24th Jan 2018
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Poor lending practice putting older Australians at risk
Poor lending practice putting older Australians at risk

Now that the property market bubble is easing, there are concerns poor banking practice and irresponsible lending during the real estate boom will spell ruination for many retirees.

Most people assume that young families who have borrowed beyond their means to buy property will be the hardest hit by an interest rate rise, but many older Australians will also be put at risk.

The rate of mortgage stress has risen by 20 per cent in the past six months, according to the Consumer Action Law Centre (CALC).

The not-for-profit organisation blames bankers for the increase in mortgage stress, saying that irresponsible lending “can have severe consequences, including the loss of the security of a home”.

CALC is worried that parents who have entered into a loan agreement with their children could face repossession and lengthy court battles should the co-borrower fail to meet any repayments.

“Consumer Action’s experience is that older people are at significant risk, particularly where they agree to mortgage or refinance their home for the benefit of third parties. This can be family members or someone who holds their trust,” states CALC.

“The lack of appropriate inquiries into the suitability of a loan only comes to light when the adult child defaults on loan repayments and the bank commences proceedings for possession of the loan in order to discharge the debt.”

The Australian Prudential Regulation Authority (APRA) says that banks using the Household Expenditure Measure (HEM) as a benchmark for lending are “failing to properly assess whether borrowers could meet repayment obligations, due to the use of benchmarks rather than the actual expenses declared by borrowers”.

It is predicted that, by 2019, over 1 million households will be tackling mortgage stress.

Read more at www.nestegg.com.au

Are you worried about interest rates rising and the corresponding increase in repayment costs? Have you signed as a guarantor for your child’s home loan? Do you think banks have made it too easy for borrowers?

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    COMMENTS

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    Chris B T
    24th Jan 2018
    9:46am
    Irresponsible lending and irresponsible requests go hand in hand.
    Factor in how much this loan will affect my budget now and into the future, it is up to you as well as lenders to workout your affordability.
    Why over stretch yourself then blame the the lender for a loan.
    You could not afford in the first place!
    (;-(0)
    Cowboy Jim
    24th Jan 2018
    10:24am
    Only loan I ever entered into was a housing loan and in my day the rate was more than twice what is asked now; and then it went to 16% and we baled out. Bought another small place later in life with super
    and savings. No more loans, fingers are still tingling!
    MICK
    24th Jan 2018
    12:50pm
    I remember Jim. They were tough times the current crop likely believe never happened. They whinge about 5% being too much. Give me strength!
    Chris B T
    24th Jan 2018
    1:02pm
    There were fixed rate Loans Available WAY BACK, choices made by all were affected. Housing Loan went to 16%, investment went to daily rate which averaged to 30% interest.
    Fixed rate was available by not taking it is a choice.
    This is when you saw a Bank Manager Not Broker.
    Old Man
    24th Jan 2018
    3:42pm
    Chris B T, all overdrafts back then were on a daily rate of interest, charged half yearly. The term "daily rate" described the method of calculation of the balance to allow the correct amount to be charged. If you had a rate of 16%, that is the rate that was charged.

    An example would be if an instalment was paid on, say, the 15th of the month, the balance of the loan would be reduced halfway through the month. The method of working interest would show that the balance at the start of the month would be higher than the balance after the instalment so the balance owing was calculated to allow for that. The number of days multiplied by the balance accumulated and at the end of 6 months that accumulation was converted, using tables, to an amount of interest at the quoted rate, in this case 16%.
    Chris B T
    25th Jan 2018
    2:39pm
    Old Man
    Please Read what I said "Investment Loan" Investment Loans were on a Daily Rate which average at 30% interest PA.
    At that time when interest rates where going up & UP I was posted interstate so my home occupier loan went to a Investment Loan and that rate of interest was a daily rate which averaged at 30%PA.
    Daily Rates don't apply to home occupier loans. I lived the Pain.
    Yes fixed rate was available for my home occupier loan but would have been cancelled as I was not occupying the home.
    All in fine print when you read your Home Loan Contract.
    I spent a long time with Bank Manager going over this back in late 80's early 90's.
    MICK
    24th Jan 2018
    10:28am
    People who get into business with their genY children deserve anything which happens to them.
    As for bad bank practises I beg to disagree. ASIC has put severe rules in place and I recently found myself unable to borrow a piddly few dollars despite significant assets and money in the bank. I'd say things are about as tight as you are ever going to see until a recession or depression arrives.
    As always people need to take some responsibility for their own actions. Last in genYs who borrow like crazy on the assumption that interest rates were frozen forever might just get their first reminder of the real world if the predictable happens. Given the huge world debt that may be not to far down the track. I can hear the wailing and blame game when that happens. Some things never change.
    Old Man
    24th Jan 2018
    11:58am
    Back in the last century, banks were regulated and a large employer. Then came deregulation, the introduction of foreign banks and Australian banks suddenly having to work much harder to obtain customers and therefore profits. In the late 80's-early 90's, banks gave out redundancies starting at middle management and introduced systems that produced mortgage brokers who are paid on results, not effort. Some, certainly not all, of the mortgage brokers falsified figures to enable borderline applicants to obtain a housing loan when it should have been refused. The banks used spot checks to verify details and a lot of loans were made that shouldn't have been. It is this group that has caused the biggest problem for banks and is a part of the reason that interest rates for housing seem unreasonably high.
    MICK
    24th Jan 2018
    12:53pm
    Welcome back OM. Happy New Year.
    Pretty spot on. The real question is WHY were lenders who falsified applications not prosecuted, severely fined and jailed? Of course....you have to protect the corporate criminals who gave the orders at all costs. Sad that the rules for the top end are different from the rules for everybody else.
    Old Man
    24th Jan 2018
    1:03pm
    It's a grey area MICK and amounts to "he said - she said". The mortgage brokers insisted that the applicants gave the wrong information and the applicants claim that the mortgage brokers falsified the applications. The real fault lies with those handing out the money who gave too much trust in those living off commissions. When banks employed lending managers, they got paid regardless of whether a loan was approved or not but could be sacked for breaching rules if falsification was discovered. Mortgage brokers could be blacklisted but there are lots of other lenders to deal with.
    johnp
    24th Jan 2018
    1:03pm
    This info was given to me and takes the issue further. May be of interest to some

    With the worlds Central Banks Quantitative Easing over the last 10 years, 2018 can be a critical year for the banking industry. The US Fed is talking about 4 interest rate rises in 2018. If that is to occur, the re-set to higher interest rate for mortgages can have a devastating effect on borrowers. Are we sure that our 4 major banks are in good financial positions to weather the tsunami of mortgage defaults that may hits our shore.
    In the recent reports by the CEC and Dr Sy’s submission on the Govt’s APRA bail-in bill (Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2017) deposits in banks are not guaranteed.
    https://cecaust.us11.list-manage.com/track/click?u=0e711a75e092d068debcd1a03&id=9c862b9856&e=69cb854bb7

    https://www.aph.gov.au/Parliamentary_Business/Bills_LEGislation/Bills_Search_Results/Result?bId=r5989

    Any bail-in as proposed by the bill will destroy a large number of retirees who are or may be dependent on the interest in their bank deposits. There should be public hearings on the proposed bill so that the grey voters may be aware of the consequence of such a bail-in bill.
    KSS
    24th Jan 2018
    1:38pm
    Ok so now we're getting in early for another round of bank bashing because people refuse to take responsibility for their own actions. AGAIN! It's always someone else's fault!

    When I took my mortgage just 6 years ago, I factored in then interest rates of around 6% rising to 10%. An unlikely scenario but nevertheless I would have been able to still make payments had it done so. As it happens interest rates went the other way and I continued to pay at 6%+. Consequently I have now all but paid off the mortgage.

    Borrowing to your last dollar is just plain stupid especially if it also involves more than one person in the loan. An accident, redundancy, pregnancy, relationship breakdown etc all change the financial landscape and should be considered when applying for the loan.
    Failure to do so is not the fault of the lender, its the fault of the borrower. How many claims of discrimination would there be if the lenders refused loans to those who 'on paper' can afford it?

    But hey! It's easier to blame someone else than take responsibility, right?

    24th Jan 2018
    2:56pm
    Banks lose money when idiot borrows cannot repay
    Stop blaming the banks and blame rhe fools who don’t know how to live within their means
    Old Man
    24th Jan 2018
    3:46pm
    Gee Raphael, would that others have led such a charmed life as you have. No sickness, no redundancies, no family problems that called for time away from work, no unexpected interest rate rises, no deaths in the family where money needed to be found to help pay for funeral expenses. Raphael, there is a multitude of reasons why borrowers get into trouble and not all of the reasons have to do with living beyond their means.
    Anonymous
    24th Jan 2018
    5:01pm
    Is that the banks fault ?
    Anonymous
    24th Jan 2018
    6:06pm
    No, it's not the banks' fault, but it doesn't make the borrower an ''idiot'' either.
    Knows-a-lot
    25th Jan 2018
    8:27am
    More bank bastardry. It never ends. Give the forthcoming Royal Commission real TEETH to punish the banks.


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