Commbank: CBA slashes fixed rates to attract home buyers

CBA aims to torpedo competition with big drop in mortgage fixed interest rates

The Commonwealth Bank of Australia is feeling the heat from the NAB and pressure about their margins and have dropped their fixed interest rates on many of their home loans to the lowest in 9 years

The Commonwealth Bank of Australia overnight cut its 1 year fixed rate, 3 year fixed rates, 4 year fixed mortgage rate and five year home loan interest rates from .1% to .4 perent.

$ and 5 year fixed interest Mortgage rates the lowest in 9 years.
The CBA fixed interest home loan rates  for both 4 year rate was cut .3% and the 5 year fixed interest rate cut by .4% with both terms now at just 6.15 percent per annum.

New rates for new customers only or those switching from variable to fixed rates.
The new rates will be available for new customers, or those switching to fixed rate loans.

Source: Mr Mortgage

Australia's Housing Shortage: Is it just an urban myth?

I have been accepting as "fact" for 8 years that Australia has a housing shortage. But what if that was not the case. Would you still buy a home? Is that the question?
Investment Banker Mortgage Stanley recently released research that pointed to Australia actually having a glut of housing, rather than the much touted housing shortage we have all heard about that keeps growing like an evil magic pudding.
Admittedly, I have heard about this housing shortage since 2003 and wondered where all the tent cities were being erected in Australia to justify these claims.
Maybe we will see fake one's sprouting up all over Australia soon?

Housing Shortage, Fact or Myth:Australia goes from an estimated 228,000 housing shortfall to a 341,000 home glut in the time it takes to produce a report!

So how did we get this 569,000 housing turnaround in weeks?

There has to be a reason that house prices have not collapsed in the wake of the GFC.

The estimated 228,000-home shortfall, cited by everyone from the construction industry to economists at the major banks as evidence for why prices remain so high, may, in fact, be an excess of 341,000 homes, according to Morgan Stanley.

Whether the new figures are accurate will only become clear in time, as house prices either level off because real estate is scarce, or prices fall and attract more scrutiny about the fundamentals of the market.
But what if there are other reasons why home prices are staying high in the gloom. Here's a few.

1. Real estate is worth what someone else will pay you for it. People have not been willing to pay what many buyers want, but...
2. Real estate is also worth what you are prepared to let it go for if you are selling. When people have not been able to sell at the price they want or even need, they are hanging on to it.
3. If you have a job you can afford the mortgage till things come good. In Australia's case the job market never went bad, so people can hang onto property for longer.
4. If you hang onto to the old property, then real estate agents are not going to be happy, because you don't effect your sale, and you therefore can't buy the next home. This is exactly what is happening.
5. People are now hanging on to their homes longer and their mortgages longer.
6. From a generational point of view, people are living longer and staying in their homes for longer. And the Government assists this with carers and other services to help people stay out of nursing homes longer.

But the all-important nature of house price movements underscores a bigger issue: we simply don't know what impact elevated property prices have on other aspects of the economy because we don't have a long history of clean, robust and comparable data to rely on.
But I will give it a try here.

1. When you pay too much for a home, you have to hang onto it for longer or risk going underwater.
2. When you pay too much, your mortgage is bigger than it should be. That makes banks happy and rich and that means that you pay more of your income in mortgage repayments than you should be, for the next 30 years. That causes a thing called mortgage stress. As these things have happened then we can say people have paid too much for their homes in the recent past.
3. Are they still paying too much? That will be clear in 2 years time. If prices go down, then yes they are still paying too much today.

In Australia, there is no clear, undisputed authority of information in this area crucial to the economy.

In the US, the S and P Case-Schiller index, which measures changes in prices of the same properties over time, and that is only 25 years old. So where do investment gurus pull 100 year figures from?
The problem I have with any long range figures is that they only rate the homes that are still standing,and over 100 years maybe more than half the housing stock may be demolished. SO counting just the best ones that are left is a hardly a way to determine the appreciation of housing generally. Its taking a generalisation and making it specific. But what about the home that was bought, and later demolished. Surely its worthless. When these homes are included in the overall picture, actual returns are lower.

In Australia, Residex's repeat sales index goes back to 1991, in the middle of a Sydney house price correction on 17% pa interest rates just before the two-decade run-up in house prices began.

One thing for certain is that it is unwise to expect the "boom conditions" to persist indefinitely. That is a interesting term. I thought the boom finished in 2003 and we got ripples in 2006, and last hurrah in 2010?

In 2010, Reserve Bank governor Glenn Stevens appeared on breakfast TV to warn viewers it was a mistake to ''assume a riskless, easy, and guaranteed way to prosperity is just to leverage property''.
That advise I was giving out from 2005, but nobody wanted to listen back then. That's why home prices went too high. Are they still too high. Well RBA Governor Stevens says no, they are not.

Source; Mr Mortgage

Japanese Banks Target Australian Home Loan markets

Mega Japanese Banks are preparing to launch a surprise attack on the mortgage profit margins of Australia's big four banks. Why this sneaky raid will succeed

The big four banks, CBA, NAB, Westpac and ANZ are the envy of the banking world. Meanwhile Japanese banks have been in operating successfully in a recession economy for twenty years. In fact the interest rates they operate on are puny compared to Australian Home loan interest rates and bank margins. So its natural that they want a piece of the action.

Some say that Japanese banks could get a $100 billion of the Australian home loan market in double quick time. I agree.
At the coming February RBA board meeting most financial analysts are punting on a further rate cut to the official cash rate. That normally translates to a similar reduction in mortgage interest rates. However some of the big four banks are hinting at not passing on all of the rate difference, citing rising funding costs as the reason.
A cynic might suggest that the real reason is maintaining profit levels in a shrinking home loan & credit card finance by Australians.

Japanese banks are all cashed up with nowhere to lend

Japanese lenders are brimming with low cost cash because of the recession, and the Japanese savings ethic.
Australian banks on the other hand also pay puny interest rates, but lend that money out at fat profit margins.

Australia's trillion dollar mortgage pie. How big a slice can the Japanese hope to get?

Australia's trillion dollar home loan market looks ripe for the picking.
Snaring just a 10% slice of Australia's Mortgage pie would give the Japanese Banks a $100 billion dollar windfall.

A Japanese Bank raid a cakewalk for four good reasons.

1. Australians have no loyalty to their banks. Aussies love to hate banks. But they don't love them that much.
2. Australian home owners and home buyers will change lenders, and they do so often.
3. Money talks. Australian home buyers and homeowners are hurting financially, mainly because they paid too much for property on the basis of low interest rates, high loan to value ratios on loans and other lax lending practices.
4. Ready-made sales channels. Single unit and franchise mortgage brokers have established channels that the Japanese raiders can tap into instantly.
5. Japanese banks could also operate an online Australian mortgage channel, as this is how a lot of Australians looking to refinance do their research these days.

2012 may prove to be a tough year for mortgage lenders in Australia, and that means a better deal for Aussie home loan borrowers.

That has to be good news for the real estate industry and the home building sector, who have both had a rough 2011.

Summary

The impending Japanese Bank home loan invasion may be the tonic Australia needs to reinvigorate real competition in home loans, the mortgage broker sector, the new home building industry and the housing market, and put a creator in Australia's big four profits at the same time. So are Australian home loans turning Japanese? Yes I think so.

home loan and mortgage refi rise on low interest rates

Mortgage Bankers Assoc says home loan activity on the rise with mortgage refinance leading the way on the back of low interest rates.
Lower interest rates appear to be luring more homeowners to the table to refinance.
The number of mortgage applications rose by a seasonally adjusted 2.3 percent for the week ended May 15, according to the Mortgage Bankers Association.
The Market Composite Index, a measure of mortgage loan application volume, rose to 915.9 from 895.6 one week earlier.The Refinance Index increased 4.5 percent, to 4,794.4 from 4,588.6 the previous week.
The refinance share of mortgage activity increased to 73.6 percent of total applications from 71.9 percent the previous week.
The average interest rate for 30-year fixed-rate mortgages decreased to 4.69 percent from 4.76 percent, with points decreasing to 1.13 from 1.18.The average interest rate for 15-year fixed-rate mortgages decreased to 4.44 percent from 4.5 percent, with points decreasing to 1.01 from 1.08.The average interest rate for one-year adjustable rate mortgages decreased to 6.38 percent from 6.41 percent, with points decreasing to 0.1 from 0.11.

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

Mortgage brokers and the mortgage industry targeted as the problem behind home loan defaults

Innovative MortgageBrokers, Mortgage Funders and the mortgage industry generally seem to be targets of a Howard Government inquiry, with recommenadations that home buyers be required to put up a deposit of 20 per cent. This would mean the end of first home buyers.
The parliamentary economics committee has called the snap inquiry into home lending as the number of people defaulting on mortgages continues to rise.
Despite low unemployment figures, economic growth and high consumer confidence, personal bankruptcies went up by 17 per cent in the 2006-07 financial year.
The chair of the committee, Bruce Baird, today said the inquiry would bring together banks, the Australian Securities and Investment Commission, the Reserve Bank of Australia (RBA), the banking regulator and consumer groups. [But no mortagge managers or mortgage brker groups who make up a growing part of the distribution of home loans.]
Discussions would focus on discovering the extent of the problem, the role of mortgage brokers and whether fierce competition between the banks was eroding prudent lending practices, Mr Baird said.
One outcome could be tighter controls on mortgage brokers, he said.
"Also some requirement there is adherence to a degree of equity, it's normally 20 per cent equity but if that's being eroded stricter controls can be brought in,'' Mr Baird said.
He said the inquiry would also consider whether the root of the problem lay with consumer attitudes.
"There's also the question of whether we have just normal greed coming in, where people want their McMansions.''
The RBA had been concerned for some time about the ease of securing home loan credit and the abandonment of the normal prudential requirement of 20 per cent equity, he said.
"We are seeing that eroded and we are seeing more of a 100 per cent of the value of a house being borrowed,'' he said.
Falling house prices in areas such as western Sydney left many homeowners with negative equity, saddling them with a debt if they were forced to sell due to financial shocks such as job loss or pregnancy, he said.

Debt explosion
The financial divide is growing between those struggling under debts and those with the resources to pay off their home, according to research by the Melbourne Institute.
Rising interest rates and the drought have led to an increase - from 10.8 per cent to 15.1 per cent over the past year - in the number of people running into debt or drawing on their savings.
The Melbourne Institute research also shows that the number of people devoting more than half their salary to debt has increased from 5.9 to 7.5 per cent over the past year.
Rural stress
Financial stress is greatest in rural districts, where the number of people running into debt or drawing on savings has soared from 9.9 to 20.8 per cent.
But there has also been an increase in metropolitan areas. The number of people succeeding in saving some of their income in metropolitan districts has dropped from 57.7 per cent to 50.7 per cent in the past year.
The study confirms Reserve Bank research showing that people with the highest debt service burdens are generally those with higher incomes.
More than 80 per cent of people earning less than $40,000 a year spend less than 10 per cent of their income on debt. Most are either in the rental market or, in the case of age pensioners, have a fully paid-off home.
The survey nevertheless found that 28.8 per cent of the people who spend more than half their income on debt service earn $50,000 or less.
Source: AAP

Australian homeowners don't understand their mortgage home loans

Almost three quarters of Australians say they are unhappy with their home loan and don't fully understand the paperwork, an online survey says.

And even though they could save as much as $60,000 on an average-size mortgage by shopping around for a better deal, most don't - either through apathy or a lack of understanding.

Mortgage lender Myrate.com.au found 77 per cent of the 1100 people it questioned last month felt unhappy or confused with their home loan.

"The survey found an overwhelming majority of Australians were not happy with their home loan and admit to feeling miserable, confused and downtrodden as a result," the company said.

However, only 38 per cent were prepared to shop around for a cheaper deal.

The survey also found that 71 per cent of respondents would rather drive out of their way to get cheaper petrol than investigate ways to obtain a less expensive home loan.

"For many Australians, the idea of saving money on petrol is an easy equation - it's laid out in front of you in black and white, whereas the perception of refinancing your home loan in order to get a better deal seems far too daunting," said Myrate.com.au general manager Kevin Sherman.

"We try to encourage people to pull out their home loan paperwork and look at their personal circumstances to make sure their home loan is still appropriate for them."

Mr Sherman said a person could save as much as $60,000 on a $300,000 home loan if they shopped around.

"To get your initial home loan, it feels like a lot of work. Most people think a home loan is the same across the board, but the deals are very different."

Mr Sherman said the failure of people to check whether they had the best home loan situation was a combination of apathy and a lack of understanding.

"People put it in the too hard basket," he said.

"A home loan can be the biggest financial investment many people will make in their lifetime, so it's important they check their home loan on an annual basis to ensure they're getting the best deal."

SOURCE: AAP