Aussie Taxpayers to give $8Bn to buy Mortgages off Non-Bank Lenders

I’m writing to any Australian financial commentator out there to ask about the Non-Bank Lenders. I haven’t seen any details on the money being handed over to them from the government. I believe they met with government officials last week to put their cases.clip_image002

I’m just wondering if anyone in the media is keeping a close eye on what is happening with the Non-Bank Lenders. Are they being regulated now they have taxpayers money?

I can’t find any details on how good these triple A rated mortgages are that Wayne Swan is buying. Are they taking them at face value or is some sort of audit being done?

It was the Non-Bank lenders that got commission salesmen selling housing loans on the cheap and now many of those people are in stress. It scared the big banks as they lost market share, and so they employed the same commission salesmen to sell their products too.

About 4 years ago I was at a BBQ where I met a Loans Manager of a well known bank (not one of the big 4). At the time the housing market was slowing down in Sydney. He told me that they had threatened their independent valuers with no more work if they did not increase the valuations by as much as $50K or more because they needed the higher valuations to get the loans approved in the bank.

I’m wondering if anyone is checking what these guys are doing. Are they selling dodgy mortgages and packaging them and calling them triple A rate securities? If so it smacks of an Aussie Fannie and Freddie to me. Can we trust the rating agencies any more?

I’m not happy having $8Bn of tax payers money buying these complex Residential Mortgage Backed Securities (that no one claims to understand) when we know we have a bubble in our housing market and we are likely heading for a recession.

Is it morally right for the government to encourage the Non-Lenders at this time when we want to keep our Banks strong and we may be heading for a recession?

Is it appropriate to let these sales guys into the homes of unsuspecting Aussie’s hoping to buy their first home when job losses and financial hardship may be on the cards?

Can anyone set up a non-bank lending business?

The Sales Guys have a good story to tell.

  • Their Mortgages are safe to buy because even if they go out of business the government is buying their mortgage.
  • Their mortgages are cheaper than the big banks.
  • The big banks will require far more stringent loan requirements to be met and may not approve a loan.
  • The Interest Rates are coming down.
  • 300,000 Immigrants are coming in to Australia this year fully cashed up to buy houses, so buy now or prices will go up ;-(

Many of the people they will be selling to will not understand or maybe not take an interest in the economic problems and possible recession that is still to come. They may not even realise the house they buy can actually drop in value.

I know I have told my own daughter not to take on a mortgage right now. So why is the government encouraging it by financing these mortgage cowboys in the interest of competition and to keep the big banks honest?

Have all the Non-Bank Lenders acted honestly? Some may have but we need to find out.

Have the No-Doc and Low- Docs loans been stopped? If the Web sites below are valid then it is still going on. The government has not addressed the root cause of the mortgage stress in Australia right now – slack lending practices.

Take a look at these links. If they are still valid web sites, I think it is scandalous if this is allowed to happen with tax payer money. It’s even worse in the face of the credit crunch happening right now.

I did a Google Search for “non-bank lenders and wayne swan”

http://www.abcmortgages.com.au/Index.aspx – No Deposit Loan Guaranteed or your money back.

http://www.myrate.com.au/smart_borrowers?gclid=COHUhfn0o5YCFRIcawodXUp_5w No Fee Home Loans at 7.73% Variable funded by ING Bank Australia Ltd. Instant Pre-Approval.

Australia is just creating its own sub prime crisis just as the US is getting out. It figures.

This article from FatCat.com.au, “$4 billion prop-up of non-bank lenders

“But Associate Professor at the School of Economics & Finance, University of Western Sydney, Steve Keen doesn’t view this scenario favourably.

He maintains it was this competitive pressure that triggered irresponsible lending practices and in part instigated “this ridiculous level of debt that households have got themselves into over the last 16 years”.

“Lenders wanted to secure market share and one way to do that was to drop their lending standards, which meant everyone had to follow,” Keen told MoneyConfessions.”

Can someone in a position of influence please check this out and if there are problems make sure the government is made to act please?

2 Responses to “Aussie Taxpayers to give $8Bn to buy Mortgages off Non-Bank Lenders”

  1. Hi David, just wanted to respond to a few of the points you raised:

    – At no point in time have Australian lenders (bank or non bank) written loans on a mass scale for people who could not afford them secured by properties worth half the loan value.
    -In the last 6 months with the liquidity crisis, lending criteria have been getting a lot more stringent across the Australian mortgage industry, not more relaxed.
    – Australian lenders have however been hit by the fallout from the US subprime crisis. The institutions with the money that usually bought up Australian RMBS have been so badly burnt that they are no longer willing to purchase any new issues at anything resembling a reasonable price.
    – This is where the government plan comes in. They are saying that they believe in the quality of Australian RMBS issues and will step in (along with traditional investors) as buyers of these securities. This will mean that with more buyers, hopefully these securities can be more reasonably priced and as a result, more non bank lenders that rely soley on securitisation as a means of funding can re-enter the market with a more competitive product. This will not affect many non bank lenders that don’t securitise directly (eg. MyRate obtains funds from ING and therefore will not be seeing any of this extra investment directly)
    – This a reasonable and responsible step taken by the government that is required in order to maintain healthy competition – without which the major banks would pretty much become the only options for home loans. That said, tax payer dollars are being carefully guarded with the allocated $8 billion dollars set aside for this initiative only being available for good quality investments – tax payers should actually make money from this.
    – Some recently released criteria for RMBS issues that will be eligible for investment must have loans that meet the following criteria: max loan size of $750,000, maximum terms to maturity of 30 years, maximum LVR of 95%, weighted average LVR of 70%. Low doc loans must comprise no more than 10% of the pool. The government will also only invest a maximum of $500M in any one issue.
    – Your post implied that MyRate is engaging in irresponsible lending practices (“If the websites below are valid then it is still going on…If they are still valid web sites, I think it is scandalous if this is allowed to happen with tax payer money.”) — would you be able to clarify what you mean?

    Regards
    Michael Fridman
    Consumer Advocacy
    MyRate

  2. admin says:

    Michael,

    Thank you for taking the time to give a detailed comment on Low Doc and No Doc Loans.

    I held off posting this comment until I had done some research into your comments.

    I have almost completed it and will write a fresh post on what I do believe is a potentially big problem for Australia if a severe recession takes hold.

    David Bates

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