The future of Australian property prices

[greebly24]

Headline of The Australian newspaper Monday June 4 2012 "Hope for mortgage 'victims'"

"Thousands of struggling homeowners could walk away from their mortgages as a series of court cases helps to expose widespread improper lending practices involving some of the nation's biggest financial institutions."

OMG!!! But property bulls were telling us that we were different to America!

"Finance industry giants are spending millions of dollars on legal fees fighting homeowners who have successfully exited their mortgages because they were stung by sub-prime-style lending practises during the last property boom."

OMG!!! Sub-prime-style lending practises? In Australia? Surely not? People successfully exiting their mortgages? In Australia? How? No, no, no! They can't, we were told repeatedly by the bulls. Part of the reason the US market collapsed couldn't happen here, they said.

"...inflating borrowers' income and ability to repay debts to secure so-called 'low-doc' loans."

No, no, no! We don't have sub-prime mortgages in Australia! It's different here! Our lovely financial institutions weren't reckless like the Americans'.

"...No docs - Client only needs to be self-employed for 1 day or more... No assets or liabilities required, no income needs to be stated!!!"

They were called NINJA loans in the US (No Income, No Job, no Assets). Here the financial institutions advised clients to register an ABN, then get one day of work, one single day, before they are eligible for a mortgage! You couldn't get a NINJA loan here. Presumably you needed to work for 8 hours. But why would our banks be so reckless?

"In the race to provide credit - and earn commissions..."

Oh, right! Think greed is pretty much universal, I guess.

"The Australian has also discovered cases of mortgage brokers, loan originators and others inflating borrowers' stated incomes on loan application forms without their knowledge."

Keep saying it: Australia is different, Australia is different, Australia is different...

""Lenders have been throwing everything they have at these cases because they know there are thousands, probably tens of thousands, of people who have been affected," say Geoff Robertson of Champion Legal..."

But Australians love housing more than Americans do, or some other property bull argument (I forget what it was)!

The fact is that the same dodgy lending practises that caused the property bubble to crash in America (and Spain and Ireland and Greece etc) also existed in Australia. The question of how great the problem was will only become clear in the months and years ahead of legal action.

Hopefully anyone struggling to pay their mortgage, or facing foreclosure from the bank, should immediately contact the bank to get a copy of all the documents. Any discrepancies in any facts should be challenged in court. This could drag on for years, folks.

So the banks are going to take big losses, through mortgage reductions or write-offs, on this debacle. And do you think banks want to become landlords, holding thousands of properties in a falling market? No chance. They'll dump them on an already over-saturated market, pushing prices down further. Try competing to sell your home with a bank foreclosure selling cheaper next door!

The other interesting part of the article is about Residential Mortgage-Backed Securities (RMBS). After the GFC, the investment market for them collapsed. In order to protect small lenders against the big banks, in Oct 2008 Wayne Swan announced the government would invest $4Bn to "shore up the RMBS market".

Think they were good investments? Securities paying a good rate of interest, backed up by residential mortgages in Australia? Well apparently investors don't (maybe they're aware of our little "Low-Doc" problem). Investors would rather buy US Treasuries paying around 1% (less than inflation), than invest in Aussie mortgages.

So in April last year Swannie had increase the obligation to $20Bbn. $14Bn of that has already been invested in RMBS. The govt claims it is invested in "...superior-quality loans with relatively low default rates...". Really? Why didn't private investors want them then?

It is obvious that the govt is now creating our own version of Fannie Mae and Freddie Mac, bankrupt taxpayer-funded organisations to invest in crap RMBS that no-one else wants. And remember, we didn't have the money to pay for it. We borrowed the money off China, amongst other places, to buy Aussie mortgages. Its part of the reason the Gillard govt has to raise our debt ceiling. It was $70Bn, then they raised it to $200Bn, then $250Bn, now who knows how high it will go? Part of the money is being used to continue to prop up the unsustainable Aussie property bubble. When the govt can no longer borrow money to keep our bubble afloat, look out below.

 

[numbercruncher]

Awesome news -

Hopefully some of these financial predators get sued for the bonuses and inflated salaries they received. Some even deserve prision sentences.

During the flipping days one of my loans was Lowdoc , amazed me how easy it was - ridiculous really, they may as well of thrown Money at me for showing little more than my ABN at the time.

 

[Starcraftmazter]

Ding ding ding we have a winner johnny.........confirmation bias is why you concerntrate on mel.

I am not concentrating on anything, the discussion of the last few pages has been about Melbourne.

It is obvious that the govt is now creating our own version of Fannie Mae and Freddie Mac, bankrupt taxpayer-funded organisations to invest in crap RMBS that no-one else wants. And remember, we didn't have the money to pay for it. We borrowed the money off China, amongst other places, to buy Aussie mortgages. Its part of the reason the Gillard govt has to raise our debt ceiling. It was $70Bn, then they raised it to $200Bn, then $250Bn, now who knows how high it will go? Part of the money is being used to continue to prop up the unsustainable Aussie property bubble. When the govt can no longer borrow money to keep our bubble afloat, look out below.

A++ post, bookmarking for later. Of course there is no difference between USA and Australia - what has happened there, will happen here. Of course since our bubble is so much bigger, there is much further to fall.

 

[CanOz]

I am not concentrating on anything, the discussion of the last few pages has been about Melbourne.

A++ post, bookmarking for later. Of course there is no difference between USA and Australia - what has happened there, will happen here. Of course since our bubble is so much bigger, there is much further to fall.

SCM, in what respect is the property bubble in Australia bigger than the US?

Also, did Australian banks package up these toxic mortgages as CDOs or similar derivatives and flog them off to investors?

CanOz

 

[Gerkin]

Melbourne has a huge over supply over apartments. We looked at heaps and didnt apply to one we thought was perfect, and we got that straight away

you probably had a good history + double income no kid

 

[numbercruncher]

you probably had a good history + double income no kid

People with Kids typically dont live in Apartments anyway do they ?

Such an oversupply these days I think what he is saying is the "owner" was glad to get someone apply to lease it ( ie/ no other applicants for the lease).....

"owners" should be privledged to have their apartments leased to good tenants these days, especially if ownership is underpinned by Monies they are renting from Bankers ....

 

[Starcraftmazter]

SCM, in what respect is the property bubble in Australia bigger than the US?

Well see here;




You see how Australian prices have bubbled more than US? You could also see the same result if you compare price to income ratios.

Additionally, there has been more overbuilding and oversupply in Australia than in the top US bubble states;




So you see, the prices were twice over-inflated than in the US at the peak (which we are still reasonably close to), and we have had more over-construction. So it is in every way bigger.

Also, did Australian banks package up these toxic mortgages as CDOs or similar derivatives and flog them off to investors?

We won't know to what extent this has happened until it's too late; however I will suggest that it is completely irrelevant - especially considering the above.

Quite simply put, our bubble is far bigger because our prices are far more inflated, and we have had more construction. What our banks have and have not done with mortgage debt is not really relevant. Or you could say it is perhaps worse if they didn't package them up and sell the mortgages, since the banks are liable (that is to say, they won't be able to cover their liabilities if house prices tank).

And while we're at that, Australia has the worst capitalised banks in the world, just around 1.5% capital against their mortgage books. That's pretty ridiculous, once the mortgage insurers fall (they are all already losing money, mortgage insurance is not in any way meant to protect against a bubble bust) our banks are history.


And let's not forget the most important thing of all. US banks can borrow infinite free money from the Fed. Our banks have to borrow from overseas, and they can only do so as long as they are implicitly covered by our federal government's AAA credit rating. If even the slightest thing goes wrong with our federal government's finances...

 

[Glen48]

IF the RBA drop on Tuesday .5% we will know they are worried.
So we all agree the crash is on except for a couple and trying to see the bottom will be like looking at inside of a black cow at midnight .

 

[Starcraftmazter]

If they drop by another 0.5%, I would say it's not panic than worry. That'd make 1% in 2 months - crazy.

They will have to drop by 25bps at least though just in case the GDP figure on Wednesday will be negative.

 

[DB008]

IF the RBA drop on Tuesday .5% we will know they are worried.
So we all agree the crash is on except for a couple and trying to see the bottom will be like looking at inside of a black cow at midnight .

WHAT?
You are aware that rates do go up and down?
Maybe if the banks actually kept in step with the RBA, we might not need another rate cut? Do you see that side of the coin????

What is your prediction Glen48? 0.5% like Japan has had for the last 20+ years?

 

[Julia]

Awesome news -

Hopefully some of these financial predators get sued for the bonuses and inflated salaries they received. Some even deserve prision sentences.

Of course the entire blame falls on the lending institutions, doesn't it, NC!
No way any responsibility should be attributed to those engaging in loans they couldn't service.
Of course not.

 

[numbercruncher]

If a Doctor incorrectly doses someone 200mg instead of 100mg he is negligent - if a Money dealer lends 500k instead of a manageable 200k he is negligent and people should excercise their statutory right to take legal action.

These money dealers made big loans to make big personal profits and lending standards have never been as easy as they were ever in history as during the great credit experiment of early this century.

I do however support the forefeiture of the property speculator classes right to complete compensation under these rules, they should first surrendor all assets needed to cover debt then the bankers should cover the short fall.

They can then all go work in mine for Gina before the 457's take their job as their income tax will be needed to pay for the millions of pensioners in the welfare state.

 

[Julia]

These money dealers made big loans to make big personal profits and lending standards have never been as easy as they were ever in history as during the great credit experiment of early this century.

I'm not at all defending inappropriate lending. It's despicable and stupid.
But I'm just sick of no blame being attributed to the person acquiring the loan. Do you really believe the borrower had zero responsibility?

 

[numbercruncher]

I'm not at all defending inappropriate lending. It's despicable and stupid.
But I'm just sick of no blame being attributed to the person acquiring the loan. Do you really believe the borrower had zero responsibility?

Borrowers of course played a role but lenders have a professional and legal ( wish I could say ethical ) responsibility to make certain borrowers have the capacity to repay and they clearly breached that responsibility in many cases.

Perhaps in some cases blame and liability can be apportioned as a percentage and dollar figure to each party.

I actually think persnally many property spruiker enterprises have a case to answer from scaring people into unaffordable purchasing with rubbish propaganda like prices double each and every seven years , how if you dont buy now youll never afford it and other heavy handed fear tactics that tricked so many into buying at terribly inflated prices.

 

[Ves]

If a Doctor incorrectly doses someone 200mg instead of 100mg he is negligent - if a Money dealer lends 500k instead of a manageable 200k he is negligent and people should excercise their statutory right to take legal action.

That's a poor analogy - one has years of education, the other has very little or no education at all. Are you serious?

You don't sign a contract when you go to a doctor.

 

[Julia]

That's a poor analogy - one has years of education, the other has very little or no education at all. Are you serious?

You don't sign a contract when you go to a doctor.

+1.

 

[Ves]

Borrowers of course played a role but lenders have a professional and legal ( wish I could say ethical ) responsibility to make certain borrowers have the capacity to repay and they clearly breached that responsibility in many cases.

Lenders are not qualified professionals in most cases, especially at the big four.

Can you please quote a source that suggests that they have some legal obligation to make sure that borrowers have the capacity to repay? I believe it exists, but what must be proven for a lender to be found guilty? What if the borrower has provided false and misleading information? Most major institutions have lending criteria that their employees must satisfy before making a loan. What does this count for? I think you need to provide more facts IMO.

edit: Have you ever read the legal contract that you have to sign before you accept a mortgage?

 

[numbercruncher]

That's a poor analogy - one has years of education, the other has very little or no education at all. Are you serious?

You don't sign a contract when you go to a doctor.

Im not suggesting the mortgage brokers with a one week certificate 11 education face the legal wrath but moreso the bankers with MBAs etc and the banking cartels they represent who facilitated this need to be dragged across the coals.


But sure I could of made a better anaolgy.

Anyway who cares what I think it appears that reckoning for these dodgy bankers is happening !

 

[numbercruncher]

edit: Have you ever read the legal contract that you have to sign before you accept a mortgage?

Despite what these banking Gods write in dodgy contracts they dont override peoples statutory rights and im going to guess thats why thousands of mortgage holders could be off the hook.

But im not a lawyer and thats what you need in these slipery matters - great to see the dodgy money dealers getting beat at their own dodgy game though.

 

[Ves]

More empty rhetoic, with little if any meaningful content. I'll leave you to it. Have fun!