Mortgage Prisoners Totally Screwed in Australia as Refinance Rejections Soar

Australia is flooded with "too good to be true" refinance offers. Rejections up 349% since April, 1426% from December.

Looking to refinance your Australian property you wish you didn't buy?

Not to worry, I can help is the message banks are sending. Oops, strike that.

The total number of monthly rejections went from 2,031 in December 2017 to 30,986 in July 2018, a mere 1426% increase.

The rejection rate itself looks much better percentage-wise. It's now 40%, up from 5% a year ago.

Debt Distress

Those who cannot refinance are in deep trouble. The Spike Exposes the Number of Australians in Debt Distress.

>It's being described as a "mortgage mirage". It's an offer from the bank that looks too good to be true and, as it turns out, for many it is. "About 40 per cent of people who tried to refinance were unable to do so," Digital Finance Analytics principal Martin North said."If you go back a year it was 5 per cent."

>The reason this is occurring is that, while those applicants cleared the bar for their original loans, that bar has now become a lot higher, following years of banking reform and the fallout from the banking royal commission. So, now, they simply don't qualify for the same amount of debt they once did.

>"When people took out the loans there was a lot of widespread fudging of the numbers," chief investment officer with funds management firm, Forager Funds, Steve Johnson said.

>"People were getting loans on the basis of a four person family having $30,000 a year of living costs living in Sydney. "And it's quite clearly impossible to live in Sydney on that much money a year. "The biggest issue is that people have borrowed too much money relative to their income and that is a very difficult problem to unwind."

>Mr North has calculated there are now close to 1 million Australians on the edge of mortgage stress defined by Digital Finance Analytics as borrowers who are going further into debt or eating into savings because their expenses are greater than their income.

Mortgage Prisoners

One million mortgage prisoners are on the edge.

They either need to come up with more money or sell. But sell to whom? And at what loss?

Flashback: July 23, 2017

Please recall 13-Year-Old Kid Buys $552,000 Home.

I asked "What can possibly go wrong?

I don't know if it did go wrong yet, but if that genius bought more homes as was his intention, it will.

Vague Recollections

I seem to recall events like this happening somewhere else, where banks lent money to anyone who could breathe, whether or not they could afford what they were buying.

When was that? Where was that? Was there a crisis? Did anyone learn from it?

Darn, I just can't recall.

Mike "Mish" Shedlock

Comments (31)
No. 1-13
Matson
Matson

Australia is long overdo for this nightmare.... I would hate to be in a situation like this. I fear many people will take the hit and become "homeless" to attract local welfare.... Which kicks the problem onto every taxpayer.

thimk
thimk

selective memory

Zardoz
Zardoz

Australian mortgages are recourse too.... ouch.

2banana
2banana

FB = F**ked Buyer

And these are all recourse loans. They just can't walk away and mail the keys to the bank.

All that sweet equity that was going to make all these folks rich.

Leverage works both ways. And at 40:1 leverage and 9x income...it will crush you on the way down.


"borrowers who are going further into debt or eating into savings because their expenses are greater than their income"

GrossBitZECoinTrader
GrossBitZECoinTrader

flee Australia !!!!

Realist
Realist

Generally what happens with Full Recourse Loans is that the borrower stays in the house and cuts back on everything else in their lives. They sell some of their possessions, stop taking vacations, perhaps dip into retirement savings (where possible). The house is the last thing to go, followed by personal bankruptcy. The banks dont suffer much because they end up with the house, after they have already received the proceeds of every other asset in the persons life. Thats one of the reasons my favourite stock investments remains Canadian banks. They have been a very solid investment for me over the last 4 decades. Now, I suspect a few posters will tell me how the Canadian Banks are going to zero soon. If they are positive about that, I suggest that they short the Canadian banks.

Runner Dan
Runner Dan

None of this matters AT ALL, as they just need to do what the US did:

  1. Suspend mark-to-market accounting of banks.
  2. Offer various can-kicking refinancing schemes to the loan owners.
  3. If the loan owner stops paying the mortgage, allow them to squat in their homes for 3-5 years to help keep sales inventory low. Heck, pay em 20 grand to vacate without ripping out the copper wire when time comes!
  4. Increase government intervention in the mortgage business (i.e., issue and/or back loans that know sane person looking after their own money would ever make).
  5. Have the central bank swap the garbage mortgage backed securities held by banks for cash to help make the banks appear to be solvent, under the guise of providing liquidity to them.

The banks will soon resume their parasitic enrichment scheme of lending money they do not own for artificially inflated housing assets, fleecing the population as they go.

pgp
pgp

Don't forget that for every housing mortgage most Australians have at least one car mortgage. Not a basic car loan but a lease for "him" on a V8 sports car in many cases and for "her" a luxury 4WD. Out of control debt in Australia only begins with the mortgage... the overvaluation of property has encouraged the stupid to siphon off equity for new cars, home theaters, pools, boats and other kingly excesses.

Supposedly, the banking laws aren't as lose and free as they are in the USA but nevertheless the usurers of the financial and investment industries found other ways (legitimate or otherwise) to sell money to people who don't have the sense to say no to more "stuff".

Now they have "wallet wizard", "loan ranger", "nimble" and other short term money lenders specifically offering money at stupid rates of interest just to cover the monthly cell-phone bill. What have the cretins in government done about it? Nothing of course.

Those are the very same cretins who bragged about Australia's banking laws to the world, after having survived the contagion of the 2008 US banking meltdown. The same headless chickens left or right who have become economically clueless. The same morons who can't even decide who their party leader should be.

It's no wonder all the smart Australians (or those that could) left the country to live elsewhere.

John212
John212

Not sure if any of you know what your talking about. Do you even know what Gov workers and teachers get paid. It rises yearly and are around 110 to 120k a year now for a FT so x 2 is 240k a year pre tax. In 5 yrs time this will be much higher. So the reality is with population plus public sector wages will easily swallow this inventory in a few years. Only with mass unemployment will things change so it's rather just a slowdown for a few years while wages catch up.

DFWRealEstate
DFWRealEstate

They say the definition of insanity is doing the same thing over and over again and expecting a different result.

George_Phillies
George_Phillies

The artist in drawing the shark and cage has accidentally drawn the human as being inside the cage looking out rather than outside the cage looking in.

CautiousObserver
CautiousObserver

Since Australia typically uses full recourse home loans, individual bankruptcies should be a good indicator as to when their banks are in trouble. Filings have reversed trend upward the last couple of years, but are not yet taking off in an obvious way:

everything1
everything1

They are forecasting 5-15% property price declines all around. The hottest markets Sydney and Melbourne topping the 15%, everyone else lower, but prices are up 85% since 2013! Whoa nelly, what's the goal here? Of course a few will be trapped at the top, as usual the hair trigger for RE seems to be the interest rates or tougher lender standards, you mean tougher lender standards effected property prices! Wow, who would of thought, er, I mean .. you mean banks control all this, well ok. Still, they are experiencing much the same thing we are here with higher priced units getting dinged.