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Mortgage Market Set For 'bus Crash'

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Mortgage market set for 'bus crash'

By Katherine Jimenez and Richard Gluyas

(Taken from: News.com.au - 27 May 2006)

LOWER lending standards from banks have left a "bus smash waiting to happen" in the home mortgage market, according to one of the country's biggest lenders.

Bluestone chief executive Alistair Jeffery said the banks had rushed into the non-conforming loan market without the expertise to manage those who cannot afford to repay debts if the market turned bad.

His warning comes less than a month after Treasurer Peter Costello warned executives from the big four banks against lowering credit standards.

"There is a bus smash waiting to happen in terms of the pricing of the risk that some lenders are taking on and the lack of preparedness to handle the arrears," Mr Jeffery told The Australian.

Banks were preparing for an increase in customers falling behind on loan repayments because of higher interest rates and petrol prices, he said.

Bluestone had been in discussions with some banks about providing arrears management services.

The latest figures from credit agency Standards & Poors show that loans past 90 days due fell slightly in March. But S&P said the level was "still at the highest that has been seen historically and indicates that borrowers are finding it increasingly difficult to meet the commitments once they start falling behind in payments".

Bluestone is the second-biggest lender in the $10 billion non-conforming mortgage market, which provides loans to people who don't meet the lending criteria of traditional banks.

National Australia Bank general manager of mortgages Warren Shaw said this week the bank was testing the water in low-documentation lending, but it only accounted for 0.3 per cent of new mortgage flows.

He said NAB had done some refinancing, but that it imposed much higher standards when assessing the ability of borrowers to service a loan.

Sherman Ma, head of Australia's biggest non-conforming lender, Liberty Financial, said "a serious market-share grab has been under way, particularly over the past 12 months" in non-conforming loans.

Competition was so intense that 20per cent of Liberty's "seriously delinquent" loans, or those more than 90 days in arrears, are being refinanced by traditional financial institutions, largely the big four banks.

Mr Jeffery cited several examples of aggressive lending by the banks. One case involved a long-term self-employed borrower, with no current financial information, needing to refinance his mortgage because he was in arrears by eight months.

The borrower's credit cards were at their limits due to a long period out of work and heavy fixed costs to cover machinery lease. The loan was approved by a major bank, at a rate of 6.97 per cent.

Ding, ding ... next stop please driver!!! :blink:

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IF the VIs stop lending they die. Commissions only come when you sell your product.

This why Nationwide and B & B announced last week that they are going to start tapping the sub-prime market, even those with CCJs. Keep lending or die........................... :o

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Anyone know what route the bus will take as it drives around the world?

I think this one is travelling East at the moment, but I expect after a short wait two or three will all come along at the same time! :D:P;)

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