Posted by Henry | BANKRUPTCY,BANKS,GETTING OUT OF DEBT,HOME LOANS,MINING TOWNS | Thursday 27 August 2015 2:19 am

Mining regions are experiencing higher rates of mortgage arrears, Fitch Ratings says image

Mining regions are experiencing higher rates of mortgage arrears, Fitch Ratings says. Photo: Manfred Gottschalk

Job cuts in the resources sector are causing more households in mining regions to fall behind on their home loans, highlighting the risk to banks from the commodities slump.

Mortgage arrears rates are rising in mining regions across Queensland, Western Australia and the Northern Territory, Fitch Ratings said, due to deep costing cutting by miners.

At the same time, the house price boom in Sydney has dragged down the share of borrowers falling behind in suburbs in the city’s west and southwest – areas that have historically had among the highest loan delinquency rates in the country.

Mackay in central Queensland, a hub for the struggling coal industry, became the region with the highest share of loans by value that were more than 30 days in arrears, at 2.01 per cent.

This occurred after the region, which includes the Hay Point coal terminals, posted the sharpest deterioration in arrears in the six months to March, with a lift of 0.59 percentage points.

Regional Western Australia, which includes mining hubs such as Broome and Kalgoorlie, was the second-worst performing region, with an arrears rate of 1.88 per cent.

Fitch said mining-heavy areas of the Northern Territory were also affected by the trend.

“The slowdown and job cuts in the mining industry have hit non-metropolitan regions in the outback of Western Australia, in Northern Territory, and in the north and outback of Queensland,” the report said.

Despite more loans in mining areas falling into arrears, Fitch analyst James Zanesi said there had previously been higher arrears rates of 2.5 per cent to 2.6 per cent in other areas, such as Fairfield and Liverpool in Sydney or the Gold Coast after the global financial crisis.

“It’s the worst performing region, but in the past we’ve had worst performing regions with a higher delinquency rate,” Mr Zanesi said.

The best performing areas, in contrast, were the inner suburbs of Perth, Sydney, Brisbane and Melbourne.

The report also said there had been a “remarkable” improvement in performance in outer west Sydney, Fairfield and Liverpool, and the central coast of NSW, which had been among the worst performing regions in the past decade.

The 30-day arrears rate had fallen from 1.92 per cent to 1.19 per cent in Fairfield-Liverpool in the year to March. While this is still higher than average, the improvement is significant.

Mr Zanesi said one reason for this change was Sydney’s booming housing market, which allows banks to sell houses with mortgages in default more quickly, moving them off their books. Borrowers in difficulty are also more likely to sell their house before defaulting when prices are rising.

“If you have a booming housing market you actually have an opportunity to sell the property before financial difficulties materialise,” he said.

Henry Sapiecha
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ASIC catches out banks on interest-only home loans

Posted by Henry | ASIC,BANKS,INTEREST RATES | Thursday 20 August 2015 9:52 am

ASIC has uncovered flaws in banks' interest-only home lending image

ASIC has uncovered flaws in banks’ interest-only home lending. Photo: Sasha Wooley

Banks and other lenders have been put on notice by the corporate watchdog after it found significant flaws in credit standards in the booming interest-only mortgage market.

The Australian Securities and Investments Commission sent banks a blunt message to lift their game on Thursday, as it released a critical review into how 11 lenders, including the big four, were assessing customers for interest-only mortgages.

Interest-only loans account for $479 billion in mortgages, 37 per cent of home loans held by banks, building societies and credit unions, and have been growing rapidly.

In findings it described as “troubling,” ASIC identified instances where lenders’ practices may be putting customers at risk, in turn falling short of responsible lending obligations.

A review of 140 customer files found that in 40 per cent of cases, lenders wrongly calculated how much time borrowers had to repay the principal when the interest-only period of the loan ended, assuming they had more time than was actually the case.

In more than 30 per cent of files, there was no evidence the banks had properly considered whether an interest-only loan was appropriate for the borrower.

And in more than a fifth of cases, the lender had not properly assessed the borrower’s living expenses.ASIC deputy chairman Peter Kell signalled the regulator’s concerns were broad-based.

“It’s not a case where we found there were just two or three bad apples so to speak, this is a message to the entire industry. Lift your game when it comes to responsible lending around interest-only loans,” Mr Kell said.

Major banks backed the regulator’s calls, with Westpac saying it was working to address ASIC’s recommendations.

An ANZ spokeswoman said the report provided “appropriate recommendations to all key participants in the industry which will ensure interest-only home lending practices remain consistent with responsible lending obligations of all Australian credit licence holders.”

A National Australia Bank spokeswoman said the bank was “supportive of ASIC’s recommendations and any moves to further strengthen lending practices in the industry.” CBA said it “constantly” reviewed lending standards to ensure they were prudent.

Demand for interest-only home loans has jumped by 80 per cent since 2012, and interest-only loans accounted for a near-record 42 per cent of all home loan approvals in the March quarter.

While they are most popular with investors, who can claim a tax break on interest payments, owner-occupiers accounted for 41 per cent of interest-only loan approvals in December last year.

Mr Kell said delinquency rates on interest-only loans were low, but ASIC had acted to review the sector “before significant problems emerge.”

Penalties for breaking responsible lending laws can be up to $1.7 million per breach, and ASIC chairman Greg Medcraft said ASIC would consider individual action against lenders over the issue.

“We can do this the hard way, or we can do this the easy way,” he said.

“We’ve gone out and we are disclosing these results today, we will look at taking some action, investigation and enforcement, and most importantly we will be back,” Mr Medcraft said.

ASIC plans to revisit the issue in the second half of 2016.

The report said a “high” proportion of interest-only home loans were written by mortgage brokers, some of whom may have an incentive to write interest-only loans because it could lead to a larger trailing commission payment.

CLSA banking analyst Brian Johnson said the report was a further sign credit standards were not as high as banks had previously said.

While stressing ASIC’s report should not be overplayed, he said it also raised the risk that contracts were not enforceable if a lender had not followed responsible lending obligations

Henry Sapiecha
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