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Michael & Karen COOK in from the cold, but still owing thousands despite Loan being ruled unjust

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 Stuart Washington

September 10, 2007

MICHAEL and Karen Cook were no longer happy home owners despite a landmark case attacking Australia's version of sub-prime lending. They were living in a tent with their two young daughters out the back of a friend's place in Camden.

As the rain fell and winter closed in, they were homeless. They had lost the house they had built and owned in Currans Hill, near Campbelltown, since 1992. They still owed the principal and interest repayments on a loan ruled unjust by the NSW Supreme Court. And their youngest daughter, Tara, then aged three, had a cold.

"Me sleeping outside I wasn't worried about, it was more the wife and daughters. You get a kid with a cold …" Mr Cook, 40, told the Herald.

The Cooks are the human face of the high cost that can be exacted by subprime lending, as calls mount for effective regulation of unscrupulous lenders. And the Cooks are also representative of a "hot spot" of loans-in-default that are an unseen wave tearing through the fabric of south-western Sydney.

A new alliance was formed last week of consumer advocacy groups and industry associations representing banks, building societies and mortgage brokers, targeting predatory lending to borrowers who have no ability to repay their loans.

Predatory lending practices revealed by consumer groups include a $182,250 loan to a unemployed couple with four children. Interest on the loan was almost 9 per cent on the first $110,000 and 23 per cent on the rest - or repayments of $510 a week.

The campaign has been spurred by problems associated with the rapid growth in subprime lending in Australia, which is non-bank lending to borrowers with poor credit histories and little or no documentation of their incomes.

Owing to the success of non-bank lenders such as Bluestone, Liberty and Pepper, subprime loans have grown from a fringe business in 2000 to account for more than $7 billion in loans.

But unprincipled lending threatens to drag the whole non-bank sector into disrepute, with borrowers of $500 million in subprime home loans regarded as in default and facing repossession of their homes.

Alongside recent adverse court findings against aggressive lending practices - such as in the case of the Cooks - hopes for reform rest on a federal parliamentary committee's inquiry into lending practices.

Due to report on September 17, it is considering calls to address regulatory shortfalls for mortgage brokers and non-bank lenders. These include the lack of regulatory scrutiny compared to that imposed on banks and building societies.

But this is little comfort to the Cooks, who were forced from their home in March and lived in the tent for four weeks despite a win in the case against their lender, Permanent Mortgages.

In April 2003 Mr Cook, who is currently on sick leave from his job as a truck driver, received loans totalling $245,000 through the mortgage broker Bleier Mortgage Corporation, the "in-house broker" of the Double Bay law firm R. L. Kremnizer. The default interest rate on a portion of the loan was 22 per cent.

"All I could think of was the house, the family, and basically once I had signed the documentation, I said: 'Yes, I have saved the house'," he said.

Mr Cook signed some of the documents while in Camden Hospital for tests related to non-Hodgkin's lymphoma, a form of cancer he has suffered. It was the fifth refinancing of the house for the Cooks. Kremnizer is notable in the Cooks' descent, acting for lenders in three of their five refinancings.

The court heard evidence that a bank would have given the Cooks $100,000 less than their $245,000 loan total, based on their income of $40,000 in 2003.

Last October the court ruled the contract was unjust and set aside $13,000 in charges for establishing the loan. The Cooks were still liable for the principal and interest on the loan.

The court found that the lender knew the Cooks were refinancing a mortgage in default over their home, that they had supplied no statement of assets or liabilities and that they had given no evidence to support the loan as being for business or investment (the loan was treated as a business loan, placing it outside the Uniform Consumer Credit Code). The ruling places a higher burden of responsibility on lenders to ensure they are not lending to people without the means to repay their loans.

Despite the partial win, Mr Cook is left with little to show for 15 years of home ownership. He says it took 23 calls to real estate agents while living in the tent to find a rental home for his family, eventually moving to Bringelly. He is still angry at the way the lenders, solicitors and brokers acted.

"It's good to see them get their butts kicked over the situation they put me in," Mr Cook says.

The Cooks' house at Currans Hill was sold for $250,000 in early August. Through Legal Aid, the Cooks are taking action in the Consumer, Trader and Tenancy Tribunal, arguing that the loan failed to live up to the consumer credit code the lender had deliberately avoided.

Mr Cook's views are blunt on Sydney's non-stop love affair with owning real estate.

"It's better to have quality of life than a piece of real estate," he says now. "Looking over the years that this has been going on, it's only bricks. Your main concern is your family, your health. And there's always somewhere else you can live."

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