Mortgages: Finance giant GE Money tries to off load $5bn mortgage portfolio

GE Money pimps its Australian mortgage loan book of $5 billion, as the US General Electric parent seeks to get back to its knitting [manufacturing].

This suggests to me that GE know what's coming down the pike for the future of the mortgage business worldwide, and their crystal gazers are seeing trouble ahead.

But Australia's big banks will be taking that into their stride

Commonwealth Bank [CBA] and National Australia Bank [NAB] are among those believed to have issued an indicative bid for the lending book. Others looking at the bid include Australian non-bank lenders.

GE Money ceased taking loan applications for mortgages in Australia two years ago, after mortgage credit became hard to set and the mortgage meltdown in the US market spooked them.

In 2008, CBA bought a 30 percent share of Aussie Home Loans who then grabbed the Wizard Home Loans portfolio for a fraction of the $400 million paid for the business by the US company four years earlier.

As part of that deal, CBA emerged with a $2 billion mortgage portfolio with loans originated under the Wizard brand.

At its peak, GE Money was the biggest non-bank lender in Australia, & looked the contender to take on Australia's big four banks.

But when the Global Financial Crisis hit, GE Money was hit with big losses around the world, and the need to refinance its lending arm threatened GE's existence.

GE has since recovered, and following the financial crisis has changed strategy to focus more on making industrial products and less on financing. Hence the mortgage sale.

The sales covers only a fraction of GE Money in Australia

It is believed the sale is limited to GE Money's mortgage book, GE Capital's total Australian lending book is  $28 billion, with with most of that in its more profitable motor vehicle and personal lending and business financing operations.

Subprime Home Loans: Will Australia have a US style meltdown

The US subprime meltdown occurred in 2006 to 2008, now people are saying that tAustralia is in a position for it to happen here

Many are saying that Australia is headed for a sub prime mortgage crisis similar to that in the US. I don't buy it. I don't believe that there a case for this to happen here. On many levels Australia is much better positioned.

Here's my view on Australia's Sub Prime Lending position

1. Australia has a better industrial relations and minimum wage support structure. So having people work for peanuts does not happen here like it did in the US. Many of those workers applied for and got sub prime mortgages.

Australia has a booming labour market that is stable

The US does not have anything like our labour market 3 years on. Things have not improved on the unemployment and wage front for two years in the US.
Our home values have trended down for three years, with occasional spikes in some centres reflecting stimulus related demand.

Australian property prices have moderated

Our property prices have trended down to a soft landing and only those that bought at the top of the property market are looking at taking a loss, if they sell.
I agree that homes in Australia may still have some way to fall, but sub-prime lenders have to front with usually 20% deposit or more, so they are going nowhere.
The US experience was different
In the US, property values soared then crashed on the basis of bad loans, not sub prime lending. many people had 120% loans.This is an entirely different situation than an 70% to 80% lend.

Mortgages work differently in Australia

In Australia, we are tied to the loan, but in the US, homeowners can walk away anytime and send the bank jingle mail. They don't suffer the same consequences as they would in Australia. So Australians are less likely to walk away from their loan or their property.

The US Equity Home Loan

The other problem that the US had was that people were using the equity in their homes as an ATM to buy cars and other big ticket items, so they were at the hilt of loan to values, before their home values collapsed.
A few people do this here also but usually to a value of 80% lend, plenty of buffer for a downturn in home values.

Mortgage loans disappeared in the US

The US lost 40% value over night, because mortgage loans went from abundant to scarce overnight.
Many homes in the US lost 75% percent of their values. Most lost 40%. Many because their financial system was broken.
 Only places like San Francisco and New York did not see these numbers in loss of house values.

Credit risks were ignored in the US

The sub prime lenders in the US also lent to people that they knew could never repay the loans.
That has not happened in Australia, and even with low doc home loans, the borrower has a cash flow.
People that are credit impaired can get home loans, but higher deposits and higher rates are the norm.
The Pool of Sub prime lenders in Australia id much smaller than it was in the US
Our sub prime market is also a lot smaller in Australia than it was in the US.
I agree that if we get two more rate rises this year, then we may see less buyers in the market and a lowering of property values.

Our foreclosure rate says we don't have a sub prime lending crisis in Australia

Our foreclosure rate in Australia is tiny compared with the US
In the end we don't have a sub-prime crisis in Australia, because lenders have tightened their lending criteria.

We do have an Housing Affordability Crisis.

We do however have an affordability crisis, and this means that less and less people can afford to buy a home. It also means that less people can get a loan and get into financial difficulties by over paying on property like happened in the US.

Governments in Australia need to bring the cost of land lots down.

So yes, the government have to do something about that, and the root cause in land prices, Lower the cost of land by over $120,000 per block and affordability will return and house prices will soften further.
This means that the RBA can put interest rates up further and it won't hurt like it does now, because the borrowing will be lower.
Author: Rick Adlam Mr Mortgagehttp://www.mrmortgage.com.au

Home Loans: Big Banks discount war rolls on

NAB and CBA have a go at switching lenders competition

Home owners and home buyers seem unmoved by the NAB and CBA bank offers to pay lenders to switch from their lending competitors to their home loans.

The Big Bank Rate War rolls on

Australia's banks have had a tongue lashing from all sides of politics over the past few months, and that gave NAB an idea.
Playing "good bank, bad bank", and saying that they had parted company with the likes of Westpac and the Commonwealth Bank of Australia [CBA].
The Big Four has lost creditability with the Australian public, and some market share as people thought they could do better elsewhere.
But Australia's big four banks are so far ahead of the thundering herd of home loan lenders, particularly Westpac and the CBA, that they can take the heat all the way to the bank, so to speak.
The Nab and CBA profits are sky high records and the Westpac dividends are the best of Banks anywhere in the world at over 8%.
The Big Four Banks are now seen as not only too big to fail, but too powerful to be pushed around by the Government or opposition.

Westpac and the CBA have a mortgage on Australia's mortgage business.

So we had the “Soapie” like drama unfold as Nab and the CBA thrashed it out for creditability and belief from an increasing disbelieving mortgage borrowers.

We will pay you to switch and lower interest rates are unconvincing because people know that banks manipulate interest rates when it suits them. They also know banks treat them like milking cows for the investors, so are starting to look for other options.

Bank Show down or showpiece?

The end result looks like petering out into a stalemate between the NAB and the CBA.

Westpac can afford not to play but try to hold onto its client base which fell under the spell of the Banana Smoothie pitch, and those poor sods are paying over the top mortgage rates because they won’t shift their home loans.

The CBA offer of up to $1200 in cash to NAB customers looking to switch loans, was a move seen by most as a threat to NAB to stop rocking the boat. The communication was seen as not genuine by borrowers, just a bit of bullying by CBA.

In a recent survey a quarter of active mortgage shoppers did not know there was a price war. I am in the business and I forgotten about it myself. Hardly gripping stuff.

We haven’t seen much from the ANZ lately, so they may be playing a stealth game.

Housing Market: Mortgage Brokers are asking what happened to the housing shortage?

Falling home prices and home sales tell me that the housing shortage has evaporated. Mortgage loan demand has tanked with it. So what happened?

Four years ago the HIA claimed we had a housing shortage of 80,000 units. Rents were growing and people were on waiting lists. Home Builders had and field day and so did mortgage brokers financing both homes and investment properties. Things were good.
By late last year the housing shortage had ballooned to "120,000", then 180,000 this year and was tipped to reach 200,000 homes needed to satisfy our need more homes and units by years end.

Who stopped the mortgage merry-go-round?

Most of these claims have come from the Housing Industry Association. They are echoed by real estate agents everywhere as the reason you should buy now, the best reason to sell now.
When you go and see real estate agents they tell a different story. My local area in Ormeau, has had a slow and steady rise in real estate prices for the past ten years, until late last year. Then the the last mortgage interest rate rise cut in and people stopped buying and the music stopped for the real estate merry-go-round.
I asked one of the local real estate agents what was happening to real estate prices and we had had a 10% drop in the Ormeau [North Gold Coast] area. The first drop in home values I had heard on since moving here and building anew home in 2002. Homes were selling, but not at Ormeau's solid and brisk pace.
Nice homes on large level and elevated blocks, with wide tree lined streets. this is a lovely area.

Where are the home shortages, and the mortgage business potential that goes with them?

The issue is not so much the Gold Coast but the general theme of housing shortages which dominate the property industry talk and the HIA spin nationwide. It's a grave concern to mortgage brokers

Vacant Land Sales down to the lowest levels since 1994

Mortgage brokers that haven't been seeing too much vacant land mortgage loan deals come their way lately may be interested to know that Land Sales are at the lowest level they have been since 1994.

The January floods would not have helped sales any, but the Queensland floods never affected the Gold Coast at all! So we have to conclude something deeper is happening.
According to a recent report on the Gold Coast we have 13 months of land supply at the current sales rates. So land shortages are out the window when we look for a reason for low new home sales and construction loans that go with these building contracts.
The same is true for "House and Land" sales. They are just not happening.
Lan developers on the Gold Coast say that land production over the next 12 months will reach 2455 lots. This is twice the current level of annual demand. Something will have to give.
Remember that next time you hear the Housing Industry Association or the Master Builders Association complaining about the lack of land sales or new house sales.

Boomtime with lower Home Value = oversupply

We are in a boom time, make no mistake. So the only reason that we would see home value declines is a homes for sale glut. Home buyers can pick and choose all month long and wait for prices to fall further.
The number of dwellings for sale is at its highest levels since early 2009.

Why have land sales plummeted?

There is a current lack of demand for land. I believe I have the answer to this one. Block sizes. Land developers have been cutting the size of land lots now for ten years and the prices climbs ever higher.
People are just nor seeing value in buying land that is smaller than to cam buy already built on.
As the established home prices fall, why would anyone buy a smaller block and build a smaller home and wait 12 months to move in when they could buy a finished home now that is bigger and better for less money? Your are right they wouldn't.

The biggest boomtown in Australia is Perth, but land prices are falling there too.

Land sales dropped 27 per cent in Perth in the December quarter, while average prices fell 3 per cent.
Such things do not occur amid a "chronic housing shortage crisis".
There's certainly no shortage in Adelaide, where vast areas are being opened up for new development in the north of the city.
The over-supply of building land is a fact in Western Australia Australia's boom State and in Melbourne. Victoria, Australia's biggest home market.

Mortgage Brokers need to think Refi

Mortgage brokers will have to become proactive in writing mortgage loans and should look to the mortgage refinance and home equity loans to grow their business. Home buyers and new home builders will be thin on the ground for sometime to come.

Mortgage Shopping: Should you DIY or use a Mortgage Broker?

When shopping the home loan market you can take one of two approaches:

1. Research and apply directly to your chosen mortgage lender, or 
2. Engage a Mortgage Broker to do the legwork and the paperwork for you.

A lot of people ask me which is better, sourcing a home loan yourself or using a broker,
Some say that if you are happy with your bank as a mortgage lender there is no reason why a direct loan application with your bank won't get you a loan.

But sometimes having a mortgage broker can actually make the difference between a loan approval for that home loan, or a decline letter.

Reasons for using a Mortgage Broker

1. Specialised mortgages and lender knowledge. They know who has the best offers, and which only look good on paper.
2. A broker can save you time and ensure that you don't miss great offers.
3. Get your application to lenders who are more likely to approve your loan.
4. Advise when an advertised rate is not what it seems
5. Allow you to consider home loans from mortgage lenders you may never have heard of before.
6. Prevent you from trashing your credit rating. Aimlessly applying for loans all over can get you declined. Make sure you find the best loan and lender first, then apply.
7. Mortgage brokers know the home loan lenders that factor in incomes that others don't.
8. Did I mention the services of a mortgage broker are mostly free to you? Some services are not free, but setting a home loan usually is as the broker is paid a mortgage broker fee. 

Mortgage Broker verses applying direct to the lender summary
Using a mortgage broker is a fee to you service that can save you time and money tracking down the best loan for your needs.
Mortgage brokers know the market better than you do, and it makes sense to use this experience, if it were not free!
But some people just have a need to do everything themselves. I you are one of them, don't sweat it, just do it yourself.

Property sales : Has the dead cat bounced in Australia's property mearket?

Property sales : Has the dead cat bounced in Australia's property market?

Property sales across the country have slumped to their lowest level in 10 years. despite rising sales in Melbourne, and some upturn in Sydney's housing market
Figures from RP Data show sales of houses and units dipped 20 per cent in 2010 on the back of a number of interest rate rises, and falling demand for other reasons too I suspect.
Darwin Brisbane and Hobart all recorded lower home sales activity, with Sydney leading the way.
The "dead cat bounce" analogy
Home sales fell last year to below those recorded at the height of the global financial crisis in 2008. That was when the rest of the World had a major correction in house prices and Australia missed that bath. Hence the dead cat bounce comparison.
Whilst we have seen several raises in mortgage interest rates, they are hardly a concern at average mortgage rates we have and full employment, so my guess is that house prices have got ahead of themselves and until they soften further we are unlikely to see an upswing in home buyers any time soon.
New Responsible lending laws
One thing that people are not talking about is that from January 1st, 2011, banks had to be more diligent in the lending due to new responsible lending laws taking affect.
The fact is that new land on the Sunshine coast is so over priced that lenders may be reluctant to fund the silly prices being asked for blocks of land, on the basis that the market may well soften further and they would be caught holding the baby.
This is besides the fact that the borrowers may have a hard time meeting the repayments. It may becoming easier for bank managers to say no to loans, as the big banks are loaded with mortgage borrowers who have equity in their homes and the ability to repay the loan. Why pick up new business that does not meet that criteria?
You may have noticed that the ads from the big home builders and the developers have suddenly stopped. They are not into throwing good money after bad, and the developers may have to start thinking about discounting their land if they want to offload the land that they have going unsold.
First Home Buyers an extinct species
Over priced land has killed off the first home buyers in the new home sector. Decades ago cheap land was the spur that meant that first home buyers usually bought house and land in the sticks. Well that does not happen anymore.
And the problem is that second home buyers wanting to move up want a decent lot size. That won't happen under $300,000 on the Sunshine Coast. So since when was residential land worth over $2 million dollars an acre? Since Stockland and Delfin monopolised the residential land development market it seems to me.
All was fine whilst the Labor Government propped up sales with trebling the first home owners grant to stimulate first home buyers into building a new home. Well that has stopped and as usual, the price of everything rose to the level that people could afford with the grants. Take them away and the party is over. Isn't this what has in fact happened?

If the Government wants to get people into new homes, and get home prices down, it needs to take control of land sales and development.
Without new players in the home loan markets, expect to see mortgage business drop and the return of refinancing and debt consolidation in the mortgage broker sector.

Bank Mortgage Wars: Australia's Big Four Banks slug it out in the home loan space

Bank Mortgage Wars: Big four slug it out
NAB fired the first shot with the "break up" letter.
The National Australia Bank [NAB] has the least to lose and the most to gain in the home loan sector, so this made a lot of sense for them.
NAB has the smallest home loan portfolio, and the CBA and Westpac home loan customers looked ripe for the plunder. Have a go yer mug!


Westpac and CBA want to retaliate. 
NAB's business portfolio is their crown jewels. Hit em where it hurts most they must have thought.
This is competition. Wayne Swan and the ACCC would be pleased.
Westpac in the meantime are retelling the "banana smoothy story" to anyone who will listen [mostly the morons that are paying over the top mortgage interest rates, because they are a sucker for Nanna Gail's tales.]

What about the money? The fly in the ointment
The investment community are not happy. Better deals for customers mean lower profits, and that means falling share prices and lower dividends. But no customers means lower profits ,and being left standing in the NAB's drag race challenge means that the NAB would start to gain some badly needed traction in the home loan business at their expense. So doing nothing is not an option.


That brings up a question, So just who are the banks working for then.
The Government, the customers, or the investors [who actually own the business] That includes the fund managers who buy their stocks as part of their investment products, and low profits for banks mean a lower performing investment.
Well all three if the truth be told. That's if we don't include the managers and board.
Who has the biggest clout in the major banks?
Well today it looks like the shareholders and fund managers. The NAB challenge will put pressure on profit margins and that means earnings slides. it might even give them some good press in the eyes of borrowers. OK. So the NAB wins then? Not if Westpac and the Commonwealth Bank [CBA] have anything to do with it.
And the money side of town are worried that real competition between the big four banks is going to fierce, and lower earnings, profits and dividends would be the bitter harvest. Market share is the name of the game for the Big Banks. CBA and Westpac have it, and NAB wants to take it off them.

The drag race challenge. NAB v Westpac and CBA
National Australia Bank dropped a bombshell last month with the offer to pay the mortgage exit fees incurred by Westpac and CBA customers. Switching was in the news, and that is always a good place to begin a marketing campaign. [In the classic drag race manoeuvre, the under dog picks a fight with the top dog.]

Retaliation from Westpac was swift.
Westpac [and the CBA] have discount loans to new customers on offer. That's what NAB are already doing and it got them nowhere. And what about Westpac and CBA's existing home loan customers, locked into high interest rates? Too bad, if they are too dumb to give a crap and move thinks Westpac.

The CBA retaliation move: Relax the Lending Criteria. Easy money? 
I thought that is what caused the GFC?
CBA revealed it had relaxed some of its lending criteria, in an effort to suck all the new mortgage business to its doors. [Bad move I say]. Swap good mortgage customers at premium rates for "iffy" clients at discounted rates? [CBA is getting mad, or is that going mad?]
The other problem is that there are few new customers, New home sales are down, home prices are lower and buyers are thin on the ground, and maybe waiting for further price erosion?


Governments and Customers rejoice in real competition.
These small bit exchanges have been welcomed by consumers and the government as a sign of real competition for a change.
But will the campaign run out of steam, or this all a show for the audience ; look we have real competition and we don't need all this new regulation stuff that Wayne Swan is planning.


Investors are not impressed
With the big four banks, our "money for jam" banks are one of the most profitable sectors of the Australian market right now. The big four banks alone are aiming for a combined earnings over $20 billion in 2011.


Money ain't cheap these days.
Funding costs are tipped to rise and lending over the next three years is forecast to slow, so profits falls were likely anyway.


Will the Fifth Pillar "do doughnuts" around the big four banks?
If the so called fifth pillar, the regional banks and building societies and credit unions get better funding arrangements, then its going to be really tight for the big banks to maintain their profitability, unless they do as the ANZ and start to look for opportunities in new markets overseas.

Mr Mortgage forecasts lower home loan demand over the next three years, better deals from non bank mortgage lenders and credit unions and raised status of mortgage managers in the coming months as the real competition in the mortgage space. The NAB verses CBA and Westpac drag race is just the show opener for things to come. If you are looking to switch loans away from CBA or Westpac, wait till the new rules are in place in July.
For new mortgage loans look at credit unions, and building societies and non bank home loans for lo doc lending.