment or unit rose by 5.1 per cent in the quarter from $350,000 to $367,750.
Mr Raimondo said future increases in Melbourne house prices could slow if the Reserve Bank increased the official cash rate in November.
"Last time the Reserve Bank introduced two rate rises in quick succession it stopped the market in its tracks," he said.
"There's talk of that at the end of the year.
"That will be the only thing that will stop the market."
The REIV said the high demand for affordable properties had been highlighted by the fact that house values in the more affordable suburbs in Melbourne had increased by 25 per cent in the September quarter.
"Sunshine (in Melbourne's west) is an example of an affordable suburb which has increased in value dramatically," Mr Raimondo said.
"Its median increasing by $95,000 in three months from $240,750 to $335,000 or 25.9 per cent.
"In the more expensive (eastern) suburb of Malvern we saw the highest appreciation in the quarter, its median increased by 44 per cent, up $550,000 from $1,232,500 to $1,780,000.
The REIV said there were now 15 suburbs in Melbourne with a median price in excess of $1 million.
"New entrants to the list are inner-east and bayside suburbs, Camberwell, Beaumaris, Glen Iris, Malvern East and Brighton East," he said.
Australians for Affordable Housing spokesman David Imber said low and middle income earners were being priced out of the housing market in Melbourne.
With four weeks until the federal election the major political parties needed to outline strategies which would provide solutions to housing affordability, he said.
"These figures highlight that we do have a housing crisis in Melbourne," Mr Imber told Southern Cross Broadcasting.
"Despite the strong economy many people are missing out," he said.
"We do need to have a national housing plan to ensure that low and middle income Victorians do have a better future to look forward to."
Source: AAP
RAMS sale to Westpac Bank fair value
RAMS Home Loans Group Ltd has received independent expert approval for the fire sale of its franchise network, but its existing mortgage book remains in deep trouble.
The beleaguered non-bank lender has also revealed that its founder and chairman John Kinghorn, who made $650 million when RAMS listed earlier this year, was paid $80,000 in 2006/07.
Chief executive Greg Kolivos received a total remuneration of $625,000, which included a $200,000 cash bonus.
Westpac Banking Corporation Ltd's $140 million offer for RAMS' 92 branches, brand name, and all the future business it writes, was fair-value and in RAMS' best interests "given its current circumstances", a report by Deloitte Corporate Finance said.
As a further sweetener, Westpac on October 2 also agreed to provide RAMS with $1.5 billion to fund its existing mortgage book, which Westpac decided not to buy.
RAMS ran into trouble in August when the global liquidity freeze cut off more than $6 billion of funding that it sourced from the US extendable commercial paper (XCP) market.
Deloitte has valued RAMS' $14.6 billion loan book at between $213.7 million and $272.9 million, assuming RAMS can refinance its XCP programs.
This represents a value of between 60 and 70 cents per share.
But if RAMS can't refinance the programs, Deloitte has valued the book between $124 million and $152.6 million, representing a per share value between 35 cents and 43 cents.
RAMS shares closed one cent higher at 32.5 cents. They were offered in May at $2.50 each.
The firm confirmed that the $1.5 billion in funding from Westpac was conditional on RAMS forming a syndicate of lenders.
It also accepted it might not be able to find them by the time its XCP programs expire in February.
If it can't, RAMS said it will lose "all, or substantially all" of the economic benefit of the $6 billion plus worth of loans funded by the XCP programs.
As a double whammy, RAMS will also be obliged to pay trailing commission to brokers on those loans.
RAMS said it would be "optimistic" to believe that it could fund its loan book in residential mortgage-backed securities (RMBS) markets instead.
It also accepted that funding costs will be higher going forward, adding that XCP and RMBS market were still very hostile.
In its explanatory memorandum to shareholders, RAMS also revealed that it had tried all sort of ways to fund its mortgage book.
Market soundings for RMBS issues in the US and Europe fell on deaf ears.
Earlier this month, RAMS priced a $300 million RMBS issue in Australia, but it revealed the issue was planned at $1 billion.
RAMS also considered tendering the sale of all or parts of its business, but said such a move was "not deemed practicable in the circumstances and short time available".
Mr Kinghorn's $80,000 pay packet last financial year was the same as his pay a year prior.
Mr Kolivos was paid $570,000 in 2005/06 compared to his most recent pay packet of $625,000.
For 2006/07, RAMS booked a 49 per cent increase in net profit to $43.5 million.
RAMS shareholders will vote on Westpac's offer at the non-bank lender's annual general meeting on November 26.
Westpac, meanwhile, said it was happy with Deloitte's valuation of the franchise business of between $35.6 million to $167.5 million.
"I believe Westpac is well positioned to deliver a positive future for RAMS franchisees and employees," chief executive David Morgan said.
Source:AAP 2007
The beleaguered non-bank lender has also revealed that its founder and chairman John Kinghorn, who made $650 million when RAMS listed earlier this year, was paid $80,000 in 2006/07.
Chief executive Greg Kolivos received a total remuneration of $625,000, which included a $200,000 cash bonus.
Westpac Banking Corporation Ltd's $140 million offer for RAMS' 92 branches, brand name, and all the future business it writes, was fair-value and in RAMS' best interests "given its current circumstances", a report by Deloitte Corporate Finance said.
As a further sweetener, Westpac on October 2 also agreed to provide RAMS with $1.5 billion to fund its existing mortgage book, which Westpac decided not to buy.
RAMS ran into trouble in August when the global liquidity freeze cut off more than $6 billion of funding that it sourced from the US extendable commercial paper (XCP) market.
Deloitte has valued RAMS' $14.6 billion loan book at between $213.7 million and $272.9 million, assuming RAMS can refinance its XCP programs.
This represents a value of between 60 and 70 cents per share.
But if RAMS can't refinance the programs, Deloitte has valued the book between $124 million and $152.6 million, representing a per share value between 35 cents and 43 cents.
RAMS shares closed one cent higher at 32.5 cents. They were offered in May at $2.50 each.
The firm confirmed that the $1.5 billion in funding from Westpac was conditional on RAMS forming a syndicate of lenders.
It also accepted it might not be able to find them by the time its XCP programs expire in February.
If it can't, RAMS said it will lose "all, or substantially all" of the economic benefit of the $6 billion plus worth of loans funded by the XCP programs.
As a double whammy, RAMS will also be obliged to pay trailing commission to brokers on those loans.
RAMS said it would be "optimistic" to believe that it could fund its loan book in residential mortgage-backed securities (RMBS) markets instead.
It also accepted that funding costs will be higher going forward, adding that XCP and RMBS market were still very hostile.
In its explanatory memorandum to shareholders, RAMS also revealed that it had tried all sort of ways to fund its mortgage book.
Market soundings for RMBS issues in the US and Europe fell on deaf ears.
Earlier this month, RAMS priced a $300 million RMBS issue in Australia, but it revealed the issue was planned at $1 billion.
RAMS also considered tendering the sale of all or parts of its business, but said such a move was "not deemed practicable in the circumstances and short time available".
Mr Kinghorn's $80,000 pay packet last financial year was the same as his pay a year prior.
Mr Kolivos was paid $570,000 in 2005/06 compared to his most recent pay packet of $625,000.
For 2006/07, RAMS booked a 49 per cent increase in net profit to $43.5 million.
RAMS shareholders will vote on Westpac's offer at the non-bank lender's annual general meeting on November 26.
Westpac, meanwhile, said it was happy with Deloitte's valuation of the franchise business of between $35.6 million to $167.5 million.
"I believe Westpac is well positioned to deliver a positive future for RAMS franchisees and employees," chief executive David Morgan said.
Source:AAP 2007
Property Investors Move on Canberra as Labor look likely winners of the Federal Election
Canberra 2600 Canberra is the most heated of Australia's property markets according to new data released today, as the Labor Opposition firms as the winner of the Federal Election.
Australian Property Monitors (APM) says the annual growth figures for houses is 17.7 per cent to an average of just over $485,000.
Over the same period, units have risen by 9.7 per cent to nearly $340,000.
APM's general manager Michael McNamara says the rental market has also been affected.
"Canberra is the most heated of Australia's property markets because there is a blend of extraordinary growth figures for houses and units," he said.
"But also, the rental market in Canberra is quite heated as well.
"Almost all aspects of the Canberra property market are experiencing very strong growth of figures at the moment."
Mr McNamara says the looming interest rate rise will hit lower income mortgage holders hard.
"Whilst on one side of our society an extra interest rate will largely be taken in one's stride, on the other side of town a 10th interest rate rise since 2002 will send a wave of further repossessions, bankruptcies and forced sales into especially our less affluent areas," he said. Source: ABC
Australian Property Monitors (APM) says the annual growth figures for houses is 17.7 per cent to an average of just over $485,000.
Over the same period, units have risen by 9.7 per cent to nearly $340,000.
APM's general manager Michael McNamara says the rental market has also been affected.
"Canberra is the most heated of Australia's property markets because there is a blend of extraordinary growth figures for houses and units," he said.
"But also, the rental market in Canberra is quite heated as well.
"Almost all aspects of the Canberra property market are experiencing very strong growth of figures at the moment."
Mr McNamara says the looming interest rate rise will hit lower income mortgage holders hard.
"Whilst on one side of our society an extra interest rate will largely be taken in one's stride, on the other side of town a 10th interest rate rise since 2002 will send a wave of further repossessions, bankruptcies and forced sales into especially our less affluent areas," he said. Source: ABC
PM plays down mortgage interest rate rise chances
Prime Minister John Howard is playing down reports that banks may increase their rates, affecting all credit including mortgage interest rates, as senior Coalition figures continue to argue against an official interest rate rise next month.
The Reserve Bank board is widely tipped to increase the official interest rate when it meets on Melbourne Cup day.
"A large source of the funds that the banks are talking about, increasing the borrowing rates, come from their depositors," he said.
"Until there's significant increase in the price or the cost of those funds in the hands of the banks, given their profitable profit margins, there isn't a case for them increasing their rates."Source: ABC
The Reserve Bank board is widely tipped to increase the official interest rate when it meets on Melbourne Cup day.
"A large source of the funds that the banks are talking about, increasing the borrowing rates, come from their depositors," he said.
"Until there's significant increase in the price or the cost of those funds in the hands of the banks, given their profitable profit margins, there isn't a case for them increasing their rates."Source: ABC
Payday lenders are subjected to inquiry
An inquiry into pay day money lending in South Australia has recommended workers in the industry be subject to criminal checks.
State Parliament's Economic and Finance Committee is also calling for a special tribunal to resolve disputes between lenders and customers.
Committee President Tom Koutsantonis says criminal checks are needed because of the unlawful conduct in the industry.
"The police tell us that organised crime and especially bikie gangs move in where there is an opportunity," he said.
"If there is a market for them to move in and take advantage of people, they will."
Mr Koutsantonis says the inquiry heard cases of unethical practices, and interest charges of up to 1,000 per cent a year.
The committee wants a special tribunal to resolve disputes.
Mr Koutsantonis says the tribunal would have judicial powers to make binding orders, and the ability to revoke or amend licences.
"The problem is that when people are taken advantage of in these schemes they have no real recourse because they can not afford to go to a court," he said.
"If we have a tribunal, Mums and Dads could go and say 'Look I borrowed this much money at this much per cent'."
Source: ABC
State Parliament's Economic and Finance Committee is also calling for a special tribunal to resolve disputes between lenders and customers.
Committee President Tom Koutsantonis says criminal checks are needed because of the unlawful conduct in the industry.
"The police tell us that organised crime and especially bikie gangs move in where there is an opportunity," he said.
"If there is a market for them to move in and take advantage of people, they will."
Mr Koutsantonis says the inquiry heard cases of unethical practices, and interest charges of up to 1,000 per cent a year.
The committee wants a special tribunal to resolve disputes.
Mr Koutsantonis says the tribunal would have judicial powers to make binding orders, and the ability to revoke or amend licences.
"The problem is that when people are taken advantage of in these schemes they have no real recourse because they can not afford to go to a court," he said.
"If we have a tribunal, Mums and Dads could go and say 'Look I borrowed this much money at this much per cent'."
Source: ABC
Tuesday, October 23, 2007
Australian Share index falls on persistent US credit fears
The Australian share market fell by its largest amount in two months amid renewed concerns about credit markets.
A warning by equipment company Caterpillar that the housing slump in the US was starting to spread to other parts of the economy saw US shares fall at the end of the week.
The domestic market followed suit this morning, with shares in most sectors losing value.
At 11.30am AEST, the All Ordinaries Index shed almost 2 per cent to 6,591.
Stocks exposed to the US economy suffered the most, with Macquarie Bank falling by about 4 per cent, while James Hardie Industries was down by almost 2.5 per per cent.
The Australian dollar was buying 88.54 US cents at 11.30am AEST.
A warning by equipment company Caterpillar that the housing slump in the US was starting to spread to other parts of the economy saw US shares fall at the end of the week.
The domestic market followed suit this morning, with shares in most sectors losing value.
At 11.30am AEST, the All Ordinaries Index shed almost 2 per cent to 6,591.
Stocks exposed to the US economy suffered the most, with Macquarie Bank falling by about 4 per cent, while James Hardie Industries was down by almost 2.5 per per cent.
The Australian dollar was buying 88.54 US cents at 11.30am AEST.
Analysts say any interest rate rise would stifle a much-needed recovery in housing investment
All eyes will be on the Consumer Price Index (CPI) for the September quarter.
Any inflation spike could force the Reserve Bank of Australia's hand when the Board meets on Melbourne Cup day.
Meanwhile, the housing shortage brought on by a surge in migration is being cited as a major contributor to the official inflation result.
Economic forecaster BIS Shrapnel says any interest rate rise would stifle a much-needed recovery in housing investment.
BIS Shrapnel economist Jason Anderson says clearly not enough is being produced in terms of the rate of dwelling construction.
"There is a need now to articulate how governments are going to respond to an environment really which has changed very quickly in terms of that overseas migration and the population gain," he said.
"But it's now becoming much more important in terms of the outlook for inflation and we can't set aside yet as the temporary phenomenon.
"This is an issue that will be with us into the next couple of years at least."
Rental shortage
He says the rental shortage will continue to attract a lot more attention in the determination of the inflation number for some time.
"The real problem then is that any policy action to remedy or try and address the imbalance between supply and demand, will take quite sometime to come through, and in the meantime, there will certainly be an acceleration in rentals," he said.
"With that in mind, it's a difficult balancing act, I think, for the Reserve Bank, because it's contributing to acceleration in consumer prices, but on the other hand, any policy action will probably dampen still, the rate of dwelling construction and that of course then has feedbacks in terms of extending the imbalance between supply and demand."
He says depending on Wednesday's CPI result, the Reserve Bank decision is going to be very evenly balanced.
"I think there is a need to look at, obviously, the wider context in terms of consumer spending," he said.
"We have seen a reacceleration in terms of how spending growth.
"The housing market conditions, with the exception of Sydney, seem to have had life, new life breathed into them over the last six months and that would indicate that the impact of the rate rises that we had last year, obviously the evidence is yet to come through in terms of the August rise, have not been that substantial.
"So also when you add to that, the fact that the employment growth figures remain solid means that it's going to be quite a difficult decision."
Any inflation spike could force the Reserve Bank of Australia's hand when the Board meets on Melbourne Cup day.
Meanwhile, the housing shortage brought on by a surge in migration is being cited as a major contributor to the official inflation result.
Economic forecaster BIS Shrapnel says any interest rate rise would stifle a much-needed recovery in housing investment.
BIS Shrapnel economist Jason Anderson says clearly not enough is being produced in terms of the rate of dwelling construction.
"There is a need now to articulate how governments are going to respond to an environment really which has changed very quickly in terms of that overseas migration and the population gain," he said.
"But it's now becoming much more important in terms of the outlook for inflation and we can't set aside yet as the temporary phenomenon.
"This is an issue that will be with us into the next couple of years at least."
Rental shortage
He says the rental shortage will continue to attract a lot more attention in the determination of the inflation number for some time.
"The real problem then is that any policy action to remedy or try and address the imbalance between supply and demand, will take quite sometime to come through, and in the meantime, there will certainly be an acceleration in rentals," he said.
"With that in mind, it's a difficult balancing act, I think, for the Reserve Bank, because it's contributing to acceleration in consumer prices, but on the other hand, any policy action will probably dampen still, the rate of dwelling construction and that of course then has feedbacks in terms of extending the imbalance between supply and demand."
He says depending on Wednesday's CPI result, the Reserve Bank decision is going to be very evenly balanced.
"I think there is a need to look at, obviously, the wider context in terms of consumer spending," he said.
"We have seen a reacceleration in terms of how spending growth.
"The housing market conditions, with the exception of Sydney, seem to have had life, new life breathed into them over the last six months and that would indicate that the impact of the rate rises that we had last year, obviously the evidence is yet to come through in terms of the August rise, have not been that substantial.
"So also when you add to that, the fact that the employment growth figures remain solid means that it's going to be quite a difficult decision."
US housing downturn will bring long-term pain
A housing downturn would hurt the US economy for some time, the US treasury secretary said overnight as he called for assistance to struggling homeowners and new mortgage regulations.
Henry Paulson said he believed further declines in home construction lay ahead, but the US economy remained healthy and would manage to grow.
"But let me be clear, despite strong economic fundamentals, the housing decline is still unfolding and I view it as the most significant current risk to our economy. The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth," Mr Paulson said.
Mr Paulson said the federal government should work to avoid foreclosures on primary residences to prevent a downward cycle in property values and minimize the housing downturn's impact on the economy.
But he said this must be weighed against the "moral hazard" of encouraging investors to repeat their bad decisions by bailing them out.
"I have no interest in bailing out lenders or property speculators," Mr Paulson said.
He called for steps to make more affordable mortgage products available for struggling homeowners, and said the US Senate should approve regulatory reforms governing government sponsored mortgage enterprises.
Mr Paulson said the GSEs could also increase the flow of funds to refinance subprime borrowers if they securitized a greater number of their prime mortgages into a well-functioning market for such GSE mortgage securities.
He also said financial regulators should work for "interim improvements" to the mortgage regulatory system while evaluating longer-term, broader reform that may include combining some agencies.
He said key areas for interim reform include improved disclosure rules and a uniform national licensing, education and monitoring system for all mortgage brokers. New rules and standards in the mortgage origination process also could combat predatory lending, he said.
But Mr Paulson, a Wall Street veteran who headed Goldman Sachs before taking charge of the Treasury last year, said he opposed imposing greater liability on securitizers and investors.
"In my view, this is not the answer to the problem. Imposing broad liability provisions on investors and securitizers would very likely generate significant unintended consequences. It would potentially paralyze securitization," he said. Source: Reuters
Henry Paulson said he believed further declines in home construction lay ahead, but the US economy remained healthy and would manage to grow.
"But let me be clear, despite strong economic fundamentals, the housing decline is still unfolding and I view it as the most significant current risk to our economy. The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth," Mr Paulson said.
Mr Paulson said the federal government should work to avoid foreclosures on primary residences to prevent a downward cycle in property values and minimize the housing downturn's impact on the economy.
But he said this must be weighed against the "moral hazard" of encouraging investors to repeat their bad decisions by bailing them out.
"I have no interest in bailing out lenders or property speculators," Mr Paulson said.
He called for steps to make more affordable mortgage products available for struggling homeowners, and said the US Senate should approve regulatory reforms governing government sponsored mortgage enterprises.
Mr Paulson said the GSEs could also increase the flow of funds to refinance subprime borrowers if they securitized a greater number of their prime mortgages into a well-functioning market for such GSE mortgage securities.
He also said financial regulators should work for "interim improvements" to the mortgage regulatory system while evaluating longer-term, broader reform that may include combining some agencies.
He said key areas for interim reform include improved disclosure rules and a uniform national licensing, education and monitoring system for all mortgage brokers. New rules and standards in the mortgage origination process also could combat predatory lending, he said.
But Mr Paulson, a Wall Street veteran who headed Goldman Sachs before taking charge of the Treasury last year, said he opposed imposing greater liability on securitizers and investors.
"In my view, this is not the answer to the problem. Imposing broad liability provisions on investors and securitizers would very likely generate significant unintended consequences. It would potentially paralyze securitization," he said. Source: Reuters
Beating credit card bankruptcy in Australia
Increasing numbers of people are finding it difficult to manage their finances, including their credit card debt.
Part 9 of Bankruptcy Act introduced in 1997 aimed at keeping people out of bankruptcy.
Debtors arrange to partly repay creditors over time debt agreements are one stop short of declaring total bankruptcy for the increasing number of people who can't pay their credit card debts, personal loans and bills.
A debt agreement under Part 9 of the Bankruptcy Act, allows debtors to strike a deal with their creditors to repay less than the full amount at an agreed weekly rate over a period of time – without any additional interest. It is an option for people with unsecured debts of less than $77,021 and after-tax income below $57,765.
Now big creditors seem to be getting tough and, according to debt agreement administrators, some are insisting on unrealistic returns from insolvent people.
Part 9 agreements were introduced in 1997 following widespread public concern about young people in particular having to file for bankruptcy over consumer debts such as small credit card debts or even mobile phone bills.
Since then an industry of debt agreement administrators has grown up, often relying on heavy marketing and with trading names such as Debt Assist, Debt Relief and Debt Busters.
They specialise in organising agreements and approaching creditors who vote on each proposal. Fox Symes is a market leader in the industry, filing about 300 agreements a month.
"Some of the big lenders have totally unrealistic expectations," says Deborah Southon, director of Fox Symes.
"People are coming through now with up to $78,000 in consumer debts," Ms Southon says. "You can't pay that back in less than five years and probably not at much more than 40¢-50¢ in the dollar."
Recent amendments to the Bankruptcy Act enshrine the principle that an insolvent person's debt agreement proposal must be affordable and therefore sustainable.
Debt agreement administrators say Westpac and St George Bank are among big lenders voting down debt agreements based on the debtor's ability to repay.
The administrators report a noticeably harsher approach from Westpac and St George compared with a generally supportive approach of the Commonwealth Bank and National Australia Bank in particular.
Some say that St George is telling them no less than 65¢ is acceptable, while Westpac is said to be voting down agreements that return less than 70¢ in the dollar, regardless of the circumstances of the debtor.
Penny Doube, a debt agreement administrator based at Tarragindi in Brisbane, says that on average her agreements involve an insolvent debtor repaying about 50¢ in the dollar over three years.
Ms Doube says St George has informed her that its minimum acceptable return is 65¢.
"St George have always been difficult to deal with," Ms Doube says. "They are not fond of Part 9s."
Administrators typically negotiate agreements that return between 40¢ and 80¢ in the dollar over three to five years. For that, they charge an upfront fee that usually ranges between $600 and $1500 and an ongoing commission.
Ms Southon says each agreement has to ensure that the rent or mortgage is paid, plus provide for utilities, food, essentials, children and the occasional medical visit.
Under the new voting rules, big creditors have increased power and cannot be easily outvoted.
"If St George is your majority creditor, then it is 'shut the gate and file now for bankruptcy', because they are not going to agree to anything," says one debt agreement administrator.
Melbourne debt agreement administrator Melissa Treherne says she is being sandwiched by tough creditors and the new rules, which require her to certify a debtor can afford repayments.
"The new rules are good, they have really cleaned things up but some of the creditors are just not looking at the budget of these people," says Ms Treherne.
"They say they have a new rule, nothing under 55¢ for example, and they won't be flexible about time or rate of return."
A Westpac spokesman says 70¢ "is one of its highest repayment guidelines" and it does apply lower proportions on a case-by-case basis.
A spokeswoman for St George Bank says the bank assesses each proposal individually.
"Most importantly, customers' specific circumstances are taken into consideration, and the final decision is not solely based on the return to the bank."
Digby Ross, the Queensland insolvency registrar, says the system requires goodwill by all parties in the industry if it is to succeed, including the big creditors.
"The major creditors have generally been very supportive, right through (the reform process)," said Mr Ross.
"Yes, definitely, it needs goodwill by creditors to succeed and the contact we've had has been positive." Source: Sunday Mail
Part 9 of Bankruptcy Act introduced in 1997 aimed at keeping people out of bankruptcy.
Debtors arrange to partly repay creditors over time debt agreements are one stop short of declaring total bankruptcy for the increasing number of people who can't pay their credit card debts, personal loans and bills.
A debt agreement under Part 9 of the Bankruptcy Act, allows debtors to strike a deal with their creditors to repay less than the full amount at an agreed weekly rate over a period of time – without any additional interest. It is an option for people with unsecured debts of less than $77,021 and after-tax income below $57,765.
Now big creditors seem to be getting tough and, according to debt agreement administrators, some are insisting on unrealistic returns from insolvent people.
Part 9 agreements were introduced in 1997 following widespread public concern about young people in particular having to file for bankruptcy over consumer debts such as small credit card debts or even mobile phone bills.
Since then an industry of debt agreement administrators has grown up, often relying on heavy marketing and with trading names such as Debt Assist, Debt Relief and Debt Busters.
They specialise in organising agreements and approaching creditors who vote on each proposal. Fox Symes is a market leader in the industry, filing about 300 agreements a month.
"Some of the big lenders have totally unrealistic expectations," says Deborah Southon, director of Fox Symes.
"People are coming through now with up to $78,000 in consumer debts," Ms Southon says. "You can't pay that back in less than five years and probably not at much more than 40¢-50¢ in the dollar."
Recent amendments to the Bankruptcy Act enshrine the principle that an insolvent person's debt agreement proposal must be affordable and therefore sustainable.
Debt agreement administrators say Westpac and St George Bank are among big lenders voting down debt agreements based on the debtor's ability to repay.
The administrators report a noticeably harsher approach from Westpac and St George compared with a generally supportive approach of the Commonwealth Bank and National Australia Bank in particular.
Some say that St George is telling them no less than 65¢ is acceptable, while Westpac is said to be voting down agreements that return less than 70¢ in the dollar, regardless of the circumstances of the debtor.
Penny Doube, a debt agreement administrator based at Tarragindi in Brisbane, says that on average her agreements involve an insolvent debtor repaying about 50¢ in the dollar over three years.
Ms Doube says St George has informed her that its minimum acceptable return is 65¢.
"St George have always been difficult to deal with," Ms Doube says. "They are not fond of Part 9s."
Administrators typically negotiate agreements that return between 40¢ and 80¢ in the dollar over three to five years. For that, they charge an upfront fee that usually ranges between $600 and $1500 and an ongoing commission.
Ms Southon says each agreement has to ensure that the rent or mortgage is paid, plus provide for utilities, food, essentials, children and the occasional medical visit.
Under the new voting rules, big creditors have increased power and cannot be easily outvoted.
"If St George is your majority creditor, then it is 'shut the gate and file now for bankruptcy', because they are not going to agree to anything," says one debt agreement administrator.
Melbourne debt agreement administrator Melissa Treherne says she is being sandwiched by tough creditors and the new rules, which require her to certify a debtor can afford repayments.
"The new rules are good, they have really cleaned things up but some of the creditors are just not looking at the budget of these people," says Ms Treherne.
"They say they have a new rule, nothing under 55¢ for example, and they won't be flexible about time or rate of return."
A Westpac spokesman says 70¢ "is one of its highest repayment guidelines" and it does apply lower proportions on a case-by-case basis.
A spokeswoman for St George Bank says the bank assesses each proposal individually.
"Most importantly, customers' specific circumstances are taken into consideration, and the final decision is not solely based on the return to the bank."
Digby Ross, the Queensland insolvency registrar, says the system requires goodwill by all parties in the industry if it is to succeed, including the big creditors.
"The major creditors have generally been very supportive, right through (the reform process)," said Mr Ross.
"Yes, definitely, it needs goodwill by creditors to succeed and the contact we've had has been positive." Source: Sunday Mail
Monday, October 22, 2007
Household debt in Australia on the rise
Household finances around Australia have taken a battering in the past year, according to research by ING Direct and the Melbourne Institute.
Telephone interviews with 1200 households found 46 per cent of families were managing to save money compared with 54 per cent a year ago.
The number running into debt rose to 7 per cent from 4 per cent.
”Higher interest rates, bigger mortgages, record levels of credit card debt, larger grocery bills and the general rise in the cost of living are affecting our inclination and capacity to save,'' ING spokesperson Michael Smolders said.
Western Australians were the best savers and the least likely to go into debt. Victorians were the second best savers and households from New South Wales came in third.
But the New South Wales ranking improved from three months ago when it claimed the wooden spoon for savings.
Households in South Australia are now the worst savers, the survey found.
”The piggy bank has certainly gone missing in action amount the majority of South Australian households,'' Mr Smolders said.
Nationally, the survey found less people were prepared to commit to saving for expensive items like home renovations - down to 14 per cent from 24 per cent - a new home - down to 14 per cent from 17 per cent - and travel - down to 38 per cent from 45 per cent.
Telephone interviews with 1200 households found 46 per cent of families were managing to save money compared with 54 per cent a year ago.
The number running into debt rose to 7 per cent from 4 per cent.
”Higher interest rates, bigger mortgages, record levels of credit card debt, larger grocery bills and the general rise in the cost of living are affecting our inclination and capacity to save,'' ING spokesperson Michael Smolders said.
Western Australians were the best savers and the least likely to go into debt. Victorians were the second best savers and households from New South Wales came in third.
But the New South Wales ranking improved from three months ago when it claimed the wooden spoon for savings.
Households in South Australia are now the worst savers, the survey found.
”The piggy bank has certainly gone missing in action amount the majority of South Australian households,'' Mr Smolders said.
Nationally, the survey found less people were prepared to commit to saving for expensive items like home renovations - down to 14 per cent from 24 per cent - a new home - down to 14 per cent from 17 per cent - and travel - down to 38 per cent from 45 per cent.
Thursday, October 18, 2007
Queensland housing market on firm foundation
Who says young people are struggling to get their foot in the door of the real estate market?
Buyers, many of them in their 20s, are piling their cash into bricks and mortar, snapping up bargains as quick as they come up for sale.
And here's the reason why. A modest house in Brisbane has grown in value by 513 per cent since it was sold in 1992 for $57,500.
Jack Tsao, 27, bought the Mt Gravatt East investment property last year for $295,000 and will take it to auction next month.
Mr Tsao said his decision to sell follows an extensive six-month renovation on the house, which included painting, the installation of a new kitchen and bathroom and the addition of an extra room on the lower floor.
"I was going to keep it and rent it out," Mr Tsao said. "But then there was a lot of fixing up to do. It was my first experience at renovating."
According to the Real Estate Institute of Queensland the median house price for the suburb is $349,000.
The Courier-Mail has tracked the price growth of the house, at 909 Cavendish Rd, over the last 15 years.
Since 1992 the 625sq m property has been bought and sold four times, gathering a 513 per cent capital gain along the way.
If the price of consumer staples grew at the same rate, Brisbane shoppers would today pay $5.39 for a litre of milk, $7.44 for a loaf of bread, and $3.18 litre for petrol.
Newlyweds Georgina and Neil Mackenzie-Forbes have recently bought a property together for the first time - a New Farm townhouse they will live in but intend to rent out or sell in the future.
Both experienced property investors when they were single, Mr Mackenzie-Forbes, 36, said he and his wife were willing to pay up to $1 million for the right property. They paid $675,000 for their 200sq m house.
"This one was close to the city, and we liked the fact that it didn't need any work - we were able to just move in and enjoy (it)," he said.
Mrs Mackenzie-Forbes, 29, said she intended to keep investing in the property market in the future. "I think there are bargains still to be had, you've just got to get in there," she said. Source: Courier Mail
Buyers, many of them in their 20s, are piling their cash into bricks and mortar, snapping up bargains as quick as they come up for sale.
And here's the reason why. A modest house in Brisbane has grown in value by 513 per cent since it was sold in 1992 for $57,500.
Jack Tsao, 27, bought the Mt Gravatt East investment property last year for $295,000 and will take it to auction next month.
Mr Tsao said his decision to sell follows an extensive six-month renovation on the house, which included painting, the installation of a new kitchen and bathroom and the addition of an extra room on the lower floor.
"I was going to keep it and rent it out," Mr Tsao said. "But then there was a lot of fixing up to do. It was my first experience at renovating."
According to the Real Estate Institute of Queensland the median house price for the suburb is $349,000.
The Courier-Mail has tracked the price growth of the house, at 909 Cavendish Rd, over the last 15 years.
Since 1992 the 625sq m property has been bought and sold four times, gathering a 513 per cent capital gain along the way.
If the price of consumer staples grew at the same rate, Brisbane shoppers would today pay $5.39 for a litre of milk, $7.44 for a loaf of bread, and $3.18 litre for petrol.
Newlyweds Georgina and Neil Mackenzie-Forbes have recently bought a property together for the first time - a New Farm townhouse they will live in but intend to rent out or sell in the future.
Both experienced property investors when they were single, Mr Mackenzie-Forbes, 36, said he and his wife were willing to pay up to $1 million for the right property. They paid $675,000 for their 200sq m house.
"This one was close to the city, and we liked the fact that it didn't need any work - we were able to just move in and enjoy (it)," he said.
Mrs Mackenzie-Forbes, 29, said she intended to keep investing in the property market in the future. "I think there are bargains still to be had, you've just got to get in there," she said. Source: Courier Mail
De facto couples are 'risking financial ruin'
De Facto couples are being advised to draw up "domestic relationship agreements" or risk financial ruin if their partnership breaks down.
Family lawyers say a growing number of men and women who split from long-term partners are losing out because they are not entitled to the same legal protection as married couples.
Most are unaware of the "cohabitation trap", in which their legal rights change automatically after two years or if they have a child together.
This can result in a single mother being deprived of financial compensation for the future or a de facto making a claim on a property or asset owned entirely by their partner.
Census figures show 76 per cent of Australian couples have lived in de facto relationships.
Jackie Vincent, a partner in Watts McCray, Australia's largest specialist family law firm, told The Sunday Telegraph couples needed to be more aware of the potential legal pitfalls of de facto relationships.
"We need to get people to understand what their life choices mean," she said.
"Choose to live your life how you want to live it, but be aware of the consequences. We do see a lot of de facto couples and we think: 'Do they really realise what they're getting into?'
"It's traumatic for them when you say to them their partner could have a claim on their house."
Ms Vincent described "domestic relationship agreements" as being similar to pre-nuptial contracts for married couples, specifying exactly how assets and money should be awarded to protect each partner in the event of a separation.
Mothers were usually the biggest losers in de facto break-ups because they received less in separation settlements than married women, she said.
Sydney couple Paul Cassat, 30, and his partner Alicia Twohig, 25, have lived together for two years.
"We bought (property) together and we have nominated each other as equal beneficiaries," Mr Cassat said.Source: Sunday Telegraph
Family lawyers say a growing number of men and women who split from long-term partners are losing out because they are not entitled to the same legal protection as married couples.
Most are unaware of the "cohabitation trap", in which their legal rights change automatically after two years or if they have a child together.
This can result in a single mother being deprived of financial compensation for the future or a de facto making a claim on a property or asset owned entirely by their partner.
Census figures show 76 per cent of Australian couples have lived in de facto relationships.
Jackie Vincent, a partner in Watts McCray, Australia's largest specialist family law firm, told The Sunday Telegraph couples needed to be more aware of the potential legal pitfalls of de facto relationships.
"We need to get people to understand what their life choices mean," she said.
"Choose to live your life how you want to live it, but be aware of the consequences. We do see a lot of de facto couples and we think: 'Do they really realise what they're getting into?'
"It's traumatic for them when you say to them their partner could have a claim on their house."
Ms Vincent described "domestic relationship agreements" as being similar to pre-nuptial contracts for married couples, specifying exactly how assets and money should be awarded to protect each partner in the event of a separation.
Mothers were usually the biggest losers in de facto break-ups because they received less in separation settlements than married women, she said.
Sydney couple Paul Cassat, 30, and his partner Alicia Twohig, 25, have lived together for two years.
"We bought (property) together and we have nominated each other as equal beneficiaries," Mr Cassat said.Source: Sunday Telegraph
Mortgage credit fears bite in Queensland
Queensland real estate market changed personality last month, as buying a home becomes a more frightening issue for many Queenslanders.
That has led to an almost 21 per cent slump in the number of mortgages issued by Australian Finance Group, which holds about 13 per cent of the market.
It was the biggest slump so far recorded by AFG at a time when the market should be picking up.
Property analyst Michael Matusik now believes investors are the cause but he also believes share houses are about to get a lot more cramped as rents rise and people look to reduce the financial burden by bringing in boarders.
But he also thinks the capital gains of 15 per cent a year in some parts of Brisbane are at an end with probably half that expected for the present year.
Rising interest rates combined with the fallout from the US housing market and bad credit is creating nervousness, and with affordability already at historic lows it doesn't take much to change minds.
"We will see stop-start growth over the next 12 to 18 months as the world tries to figure out how it's going to cope with credit," Mr Matusik said.
He said investors were now finding it tough to get loans for 100 per cent or more of a property's value and that could mean dipping into their own pockets for things like stamp duty. Statistics also showed that many rental homes had one or more spare bedrooms and that was going to end.
"In the next 12 months renters will be forced to share. Spare rooms will disappear and then we will see another kick in the housing market," he said.
AFG's Mark Hewitt said fixed loans had also increased from 18 per cent in August to 20 per cent last month. He said last month's decline in mortgage sales was about double the normal September slump as concerns persisted over the global debt markets and the US subprime difficulties.
"On the positive side, we believe that the underlying market is very strong and these figures represent a blip rather than a change in direction," he said.
He added that this month had shown early indications of a small recovery.
In Queensland the average mortgage has gone up by 12 per cent in the past nine months to $318,000.Source: Courier Mail
That has led to an almost 21 per cent slump in the number of mortgages issued by Australian Finance Group, which holds about 13 per cent of the market.
It was the biggest slump so far recorded by AFG at a time when the market should be picking up.
Property analyst Michael Matusik now believes investors are the cause but he also believes share houses are about to get a lot more cramped as rents rise and people look to reduce the financial burden by bringing in boarders.
But he also thinks the capital gains of 15 per cent a year in some parts of Brisbane are at an end with probably half that expected for the present year.
Rising interest rates combined with the fallout from the US housing market and bad credit is creating nervousness, and with affordability already at historic lows it doesn't take much to change minds.
"We will see stop-start growth over the next 12 to 18 months as the world tries to figure out how it's going to cope with credit," Mr Matusik said.
He said investors were now finding it tough to get loans for 100 per cent or more of a property's value and that could mean dipping into their own pockets for things like stamp duty. Statistics also showed that many rental homes had one or more spare bedrooms and that was going to end.
"In the next 12 months renters will be forced to share. Spare rooms will disappear and then we will see another kick in the housing market," he said.
AFG's Mark Hewitt said fixed loans had also increased from 18 per cent in August to 20 per cent last month. He said last month's decline in mortgage sales was about double the normal September slump as concerns persisted over the global debt markets and the US subprime difficulties.
"On the positive side, we believe that the underlying market is very strong and these figures represent a blip rather than a change in direction," he said.
He added that this month had shown early indications of a small recovery.
In Queensland the average mortgage has gone up by 12 per cent in the past nine months to $318,000.Source: Courier Mail
Housing affordability collapses to record low
Relentless rises in mortgage interest rates and sky high house prices around Australia have pushed housing affordability to its lowest level on record.
The Commonwealth Bank of Australia - Housing Industry Association (HIA) Quarterly Review of Housing Affordability for the September quarter showed the index falling 2.1 per cent to be 8.3 per cent lower than in the corresponding period in 2006.
The HIA today said housing affordability had reached its lowest level since the series began in 1984.
Established house prices rose by 11.4 per cent during the past year and were a major cause of loan repayment rises for first home buyers.
“It is unacceptable that a typical first home buyer would have to place themselves in mortgage stress to purchase a home,” said Ron Silberberg, Managing Director of HIA.
The HIA said a first-home buyer earning an average household income of $98,000 a year would have to commit 31.7 per cent of their income to buy a home, the highest on record.
Cost burden rises
The official cash rate is 6.5 per cent, and variable home lending rates are set at 8.3 per cent.
Australians have been slapped with nine interest rate rises in the last five years and home loan interest rates sit at a 11-year high after the most recent rise in August.
The steady yet relentless rise in interest rates in Australia over recent years is a prime candidate to explain why housing has become less affordable, according to a recent Macquarie Bank report on housing.
Macquarie expects the Reserve Bank of Australia (RBA) to increase interest rates by a 25 basis points this year or next and possibly by more.
"If growth remains strong and the RBA remains alert to potential inflationary pressures, interest rates could rise by another 75 basis points," say the report authors Brian Redican and Hayden Atkins.
"Should the RBA be compelled to tighten policy to address rising inflationary pressures, housing affordability would deteriorate significantly to the worst levels since in the early 1990s," Macquarie says.
Westpac chief economist Bill Evans said yesterday strong growth and inflation pressures would push the Reserve Bank of Australia to raise interest rates by 50 basis points in coming months.
"Our view is that rates are likely to rise by 0.25 per cent by the end of the year ... further out we expect that even if there is a short term reprieve we are still likely to see the overnight cash rate higher by 0.5 per cent from its current level in the first half of 2008."
Nicki Bourlioufas is the business editor of NEWS.com.au
The Commonwealth Bank of Australia - Housing Industry Association (HIA) Quarterly Review of Housing Affordability for the September quarter showed the index falling 2.1 per cent to be 8.3 per cent lower than in the corresponding period in 2006.
The HIA today said housing affordability had reached its lowest level since the series began in 1984.
Established house prices rose by 11.4 per cent during the past year and were a major cause of loan repayment rises for first home buyers.
“It is unacceptable that a typical first home buyer would have to place themselves in mortgage stress to purchase a home,” said Ron Silberberg, Managing Director of HIA.
The HIA said a first-home buyer earning an average household income of $98,000 a year would have to commit 31.7 per cent of their income to buy a home, the highest on record.
Cost burden rises
The official cash rate is 6.5 per cent, and variable home lending rates are set at 8.3 per cent.
Australians have been slapped with nine interest rate rises in the last five years and home loan interest rates sit at a 11-year high after the most recent rise in August.
The steady yet relentless rise in interest rates in Australia over recent years is a prime candidate to explain why housing has become less affordable, according to a recent Macquarie Bank report on housing.
Macquarie expects the Reserve Bank of Australia (RBA) to increase interest rates by a 25 basis points this year or next and possibly by more.
"If growth remains strong and the RBA remains alert to potential inflationary pressures, interest rates could rise by another 75 basis points," say the report authors Brian Redican and Hayden Atkins.
"Should the RBA be compelled to tighten policy to address rising inflationary pressures, housing affordability would deteriorate significantly to the worst levels since in the early 1990s," Macquarie says.
Westpac chief economist Bill Evans said yesterday strong growth and inflation pressures would push the Reserve Bank of Australia to raise interest rates by 50 basis points in coming months.
"Our view is that rates are likely to rise by 0.25 per cent by the end of the year ... further out we expect that even if there is a short term reprieve we are still likely to see the overnight cash rate higher by 0.5 per cent from its current level in the first half of 2008."
Nicki Bourlioufas is the business editor of NEWS.com.au
Wednesday, October 10, 2007
BankWest in national expansion on the east coast of Australia
Bank of Scotland backed BankWest says it plans to open 40 to 50 new branches over the course of calendar 2008 on the east coast after opening its first New South Wales branch today.
BankWest also said that it had no "specific plans for RAMS", dousing speculation it would consider making a rival bid for the non-bank lenders' franchise network.
"We do keep an eye on things, but at the moment we've got no plans and we're very excited about our organic (growth) opportunities," Bankwest retail chief executive Ian Corfield said.
Mr Corfield was speaking today at the launch of the first branch opening in Bankwest's 160-branch east coast expansion strategy in Parramatta.
BankWest announced today it would open another seven stores in New South Wales by the end of the calendar year.
Mr Corfield said the bank planned to have another 40 or 50 opened by the end of calendar 2008, with the first Victorian branch to be opened in the first quarter and the first Queensland branch to be opened in the middle of the year. Source: AAP
BankWest also said that it had no "specific plans for RAMS", dousing speculation it would consider making a rival bid for the non-bank lenders' franchise network.
"We do keep an eye on things, but at the moment we've got no plans and we're very excited about our organic (growth) opportunities," Bankwest retail chief executive Ian Corfield said.
Mr Corfield was speaking today at the launch of the first branch opening in Bankwest's 160-branch east coast expansion strategy in Parramatta.
BankWest announced today it would open another seven stores in New South Wales by the end of the calendar year.
Mr Corfield said the bank planned to have another 40 or 50 opened by the end of calendar 2008, with the first Victorian branch to be opened in the first quarter and the first Queensland branch to be opened in the middle of the year. Source: AAP
Mortgage Lenders to go easy on borrowers in difficulty
TheMortgage and Finance Association of Australia (MFAA) has introduced measures to encourage non-bank lenders, mortgage managers and brokers to assist borrowers in financial difficulty.
Under the new provisions, MFAA members can consider varying the terms of a loan repayment once they are aware that the borrower is having trouble meeting repayments.
Also, members can suspend action under the credit facility to recover due payments, and, if a default has not been listed already, the member can choose not to list a default against the borrower until the matter is decided.
MFAA also has urged its 13,000 members to consider encouraging borrowers to make payments they can afford.
"Essentially, our members must now consider whether it is appropriate to vary the terms of repayment on a loan once they are aware a borrower is in financial difficulty," MFAA chief executive Phil Naylor said.
Mr Naylor said about 55 per cent of all mortgages are written by non-banks, mortgage managers and mortgage brokers and it is appropriate that they assist borrowers who are in financial difficulty.
"It is crucial, however, that borrowers who are in some financial difficulty, to advise their lender or broker immediately to ensure the best result can be achieved," he said.
MFAA said that, under the credit facility, members must not require the borrower to apply for early release of their superannuation entitlements or to obtain funds from family, friends or other third parties, prior to the member considering whether to vary the payment terms. Source: AAP
Under the new provisions, MFAA members can consider varying the terms of a loan repayment once they are aware that the borrower is having trouble meeting repayments.
Also, members can suspend action under the credit facility to recover due payments, and, if a default has not been listed already, the member can choose not to list a default against the borrower until the matter is decided.
MFAA also has urged its 13,000 members to consider encouraging borrowers to make payments they can afford.
"Essentially, our members must now consider whether it is appropriate to vary the terms of repayment on a loan once they are aware a borrower is in financial difficulty," MFAA chief executive Phil Naylor said.
Mr Naylor said about 55 per cent of all mortgages are written by non-banks, mortgage managers and mortgage brokers and it is appropriate that they assist borrowers who are in financial difficulty.
"It is crucial, however, that borrowers who are in some financial difficulty, to advise their lender or broker immediately to ensure the best result can be achieved," he said.
MFAA said that, under the credit facility, members must not require the borrower to apply for early release of their superannuation entitlements or to obtain funds from family, friends or other third parties, prior to the member considering whether to vary the payment terms. Source: AAP
Americans turns to credit cards in the aftermath of the recent mortgage meltdown
America's favourite automated teller, their mortgage, is empty and Americans are relying increasingly on credit cards to pay their living cost shortfall, indicating tough hurdles ahead for US consumer spending and markets.
Federal Reserve data released on Friday showed US consumer borrowing rising by $US12.18 billion ($14.2 billion) in August, more than 20 per cent more than economists had forecast.
Most striking was an 8.1 per cent increase in borrowing on revolving credit lines, mostly credit cards, to a record $US909 billion.
Credit card borrowings rose at the sharpest rate since early 2002.
So what was it that persuaded consumers to rack up more debt during the month?
Was it the increasing press coverage, no doubt reinforced by friends and family, that their houses were worth less than a month or a year ago?
Or was it the near meltdown in financial and credit markets that prompted a surge in speculation about an upcoming recession?
Quite possibly, it wasn't because they felt better, but because things had gotten suddenly worse.
"If they had been financing their consumption on the basis of the equity of their homes and suddenly that is cut off then they will have to borrow more through traditional channels," said Stephen Lewis, economist at Insinger de Beaufort in London.
And August was a very bad month for the substantial minority of Americans who have depended upon housing borrowing to finance ongoing consumption.
Not only were house prices continuing their slow, steady march lower, but the world had woken up to the seriousness of the issue and the asset backed financing markets more or less shut.
That meant less housing wealth to borrow and fewer lenders willing to lend against it, either in the form of a home equity loan or refinancing.
So, what's a borrower to do but put it on the card.
Retail sales rose just 0.3 percent in August, and when motor vehicles and parts were stripped out, sales fell 0.4 per cent, the sharpest drop since September 2006.
Considering that people always have to eat and many Americans have only limited discretion over how much gasoline they use, a period when credit card debt is expanding rapidly while retail sales are contracting points to debt financing of necessities, rather than luxuries.
That, clearly, can't go on forever.
Falling gasoline prices pulled the government's measure of August gasoline sales down sharply, weighing on the overall retail sales reading, however.
Ryan Sweet of Moody's Economy.com notes that mortgage equity withdrawal has been down sharply on a year-on-year basis, a factor that if extended would force consumers further into the arms of their credit card lenders.
Interestingly, the market for credit card based asset-backed securities has recently become quite hot.
Credit card ABS issues in the United States is the only asset-backed segment to experience growth in 2007, up 30 percent on the year to September to $69.2 billion.
Spreads have tightened as well, after having widened considerably over the summer.
Delinquencies are still low, though the most recent data covers only the second quarter. Late payments on bank cards fell in the second quarter to 4.39 per cent from 4.41 per cent, according to the American Bankers Association.
Given the experience with subprime, you can expect that banks will tighten, indeed may already be tightening, access to consumer credit, and that they will see those low rates of late payers rise. Source: Reuters
Federal Reserve data released on Friday showed US consumer borrowing rising by $US12.18 billion ($14.2 billion) in August, more than 20 per cent more than economists had forecast.
Most striking was an 8.1 per cent increase in borrowing on revolving credit lines, mostly credit cards, to a record $US909 billion.
Credit card borrowings rose at the sharpest rate since early 2002.
So what was it that persuaded consumers to rack up more debt during the month?
Was it the increasing press coverage, no doubt reinforced by friends and family, that their houses were worth less than a month or a year ago?
Or was it the near meltdown in financial and credit markets that prompted a surge in speculation about an upcoming recession?
Quite possibly, it wasn't because they felt better, but because things had gotten suddenly worse.
"If they had been financing their consumption on the basis of the equity of their homes and suddenly that is cut off then they will have to borrow more through traditional channels," said Stephen Lewis, economist at Insinger de Beaufort in London.
And August was a very bad month for the substantial minority of Americans who have depended upon housing borrowing to finance ongoing consumption.
Not only were house prices continuing their slow, steady march lower, but the world had woken up to the seriousness of the issue and the asset backed financing markets more or less shut.
That meant less housing wealth to borrow and fewer lenders willing to lend against it, either in the form of a home equity loan or refinancing.
So, what's a borrower to do but put it on the card.
Retail sales rose just 0.3 percent in August, and when motor vehicles and parts were stripped out, sales fell 0.4 per cent, the sharpest drop since September 2006.
Considering that people always have to eat and many Americans have only limited discretion over how much gasoline they use, a period when credit card debt is expanding rapidly while retail sales are contracting points to debt financing of necessities, rather than luxuries.
That, clearly, can't go on forever.
Falling gasoline prices pulled the government's measure of August gasoline sales down sharply, weighing on the overall retail sales reading, however.
Ryan Sweet of Moody's Economy.com notes that mortgage equity withdrawal has been down sharply on a year-on-year basis, a factor that if extended would force consumers further into the arms of their credit card lenders.
Interestingly, the market for credit card based asset-backed securities has recently become quite hot.
Credit card ABS issues in the United States is the only asset-backed segment to experience growth in 2007, up 30 percent on the year to September to $69.2 billion.
Spreads have tightened as well, after having widened considerably over the summer.
Delinquencies are still low, though the most recent data covers only the second quarter. Late payments on bank cards fell in the second quarter to 4.39 per cent from 4.41 per cent, according to the American Bankers Association.
Given the experience with subprime, you can expect that banks will tighten, indeed may already be tightening, access to consumer credit, and that they will see those low rates of late payers rise. Source: Reuters
Americans turns to credit cards in the aftermath of the recent mortgage meltdown
America's favourite automated teller, their mortgage, is empty and Americans are relying increasingly on credit cards to pay their living cost shortfall, indicating tough hurdles ahead for US consumer spending and markets.
Federal Reserve data released on Friday showed US consumer borrowing rising by $US12.18 billion ($14.2 billion) in August, more than 20 per cent more than economists had forecast.
Most striking was an 8.1 per cent increase in borrowing on revolving credit lines, mostly credit cards, to a record $US909 billion.
Credit card borrowings rose at the sharpest rate since early 2002.
So what was it that persuaded consumers to rack up more debt during the month?
Was it the increasing press coverage, no doubt reinforced by friends and family, that their houses were worth less than a month or a year ago?
Or was it the near meltdown in financial and credit markets that prompted a surge in speculation about an upcoming recession?
Quite possibly, it wasn't because they felt better, but because things had gotten suddenly worse.
"If they had been financing their consumption on the basis of the equity of their homes and suddenly that is cut off then they will have to borrow more through traditional channels," said Stephen Lewis, economist at Insinger de Beaufort in London.
And August was a very bad month for the substantial minority of Americans who have depended upon housing borrowing to finance ongoing consumption.
Not only were house prices continuing their slow, steady march lower, but the world had woken up to the seriousness of the issue and the asset backed financing markets more or less shut.
That meant less housing wealth to borrow and fewer lenders willing to lend against it, either in the form of a home equity loan or refinancing.
So, what's a borrower to do but put it on the card.
Retail sales rose just 0.3 percent in August, and when motor vehicles and parts were stripped out, sales fell 0.4 per cent, the sharpest drop since September 2006.
Considering that people always have to eat and many Americans have only limited discretion over how much gasoline they use, a period when credit card debt is expanding rapidly while retail sales are contracting points to debt financing of necessities, rather than luxuries.
That, clearly, can't go on forever.
Falling gasoline prices pulled the government's measure of August gasoline sales down sharply, weighing on the overall retail sales reading, however.
Ryan Sweet of Moody's Economy.com notes that mortgage equity withdrawal has been down sharply on a year-on-year basis, a factor that if extended would force consumers further into the arms of their credit card lenders.
Interestingly, the market for credit card based asset-backed securities has recently become quite hot.
Credit card ABS issues in the United States is the only asset-backed segment to experience growth in 2007, up 30 percent on the year to September to $69.2 billion.
Spreads have tightened as well, after having widened considerably over the summer.
Delinquencies are still low, though the most recent data covers only the second quarter. Late payments on bank cards fell in the second quarter to 4.39 per cent from 4.41 per cent, according to the American Bankers Association.
Given the experience with subprime, you can expect that banks will tighten, indeed may already be tightening, access to consumer credit, and that they will see those low rates of late payers rise. Source: Reuters
Federal Reserve data released on Friday showed US consumer borrowing rising by $US12.18 billion ($14.2 billion) in August, more than 20 per cent more than economists had forecast.
Most striking was an 8.1 per cent increase in borrowing on revolving credit lines, mostly credit cards, to a record $US909 billion.
Credit card borrowings rose at the sharpest rate since early 2002.
So what was it that persuaded consumers to rack up more debt during the month?
Was it the increasing press coverage, no doubt reinforced by friends and family, that their houses were worth less than a month or a year ago?
Or was it the near meltdown in financial and credit markets that prompted a surge in speculation about an upcoming recession?
Quite possibly, it wasn't because they felt better, but because things had gotten suddenly worse.
"If they had been financing their consumption on the basis of the equity of their homes and suddenly that is cut off then they will have to borrow more through traditional channels," said Stephen Lewis, economist at Insinger de Beaufort in London.
And August was a very bad month for the substantial minority of Americans who have depended upon housing borrowing to finance ongoing consumption.
Not only were house prices continuing their slow, steady march lower, but the world had woken up to the seriousness of the issue and the asset backed financing markets more or less shut.
That meant less housing wealth to borrow and fewer lenders willing to lend against it, either in the form of a home equity loan or refinancing.
So, what's a borrower to do but put it on the card.
Retail sales rose just 0.3 percent in August, and when motor vehicles and parts were stripped out, sales fell 0.4 per cent, the sharpest drop since September 2006.
Considering that people always have to eat and many Americans have only limited discretion over how much gasoline they use, a period when credit card debt is expanding rapidly while retail sales are contracting points to debt financing of necessities, rather than luxuries.
That, clearly, can't go on forever.
Falling gasoline prices pulled the government's measure of August gasoline sales down sharply, weighing on the overall retail sales reading, however.
Ryan Sweet of Moody's Economy.com notes that mortgage equity withdrawal has been down sharply on a year-on-year basis, a factor that if extended would force consumers further into the arms of their credit card lenders.
Interestingly, the market for credit card based asset-backed securities has recently become quite hot.
Credit card ABS issues in the United States is the only asset-backed segment to experience growth in 2007, up 30 percent on the year to September to $69.2 billion.
Spreads have tightened as well, after having widened considerably over the summer.
Delinquencies are still low, though the most recent data covers only the second quarter. Late payments on bank cards fell in the second quarter to 4.39 per cent from 4.41 per cent, according to the American Bankers Association.
Given the experience with subprime, you can expect that banks will tighten, indeed may already be tightening, access to consumer credit, and that they will see those low rates of late payers rise. Source: Reuters
Mortgage lender Northern Rock gets a breath of life as the Bank of England gives new aid package.
The Bank of England threw a fresh lifeline to English mortgage lender Northern Rock overnight, offering to guarantee new retail deposits and extend funding arrangements to give the bank time to salvage something from its battered business.
The latest aid package came as the country's financial services watchdog said Northern Rock may not have needed to draw on emergency funds from the Bank of England (BoE) at all if its rescue had not been conducted in the full public glare.
Northern Rock, which saw a run on deposits last month after it was forced by the global credit crunch to seek an emergency funding line from the BoE, said the new package would cost it STG40 million ($A91.21 million) to STG50 million ($A114.01 million) this year -- around 10 per cent of its targeted 2007 profit.
But the bank said the new help would buy it time to assess its full range of options, which include being taken over as a whole, being broken up or even attempting to remain independent on a smaller scale -- an option largely discounted previously.
The review process should be completed by February, it said.
Analysts said the new arrangements could help to reassure prospective buyers and allay fears of shareholders and bondholders of a firesale of assets.
But the arrangements are also controversial, as the decision to guarantee new retail deposits could potentially give Northern Rock an advantage over competitors.
"If my mother were to ask me where she should put her money at the moment, I would say Northern Rock," Numis Securities analyst James Hamilton said.
"What (prospective) buyers will want to know, is how long these arrangements will last and whether they will continue (after a deal)."
Northern Rock said the arrangements would remain in place "during the current instability in the financial markets" and that it would "pay an appropriate fee ... to ensure that it does not receive a commercial advantage".
Paying a commercial rate should help ease concerns the move could be found to count as undue state aid. The EU Commission said Tuesday it would form an opinion once it had full details.
The government had previously agreed to guarantee retail deposits made with Northern Rock before Sept. 19 -- the day after its initial pledge -- but said moving beyond that would be unfair.
It said on Tuesday, however, that it would extend the guarantee to all new deposits "during the current instability in financial markets".
It also said it would offer additional funding from the BoE on more flexible terms, which will allow Northern Rock to also use commercial lending as and when it can.
News of the agreement lifted Northern Rock's shares, down almost 70 per cent since the crisis began in mid-September. The stock ended the day up 19.9 per cent at 206.75 pence.
Source: Reuters
The latest aid package came as the country's financial services watchdog said Northern Rock may not have needed to draw on emergency funds from the Bank of England (BoE) at all if its rescue had not been conducted in the full public glare.
Northern Rock, which saw a run on deposits last month after it was forced by the global credit crunch to seek an emergency funding line from the BoE, said the new package would cost it STG40 million ($A91.21 million) to STG50 million ($A114.01 million) this year -- around 10 per cent of its targeted 2007 profit.
But the bank said the new help would buy it time to assess its full range of options, which include being taken over as a whole, being broken up or even attempting to remain independent on a smaller scale -- an option largely discounted previously.
The review process should be completed by February, it said.
Analysts said the new arrangements could help to reassure prospective buyers and allay fears of shareholders and bondholders of a firesale of assets.
But the arrangements are also controversial, as the decision to guarantee new retail deposits could potentially give Northern Rock an advantage over competitors.
"If my mother were to ask me where she should put her money at the moment, I would say Northern Rock," Numis Securities analyst James Hamilton said.
"What (prospective) buyers will want to know, is how long these arrangements will last and whether they will continue (after a deal)."
Northern Rock said the arrangements would remain in place "during the current instability in the financial markets" and that it would "pay an appropriate fee ... to ensure that it does not receive a commercial advantage".
Paying a commercial rate should help ease concerns the move could be found to count as undue state aid. The EU Commission said Tuesday it would form an opinion once it had full details.
The government had previously agreed to guarantee retail deposits made with Northern Rock before Sept. 19 -- the day after its initial pledge -- but said moving beyond that would be unfair.
It said on Tuesday, however, that it would extend the guarantee to all new deposits "during the current instability in financial markets".
It also said it would offer additional funding from the BoE on more flexible terms, which will allow Northern Rock to also use commercial lending as and when it can.
News of the agreement lifted Northern Rock's shares, down almost 70 per cent since the crisis began in mid-September. The stock ended the day up 19.9 per cent at 206.75 pence.
Source: Reuters
House prices defy relentless mortgage interest rate rises
As money pours into the real-estate market, house prices are expected to keep on rising despite the relentless rise of mortgage interest rates.
A survey by News and polling firm Coredata has found most Australians, or 54 per cent per cent, believe property prices will rise over the next three months.
Just one in six of the 1530 people surveyed in September – or 16 per cent –thought house prices would fall over the next quarter.
The expectation of price rises comes despite Australians having been hit with multiple interest rate rises, with the most recent rise in August. The official cash rate stands at 6.5 per cent and standard variable home loan rates at 8.32 per cent, both at an 11-year high.
Survey: Have you been stung by bank fees?
Westpac today predicted another rate hike in December to 6.75 per cent given strong economic growth and growing inflationary pressures.
"A December rate hike seems the most likely prospect although a delay to February next year cannot be ruled out," says Westpac's chief economist Bill Evans.
House prices rise despite rates
Louis Christopher, the head of research at Advisor Edge, says house prices are rising due to several factors, including strong employment boosting incomes, good population growth and limited growth in the supply of housing.
"In some cities, the supply of new housing has stalled, especially in Sydney, but also in Brisbane and Melbourne, while demand is still growing due to strong income growth and population growth. That is pushing up house prices," says Mr Christopher.
"We've also seen credit firms loosening right up, so people who would not normally have gotten home loans have been getting them, pushing up demand for housing.
"But eventually, if interest rates keep on rising, there will be a breaking point, and house price growth will fall," says Mr Christopher.
Housing affordability to worsen
The steady yet relentless rise in interest rates in Australia over recent years is a prime candidate to explain why housing has become less affordable, according to a Macquarie Bank report on housing.
Macquarie too expects the Reserve Bank of Australia (RBA) to increase interest rates by a further 25 basis points, or possibly more.
"If growth remains strong and the RBA remains alert to potential inflationary pressures, interest rates could rise by another 75 basis points," say the report authors Brian Redican and Hayden Atkins.
"Should the RBA be compelled to tighten policy to address rising inflationary pressures, housing affordability would deteriorate significantly to the worst levels since in the early 1990s," Macquarie says.
On the less likely chance that rates were cut by 1.25 percentage points, due to slowing global growth, Macquarie predicts housing affordability would improve.
"If the RBA was forced to cut interest rates significantly … housing affordability would improve dramatically," the report said.
"Interest payments would decline to around 30 per cent of income which has been sufficient to kick-start activity in the past."
But for now, with house prices looking set to grow and interest rates remaining steady or going up, housing affordability could worsen.
"The most likely scenario – one of modest house price growth – would be sufficient to maintain affordability at current levels. But should house price growth beginning to accelerate back towards its long-run average level, there will be a marked deterioration in affordability," says Macquarie.
Source: Nicki Bourlioufas, business editor of NEWS.com.au
A survey by News and polling firm Coredata has found most Australians, or 54 per cent per cent, believe property prices will rise over the next three months.
Just one in six of the 1530 people surveyed in September – or 16 per cent –thought house prices would fall over the next quarter.
The expectation of price rises comes despite Australians having been hit with multiple interest rate rises, with the most recent rise in August. The official cash rate stands at 6.5 per cent and standard variable home loan rates at 8.32 per cent, both at an 11-year high.
Survey: Have you been stung by bank fees?
Westpac today predicted another rate hike in December to 6.75 per cent given strong economic growth and growing inflationary pressures.
"A December rate hike seems the most likely prospect although a delay to February next year cannot be ruled out," says Westpac's chief economist Bill Evans.
House prices rise despite rates
Louis Christopher, the head of research at Advisor Edge, says house prices are rising due to several factors, including strong employment boosting incomes, good population growth and limited growth in the supply of housing.
"In some cities, the supply of new housing has stalled, especially in Sydney, but also in Brisbane and Melbourne, while demand is still growing due to strong income growth and population growth. That is pushing up house prices," says Mr Christopher.
"We've also seen credit firms loosening right up, so people who would not normally have gotten home loans have been getting them, pushing up demand for housing.
"But eventually, if interest rates keep on rising, there will be a breaking point, and house price growth will fall," says Mr Christopher.
Housing affordability to worsen
The steady yet relentless rise in interest rates in Australia over recent years is a prime candidate to explain why housing has become less affordable, according to a Macquarie Bank report on housing.
Macquarie too expects the Reserve Bank of Australia (RBA) to increase interest rates by a further 25 basis points, or possibly more.
"If growth remains strong and the RBA remains alert to potential inflationary pressures, interest rates could rise by another 75 basis points," say the report authors Brian Redican and Hayden Atkins.
"Should the RBA be compelled to tighten policy to address rising inflationary pressures, housing affordability would deteriorate significantly to the worst levels since in the early 1990s," Macquarie says.
On the less likely chance that rates were cut by 1.25 percentage points, due to slowing global growth, Macquarie predicts housing affordability would improve.
"If the RBA was forced to cut interest rates significantly … housing affordability would improve dramatically," the report said.
"Interest payments would decline to around 30 per cent of income which has been sufficient to kick-start activity in the past."
But for now, with house prices looking set to grow and interest rates remaining steady or going up, housing affordability could worsen.
"The most likely scenario – one of modest house price growth – would be sufficient to maintain affordability at current levels. But should house price growth beginning to accelerate back towards its long-run average level, there will be a marked deterioration in affordability," says Macquarie.
Source: Nicki Bourlioufas, business editor of NEWS.com.au
Rogue mortgage broker found guilty of unconscionable conduct
A mortgage broker has been found guilty of unconscionable conduct for writing loans a borrower was unable to repay, in a landmark decision expected to have far-reaching implications for the broking industry.
Federal Court judge Roger Gyles found Canberra mortgage broker Kelvin Skeers had engaged in "misleading and deceptive conduct" in writing a $360,000 low-documentation home loan for a 20-year-old man who was unemployed, dyslexic and homeless.
It is the first time a mortgage broker has been found guilty of unconscionable conduct for writing unjust loans, and the precedent could leave thousands of mortgage brokers open to action by the corporate regulator and state fair trading bodies.
According to a study by Fujitsu Home Loans released last month, 40,000 Australian households had been stung by "predatory lending" practices.
Those practices ranged from brokers lending to borrowers who were unable to repay loans, to brokers charging excessively high loan financing costs.
Yesterday's ruling follows a decision last week where Mr Skeers' employer Tonadale - trading as ACT Mortgages - was forced to pay $31,000 in compensation to the borrower.
The Australian Securities and Investments Commission is understood to be now pursuing criminal action against Mr Skeers. In yesterday's case, ASIC alleged Mr Skeers had misrepresented the borrower's financial position and misrepresented to the borrower what would be included in those loan application forms.
"This case highlights that unscrupulous conduct in the mortgage industry is not acceptable and that mortgage brokers can be held responsible," ASIC executive director of enforcement Jan Redfern said.
The unemployed borrower had inherited $240,000 and approached ACT Mortgages twice to borrow additional money to buy a home.
Mr Skeers arranged an initial loan for $360,000 and later a second refinancing loan for $400,000. Justice Gyles said the borrower was unable to repay either loan at the time.
Source: AAP
Federal Court judge Roger Gyles found Canberra mortgage broker Kelvin Skeers had engaged in "misleading and deceptive conduct" in writing a $360,000 low-documentation home loan for a 20-year-old man who was unemployed, dyslexic and homeless.
It is the first time a mortgage broker has been found guilty of unconscionable conduct for writing unjust loans, and the precedent could leave thousands of mortgage brokers open to action by the corporate regulator and state fair trading bodies.
According to a study by Fujitsu Home Loans released last month, 40,000 Australian households had been stung by "predatory lending" practices.
Those practices ranged from brokers lending to borrowers who were unable to repay loans, to brokers charging excessively high loan financing costs.
Yesterday's ruling follows a decision last week where Mr Skeers' employer Tonadale - trading as ACT Mortgages - was forced to pay $31,000 in compensation to the borrower.
The Australian Securities and Investments Commission is understood to be now pursuing criminal action against Mr Skeers. In yesterday's case, ASIC alleged Mr Skeers had misrepresented the borrower's financial position and misrepresented to the borrower what would be included in those loan application forms.
"This case highlights that unscrupulous conduct in the mortgage industry is not acceptable and that mortgage brokers can be held responsible," ASIC executive director of enforcement Jan Redfern said.
The unemployed borrower had inherited $240,000 and approached ACT Mortgages twice to borrow additional money to buy a home.
Mr Skeers arranged an initial loan for $360,000 and later a second refinancing loan for $400,000. Justice Gyles said the borrower was unable to repay either loan at the time.
Source: AAP
Monday, October 08, 2007
Westpac Bank throws RAMS a lifeline
Westpac has bought the RAMS brand and franchise network of 92 stores around the country for $140 million - a fraction of what RAMS was worth when the company listed two months ago.
RAMS' share price crashed a month ago when the company revealed the United States credit squeeze was posing funding problems for some of its loans.
Analysts say while the deal would not be the first option for RAMS, it shows Westpac is confident of riding through the credit market crisis.
Good deal
The past two months for RAMS Home Loans have been disastrous.
Just three weeks after listing on the Australian Stock Exchange, its $2.50 share price had crashed to 55 cents.
The company revealed the United States credit squeeze was creating funding problems for $6 billion worth of its home loans.
But today RAMS has received a lifeline. Westpac chief executive David Morgan announced his company has bought the RAMS brand and its shop fronts and agreed to provide up to $2 billion to help the company's funding problems.
"I'm delighted to announce a significant transaction for Westpac, a transaction that expands our distribution reach and provides us with a new growth path," he said.
"On growth, we plan to introduce a broader range of products to complement the RAMS mortgage offering.
"This will initially include a broader set of mortgage products and items such as credit cards, personal loans and general insurance."
RAMS has 92 stores around the country, where customers can go in and purchase a home loan.
The brand is well recognised and the stores are in prime locations in both regional areas and capital cities. This is what a number of banks have been eying off for the past few weeks.
For $140 million, independent banking analyst William Ammentorp says it is a good deal.
"So the big thing is that branch network. A lot of the RAMS franchisees are small businesses operating in local communities," he said.
"They've been providing mortgages and getting people houses for a number of years.
"They pick up those shopfronts and it allows Westpac to perhaps sell Westpac product through those RAMS distribution outlets, but also the opportunity to have yet another outlet to sell through."
"I think Westpac commented it was a 10 per cent uplift in their branch network when this transaction settles."
Solid sector
Mr Ammentorp also says the deal could be a sign Australia has seen the worst of global credit market crisis.
"The larger organisations are doing very well," he said.
"They are very well-capitalised, very well-run, and in times like this it shows just the strength of the Australian banking sector.
"That's not to say there couldn't be difficulties. Northern Rock, the lines around Northern Rock with people withdrawing funds had absolutely no rational basis yet it happened.
"So I'm not suggesting it could happen here, but you never know what can happen in a marketplace.
"But certainly the Australian banking sector and Australian financial services are renowned around the world for being solid and very, very well-run."
The sale is now subject to shareholder approval and is expected to be finalised by January next year.Source: ABC
RAMS' share price crashed a month ago when the company revealed the United States credit squeeze was posing funding problems for some of its loans.
Analysts say while the deal would not be the first option for RAMS, it shows Westpac is confident of riding through the credit market crisis.
Good deal
The past two months for RAMS Home Loans have been disastrous.
Just three weeks after listing on the Australian Stock Exchange, its $2.50 share price had crashed to 55 cents.
The company revealed the United States credit squeeze was creating funding problems for $6 billion worth of its home loans.
But today RAMS has received a lifeline. Westpac chief executive David Morgan announced his company has bought the RAMS brand and its shop fronts and agreed to provide up to $2 billion to help the company's funding problems.
"I'm delighted to announce a significant transaction for Westpac, a transaction that expands our distribution reach and provides us with a new growth path," he said.
"On growth, we plan to introduce a broader range of products to complement the RAMS mortgage offering.
"This will initially include a broader set of mortgage products and items such as credit cards, personal loans and general insurance."
RAMS has 92 stores around the country, where customers can go in and purchase a home loan.
The brand is well recognised and the stores are in prime locations in both regional areas and capital cities. This is what a number of banks have been eying off for the past few weeks.
For $140 million, independent banking analyst William Ammentorp says it is a good deal.
"So the big thing is that branch network. A lot of the RAMS franchisees are small businesses operating in local communities," he said.
"They've been providing mortgages and getting people houses for a number of years.
"They pick up those shopfronts and it allows Westpac to perhaps sell Westpac product through those RAMS distribution outlets, but also the opportunity to have yet another outlet to sell through."
"I think Westpac commented it was a 10 per cent uplift in their branch network when this transaction settles."
Solid sector
Mr Ammentorp also says the deal could be a sign Australia has seen the worst of global credit market crisis.
"The larger organisations are doing very well," he said.
"They are very well-capitalised, very well-run, and in times like this it shows just the strength of the Australian banking sector.
"That's not to say there couldn't be difficulties. Northern Rock, the lines around Northern Rock with people withdrawing funds had absolutely no rational basis yet it happened.
"So I'm not suggesting it could happen here, but you never know what can happen in a marketplace.
"But certainly the Australian banking sector and Australian financial services are renowned around the world for being solid and very, very well-run."
The sale is now subject to shareholder approval and is expected to be finalised by January next year.Source: ABC
Mortgage lender RAMS raises standard variable interest rate
Australian Mortgage lender RAMS has been badly affected by the US credit market crisis. (AFP Photo: Greg Wood)Troubled mortgage lender RAMS says it had no other choice but to pass on another rate rise to its home loan customers.
RAMS has been badly affected by the credit market crisis which placed its funding from US capital markets in jeopardy.
Company chief executive officer Greg Kolivos says the lender has been forced to increase its standard variable interest rate for home loans.
"We've been able to hang on for as long we possibly can, but as we've found with a number of other institutions in the market place, our cost of funding has increased," he said.
"Obviously we expect to stay at higher levels than they were previously and therefore we have had to pass some of that on to consumers."
Pending shareholder approval, the company's distribution business and name will be sold to Westpac for $140 million, but it will still keep its home loan portfolio.
Federal Treasurer Peter Costello says the proposed restructure will strengthen the troubled company.
"This will give added strength to RAMS if that arrangement goes ahead, and I welcome the announcement that's been made," he said.
"It's an in principle announcement and provided all of the parties are in agreement, I think it could be a very positive step forward."
Despite the takeover news, RAMS shares took a battering and at the end of trade had slumped more than 22 per cent to 66 cents. Source: ABC
RAMS has been badly affected by the credit market crisis which placed its funding from US capital markets in jeopardy.
Company chief executive officer Greg Kolivos says the lender has been forced to increase its standard variable interest rate for home loans.
"We've been able to hang on for as long we possibly can, but as we've found with a number of other institutions in the market place, our cost of funding has increased," he said.
"Obviously we expect to stay at higher levels than they were previously and therefore we have had to pass some of that on to consumers."
Pending shareholder approval, the company's distribution business and name will be sold to Westpac for $140 million, but it will still keep its home loan portfolio.
Federal Treasurer Peter Costello says the proposed restructure will strengthen the troubled company.
"This will give added strength to RAMS if that arrangement goes ahead, and I welcome the announcement that's been made," he said.
"It's an in principle announcement and provided all of the parties are in agreement, I think it could be a very positive step forward."
Despite the takeover news, RAMS shares took a battering and at the end of trade had slumped more than 22 per cent to 66 cents. Source: ABC
RAMS investors unhappy after market slaughter of mortgage lender
RAMS Home Loans has disappointed investors with its first profit announcement since floating the Mortgage lender on the stock exchange last month.
It has reported a bottom line profit of just over $15 million.
The company says the results are in line in with its prospectus forecast, but its share price has dropped nine cents to $1.07.
The share price hit a low of 55.5 cents earlier this month after RAMS revealed that US credit market problems had forced it to access more expensive interim funding for $6 billion worth of its loan book.
The company says it will not know the full extent of the impact on its 2008 results until refinancing has been locked in.
Source: ABC
It has reported a bottom line profit of just over $15 million.
The company says the results are in line in with its prospectus forecast, but its share price has dropped nine cents to $1.07.
The share price hit a low of 55.5 cents earlier this month after RAMS revealed that US credit market problems had forced it to access more expensive interim funding for $6 billion worth of its loan book.
The company says it will not know the full extent of the impact on its 2008 results until refinancing has been locked in.
Source: ABC
Sunday, August 26, 2007
Aussie John has a plan to fix housing affordability
Aussie Home Loans boss John Symond said yesterday he had presented Prime Minister John Howard with a solution to the problem because years of political buck passing had led to inaction at all levels of government.
Mr Symond's plan would give first-home buyers a tax deduction of up to $4725 a year for five years on annual home loan interest repayments of $15,000. That equates to a $400 monthly saving, reducing loan repayments from $1900 to $1500 on a $300,000 loan.
The maximum benefit would be available for new homes or units worth $200,000 to $500,000.
After getting on top of their mortgage repayments, borrowers would pay back half the benefit over the next five years - a maximum of $200 a month or $2362 a year.
"Housing affordability today, in all my 30 years in the business, is the worst it has ever been for first-home buyers," Mr Symond said yesterday.
"If we sit by and do nothing the crisis just deepens - that's what's happening at the moment."
Mr Symond met Mr Howard in Sydney for an hour on Tuesday to present him with the report and detail how the proposal would work.
Mr Howard yesterday told The Daily Telegraph he was interested in the proposal and would have a thorough look at it before releasing his own policy on housing affordability.
"I haven't made a decision, I'm not saying 'yes' or 'no' but I always look at something that John Symond puts forward," Mr Howard said.
"He's a very public-spirited man, he's contributed a lot and I always take his ideas seriously."
The scheme would cost the Federal Government $505 million per year and would be open only to people buying new dwellings - in an effort to stimulate construction and increase housing supply on city fringes.
Opposition housing spokeswoman Tanya Plibersek said the more that experts contributed to solve housing affordability the better.
"It's a very important issue for many Australians and the Government has been unwilling to propose any solutions of its own," she said.
The plan has been in development for the past four months in conjunction with economic analysts BIS Shrapnel, which yesterday predicted the Reserve Bank of Australia would raise its cash rate from 6.5 per to 7.3 per cent by 2011.
"Substantial interest rate rises in the next 12 months is unlikely but the risk is, if we've got strong construction activity, that they will rise significantly by 2010/11," BIS Shrapnel boss Robert Mellor said.
He estimated the number of Australians aged between 25 and 35 years - the average first home buyer age - would increase by 36,200 over the next five years.
Source: Daily Telegraph
Mr Symond's plan would give first-home buyers a tax deduction of up to $4725 a year for five years on annual home loan interest repayments of $15,000. That equates to a $400 monthly saving, reducing loan repayments from $1900 to $1500 on a $300,000 loan.
The maximum benefit would be available for new homes or units worth $200,000 to $500,000.
After getting on top of their mortgage repayments, borrowers would pay back half the benefit over the next five years - a maximum of $200 a month or $2362 a year.
"Housing affordability today, in all my 30 years in the business, is the worst it has ever been for first-home buyers," Mr Symond said yesterday.
"If we sit by and do nothing the crisis just deepens - that's what's happening at the moment."
Mr Symond met Mr Howard in Sydney for an hour on Tuesday to present him with the report and detail how the proposal would work.
Mr Howard yesterday told The Daily Telegraph he was interested in the proposal and would have a thorough look at it before releasing his own policy on housing affordability.
"I haven't made a decision, I'm not saying 'yes' or 'no' but I always look at something that John Symond puts forward," Mr Howard said.
"He's a very public-spirited man, he's contributed a lot and I always take his ideas seriously."
The scheme would cost the Federal Government $505 million per year and would be open only to people buying new dwellings - in an effort to stimulate construction and increase housing supply on city fringes.
Opposition housing spokeswoman Tanya Plibersek said the more that experts contributed to solve housing affordability the better.
"It's a very important issue for many Australians and the Government has been unwilling to propose any solutions of its own," she said.
The plan has been in development for the past four months in conjunction with economic analysts BIS Shrapnel, which yesterday predicted the Reserve Bank of Australia would raise its cash rate from 6.5 per to 7.3 per cent by 2011.
"Substantial interest rate rises in the next 12 months is unlikely but the risk is, if we've got strong construction activity, that they will rise significantly by 2010/11," BIS Shrapnel boss Robert Mellor said.
He estimated the number of Australians aged between 25 and 35 years - the average first home buyer age - would increase by 36,200 over the next five years.
Source: Daily Telegraph
RAMS caught up in storm
Home mortgage lender RAMS is caught in the eye of an intensifying global financial storm, with its share price collapsing as it searches for billions of dollars in funding.
But the boss of the nation's biggest non-bank mortgage lender told The Australian last night that its customers had no cause for concern, and the business was not under threat.
"Yes, RAMS has some short-term funding issues to address, but that in no way affects our ability to continue to operate," chief executive Greg Kolivos said. "It's business as usual as far as we're concerned."
RAMS listed on the Australian Stock Exchange on July 27 in an $885 million float, enabling founder John Kinghorn to reap more than $600 million in cash by reducing his holding from 93 per cent to 20 per cent.
But investors who paid the $2.50 issue price were a long way under water yesterday after RAMS shares crashed again in response to the company's revelations about its funding problems.
The stock sagged 48.5c, or 36 per cent, to 85.5c, hitting an intra-day low of 55.5c. At the close of trading, the company was worth just $306 million, meaning Mr Kinghorn could buy it back with the cash he raised by selling shares into the float.
Other non-bank lenders, such as Bluestone, have also been hit by higher borrowing costs, which are likely to be passed on to customers in the form of higher mortgage rates. On Wednesday, Commonwealth Bank chief executive Ralph Norris said rates would inevitably rise across the industry.
Mr Kinghorn said on Tuesday, when the full extent of RAMS's problems surfaced, that "life was cool" until Thursday last week.
That was when France's biggest bank, BNP Paribas, triggered a new wave of global instability by suspending redemptions on several investment funds exposed to the US sub-prime mortgage crisis.
RAMS has no risky sub-prime exposure, but it relies on the evaporating short-term debt market in the US to raise money that it on-lends to Australian home buyers. The company has about 60,000 home loans to borrowers around the nation.
It passed on last week's 25-basis-point hike in official interest rates to new customers, while rates for existing borrowers went up 25-30 basis points. Despite the crisis, RAMS said on Tuesday it would not jack its rates up to offset the increase in its own funding costs.
In the US overnight on Wednesday, investors baulked when RAMS tried to roll over $600million in 30-day funding.
For the first time, an Australian company relied on a funding clause in the short-term debt market to extend its commercial paper, giving it a 180-day window to find alternative, longer-term funding for $6.17 billion of its $14.16 billion loan book.
RAMS told the stock exchange yesterday that the company's performance was not at fault.
"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 in a statement. "The underlying business of the company continues to operate profitably."Source: The Australain
But the boss of the nation's biggest non-bank mortgage lender told The Australian last night that its customers had no cause for concern, and the business was not under threat.
"Yes, RAMS has some short-term funding issues to address, but that in no way affects our ability to continue to operate," chief executive Greg Kolivos said. "It's business as usual as far as we're concerned."
RAMS listed on the Australian Stock Exchange on July 27 in an $885 million float, enabling founder John Kinghorn to reap more than $600 million in cash by reducing his holding from 93 per cent to 20 per cent.
But investors who paid the $2.50 issue price were a long way under water yesterday after RAMS shares crashed again in response to the company's revelations about its funding problems.
The stock sagged 48.5c, or 36 per cent, to 85.5c, hitting an intra-day low of 55.5c. At the close of trading, the company was worth just $306 million, meaning Mr Kinghorn could buy it back with the cash he raised by selling shares into the float.
Other non-bank lenders, such as Bluestone, have also been hit by higher borrowing costs, which are likely to be passed on to customers in the form of higher mortgage rates. On Wednesday, Commonwealth Bank chief executive Ralph Norris said rates would inevitably rise across the industry.
Mr Kinghorn said on Tuesday, when the full extent of RAMS's problems surfaced, that "life was cool" until Thursday last week.
That was when France's biggest bank, BNP Paribas, triggered a new wave of global instability by suspending redemptions on several investment funds exposed to the US sub-prime mortgage crisis.
RAMS has no risky sub-prime exposure, but it relies on the evaporating short-term debt market in the US to raise money that it on-lends to Australian home buyers. The company has about 60,000 home loans to borrowers around the nation.
It passed on last week's 25-basis-point hike in official interest rates to new customers, while rates for existing borrowers went up 25-30 basis points. Despite the crisis, RAMS said on Tuesday it would not jack its rates up to offset the increase in its own funding costs.
In the US overnight on Wednesday, investors baulked when RAMS tried to roll over $600million in 30-day funding.
For the first time, an Australian company relied on a funding clause in the short-term debt market to extend its commercial paper, giving it a 180-day window to find alternative, longer-term funding for $6.17 billion of its $14.16 billion loan book.
RAMS told the stock exchange yesterday that the company's performance was not at fault.
"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 in a statement. "The underlying business of the company continues to operate profitably."Source: The Australain
More mortgage pain ahead following credit issues in the US
The CBA says mortgage rates to rise even if no RBA rise Non-bank lenders' rates likely to rise the most Australian stocks slumped almost 3% last week.
The nation's biggest home lender has warned that home-owners' mortgage rates will rise as the fallout from the US housing crisis continues to spread through global financial markets.
As the Australian stock market suffered another $48 billion plunge in value yesterday - taking its losses in the past three weeks to almost 10 per cent - Commonwealth Bank chief executive Ralph Norris said mortgage rates were likely to rise even if the Reserve Bank did not lift official rates.
Non-bank lenders most affected
Mr Norris said non-bank lenders - companies such as Bluestone, Wizard and Aussie Home Loans - would be more significantly affected by the credit crunch triggered by the crisis among poor-quality sub-prime home loans in the US.
He said the Commonwealth had no plans to lift rates, "but the market is driven by supply and demand, and if funding costs increase significantly, then we pass that on".
"The fact of the matter is the price of credit in the market internationally has moved, so there will at some stage be some increase in rates," he said.
"In regard to the level of those increases, non-bank lenders are going to be in a situation where they're going to have to pass on significantly greater increases than a bank like us."
Bluestone rates already raised above RBA rate
The Australian reported this week that Bluestone, hit by the higher cost of borrowing money to on-lend to its customers, had been forced to raise mortgage rates by 17-55 basis points.
Other lenders, particularly those offering low-documentation loans to customers with poor credit histories, are also likely to pass on the higher costs.
Aussie Home Loans' John Symond has warned rates will rise by about 0.25 percentage points.
And Mr Norris warned home-owners that he expected official interest rates to rise further after the Reserve Bank's increase of 0.25 percentage points last week to 6.5 per cent.
The sub-prime crisis continues to hurt international stock markets, with the Australian market, which took its lead from a falling Wall St, slumping almost 3 per cent yesterday.
The benchmark S&P/ASX 200 index, which yesterday fell 176.8 points to 5788 points, is down 9.9 per cent - just shy of the technical correction point of 10 per cent - since its record high of 6422.3 on July 24.
Aussie stock market falls
The Australian stock market, bolstered by the strength of its resources stocks, has in recent months been able to avoid following the big falls on Wall St.
But the Dow Jones Industrial Average is down just 7 per cent since the sub-prime crisis first broke three weeks ago, and in the past two trading sessions, the Australian stock market has suffered bigger falls than its New York counterpart.
Failures by mortgage lenders in the US, most of which were dealing in the riskier end of the housing market, have kept the US share market on tenterhooks for close to a month, and every day that provides a new financial hardship story pushes that market down further.
Investors in Australia's worst-affected hedge fund, Basis Capital's Yield Fund, were told yesterday by the fund's Sydney-based manager that they were now likely to lose more than 80 per cent of their money because of the sub-prime meltdown. Source: The Australian
The nation's biggest home lender has warned that home-owners' mortgage rates will rise as the fallout from the US housing crisis continues to spread through global financial markets.
As the Australian stock market suffered another $48 billion plunge in value yesterday - taking its losses in the past three weeks to almost 10 per cent - Commonwealth Bank chief executive Ralph Norris said mortgage rates were likely to rise even if the Reserve Bank did not lift official rates.
Non-bank lenders most affected
Mr Norris said non-bank lenders - companies such as Bluestone, Wizard and Aussie Home Loans - would be more significantly affected by the credit crunch triggered by the crisis among poor-quality sub-prime home loans in the US.
He said the Commonwealth had no plans to lift rates, "but the market is driven by supply and demand, and if funding costs increase significantly, then we pass that on".
"The fact of the matter is the price of credit in the market internationally has moved, so there will at some stage be some increase in rates," he said.
"In regard to the level of those increases, non-bank lenders are going to be in a situation where they're going to have to pass on significantly greater increases than a bank like us."
Bluestone rates already raised above RBA rate
The Australian reported this week that Bluestone, hit by the higher cost of borrowing money to on-lend to its customers, had been forced to raise mortgage rates by 17-55 basis points.
Other lenders, particularly those offering low-documentation loans to customers with poor credit histories, are also likely to pass on the higher costs.
Aussie Home Loans' John Symond has warned rates will rise by about 0.25 percentage points.
And Mr Norris warned home-owners that he expected official interest rates to rise further after the Reserve Bank's increase of 0.25 percentage points last week to 6.5 per cent.
The sub-prime crisis continues to hurt international stock markets, with the Australian market, which took its lead from a falling Wall St, slumping almost 3 per cent yesterday.
The benchmark S&P/ASX 200 index, which yesterday fell 176.8 points to 5788 points, is down 9.9 per cent - just shy of the technical correction point of 10 per cent - since its record high of 6422.3 on July 24.
Aussie stock market falls
The Australian stock market, bolstered by the strength of its resources stocks, has in recent months been able to avoid following the big falls on Wall St.
But the Dow Jones Industrial Average is down just 7 per cent since the sub-prime crisis first broke three weeks ago, and in the past two trading sessions, the Australian stock market has suffered bigger falls than its New York counterpart.
Failures by mortgage lenders in the US, most of which were dealing in the riskier end of the housing market, have kept the US share market on tenterhooks for close to a month, and every day that provides a new financial hardship story pushes that market down further.
Investors in Australia's worst-affected hedge fund, Basis Capital's Yield Fund, were told yesterday by the fund's Sydney-based manager that they were now likely to lose more than 80 per cent of their money because of the sub-prime meltdown. Source: The Australian
Mortgage Broker sees credit crisis as an opportunity
Mortgage broker Mortgage Choice sees ongoing concerns in global credit markets as an opportunity, rather than a risk to its business, the company's managing director Paul Lahiff said today.
The Sydney-based mortgage broker today reported a 9.7 per cent increase in net profit to a record $19.59 million for 2006/07, underpinned by an expansion of its business in states other than NSW.
Mr Lahiff said the result was achieved despite challenging market conditions.
"This result clearly demonstrates the strength of our national model," Mr Lahiff said.
"We were less reliant on what is currently a variable NSW housing market to provide the performance we were after.
"By contrast, Western Australia and Queensland have continued their strong growth off the back of the resources boom, while Victoria and South Australia performed in line with longer term historical trends.
"The results achieved underline the fact that Mortgage Choice has an extremely high quality, proven business model - one that is capable of delivering a sound performance even in challenging market conditions."
Mr Lahiff said ructions in financial markets stemming from problems in the US sub-prime mortgage sector had not impacted Mortgage Choice.
"We don't manufacture, we don't fund, we don't service the loans - that's the responsibility of the lenders.
"We don't have our own mortgage products which means we have no balance sheet or funding risk ... so (there's been) absolutely no impact from the events of the past few weeks."
Mr Lahiff said the company's role as a mortgage broker, rather than a lender, meant it would remain well insulated from any further fallout in credit markets.
"We don't have a direct exposure there because we don't have any funding or manufacturing capabilities ... there will be some waves that flow out from that (which) will inevitably touch us in some shape or form (but) we don't believe those to be significant.
"We also believe that while (some) organisations may tend to batten down the hatches, we see a good opportunity to go forward."
Mr Lahiff said the portion of "non-conforming" loans - the equivalent of a sub-prime loan - originated by Mortgage Choice was "incredibly low".
"The latest set of data (shows) that of the total loans that we booked, 0.67 per cent were non-conforming ... it's not a major part of our business," he said.
And while the ongoing global credit crunch is likely to impact on lending rates in Australia, chiefly in the non-bank sector, chief financial officer Tony Crossley said Mortgage Choice was in a position to take advantage.
"Essentially, in the short term, there's certainly upward pressure on interest rates ... the extent to which it's passed on is really a judgement call for the lenders," Mr Crossley said.
"From our point of view we think we are reasonably well placed to take advantage of any of that because (of our ability) to shift from one type of lender to another."
Mr Lahiff said that given the current environment, the company would "be alert to acquisition opportunities" but that organic growth would remain its chief focus.
"In this market, visibility, strong brand values, quality, consistency and track record are the keys," Mr Lahiff said.
"Lenders are increasingly basing rewards on quality, sustainability and performance." "We are confident that Mortgage Choice is well placed to achieve profitable growth in the coming year.
"Improved broker recruitment, an increasing commercial and retail office presence and through our invest-to-grow strategy, the ability to scale up the business will continue to be important going forward."
Mortgage Choice declared a final fully franked dividend of 8.5 cents per share, bringing the total ordinary dividend for the year to 14 cents per share.
Source: AAP
The Sydney-based mortgage broker today reported a 9.7 per cent increase in net profit to a record $19.59 million for 2006/07, underpinned by an expansion of its business in states other than NSW.
Mr Lahiff said the result was achieved despite challenging market conditions.
"This result clearly demonstrates the strength of our national model," Mr Lahiff said.
"We were less reliant on what is currently a variable NSW housing market to provide the performance we were after.
"By contrast, Western Australia and Queensland have continued their strong growth off the back of the resources boom, while Victoria and South Australia performed in line with longer term historical trends.
"The results achieved underline the fact that Mortgage Choice has an extremely high quality, proven business model - one that is capable of delivering a sound performance even in challenging market conditions."
Mr Lahiff said ructions in financial markets stemming from problems in the US sub-prime mortgage sector had not impacted Mortgage Choice.
"We don't manufacture, we don't fund, we don't service the loans - that's the responsibility of the lenders.
"We don't have our own mortgage products which means we have no balance sheet or funding risk ... so (there's been) absolutely no impact from the events of the past few weeks."
Mr Lahiff said the company's role as a mortgage broker, rather than a lender, meant it would remain well insulated from any further fallout in credit markets.
"We don't have a direct exposure there because we don't have any funding or manufacturing capabilities ... there will be some waves that flow out from that (which) will inevitably touch us in some shape or form (but) we don't believe those to be significant.
"We also believe that while (some) organisations may tend to batten down the hatches, we see a good opportunity to go forward."
Mr Lahiff said the portion of "non-conforming" loans - the equivalent of a sub-prime loan - originated by Mortgage Choice was "incredibly low".
"The latest set of data (shows) that of the total loans that we booked, 0.67 per cent were non-conforming ... it's not a major part of our business," he said.
And while the ongoing global credit crunch is likely to impact on lending rates in Australia, chiefly in the non-bank sector, chief financial officer Tony Crossley said Mortgage Choice was in a position to take advantage.
"Essentially, in the short term, there's certainly upward pressure on interest rates ... the extent to which it's passed on is really a judgement call for the lenders," Mr Crossley said.
"From our point of view we think we are reasonably well placed to take advantage of any of that because (of our ability) to shift from one type of lender to another."
Mr Lahiff said that given the current environment, the company would "be alert to acquisition opportunities" but that organic growth would remain its chief focus.
"In this market, visibility, strong brand values, quality, consistency and track record are the keys," Mr Lahiff said.
"Lenders are increasingly basing rewards on quality, sustainability and performance." "We are confident that Mortgage Choice is well placed to achieve profitable growth in the coming year.
"Improved broker recruitment, an increasing commercial and retail office presence and through our invest-to-grow strategy, the ability to scale up the business will continue to be important going forward."
Mortgage Choice declared a final fully franked dividend of 8.5 cents per share, bringing the total ordinary dividend for the year to 14 cents per share.
Source: AAP
Sunday, August 12, 2007
Mortgage interest rate blame on states dumb says Treasurer
The New South Wales Treasurer, Michael Costa, says the Federal Government's attempt to blame individual state borrowing levels for the anticipated mortgage interest rate rise is absurd.
The Prime Minister says the states are borrowing $70 billion and plunging Australia into debt.
New South Wales has the biggest infrastructure plan, with expected spending of $50 billion over the next four years - 40 per cent of that will be borrowed.
But Michael Costa says there is no stress on that undertaking.
"We are seeing no pressure on our treasury corporation to offer greater returns for people to take on that debt," he said.
Mr Costa says the Federal government cannot inoculate itself from another interest rate rise after overselling its economic credentials and handing out tax cuts last year in a vote buying exercise.
"The Federal government is absolutely desperate - they take credit when the economy is going well - when they're in difficulty they want to blame the states."
Mr Costa says the NSW capital spending program can be slowed if interest rates rise.Source: ABC
The Prime Minister says the states are borrowing $70 billion and plunging Australia into debt.
New South Wales has the biggest infrastructure plan, with expected spending of $50 billion over the next four years - 40 per cent of that will be borrowed.
But Michael Costa says there is no stress on that undertaking.
"We are seeing no pressure on our treasury corporation to offer greater returns for people to take on that debt," he said.
Mr Costa says the Federal government cannot inoculate itself from another interest rate rise after overselling its economic credentials and handing out tax cuts last year in a vote buying exercise.
"The Federal government is absolutely desperate - they take credit when the economy is going well - when they're in difficulty they want to blame the states."
Mr Costa says the NSW capital spending program can be slowed if interest rates rise.Source: ABC
Mortgage interest rate rise has Labor and Liberals at loggerheads
The reality of mortgage interest rates increases for home-buyers and businesses have been left to count the cost after a rise in official interest rates.
The Reserve Bank of Australia this week put the cash rate up 0.25 per cent to 6.5 per cent, the highest level in over 10 years.
Economists say the mortgage rate rise will translate to a rise of nearly $40 a month for Australians holding a $250,000 mortgage.
The first election-year rise since the Reserve Bank became independent sparked a war of words between the Government and Opposition.
In a rare joint news conference, Prime Minister John Howard and Treasurer Peter Costello used the news to put pressure on Labor over its economic credentials. [deflecting any questions of him breaking promises to homeowners and home buyers that rates woul remain at record lows.
"What this decision does is to place economic management once again front and centre in the political debate in this country," Mr Howard said.
Mr Costello said mortgage rates would still be lower than at any time under the former government.
He said the standard variable mortgage rate of 8.3 per cent was 4.5 per cent lower than the average under former Labor prime ministers Bob Hawke and Paul Keating, and "less than half of the notorious 17 per cent".
"The official cash rate of 6.5 per cent is lower than it was when this Government was elected and that is after 11 years of growth and 2.1 million new jobs," he added.
But Opposition Leader Kevin Rudd accused the Government of being out of touch and said the rates rise was a worrying development for households across Australia.
He said households were also being squeezed by rising petrol prices and the high cost of groceries.
"Working families are already struggling to make ends meet, particularly when you count nine interest rate rises on the run," he said.
Mr Rudd sought to deflect criticism of Labor's economic credentials, promising that a Labor government would maintain a Budget surplus and make fewer spending commitments than the Howard Government.
His treasury spokesman Wayne Swan accused the Government of losing touch with the reality of working families.
"A lot of families will be sitting around the kitchen table tonight wondering how they're going to make ends meet," Mr Swan said.
"On a day when they should have been explaining why they broke their interest rates promise, they stood there patting their backs," he said of Mr Howard and Mr Costello.
Greens Leader Bob Brown blames the Prime Minister for the rates rise.
"John Howard has given the average income earner in this country increased interest rates, while the wealthy got the tax cuts and it's not a good bargain," he said.
Default warning
Meanwhile the rise sparked a warning that many Australian families will lose their homes as they fail to keep up with mortgage payments.
David Imber from the Australians for Affordable Housing lobby group says many people will now be forced to default on their mortgages.
"We've already seen default rates double across Sydney and we know that it's spreading right across the country," he said.
"Mortgage defaults is the absolute worst sign of the housing affordability crisis for people who own their home.
"But of course in the rental market we've got hundreds of thousands of Australians who can't even afford to make it up to that opportunity to be able to purchase their home and we're very worried for them."
Housing Industry Association spokesman Ron Silberberg says any contention that there is not widespread mortgage stress reveals a callous indifference to the plight of many people.
"Particularly first home buyers that came into the market when house prices were increasing very rapidly in the the belief that interest rates would be stable," he said.
House prices up
In another blow for new homebuyers, there has been an increase in house prices across the country.
Figures released by the Australian Bureau of Statistics show there was a 9.2 per cent rise in home prices over the year to June and a 3.2 per cent increase in the quarter.
Of the capital cities, Brisbane and Perth recorded the biggest rises over the year with prices increasing by more than 15 per cent.
Australians are also borrowing more for housing with a 9.2 per cent increase in the value of home loans for the month of June.
Loans to investors also increased at a much faster pace than loans to owner-occupiers.
Banks plan rises
The big banks are yet to say how they will pass on the official rate rise to customers.
ANZ Bank chief economist Saul Eslake says the Reserve Bank is trying to rein in consumer spending and keep inflation in check.
"For home borrowers, this announcement means an extra $16 a month for every $100,000 of mortgage outstanding," he said.
"So, for example, someone with a $250,000 mortgage would be looking at close to $40 a month by way of extra mortgage repayments."
ANZ spokesman Paul Edwards also says it is inevitable there is going to be a flow-on to home-lending rates.
"But we'll take a few days to digest the change and work out the flow-on to our various products," he said.
Westpac also says it is inevitable its lending rates will go up. The National Australia and Commonwealth Banks say their rates are under review.Source: ABC
The Reserve Bank of Australia this week put the cash rate up 0.25 per cent to 6.5 per cent, the highest level in over 10 years.
Economists say the mortgage rate rise will translate to a rise of nearly $40 a month for Australians holding a $250,000 mortgage.
The first election-year rise since the Reserve Bank became independent sparked a war of words between the Government and Opposition.
In a rare joint news conference, Prime Minister John Howard and Treasurer Peter Costello used the news to put pressure on Labor over its economic credentials. [deflecting any questions of him breaking promises to homeowners and home buyers that rates woul remain at record lows.
"What this decision does is to place economic management once again front and centre in the political debate in this country," Mr Howard said.
Mr Costello said mortgage rates would still be lower than at any time under the former government.
He said the standard variable mortgage rate of 8.3 per cent was 4.5 per cent lower than the average under former Labor prime ministers Bob Hawke and Paul Keating, and "less than half of the notorious 17 per cent".
"The official cash rate of 6.5 per cent is lower than it was when this Government was elected and that is after 11 years of growth and 2.1 million new jobs," he added.
But Opposition Leader Kevin Rudd accused the Government of being out of touch and said the rates rise was a worrying development for households across Australia.
He said households were also being squeezed by rising petrol prices and the high cost of groceries.
"Working families are already struggling to make ends meet, particularly when you count nine interest rate rises on the run," he said.
Mr Rudd sought to deflect criticism of Labor's economic credentials, promising that a Labor government would maintain a Budget surplus and make fewer spending commitments than the Howard Government.
His treasury spokesman Wayne Swan accused the Government of losing touch with the reality of working families.
"A lot of families will be sitting around the kitchen table tonight wondering how they're going to make ends meet," Mr Swan said.
"On a day when they should have been explaining why they broke their interest rates promise, they stood there patting their backs," he said of Mr Howard and Mr Costello.
Greens Leader Bob Brown blames the Prime Minister for the rates rise.
"John Howard has given the average income earner in this country increased interest rates, while the wealthy got the tax cuts and it's not a good bargain," he said.
Default warning
Meanwhile the rise sparked a warning that many Australian families will lose their homes as they fail to keep up with mortgage payments.
David Imber from the Australians for Affordable Housing lobby group says many people will now be forced to default on their mortgages.
"We've already seen default rates double across Sydney and we know that it's spreading right across the country," he said.
"Mortgage defaults is the absolute worst sign of the housing affordability crisis for people who own their home.
"But of course in the rental market we've got hundreds of thousands of Australians who can't even afford to make it up to that opportunity to be able to purchase their home and we're very worried for them."
Housing Industry Association spokesman Ron Silberberg says any contention that there is not widespread mortgage stress reveals a callous indifference to the plight of many people.
"Particularly first home buyers that came into the market when house prices were increasing very rapidly in the the belief that interest rates would be stable," he said.
House prices up
In another blow for new homebuyers, there has been an increase in house prices across the country.
Figures released by the Australian Bureau of Statistics show there was a 9.2 per cent rise in home prices over the year to June and a 3.2 per cent increase in the quarter.
Of the capital cities, Brisbane and Perth recorded the biggest rises over the year with prices increasing by more than 15 per cent.
Australians are also borrowing more for housing with a 9.2 per cent increase in the value of home loans for the month of June.
Loans to investors also increased at a much faster pace than loans to owner-occupiers.
Banks plan rises
The big banks are yet to say how they will pass on the official rate rise to customers.
ANZ Bank chief economist Saul Eslake says the Reserve Bank is trying to rein in consumer spending and keep inflation in check.
"For home borrowers, this announcement means an extra $16 a month for every $100,000 of mortgage outstanding," he said.
"So, for example, someone with a $250,000 mortgage would be looking at close to $40 a month by way of extra mortgage repayments."
ANZ spokesman Paul Edwards also says it is inevitable there is going to be a flow-on to home-lending rates.
"But we'll take a few days to digest the change and work out the flow-on to our various products," he said.
Westpac also says it is inevitable its lending rates will go up. The National Australia and Commonwealth Banks say their rates are under review.Source: ABC
Interest rates, unemployment will soar under Labor, says Liberal funded report on workplace reform by Labor arch rivals Australian Chamber of Commerce
A new report has warned that Labor's promise to abolish the Coalition's WorkChoices reforms if its wins government would push up mortgage interest rates and unemployment. Labor denies this as a false assumption, and the report is written by liberal pals ACC.
The Australian Chamber of Commerce and Industry (ACCI) commissioned the economic consultants Econtech to model the consequences if the industrial relations landscape of 1993 was restored.
Its study predicted that would result in a 1.3 per cent hike in inflation and interest rates would climb by 1.4 per cent, pushing up the average mortgage by $273 a month.
ACCI spokesman Peter Hendy says the axing of WorkChoices alone makes up a sizeable share of the predictions.
"You would see about a third of the results here, so a very, very significant impact on the Australian economy," he said.
Mr Hendy says the report also forecasts major job losses.
"If you reverse industrial relations reform, you will have a massive impact upon the job market," he said.
"There would be something like up to 316,000 jobs lost.
"We're sending a message to both major political parties that you cannot afford to roll back the industrial relations reforms we've had to date."
But deputy Opposition leader Julia Gillard has told Channel Nine the report does not make sense and is based on a false assumption.
"The key claim in it is that Labor's industrial relations system is somehow going to have pattern bargaining in it," she said.
The report is being officially released later today.
Source: ABC
The Australian Chamber of Commerce and Industry (ACCI) commissioned the economic consultants Econtech to model the consequences if the industrial relations landscape of 1993 was restored.
Its study predicted that would result in a 1.3 per cent hike in inflation and interest rates would climb by 1.4 per cent, pushing up the average mortgage by $273 a month.
ACCI spokesman Peter Hendy says the axing of WorkChoices alone makes up a sizeable share of the predictions.
"You would see about a third of the results here, so a very, very significant impact on the Australian economy," he said.
Mr Hendy says the report also forecasts major job losses.
"If you reverse industrial relations reform, you will have a massive impact upon the job market," he said.
"There would be something like up to 316,000 jobs lost.
"We're sending a message to both major political parties that you cannot afford to roll back the industrial relations reforms we've had to date."
But deputy Opposition leader Julia Gillard has told Channel Nine the report does not make sense and is based on a false assumption.
"The key claim in it is that Labor's industrial relations system is somehow going to have pattern bargaining in it," she said.
The report is being officially released later today.
Source: ABC
Major banks sales targets a debt burden on consumers, says finance union.
The Finance Sector Union (FSU) says banks are contributing to excessive levels of consumer debt through pressuring employees to sell mortgages and credit cards to customers who do not need them.
A survey of more than 1,800 FSU members has found the majority feel forced to push debt on customers who simply cannot afford it.
The national policy director of the FSU, Rod Masson, says most bank employees think the high-pressure selling is undermining lending standards.
"They are put on what they deem to be inappropriate sales targets that have a negative impact on their ability to provide responsible customer service," he said.
Mr Masson says pressure-selling techniques are contributing to excessive levels of debt in the community.
"The danger is that they're actually taking loans that they will not be able to repay and ultimately will fall over," he said.
"We've seen the knock-on impact already of the non-prime mortgage area in the US and what that can do to the whole of the economy."
The FSU will present its findings to a Federal Government round table today to consider ways of forcing banks to review their lending practices.
Source: ABC
A survey of more than 1,800 FSU members has found the majority feel forced to push debt on customers who simply cannot afford it.
The national policy director of the FSU, Rod Masson, says most bank employees think the high-pressure selling is undermining lending standards.
"They are put on what they deem to be inappropriate sales targets that have a negative impact on their ability to provide responsible customer service," he said.
Mr Masson says pressure-selling techniques are contributing to excessive levels of debt in the community.
"The danger is that they're actually taking loans that they will not be able to repay and ultimately will fall over," he said.
"We've seen the knock-on impact already of the non-prime mortgage area in the US and what that can do to the whole of the economy."
The FSU will present its findings to a Federal Government round table today to consider ways of forcing banks to review their lending practices.
Source: ABC
Three major banks raise mortgage interest rates
NAB, Westpac and ANZ are the three of Australia's "big four" banks that have announced changes to lending and deposit rates after Wednesday's increase in official rates.
ANZ is the latest to move, putting up its standard variable home loan rate to 8.32 per cent.
The bank says it recognises the increase in official rates [and its lifting mortgage rates in line] will be difficult for some customers.
Earlier today, Westpac announced it was passing on the full increase in official rates to its lending rates, while increasing some of its deposit rates by 0.3 per cent.
National Australia Bank announced changes to its mortgage interest rates late Thursday.
Source: ABC
ANZ is the latest to move, putting up its standard variable home loan rate to 8.32 per cent.
The bank says it recognises the increase in official rates [and its lifting mortgage rates in line] will be difficult for some customers.
Earlier today, Westpac announced it was passing on the full increase in official rates to its lending rates, while increasing some of its deposit rates by 0.3 per cent.
National Australia Bank announced changes to its mortgage interest rates late Thursday.
Source: ABC
Mortgage rate rise makes Australian Government defensive
The Reserve Bank of Australia this week put the cash rate up 0.25 per cent to 6.5 per cent.
As mortgage interest rates jump to 6.5pc the Federal Government has tried to cover its political difficulty over today's interest rate rise by accusing Kevin Rudd of being a Liberal.
As soon as the Reserve Bank of Australia (RBA) announced the fifth interest rate rise since the last election the Opposition started making political capital.
In Question Time Kevin Rudd reminded the Prime Minister of the 2004 Liberal Party advertisement promising to keep interest rates at record lows.
"What does the Prime Minister regret most, making the promise or breaking it?" Mr Rudd said.
Mr Howard distanced himself from the advertisement, saying he did not personally make that claim.
"The most definitive thing I said in the election campaign of 2004 was in answer to a question from Neil Mitchell - 'so you wouldn't be embarrassed to win the election and then to have an interest rate rise?', answer: well I don't seek to give guarantees/judgements about individual movements - my argument is that they will always be lower under our policies," Mr Howard said.
Treasurer Peter Costello hit back at Mr Rudd by mocking his claim to be a fiscal conservative.
"We have a leader of the Opposition whose dearest wish is to be a Liberal," Mr Costello said.
The Government says despite today's rise, rates are lower than the average under Labor.
Another rise tipped
It was the unexpectedly high June quarter Consumer Price Index (CPI) that sealed the case for higher interest rates, amid buoyant economic activity.
In raising the cash rate to 6.5 per cent, the RBA also played down the impact on the global economy of credit market problems in the US.
Pricing on local credit markets indicates a belief the central bank could move again by the end of the year.
The chief economist of nabCapital, Rob Henderson, agrees it is a risk.
"Possibly they need a more restrictive monetary policy setting than they have now," he said.
"But I don't think they'll know that until into 2008, or possibly very very late in this year."
Industry, union response
The Australian Chamber of Commerce and Industry (ACCI) says it hopes the increase will forestall the need for any more adjustments for the next year at least.
ACCI chief executive Peter Hendy doubts the rate rise will affect business confidence levels.
"We only yesterday put out our business expectation survey for the last quarter," he said.
"It had the highest business confidence levels for eight years and in fact, plant and equipment investment prospects were the highest for 14 years.
"Ironically, they're increasing interest rates because the economy is going so strongly.
But Australian Council of Trade Unions (ACTU) president Sharan Burrow says the rate rise makes today a frightening day for families.
"Working families know that the IR (industrial relations) laws already take away their job security, their income security," she said.
"This increased debt on top of everything else is just going to make people very frightened."
Housing affordability
Meanwhile, the National Affordable Housing Summit chairman says house prices across Australia are increasing at an unacceptable rate.
Professor Julian Disney says the figures are not surprising.
"They're just illustrating how low the manic boom of a few years ago has slowed down," he said.
"Prices are still going up much faster than is acceptable and a lot of people are going to be overcommitting themselves."
Source: ABC
As mortgage interest rates jump to 6.5pc the Federal Government has tried to cover its political difficulty over today's interest rate rise by accusing Kevin Rudd of being a Liberal.
As soon as the Reserve Bank of Australia (RBA) announced the fifth interest rate rise since the last election the Opposition started making political capital.
In Question Time Kevin Rudd reminded the Prime Minister of the 2004 Liberal Party advertisement promising to keep interest rates at record lows.
"What does the Prime Minister regret most, making the promise or breaking it?" Mr Rudd said.
Mr Howard distanced himself from the advertisement, saying he did not personally make that claim.
"The most definitive thing I said in the election campaign of 2004 was in answer to a question from Neil Mitchell - 'so you wouldn't be embarrassed to win the election and then to have an interest rate rise?', answer: well I don't seek to give guarantees/judgements about individual movements - my argument is that they will always be lower under our policies," Mr Howard said.
Treasurer Peter Costello hit back at Mr Rudd by mocking his claim to be a fiscal conservative.
"We have a leader of the Opposition whose dearest wish is to be a Liberal," Mr Costello said.
The Government says despite today's rise, rates are lower than the average under Labor.
Another rise tipped
It was the unexpectedly high June quarter Consumer Price Index (CPI) that sealed the case for higher interest rates, amid buoyant economic activity.
In raising the cash rate to 6.5 per cent, the RBA also played down the impact on the global economy of credit market problems in the US.
Pricing on local credit markets indicates a belief the central bank could move again by the end of the year.
The chief economist of nabCapital, Rob Henderson, agrees it is a risk.
"Possibly they need a more restrictive monetary policy setting than they have now," he said.
"But I don't think they'll know that until into 2008, or possibly very very late in this year."
Industry, union response
The Australian Chamber of Commerce and Industry (ACCI) says it hopes the increase will forestall the need for any more adjustments for the next year at least.
ACCI chief executive Peter Hendy doubts the rate rise will affect business confidence levels.
"We only yesterday put out our business expectation survey for the last quarter," he said.
"It had the highest business confidence levels for eight years and in fact, plant and equipment investment prospects were the highest for 14 years.
"Ironically, they're increasing interest rates because the economy is going so strongly.
But Australian Council of Trade Unions (ACTU) president Sharan Burrow says the rate rise makes today a frightening day for families.
"Working families know that the IR (industrial relations) laws already take away their job security, their income security," she said.
"This increased debt on top of everything else is just going to make people very frightened."
Housing affordability
Meanwhile, the National Affordable Housing Summit chairman says house prices across Australia are increasing at an unacceptable rate.
Professor Julian Disney says the figures are not surprising.
"They're just illustrating how low the manic boom of a few years ago has slowed down," he said.
"Prices are still going up much faster than is acceptable and a lot of people are going to be overcommitting themselves."
Source: ABC
Cusumer creit warning: National Australia Bank [NAB] forcing borrowers to the wall
Allegations: The Safetli family says it has been misled into grave debt by the NAB.
Source: AFP: Greg Wood)
NAB accused of unconscionable conduct.
Several banks, NAB in particular, face complaints of unscrupulous lending behaviour in cases in which customers claim they have been forced to the wall after being persuaded to sign complicated loan guarantees they could neither afford nor understand.
The lending practices of the big banks are also coming under increasing scrutiny, with two influential federal parliamentary committees and the corporate regulator, ASIC, all intensifying their inquiries.
The claims come as growing numbers of Australians sink further into debt, leading to what has been dubbed "mortgage stress".
The Safetli family knows what it is like to lose almost everything to the bank.
When NAB foreclosed on their loans, husband and father Haissem Safetli, even lost his grip on sanity.
"I completely lost the plot," Mr Safetli said. "I lost my mind, I lost everything. I lost all feelings that I have left in this world."
His wife, Amanda, says the successful businessman had a complete breakdown.
"He ended up in a mental health facility trying to take his own life," she said.Source: ABC
Before their financial ruin, the Safetlis thought they were building their wealth on solid foundations, but they now say NAB's banking practices brought it crashing down around them.
The question worrying authorities now is how many other Australians could be in the same situation?
$800,000 mistake
The Safetlis are in financial limbo. As their dispute with NAB has dragged, Mr Safetli has tried to make a living out of selling tyres from his home garage.
He says his troubles began when NAB itself overextended finance to his wholesale tyre company under an existing trade refinance and credit facility.
In its ultimate notice of termination and formal demand, the bank admits it made an $800,000 mistake.
But according to the Safetlis, that didn't stop the bank demanding immediate repayment.
The money had already been spent on new stock. The family's cash problems only got worse as the bank began seizing assets, triggering a cascading series of loan defaults.
"At any time, we could have sold assets and paid off the bank," Mr Safetli said. "The problem you have with the banks is when they grab you, that's it, you're finished."
Homes lost
It might have been just another of the scores of business collapses that occur every year but authorities are especially concerned about what happened next.
Mr Safetli's mother, Faouzia, and her daughter-in-law claim the family's bank manager asked them to come to his office to sign some routine documents.
"He put all the papers in front of me," Faouzia Safetli said. "'Sign here,' I sign, that's it. 'Thank you very much.' That's it."
Amanda Safetli says she has realised in hindsight she should have checked what they were signing.
"My mother-in-law has limited English, limited reading," she said. "You walk into the bank, they give you a wad of documents, say 100 pages, and the little tabs say, 'Sign here, sign here,' and you do it."
What both women claim they were never told is that they were in fact signing binding personal guarantees over the loans mistakenly made to Haissem Safetli's tyre business.
Those guarantees would shortly afterwards see them each lose their homes.
Faouzia Safetli says nobody told her to seek legal advice before signing the document.
"I end up with nothing. My son - he end up with nothing," she said. "We all end up with nothing - our kids, his kids."
ASIC concerned
An independent advocate who helps people like the Safetlis resolve disputes with the banks, Bruce Ford, says the claims raise very serious questions about NAB's internal practices.
"The NAB and all banks are obliged at law to provide consumers to obtain independent legal advice prior to granting a guarantee," Mr Ford said. "That wasn't followed through with Mrs Safetli."
The corporate watchdog, the Australian Securities and Investments Commission (ASIC), shares the concern, as it makes clear to the bank in this letter: "NAB's knowledge of Mrs Safetli's level of understanding and the lack of any opportunity afforded to Mrs Safetli to obtain legal advice raises concern about unconscionable conduct by NAB."
Perhaps more seriously for the bank, ASIC is also concerned about NAB providing false evidence about the matter.
The bank told the watchdog: "Statutory declarations which stated that she had received independent legal advice were ... false and known to be false by the NAB."
Track record
NAB likes to advertise itself as an organisation responsive to the needs of its customers but the bank's critics say it has a bad track record.
"They've been prosecuted four times previously," Mr Ford said. "This is the fifth time now that the bank is under scrutiny for those precise things."
In fact, in 2001, the Federal Court ruled that NAB had acted unconscionably in the case of a Tasmanian woman left in charge of her husband's business after he had suffered a serious head injury.
In his absence, she signed what the bank told her were "routine papers". They were anything but - what she signed was a personal guarantee over the home.
The Australian Competition and Consumer Commission (ACCC) took action, alleging in court the bank did not explain the consequences of the guarantee to her, nor did it reveal that her husband's business was already in serious financial difficulty.
The ACCC said that not long after, the bank told the woman she had to sell her house to meet the personal guarantee.
As a result of that case, NAB consented to orders it would in future ensure its customers had the opportunity to obtain legal advice before signing guarantees.
But Mr Ford says the Safetlis' claims are history repeating.
"There's got to be alarm bells ringing for the regulator to say, 'Why are we here again after the ACCC's prosecution for precisely the same thing?'" Mr Ford said.
More allegations
Sydney pharmacist Voula Amassah is also locked in dispute with NAB, again over an agreement that she claims was never properly explained to her.
Ms Amassah says she lost her family home and other assets after her husband arranged a loan from the bank.
"I discovered that the loan had actually been rejected and the only way that it had been passed was by putting it in joint names and using my properties as security," she said.
Mr Ford says she was asked to sign up to it under "a certain degree of duress or stress".
"But she had no knowledge of the joint loan in her name until she got to the bank," he said.
Ms Amassah has since separated from her husband but says she is still angry with the bank for keeping her in the dark.
"Basically, I went in to sign a loan document," she said. "I wasn't given a copy of that document. I wasn't even given any statements when the mortgage was put into place, and that ended up being a financial disaster for me, a complete financial disaster."
Senators worried
The chairman of the Federal Parliamentary Committee on Financial Services, Liberal Senator Grant Chapman, says such practice would be inappropriate.
The committee has been on the receiving end of complaints about the banks.
In a written response to one, Senator Chapman notes that the allegations of malpractice and unconscionable conduct suggest a number of banks continue to engage in practices that appear to be seriously flawed.
"We want ASIC to thoroughly investigate each of these cases, come back to us with the details of their findings and then we'll make some decisions from there," he said.
But Opposition committee members like Senator Nick Sherry are not as confident with ASIC's ability to bring the banks to task and have accused the regulator of dragging its feet.
"Basically, when has ASIC examined the operations of internal dispute processes in, let's say, the four major banks?" he said.
"I have raised this issue on ... two or three previous occasions. I don't seem to be getting anywhere with some very clear definitive statistical, factual response."
'Debts unknown'
A complaint common to many who have defaulted on their loans is that their banks won't provide them account statements with a precise figure on how much they owe. That's despite banks like NAB vowing in its advertisements to its customers to tell it how it is.
Mr Safetli says his family is still trying to find out from the bank how much it owes.
"Write them a blank cheque - that's what they want," he said.
The ABC approached NAB for its response to the claims being made about its lending practices, but the bank declined to comment, saying that to do so would breach the privacy of its customers.
However, a bank spokeswoman did say the bank makes every effort to work with customers to resolve any disputes, and it will cooperate fully with any inquiries that are launched into that process.
But for their part, the Safetlis remain unconvinced by those reassurances.
"They're the ones that tell everybody what to do," Mr Safetli said. "They can do anything they want, any time they want and it's about time somebody just put a stop to it."
Source: ABC
Source: AFP: Greg Wood)
NAB accused of unconscionable conduct.
Several banks, NAB in particular, face complaints of unscrupulous lending behaviour in cases in which customers claim they have been forced to the wall after being persuaded to sign complicated loan guarantees they could neither afford nor understand.
The lending practices of the big banks are also coming under increasing scrutiny, with two influential federal parliamentary committees and the corporate regulator, ASIC, all intensifying their inquiries.
The claims come as growing numbers of Australians sink further into debt, leading to what has been dubbed "mortgage stress".
The Safetli family knows what it is like to lose almost everything to the bank.
When NAB foreclosed on their loans, husband and father Haissem Safetli, even lost his grip on sanity.
"I completely lost the plot," Mr Safetli said. "I lost my mind, I lost everything. I lost all feelings that I have left in this world."
His wife, Amanda, says the successful businessman had a complete breakdown.
"He ended up in a mental health facility trying to take his own life," she said.Source: ABC
Before their financial ruin, the Safetlis thought they were building their wealth on solid foundations, but they now say NAB's banking practices brought it crashing down around them.
The question worrying authorities now is how many other Australians could be in the same situation?
$800,000 mistake
The Safetlis are in financial limbo. As their dispute with NAB has dragged, Mr Safetli has tried to make a living out of selling tyres from his home garage.
He says his troubles began when NAB itself overextended finance to his wholesale tyre company under an existing trade refinance and credit facility.
In its ultimate notice of termination and formal demand, the bank admits it made an $800,000 mistake.
But according to the Safetlis, that didn't stop the bank demanding immediate repayment.
The money had already been spent on new stock. The family's cash problems only got worse as the bank began seizing assets, triggering a cascading series of loan defaults.
"At any time, we could have sold assets and paid off the bank," Mr Safetli said. "The problem you have with the banks is when they grab you, that's it, you're finished."
Homes lost
It might have been just another of the scores of business collapses that occur every year but authorities are especially concerned about what happened next.
Mr Safetli's mother, Faouzia, and her daughter-in-law claim the family's bank manager asked them to come to his office to sign some routine documents.
"He put all the papers in front of me," Faouzia Safetli said. "'Sign here,' I sign, that's it. 'Thank you very much.' That's it."
Amanda Safetli says she has realised in hindsight she should have checked what they were signing.
"My mother-in-law has limited English, limited reading," she said. "You walk into the bank, they give you a wad of documents, say 100 pages, and the little tabs say, 'Sign here, sign here,' and you do it."
What both women claim they were never told is that they were in fact signing binding personal guarantees over the loans mistakenly made to Haissem Safetli's tyre business.
Those guarantees would shortly afterwards see them each lose their homes.
Faouzia Safetli says nobody told her to seek legal advice before signing the document.
"I end up with nothing. My son - he end up with nothing," she said. "We all end up with nothing - our kids, his kids."
ASIC concerned
An independent advocate who helps people like the Safetlis resolve disputes with the banks, Bruce Ford, says the claims raise very serious questions about NAB's internal practices.
"The NAB and all banks are obliged at law to provide consumers to obtain independent legal advice prior to granting a guarantee," Mr Ford said. "That wasn't followed through with Mrs Safetli."
The corporate watchdog, the Australian Securities and Investments Commission (ASIC), shares the concern, as it makes clear to the bank in this letter: "NAB's knowledge of Mrs Safetli's level of understanding and the lack of any opportunity afforded to Mrs Safetli to obtain legal advice raises concern about unconscionable conduct by NAB."
Perhaps more seriously for the bank, ASIC is also concerned about NAB providing false evidence about the matter.
The bank told the watchdog: "Statutory declarations which stated that she had received independent legal advice were ... false and known to be false by the NAB."
Track record
NAB likes to advertise itself as an organisation responsive to the needs of its customers but the bank's critics say it has a bad track record.
"They've been prosecuted four times previously," Mr Ford said. "This is the fifth time now that the bank is under scrutiny for those precise things."
In fact, in 2001, the Federal Court ruled that NAB had acted unconscionably in the case of a Tasmanian woman left in charge of her husband's business after he had suffered a serious head injury.
In his absence, she signed what the bank told her were "routine papers". They were anything but - what she signed was a personal guarantee over the home.
The Australian Competition and Consumer Commission (ACCC) took action, alleging in court the bank did not explain the consequences of the guarantee to her, nor did it reveal that her husband's business was already in serious financial difficulty.
The ACCC said that not long after, the bank told the woman she had to sell her house to meet the personal guarantee.
As a result of that case, NAB consented to orders it would in future ensure its customers had the opportunity to obtain legal advice before signing guarantees.
But Mr Ford says the Safetlis' claims are history repeating.
"There's got to be alarm bells ringing for the regulator to say, 'Why are we here again after the ACCC's prosecution for precisely the same thing?'" Mr Ford said.
More allegations
Sydney pharmacist Voula Amassah is also locked in dispute with NAB, again over an agreement that she claims was never properly explained to her.
Ms Amassah says she lost her family home and other assets after her husband arranged a loan from the bank.
"I discovered that the loan had actually been rejected and the only way that it had been passed was by putting it in joint names and using my properties as security," she said.
Mr Ford says she was asked to sign up to it under "a certain degree of duress or stress".
"But she had no knowledge of the joint loan in her name until she got to the bank," he said.
Ms Amassah has since separated from her husband but says she is still angry with the bank for keeping her in the dark.
"Basically, I went in to sign a loan document," she said. "I wasn't given a copy of that document. I wasn't even given any statements when the mortgage was put into place, and that ended up being a financial disaster for me, a complete financial disaster."
Senators worried
The chairman of the Federal Parliamentary Committee on Financial Services, Liberal Senator Grant Chapman, says such practice would be inappropriate.
The committee has been on the receiving end of complaints about the banks.
In a written response to one, Senator Chapman notes that the allegations of malpractice and unconscionable conduct suggest a number of banks continue to engage in practices that appear to be seriously flawed.
"We want ASIC to thoroughly investigate each of these cases, come back to us with the details of their findings and then we'll make some decisions from there," he said.
But Opposition committee members like Senator Nick Sherry are not as confident with ASIC's ability to bring the banks to task and have accused the regulator of dragging its feet.
"Basically, when has ASIC examined the operations of internal dispute processes in, let's say, the four major banks?" he said.
"I have raised this issue on ... two or three previous occasions. I don't seem to be getting anywhere with some very clear definitive statistical, factual response."
'Debts unknown'
A complaint common to many who have defaulted on their loans is that their banks won't provide them account statements with a precise figure on how much they owe. That's despite banks like NAB vowing in its advertisements to its customers to tell it how it is.
Mr Safetli says his family is still trying to find out from the bank how much it owes.
"Write them a blank cheque - that's what they want," he said.
The ABC approached NAB for its response to the claims being made about its lending practices, but the bank declined to comment, saying that to do so would breach the privacy of its customers.
However, a bank spokeswoman did say the bank makes every effort to work with customers to resolve any disputes, and it will cooperate fully with any inquiries that are launched into that process.
But for their part, the Safetlis remain unconvinced by those reassurances.
"They're the ones that tell everybody what to do," Mr Safetli said. "They can do anything they want, any time they want and it's about time somebody just put a stop to it."
Source: ABC
Subscribe to:
Posts (Atom)