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
Sunday, October 28, 2007
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
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