Mortgage repayments: Why NSW has nearly half of Australia's home loan battlers

According to a Moody's latest investment report, New South Wales has 44 per cent of Australia's entire home loan delinquencies, and mortgagors in Sydney's fringe suburbs are most likely to lose their homes through mortgage stress.

Most of those are in Sydney's outer regions where more about 2.5 per cent of mortgages are more than 30 days behind in repayments, a Moody's Investors Service report said.

Australia's mortgage market is generally performing well, but not as well as four years ago

Australia's mortgage market has always performed well, with just a National figure of about 1.3 percent of mortgages in default due to slow mortgage repayments.
This figure is about ten times better than the US experience over the past two years, but is not as good as it was four years ago.

So why is Sydney having suburbs with double the National average?

1.  Overvalued house prices. Show me struggling homeowners and I'll show you overvalued homes. Many home buyers have paid too much for their homes and will suffer the most.
2. Commuting expenses. When you are in the outer suburbs you will be travelling longer to get to work, and that means high transport, car and petrol expenses, so you have less to spend on your mortgage. Rising petrol prices have not helped.
3. Starting families too early. Having kids is expensive and it means that many partners choose to stay home to care for their children. Starting a family may have been unplanned or seemed affordable two years a go with record low interest rates and the baby bonus. But the baby bonus doesn't go far and the the mortgage keeps rising. You cannot make mortgage repayment and feed a family on one income these days, so both partners need to be income earners.

The RBA tipped to raise interest rates

The troubles may be in front of those now struggling to meet mortgage commitments as the RBA is widely tipped to raise mortgage interest rates by up to 1.25% over the next twelve months and the Major banks looking to raise rates over this figure.
Softening house prices in these suburbs will not assist mortgage stressed homeowners to sell their way out of debt, so people behind in mortgage repayments will have to learn to tighten their belts over the next few years.

Mr Mortgage Advice. If you are struggling with mortgage repayments now, I suggest that you switch to a non bank mortgage lender with lower mortgage interest rates, and maybe a discounted one year mortgage rate to help you through the next twelve months. The major banks want to raise rates in addition to any Reserve Bank rate increases, so your need to out of that scenario now.

Will house prices really go up 20% over the next 3 years?

House prices are predicted to grow between 9% and 20% over the next 3 years. Mr Mortgage disagrees. Here's why.

Experts are rarely good at predicting the future because their minds are full of facts from the past. I have a problem with future house price forecasts and it is this almost never materialises.

When you have someone who has a vested interest in the result [QBE is a house insurance player] then take house price forecasts with a grain of salt.

A QBE "survey" compiled by BIS Shrapnel says house prices will growth between 9 and 20 per cent in Australia's capital cities over the next three years. Really? So I guess that means that you should be paying 9% to 20% more for your insurance then? I see!

The biggest problems I see with House prices forecasting using median house prices

1. The median price is not an actual price. Any house price survey relies on the notion of the median price of a home. These are the homes that are sold.
2. There are two problems with this.
   1. Many homes sold are new, and therefore are usually better than an established home and worth more to buyers.
   2. Most established homes are dolled up prior to sale [paint jobs, renovations, staging and the like]. They are "pushed" and "promoted" and "marketed" to fetch a higher price. Even then many are not currently selling.

We need a segmentation of median house prices

At least if we got a segmentation of house sales [new apartments, new homes, established homes etc, I would be more comfortable believing these figures. That won't happen because the output is designed to deceive buyers and sellers to believinghouse prices are higher than they are.

Here's an example of how median house prices distort true values.

A new apartment block is released for sale with the penthouses at 2.2 million a piece, and apartments from $400,000.

One of the penthouses is sold, and two older units down the road sell for $220,000.

How median house prices are calculated

The median house price is $2.64 million divided by three. That gives a median unit price of $880,000! Whilst this may seem a silly example it is how median house prices are calculated.

Home buyers might begin to believe that the older units down the road are worth more than $220,000, and the $400,000 are worth more too.

Can you see why median house prices is not a good guide?

What about interest rates affecting housing prices?

Australia's housing market [some say housing bubble] has so far fared better than most parts of the US and the UK markets.

In the US for instance they have 30 year fixed interest rates retailing at under 5% pa., and they could go lower to help keep people in their homes, let alone prop up the housing market. No such luck here in Australia.

Australia's mortgage interest rates will rise over the next twelve months

We face a home mortgage interest rate in Australia of over 8% over the next 12 months.

Whilst the "experts say fix your mortgage interest rates now, that's fine if you are buying now or if you have a variable mortgage already. If you are buying in 12 months time that is not going to help you because I believe that rates will be as much as 1.25% higher than they are now.

Result? I see "median" house prices moderating, and home prices for Joe average softening over the next 12 months.

What Mr Mortgage believes.

Anytime is a good time to buy a house that is well priced and what you need to live in, and is affordable, if you intend to live there for more than 5 years. If not its better to rent and invest the savings and housing costs. If you are an investor, there are better places to park your money.

Australia's "Housing bubble" will not pop but lose some of its froth and just shrink to a less inflated size.

Lower returns for property investors, and more certain yields and easier picking elsewhere will keep investors out of the housing market, and moderate home values.

Future house prices will not be a mirror of our past. The RBA has it eye on house prices and the board will do what ever it takes to keep a lid on the housing market to ensure affordability for future home buyers.

The baby boomer influence has run its course in the general housing market, and as they move out of established housing this will take more heat out of house prices.

Author: Rick Adlam Mr Mortgage

US Mortgage foreclosures in Sub-prime mess deemed fraudulent due to "robo-signers"

As many as 40 US state attorneys general are expected to join forces to announce an investigation into the mortgage-servicing industry on fraudulent foreclosures to pressure financial institutions to rewrite large numbers of troubled loans.

Mortgage document fraud by "robo-signing"

The move comes amid recent allegations that mortgage-servicers, which include units of major banks such as Bank of America submitted fraudulent documents in thousands of foreclosure proceedings nationwide.

The banks have countered saying that the document issues are technical and mostly the result of papers approved by so-called robo-signers with little review—and don't reflect substantive problems with foreclosures. 

Foreclosures on hold, as banks heed the consequences.

Members of the US Congress have called for a suspension of all foreclosures until the documentation issue is resolved.

Some are saying that mortgage servicers that have lied to courts by filing incorrect paperwork and should suffer the consequences of their fraudulent actions.

The attorneys' general immediate aim is to determine the scale of the document problems and correct them. But several of them have said that the investigation could force the lenders and servicers to agree to mass loan modifications or principal forgiveness schemes. 

Other possibilities include financial penalties or changes in mortgage servicing practices.

Mortgage lenders and servicers have largely resisted reducing principal on mortgages, instead focusing on interest-rate reductions or term extensions. Banks say they are worried about lawsuits from investors, some of whom could lose money in a principal write down.

A recent action by Massachusetts attorney general successfully pressured Bank of America to reduce mortgage-loan balances by as much as 30% for thousands of borrowers, using the threat of a lawsuit to get a settlement, though documentation problems were not at issue then.

The States could use their respective laws against unfair and deceptive acts and practices, and well as actions under states' various foreclosure laws or tighten those laws.

In 2008, Bank of America settled charges brought by 15 attorneys on accusations of predatory lending in its Countrywide Financial unit, granting loan modifications worth $8.4 billion to thousands of homeowners. That may be the tip of the iceberg if these new actions have bite.

Ohio became the first State to sue a mortgage servicer, when he filed suit against GMAC Mortgage LLC. The suit named GMAC employee Jeffrey Stephan, an alleged "robo-signer," who said that he signed off on thousands of court documents related to foreclosures without even reading them.

Mortgage Lenders and Mortgage Servicers suspend foreclosures

GMAC announced that it was suspending foreclosures in the 23 U.S. states where judges are required to sign off on them. 

J.P. Morgan Chase and Co.'s home mortgage unit and Bank of America have both suspended house foreclosures, with the Bank of America now suspending foreclosures in all 50 states of the US.

Some State attorney generals would like to look beyond the narrow issues raised by the robo-signing, with claims that servicers are initiating foreclosures while the lenders are in the process of modifying the loans.
Author: Mr Mortgage

Greedy banks to raise your mortgage interest rates above the RBA moves

CBA, Westpac, NAB and ANZ are tipped to raise mortgage rates over any RBA rate rises to fatten record profits.

Homeowners and home buyers are being warned to brace for their favourite bank to lift their mortgage interest rates by more than any rate rise from the RBA.
So if the Reserve Bank of Australia sees a rate rise as important, then expect a double whammy from the bank you have your mortgage loan with.
The RBA is widely tipped to lift rates by 0.25 of a percentage point next week, but your bank may ask you to pay more on your home loan, with some saying they will up rates by a total of 0.4%. [Mr Mortgage disagrees with this view by the way.]
Ant increase in mortgage rates will hurt mortgage stressed homeowners and put off a lot of home buyers, but the banks don't see this as their problem.
They have been writing heaps of quality loans, and now see this as a time to lock in the good times and not worry about writing new business.
So the big banks can afford to lose a lot of mortgage customers and still make a killing with the their extra margins in place on the remaining mortgage loans.

We have all heard the Banks excuses for increasing mortgage rates.

The banks have complained that the higher costs of funding their loans is squeezing their profit margins.
The banana smoothie story. Remember the Westpac Bank analogy of the banana smoothie vendor?
But Treasurer Wayne Swan has attacked any banks thinking of double dipping, saying they have reported solid profits. Mr Mortgage says they have all made record profits, but are addicted to ever increasing profits, so good luck with your plan Wayne.

Although the four big banks' total first-half profit climbed by $1.3 billion this year, they have complained that their profit margins are being squeezed because it costs them more to borrow from overseas than before the financial crisis. This beggars the question, so where did the record profits come from?

The RBA dismisses banks excuse to rise mortgage interest rates

The Reserve Bank of Australia yesterday dismissed the banks' concerns about their operating margins, saying they have shown little sign that they are under pressure and the interest rates they charge already have been enough to make up for the higher costs they pay for overseas funds.

Why your bank will raise its mortgage rates higher than the official cash rate increase

Your bank will raise its mortgage loan interest rates higher than the RBA increase simply because the big four banks simply have no effective competition.

The non bank mortgage lenders were all but wiped out in the wake of the Global financial crisis. This is the reason we are now paying higher mortgage rates than we should be.

Until the Government gets serious about a Government sponsored mortgage industry, initially for first home owners building new homes, then we will continue to have the banks ripping us off  with higher mortgage rates and be perpetually seeing house prices rise due to housing shortages.

Author: Mr Mortgage