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BFCSA investigates fraud involving lenders, spruikers and financial planners worldwide.  Full Doc, Low Doc, No Doc loans, Lines of Credit and Buffer loans appear to be normal profit making financial products, however, these loans are set to implode within seven years.  For the past two decades, Ms Brailey, President of BFCSA (Inc), has been a tireless campaigner, championing the cause of older and low income people around the Globe who have fallen victim to banking and finance scams.  She has found that people of all ages are being targeted by Bankers offering faulty lending products. BFCSA warn that anyone who has signed up for one of these financial products, is in grave danger of losing their home.


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BFCSA: Regulators nervous re High LVRs and 30 year Interest Only Loans. The Bubble is already here!

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Reserve Bank stirred but not shaken by housing boom

BusinessComment & Analysis

Date September 24, 2014

The Reserve Bank revealed in last week's minutes of its September interest rate-setting meeting that it was increasing its scrutiny of Australia's hot housing market. Now it has explained what that means.  It doesn't think housing is in a speculative bubble that will end in tears. It does see conditions that could make it happen, and will work with its sister regulator, APRA, to head off the prospect.

Regulators always try to stay ahead of the curve on things like this. The Reserve moves rates up to head off inflation, not in response to it, for example, and it first noted a surge in housing investment lending a year ago.  APRA announced a suite of guidelines aimed at making investment lending safer in May, and it and the Reserve will meet soon to devise new restraints. They will not stretch to full-frontal restrictions on investment lending, however, and a rate rise to depress loan demand is not on the Reserve's agenda.  The Reserve says in its latest financial stability review that banks have been cutting fixed lending rates, expanding variable home rate discounts, increasing mortgage broker commissions and offering other incentives, including loan fee waivers, in order to attract customers. It says however that the banks are not behaving irresponsibly.

Important non-price lending standards including deposit requirements and measures of a borrower's ability to service loans have not been weakened, "low doc" lending is still less than 1 per cent of approvals, and the share of loans approved that are worth 90 per cent of a home's purchase has actually fallen since early last year for both owner-occupiers and investors. Bad debts in the home lending market have also been falling since 2011, despite a rise in unemployment.  What the Reserve does say, however, is that low interest rates and competition among lenders is combining to generate growth in lending to investors that will be a problem if it continues.

Investor housing loan approvals are almost 90 per cent higher in NSW than they were two years ago. They have risen by 50 per cent over the same period in Victoria, and in Sydney and Melbourne investors are outbidding owner-occupier for houses and apartments.  Investment home lending in Sydney and Melbourne is back to previous peaks as a share of total loan approvals, and claiming a larger share of lending than rental housing's share of market suggests it should.  Loans are getting larger, and some lenders are lifting their loan-to-income ratios, the Reserve says. There has also been an increase in the share of housing investment loans that have a loan-to-valuation ratio of between 80 per cent and 90 per cent, and a rise in interest-only loans to investors, who are able to claim mortgage interest payments as a tax deduction.

The Reserve says there is not much evidence that households are taking on double exposure to loans that have both a high loan-to-valuation ratio that increases the likelihood of a descent into negative equity if home prices fall, and a high loan-to-income ratio that increases the risk of debt servicing problems if the borrower's income falls, or if variable home loan rates rise.  Some borrowers are also opting for interest-only loans because they want to, not because they would have difficulty servicing loans that required both interest and principal payments, it says.  Still, rises in housing investment and investment lending tend to be self-reinforcing. Speculation breeds more speculation, particularly when earlier speculation has delivered capital gains.

If it is not controlled it can be the catalyst for a speculative housing price boom. Then comes the bust.  The Reserve says that we are not threatening to go there yet. The biggest risk at this stage is not bad loans and bank losses but a more general hit to economic activity if borrowing costs rise, house prices fall, and household consumption also falls as borrowers redo their budgets, it says.  The risks to banks and the financial system will rise if the surge in housing investment and house prices continues, however. The Reserve notes that APRA has already gone onto the front foot with heightened scrutiny of bank lending to investors, stress-testing of bank loan portfolios, and new lending guidelines. It says it will now discuss "other measures" with APRA and with the Council of Financial Regulators.

The regulators won't be applying "macroprudential" limits on lending volumes and loan valuation ratios that are in vogue overseas. They appear to believe they are moving early enough to avoid them.  The working rules for lending to housing investors are going to be tightened, however, and bank lending volumes will be slightly dented as a result. A requirement that lenders banks apply interest rate "buffers" of, say, an extra two percentage points when they assess a borrower's ability to pay off loans is probably going to be the first cab off the rank.



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