If you have been following Denise Brailey, a consumer advocate and president of the Banking & Finance Consumers Support Association (BFCSA) or investigative journalist at The Australia, Anthony Klan you will know there is a potential Subprime crisis brewing in Australia.
Over the past few months we have heard numerous stories of home loans being extinguished by the Supreme Court on the basis they were fraudulently provided to people who couldn’t afford them. In some cases, lenders provided loans to individuals that had been unemployed for some time, and almost always overstated the borrower’s income. Despite reassurances our banking system was best practice, hundreds of emails from lenders and brokers has surfaced demonstrating predatory lending practices.
In June, one of these Subprime lenders appealed two Supreme Court rulings in the High Court in hope of reversing what could be a nasty precedent for their industry. They lost and the floodgates started to open.
Today, Denise Brailey has been briefing a Senate inquiry in Canberra. She told the inquiry in the past six weeks she has seen 400 low-doc or no-doc loans and each one had been tampered with. “Not one of them is a clean document,” she said.
According to Mrs Brailey, Fitch ratings estimate 8 to 10 percent of residential mortgage-backed securities (RMBS) comprise of low-doc loans. Fraudulent loans could top $2 billion.
In a bid to kickstart a frozen securitisation market after the GFC, the Australian government had purchased over $15 billion RMBSs and is potentially holding many of these fraudulent loans.
» Banks cheated on home loans, inquiry told – The Herald Sun, 8th August 2012.
» Subprime borrowers ‘let down by system’ – The Australian, 5th June 2012.
» The mortgage sting – The Australian, 5th June 2012.
» Courts rule against lenders as boom-time low-doc loan frenzy unravels – The Australian, 13th June 2012.
» Emails detail banks’ love for low-doc loans pre-GFC – BusinessSpectator, 13th June 2012.
» High Court rules against financier of low-doc loans – The Australian, 23rd June 2012.
It’s not just personal debt that’s been fudged. Many businesses also use loan brokers who, in order to gain business, are happy to fudge documents.
I wish the courts wouldn’t write the debt off, but rather, pass the liability on to the individuals responsible for tampering with the truth.
These mongrels (finance types in general) ALWAYS ride the up side and all it’s benefits, cars, boats, houses, holidays, and wear NONE of the downsides.
Subprime in Australia! Who would have thunk it?
Nah we’re different..
House prices only go up..
Housing shortages will prop prices up..
Immigration will prop prices up..
Mining will prop prices up..
All looking like a bunch of dicks now hey!
It all depends on your Debt to Income ratio.
Basically, if you are making $4,000 a month
before taxes, a bank will try to make sure that your total payments (student loans,
car, and house payments) does not exceed 35% of your pre-tax income.
So if your total payments of long term debt would exceed about
$1,400, chances are that you will get turned down.
Also, a lot of banks are requiring 75% loan to value on properties.
So unless you have 25% to put on a down payment, or can obtain a virtually unsecured loan
for the downpayment,you might be out of luck at the moment.
. . This is all assuming you have a good credit score