Bank calls in loan??

[Temjin]

There, I found it.

http://www.somersoft.com/forums/showpost.php?p=468864&postcount=45

From your once a perma-bull, Peter Spann.

Quote:
Originally Posted by Gremlin
As I mentioned in another thread, I have a (now elderly) relative who, during Keating's recession, had the 'All Monies' clause invoked on their mortgage despite being well ahead on their repayments and with a low LVR (~30% at the time).

Not technically a margin call, but the bank simply transferred $x from their transaction account to their loan account without their consent. Said relative went absolutely ballistic, but bank was within its rights.

I don't know how widespread it was, but it certainly has happened in the past...

With respect it is very important for everybody commenting in this thread to re-read this post (and a couple of others that are similar) lest you unintentionally lead others and yourselves down the garden path of ignorance.
This practice – forcing people to sell their homes / investments was widespread in the “recession we had to have”.
It impacted thousands of people.
Not only can the bank enact the all monies clause they can (and do) require people to bring their loans into order with the approved LVR forcing people to tip in cash or sell up.
I have heard many times before (and indeed it has been stated in this thread) that banks won’t force people to sell if they are making their payments. I am sorry but that is naivety.
Banks are listed entities who’s share prices are in part impacted by their balance sheet and subject to prudential requirements for capital adequacy while is often “on balance sheet”. Both these things dramatically impact their inclination to sell up “bad debt”.
Let me see if I can explain this in lay man’s terms (which means I may make a generality or two)…
Let’s say a bank is required to have $1 billion in capital adequacy – cash or assets on (and sometimes off) their balance sheet to “guarantee” depositor’s funds. Cash increases that capital adequacy and bad debt decreases it. With mark to market account this problem will only be magnified this time round. The bank has to report how much security it has for its lending. If that security decreases it impacts their balance sheet which means they need more cash (or other hard assets) to prop up their capital adequacy. If people are withdrawing their money (as they do in recessions) they have less cash not more. The share market and regulators start getting worried. Share prices drop affecting the capitalisation of the bank and further putting pressure on the balance sheet. Not good. If the provision for bad debt goes up at the same time things start looking grim but there’s an easy fix - foreclose. Once the asset is sold (even at a massive loss to the bank) it moves it from a provision (balance sheet) to a loss (P&L) – problem magically solved! Not only that the bank would be rewarded by the share market for this especially if done rapidly. Let’s get all the losses into one financial year and go back to making profits (distributions – yummy) and bonuses (double yummy) while the poor home owner is saddled with a debt, no asset and possibly bankruptcy.
In particular one of the big banks in the early 90’s cleaned up their balance sheet by foreclosure. This does, can and WILL happen.
I have been advising clients for the last couple of years to ensure they are gradually lowering their LVR’s to get them in a much sounder position.

 

[Beej]

There, I found it.

http://www.somersoft.com/forums/showpost.php?p=468864&postcount=45

From your once a perma-bull, Peter Spann.

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Temjin - when this came up the other day I dug out my latest mortgage/loan agreements, contract etc and went through them. There is no "all monies" clause or anything like it that is applicable! I don't believe the post you just referenced is correct - sounds more like what happened in the 30s/GD, not the 90s recession, which was one of the reasons regulations were brought in around this sort of thing. Or else the examples being cited were in fact for UNREGULATED loans where they had been taken out as a business loan etc with the house as collateral for the mortgage.

As stated in my previous post, any "regulated" mortgage, as per the Consumer Credit Code, which is just about all residential mortgages, including equity manager facilities etc (which I have), does not have this ability you guys are all going on about. An "unregulated" mortgage (which might include business loans and such), does have such provisions. I think this is where everyone get's this idea from.

This issue seems to come up from time to time and to me it seems like it might be an urban myth being attempting to be started or perpetuated via sites like GHPC and similar?

Cheers,

Beej

 

[Beej]

PS: I'm not even sure where this "All Monies" clause term is coming from, but after a bit of googling, it seems that "All Monies" clauses as they relate to loans/mortgages are to do with loans where there is a 3rd party guarantor, and the clause related to the lenders ability to pursue the guarantor widely to recover losses in the case of default by the guaranteed borrower:

Eg, from: http://www.lawlink.nsw.gov.au/lawlink/lrc/ll_lrc.nsf/pages/LRC_r107chp08#H1

“ALL MONEYS” CLAUSES

Definition

8.4 An “all moneys” clause, also known as an “all accounts” clause or a “dragnet” clause, creates an unlimited guarantee. It extends a guarantor’s liability to secure future credit contracts between the lender and the borrower. In this way, the guarantor may become liable for future debts or advances unrelated to the initial transaction.

8.5 The following is an example of an “all moneys” clause:

The guarantor guarantees “all moneys and amounts at the date of the mortgage or any time hereafter owing or remaining unpaid to the bank in any manner or on any account whatsoever by the mortgagor”.

So it really looks to me even more like this whole thing is an urban myth, with legalistic sounding, but incorrectly defined terms from a mortgage contract being used to make it all sound legit/possible....

What's more even guarantor related clauses like those referenced above are not allowed under regulated loans by the Consumer Credit Code anyway....

Beej

 

[MR.]

Just rang the CBA loan division. They claimed that if all repayments were being met your investment property can not be foreclosed. Even if that property dropped in value to $300K when the loan was still $400K.

He did say the best people to speak to, would be the bank managers.

anyway some feed back....

 

[grace]

Just rang the CBA loan division. They claimed that if all repayments were being met your investment property can not be foreclosed. Even if that property dropped in value to $300K when the loan was still $400K.

He did say the best people to speak to, would be the bank managers.

anyway some feed back....

I'm probably off on a bit of a tangent here from your discussion....

If you have a line of credit used in a business taken out over your home loan, the bank can certainly call up the loan if you default on a payment (and sell the house even if you have a home loan over the house as well). If you have a home loan only over the house you live in, they must offer you a very small amount of time under hardship provisions that all australian banks must follow, before they sell you up.

About the equity levels, your reply from CBA sounds too good to be true....perhaps it is true though. I see some things in the media today how banks are not lending to those who have defaulted on paying their phone bill. It is an indication of what is to come with that customer. That would be one very small thing appearing on their credit report, but enough for the bank to say they are too risky.

 

[Beej]

If you have a line of credit used in a business taken out over your home loan, the bank can certainly call up the loan if you default on a payment (and sell the house even if you have a home loan over the house as well).

Yes, as that would then be an UNREGULATED business loan.

If you have a home loan only over the house you live in, they must offer you a very small amount of time under hardship provisions that all australian banks must follow, before they sell you up.

And then ONLY if you are in default as defined by the definitions allowed under the Consumer Credit Code, which is ONLY if you have failed to make your contracted payments on time. Make your payments, no default = no possibility of repossession, demands for extra cash or any of the other things being suggested as possible here.

About the equity levels, your reply from CBA sounds too good to be true....perhaps it is true though.

Exactly - not too good to be true at all, it IS true - that is the way it works with a regulated residential mortgage in Australia.

I see some things in the media today how banks are not lending to those who have defaulted on paying their phone bill. It is an indication of what is to come with that customer. That would be one very small thing appearing on their credit report, but enough for the bank to say they are too risky.

Well if you have any blemish on your credit history you are always going to have issues getting any loan. That's pretty much always been the case here - we are not the US!

Cheers,

Beej

 

[Temjin]

Temjin - when this came up the other day I dug out my latest mortgage/loan agreements, contract etc and went through them. There is no "all monies" clause or anything like it that is applicable! I don't believe the post you just referenced is correct - sounds more like what happened in the 30s/GD, not the 90s recession, which was one of the reasons regulations were brought in around this sort of thing. Or else the examples being cited were in fact for UNREGULATED loans where they had been taken out as a business loan etc with the house as collateral for the mortgage.

As stated in my previous post, any "regulated" mortgage, as per the Consumer Credit Code, which is just about all residential mortgages, including equity manager facilities etc (which I have), does not have this ability you guys are all going on about. An "unregulated" mortgage (which might include business loans and such), does have such provisions. I think this is where everyone get's this idea from.

I've done a bit of googling as well and it does clear things up a bit more. Yep, the Consumer Credit Code do seem to require new mortgage loans to remove the "all monies" clause for unfairness. (though I have yet to see the actual code in details...) Though the "unfairness" was definitely not originated from equity on loan being underwater and the lender requires the borrower to secure additional equity.

This issue seems to come up from time to time and to me it seems like it might be an urban myth being attempting to be started or perpetuated via sites like GHPC and similar?

Cheers,

Beej

For your information, I only heard of this so called "urban myth" from Peter Spann in the somersoft property forum. I'm trying to find out more information as well to get a clearer picture. Since you are a property investor yourself, I'm sure you have ventured in that forum before (and agree with most of the posters there who have similar interests with you) and am well aware of his credibility. (i.e. own business, multiple property investments, do seminars on positive cash flows, etc)

But yes, he is only talking about business property investment, and not residential loans.

Here are some interesting links I found.

http://www.investorsedgefinance.com.au/assets

The difficulty is its secrecy, because you won’t find a clause called the “All Monies Mortgage Clause”. So, you have do a search and look for phrases which include words such as: ‘trigger a general default’, ‘material adverse change in circumstances’, ‘immediate repayment in full’, ‘you will be required to prove no adverse changes exist’, ‘break of any condition of this agreement’, ‘jointly and severally liable’ and ‘…all of your estate’.

I don't have a mortgage contract with me right now, but perhaps these clauses might still be in alot of existing contracts or hidden in new ones?

http://money.ninemsn.com.au/article.aspx?id=253822

Good question! Any homeowner with a mortgage before 1996 may well be in the same predicament. Why? Because of a pesky little clause, known as the "all monies clause". Mercifully, you won't find this clause in new mortgages thanks to the Uniform Consumer Credit Code (UCCC). Even if you have an old mortgage, credit cards are deemed to be unsecured.
Look out for it though if you have an investment property loan as the UCCC does not regulate business loans or investment loans.

And what would happens if the banks DO decide to enforce the clause for property investors out there? Probably unlikely but like Peter Spann said, it cannot be ruled out.

It does get fairly complicated so anyone who is looking to sign on a loan contract should seriously read through the terms and conditions and consult a soliticator for advise.

 

[prana]

FWIW - I also approached my broker with this same question. He explained that in Australia, the bond is binding for the term of the loan. So even if the property drops below market value, as long as reoayments are made, they cannot foreclose your loan.

HOWEVER this I am unclear and didn't ask - it is unclear if a line of credit account can be frozen for any untapped credit (I dont have a LOC). As any credit on the "line of credit" may be treated as repaid, and as mentioned in the above post, used as "capital" to balance a lost of asset value. I know the tax office definitely treats it differently hence line of credits have been shunned against here. But over in the US, banks were freezing LOC's from redraw.

Anyways, nothing solid but I asked this question about 6 months ago.

 

[kincella]

love the utilities...all of them....dont pay on time, then get recorded on the black credit list.....and no one wants that to happen...if you want a loan in the future
if there is an honest mistake etc...you can apparently explain it to the lender.
and if you ever apply for a loan or a credit card that is recorded on the register...
just wondered how that female on the 60 minutes program, racked up 70,000 in credit card debt on 5 cards...and said she had no intention of paying any of it off....obviously the card providers, never checked her credit rating...????
that one bluffed me
you have always needed a good clear credit history....well for over 40 years that I am aware of
some people have trouble getting a loan, if they have never had credit...so no history...I know of a couple now...always paid cash....