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.

Are Mortgage Brokers honest with home buyers and refinancing homeowners?

Mortgage brokers are in the firing line of late, and now Westpac bank and the Commonwealth bank are putting pressure on accredited mortgage brokers, telling them that if they don’t have a certain number of loans settle with them within a 6 month time frame, they will lose their accreditation with the lender.
The mortgage brokers have responded by saying that their “Independence” is in jeopardy, because many brokers will bow to the pressure and set loans for clients for the home buyers or refinancing homeowner with these lenders, rather than the best loan for the customer.
In my prior article I was a little harsh on these brokers, and this brought up the question of honesty of the Mortgage brokers.
So here is my revised take on this important topic.

The Mortgage Brokers Intent indicates his or her honesty.
Honesty should not be taken on a legal or literal definition of the relationship between the mortgage broker and the lender and the home buyer or refinanced homeowner, but on the intent of the mortgage broker when they are helping their customer select the best loan for them.
If the Mortgage Broker has the intention of always selecting the very best mortgage lender and mortgage loan product for their customer, then its obvious that the mortgage broker can be considered an honest mortgage broker.
If the Mortgage broker explains to the client that they are offering a no cost loan service to them, because the lenders are paying them a commission for introducing the loan to the lender, they are being honest with the customer in my view.
If on the other-hand the mortgage is selected favours the mortgage broker and his or her own personal interest, then the mortgage broker would have to be considered dishonest in my view.
Banks and other mortgage lenders that offer lenders inducements to put loans through them, compromise the brokers’ impartiality.
So do lenders that force lenders to have sales targets. Doing so in my view makes mortgage brokers appear commission representatives of the lender.
That has to be a bad thing for the mortgage broker industry and the customer than place their trust in a Mortgage Broker to do the right thing by them according to Mr Mortgage.

Mortgage Brokers: who do they work for, their customers or the Bank?

As Australia’s major banks are putting the squeeze on mortgage brokers to extract more deals out them, we need to ask the question “Do mortgage brokers work for the benefit of their client or the Banks? You may not like the answer.
Mortgage brokers can’t get you a loan for a lender that they are not accredited for. And right now Westpac and the Commonwealth Banks are starting to make brokers jump through performance hoops, in order to retain their accreditation's with them.
The false assumption

Some in the mortgage broking industry claim that their “Independence” as a mortgage broking professional is in jeopardy due the pressure put to them by the major banks. This assumes that the mortgage broker is independent of the banks. This in my view is a false assumption.

What is more, if any mortgage broker claims to their client that they are “Independent”, they are guilty of deception and misleading the client by making fraudulent statements.
How can that be you might ask?
That's easy. Determine who the principal is and who the client is and who the customer is. A principal in an agency is easy to spot.
They are the one who pays the agent.
Who is the customer?
Easy they are the ones who buy the product or service from the agent.
Who is the client then you might ask? Good question!
It can’t be the customer, because in the relationship, the customer is the one who pays for the goods or services.The client pays the agent for bringing buyers and seller together. When a home buyer pays all the money to the lender, and the lender pays the broker, then the client in my view is the Bank!
Why do I say this? Because the mortgage broker is paid by the banks, not the client.
So the mortgage broker is dependent on the Bank or Non-bank Mortgage Lender for his livelihood.

IMHO no mortgage broker can claim to be independent of the banks, unless they
charge a fee from the customer [borrower] and reimburse all commissions [paid to
them by the bank] to the customer.

Mortgage brokers do the opposite. They are completely dependent on the Bank.
Mortgage Brokers also have to ensure that they look after the best interest of the lender.
Can you see anything wrong in this?
Yes, the mortgage broker appears in fact a [non-exclusive] commission agent of the bank.
He or she only gets paid if they bring a deal to the lender that settles.
The banks of course will argue that “No”; they don’t employ the broker as an agent. He or she is merely an introducer to the lender.
If, just for the moment, we take a look at Real Estate Agents and their relationships with buyers and vendors of property we can see that the real estate agents principal is the vendor [seller], because [in most situations in Australia] the seller is the one who hires the agent to effect the sales, and the seller also pays the commission on success to the real estate agent.
Real estate agents in effect work for the seller to market and sell them property on the seller’s behalf. They have the skills and knowledge to get the best possible price in a given market to affect a good outcome for the seller.
What is the difference with a bank hiring a mortgage broker to sell their loans? I can’t see any. Maybe I have missed something in the home loan or real estate business, so if I have please explain it to me. Until that happens [I’ve been waiting eight years now] I am convinced otherwise. And I will stick with my long held view, that mortgage brokers are the agents of the banks that they represent.And that brings up a question, and the question is this. What’s wrong with that? Nothing I say. As long as the client is made explicitly aware of this fact, by the broker in a statement, or in writing, before transacting a loan.
Mortgage Brokers get angry when you tell them this.

This notion will rile the many honest brokers who work hard to get the best deal they can for their client. But that is not the point. Yes, most brokers are honest, and will work to get the best loans for their customer [let’s stop calling them clients, OK in case we give someone the wrong impression.But that is not the point. The point is they don’t have to be honest. They can if they wish sell the customer a worse than optimum loan for their needs. We have all heard of brokers who hire sales people and tell them to sell a particular loan, when they know that this is not best loan or outcome for the client, but benefits the mortgage broker instead.
What is needed is legislation that clears the air on these points so that customers know where they stand on this point, and who is the mortgage broker really working for. Any Mortgage Broker that tells you that he or she is independent, should be given a wide berth, or reported to the Office of Fair Trading as far as I am concerned.

Are Mortgage Brokers Honest?

The notion that mortgage brokers will lose their independence if the banks make them sell a certain number of loans is rubbish. To use the real estate agent analogy again, if you give the agency to a real estate agent, who then uses your home as a way to sell other people’s homes instead of yours, is he or she being honest with you, the client and principal? And can you sack the agent if they don’t perform? Of course you can!Mortgage brokerage need to take a good look at themselves, and start being more honest with their customers, and maybe they need to start with themselves and the relationships with their lending panel.The final question about honesty is what is implied in a name. Does broker imply an agent client relationship? If it does maybe it should be replaced with Mortgage Introducer. That is a more honest name in the opinion of Mr Mortgage.

Mortgage Brokers and your mortgage are in for a hell of a ride in 2008

When it comes to mortgage rates, 2008 may be remembered as the year the market went haywire.
Near the start of the year, some long-term mortgages were around 6 percent, but by July the average rate approached 7 percent. In October, rates jumped by half a percentage point during one seven-day period, then dropped by the same amount the next week, only to surge again a week later.
"We thought the refinancing boom of the late '80s was a wild time," said Sharon Heitman, the owner of the Heitman Group, a mortgage consulting firm. "But I've truly not seen anything like this."
In years past, Heitman noted, mortgage rates followed fairly predictable trends. They would generally increase toward the end of a year, then hold steady through midwinter. By late February or early March, they would head lower and remain in a range until late fall.
But those patterns seemed to change about six years ago, she said, as lenders began aggressively packaging loans as investment securities. While that may have added financing sources, it also caused volatility.
The credit crunch and financial crisis have dried up the market for mortgage-backed securities, leaving many lenders with little or no money for borrowers.
Interest rate swings, meanwhile, grew more pronounced as Fannie Mae and Freddie Mac, the government agencies that buy mortgages from lenders, began increasing the fees they charge to help shore up their own finances.
Rates on 30-year fixed-rate mortgages, the most commonly held home loans, opened 2008 at 6.07 percent, with some lenders offering rates even lower, according to Freddie Mac. In the Northeast, rates were hovering slightly higher, at 6.14 percent.
By late December, the national average had dropped to roughly 5.1 percent, with some lenders offering rates just below 5 percent.
In many weeks in between, there was a huge spread.
Heitman, who receives interest-rate data daily from mortgage lenders, said that in years past the highest and lowest rates on a given day might have been separated by about a tenth of a percentage point. If a lender reported an interest rate significantly higher than the prevailing market rate, she said, she would call the company. "And it was usually an error," she added.
In recent months, however, the spread stretched to half a percentage point on some days. The higher rates reflected some lenders' concerns about whether borrowers would be able to repay their loans in a souring economy, or whether banks could resell the loans to investors anytime soon.
For borrowers, though, 2008 highlighted the importance of shopping around - a habit that mortgage industry executives say is still not practiced widely enough.
Because a mortgage broker typically sells loans on behalf of perhaps 10 lenders, at most, a borrower could be offered a range of loans that does not include the market's lowest.
Loan officers working at banks can sometimes offer other lenders' products, but they typically give borrowers fewer loan options than brokers.
This is not to say that borrowers can afford simply to skip banks in favor of brokers - last year, local banks offered some of the lowest mortgage rates on the market.
Borrowers might simply do well to exercise considerable patience while shopping around, and hope that the mortgage roller coaster slows down in 2009.

Massive market opens for mortagge brokers to ease the pain.

over half the recipients of a recent survet said they were hurting under mortagge stress. The recent mortgage rate reductions would have eased this a little, but this shows how much mortgage brokers who can assist these homeowners are needed right now.
Clients are particularly looking for ways to reduce monthly finance costs and give them some kind of buffer should they need it in the uncertain times ahead.
More than half of the respondents admitted that their mortgage repayments were more than 30 per cent of their gross household income. This used to be the acid test for the maxium borrowing capacity, but these have been stretched to dangerously high levels in the past four years as competition with the banks against mortgage brokers hotted up.
And half of those were feeling mortgage stress. That's about 25% of the total mortgage borrowers.
The Problem is house prices
In the last decade, house prices in Australia had risen to almost nine times the average income. This is from 3 times the average income 40 years ago.
This had left borrowers at significant risk when interest rates rose sharply and house prices remained constant or fell.
The risk could be mitigated by the greater availability of land supply, the use of employment continuation insurance, shared equity mortgages or salary-adjusted mortgages.
But that is for new home buyers.
Mortgage brokers would do better focusing on the needs that already exist. The mortgage stressed homeowner.

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

Mortgage Broker sees credit crisis as an opportunity

Mortgage broker Mortgage Choice sees ongoing concerns in global credit markets as an opportunity, rather than a risk to its business, the company's managing director Paul Lahiff said today.
The Sydney-based mortgage broker today reported a 9.7 per cent increase in net profit to a record $19.59 million for 2006/07, underpinned by an expansion of its business in states other than NSW.
Mr Lahiff said the result was achieved despite challenging market conditions.
"This result clearly demonstrates the strength of our national model," Mr Lahiff said.
"We were less reliant on what is currently a variable NSW housing market to provide the performance we were after.
"By contrast, Western Australia and Queensland have continued their strong growth off the back of the resources boom, while Victoria and South Australia performed in line with longer term historical trends.
"The results achieved underline the fact that Mortgage Choice has an extremely high quality, proven business model - one that is capable of delivering a sound performance even in challenging market conditions."
Mr Lahiff said ructions in financial markets stemming from problems in the US sub-prime mortgage sector had not impacted Mortgage Choice.
"We don't manufacture, we don't fund, we don't service the loans - that's the responsibility of the lenders.
"We don't have our own mortgage products which means we have no balance sheet or funding risk ... so (there's been) absolutely no impact from the events of the past few weeks."
Mr Lahiff said the company's role as a mortgage broker, rather than a lender, meant it would remain well insulated from any further fallout in credit markets.
"We don't have a direct exposure there because we don't have any funding or manufacturing capabilities ... there will be some waves that flow out from that (which) will inevitably touch us in some shape or form (but) we don't believe those to be significant.
"We also believe that while (some) organisations may tend to batten down the hatches, we see a good opportunity to go forward."
Mr Lahiff said the portion of "non-conforming" loans - the equivalent of a sub-prime loan - originated by Mortgage Choice was "incredibly low".
"The latest set of data (shows) that of the total loans that we booked, 0.67 per cent were non-conforming ... it's not a major part of our business," he said.
And while the ongoing global credit crunch is likely to impact on lending rates in Australia, chiefly in the non-bank sector, chief financial officer Tony Crossley said Mortgage Choice was in a position to take advantage.
"Essentially, in the short term, there's certainly upward pressure on interest rates ... the extent to which it's passed on is really a judgement call for the lenders," Mr Crossley said.
"From our point of view we think we are reasonably well placed to take advantage of any of that because (of our ability) to shift from one type of lender to another."
Mr Lahiff said that given the current environment, the company would "be alert to acquisition opportunities" but that organic growth would remain its chief focus.
"In this market, visibility, strong brand values, quality, consistency and track record are the keys," Mr Lahiff said.
"Lenders are increasingly basing rewards on quality, sustainability and performance." "We are confident that Mortgage Choice is well placed to achieve profitable growth in the coming year.
"Improved broker recruitment, an increasing commercial and retail office presence and through our invest-to-grow strategy, the ability to scale up the business will continue to be important going forward."
Mortgage Choice declared a final fully franked dividend of 8.5 cents per share, bringing the total ordinary dividend for the year to 14 cents per share.
Source: AAP

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