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Credit conditions easing? Bankwest introduce 97% home loan. Australian Subprime?; First-home borrowers still looking for no-deposit home loans
Topic Started: 16 Aug 2011, 02:17 PM (10,565 Views)
raveswei
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Sweetdish
16 Apr 2012, 01:40 PM
I dont thing Australia has anything like the US style Sub prime.
Its actually quite hard getting a loan here and interest rates are high and always have been.
Maybe you don't think so but facts show different story. Almost all FHB mortgages and majority of other are sub-prime (LVR higher than 80%, repayments higher than 33% of income, loan more than 3 times annual income)

BTW. You seem to be too active for somebody who just joined the forum. If I have to guess I would say you are working for Rismark as well.
Edited by raveswei, 16 Apr 2012, 01:49 PM.
http://popping-bubble.blogspot.com/

Thinking of an Australian property speculator (PI):
Inaction = missing opportunities.
Missing opportunities = losing.
Too much thinking = inaction.
Thinking = missing opportunities.
Therefore thinking = losing.

disgraceful little man Frank Castle owes a house to Salvation Army

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stinkbug
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raveswei
16 Apr 2012, 01:47 PM
Almost all FHB mortgages and majority of other are sub-prime (LVR higher than 80%, repayments higher than 33% of income, loan more than 3 times annual income)

Sub-prime loans are those written at higher than standard interest rates to compensate the lender for the higher risk of default. Having LVR higher than 80%, repayments higher than 33% of income or loan of more than 3 times annual income do not result in sub-prime conditions being imposed. Although many FHB loans have these characteristics, they still qualify for the same interest rates as other borrowers.

Low-doc or no-doc loans result in sub-prime conditions.
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While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

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raveswei
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stinkbug
16 Apr 2012, 02:49 PM
Sub-prime loans are those written at higher than standard interest rates to compensate the lender for the higher risk of default. Having LVR higher than 80%, repayments higher than 33% of income or loan of more than 3 times annual income do not result in sub-prime conditions being imposed. Although many FHB loans have these characteristics, they still qualify for the same interest rates as other borrowers.

Low-doc or no-doc loans result in sub-prime conditions.
This is complete nonsense. Large part of sub-prime loans in USA was written with very low relatively long (up to 5 years) introductory rates often 20% below the current rate.

Rate has nothing to do with loan being subprime. Subprime is defined by increased risk of a default. It is very risky to give loan to family with low or average income that borrows large sum (larger than 3 times gross annual income), with very high LVR (over 80%) and high likelihood of default in case of single job loss (repayment higher than 1/3 of income).

If someone is unable to save 20% of a home value and has income so low that is not able to save any money for future emergency – he is risky borrower and all loans given are sub-prime by definition.

Quote:
 
Low-doc or no-doc loans result in sub-prime conditions.

Low-doc or no-doc loans are sub-prime because risk is unknown (no income test possible). That doesn't mean that all other loans are prime. In fact even in USA, huge majority of sub-prime loans were full doc loans
http://popping-bubble.blogspot.com/

Thinking of an Australian property speculator (PI):
Inaction = missing opportunities.
Missing opportunities = losing.
Too much thinking = inaction.
Thinking = missing opportunities.
Therefore thinking = losing.

disgraceful little man Frank Castle owes a house to Salvation Army

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stinkbug
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raveswei
16 Apr 2012, 03:11 PM
This is complete nonsense. Large part of sub-prime loans in USA was written with very low relatively long (up to 5 years) introductory rates often 20% below the current rate.

Rate has nothing to do with loan being subprime. Subprime is defined by increased risk of a default. It is very risky to give loan to family with low or average income that borrows large sum (larger than 3 times gross annual income), with very high LVR (over 80%) and high likelihood of default in case of single job loss (repayment higher than 1/3 of income).

If someone is unable to save 20% of a home value and has income so low that is not able to save any money for future emergency – he is risky borrower and all loans given are sub-prime by definition.



Low-doc or no-doc loans are sub-prime because risk is unknown (no income test possible). That doesn't mean that all other loans are prime. In fact even in USA, huge majority of sub-prime loans were full doc loans
Now you are referring to Adjustable Rate Mortgages (ARMs), which are different again. These were written with a view that some people's income increases rapidly within a few years (e.g. some uni graduates).

Some googling indicates a variety of definitions, some of which include the definition I used previously, others which include other factors. It's probably fairly difficult to pin down an authoritative definition. Some reasonable guidance can be found here: http://www.fdic.gov/about/comein/background.html

I don't think it's reasonable to classify people with an LVR of greater than 80% as sub-prime, as the overall loan size relative to their nett disposable income is a much better indicator of 'ability to pay'. Also, hard definitions such as 33% of income and 3 times income don't hold as incomes increase, but could be way too high for low income earners.

In Australia, sub-prime is generally considered to be low-doc and no-doc, as we don't have things like ARM and NINJA loans (thankfully). Our regulatory environment for banks is also fairly rigorous compared with the US, so although our banks have exposure to residential property (some would say too much), the issuance of loans is still well controlled, and banks have fairly good reserves.
---------------------------------------------------------------

While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

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Sweetdish
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raveswei
16 Apr 2012, 01:47 PM
Maybe you don't think so but facts show different story. Almost all FHB mortgages and majority of other are sub-prime (LVR higher than 80%, repayments higher than 33% of income, loan more than 3 times annual income)

BTW. You seem to be too active for somebody who just joined the forum. If I have to guess I would say you are working for Rismark as well.
Sub prime is different than just easy credit.
Try an LVR at 105% on a $600K house for an unemployed burger flipper and you have Sub Prime US style.
On paper i actually fit into your version of Sub Prime; (95% LVR and spending about 40% of income on Interest)

I do not work for any Real Estate Agency or similar. I work in Film production.
Im only active cause Im bored at work while waiting for a job to [hopefully] come through : )
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earthsta
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Sweetdish
16 Apr 2012, 01:40 PM
I dont thing Australia has anything like the US style Sub prime.
Its actually quite hard getting a loan here and interest rates are high and always have been.
Interest rates are currently below the long term average
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Sweetdish
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earthsta
16 Apr 2012, 03:35 PM
Interest rates are currently below the long term average
Yes compared to Australia, but compared to the rest of the world interest rates here are very high.
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raveswei
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Quote:
 
Now you are referring to Adjustable Rate Mortgages (ARMs), which are different again. These were written with a view that some people's income increases rapidly within a few years (e.g. some uni graduates).


They are good example how banks give lower rates to sub-prime borrowers. Rates are never used to classify loan as prime or sub-prime.

Quote:
 
Some googling indicates a variety of definitions, some of which include the definition I used previously, others which include other factors. It's probably fairly difficult to pin down an authoritative definition. Some reasonable guidance can be found here: http://www.fdic.gov/about/comein/background.html


Saving ability (High LVR), loan size and loan repayment to income ratio are the only available tools to calculate risk for people with no recent loan delinquency history (majority of people here and in USA have no such history).

Quote:
 
I don't think it's reasonable to classify people with an LVR of greater than 80% as sub-prime, as the overall loan size relative to their nett disposable income is a much better indicator of 'ability to pay'. Also, hard definitions such as 33% of income and 3 times income don't hold as incomes increase, but could be way too high for low income earners.


First of all I didn't say that one of these conditions is enough to classify loan as sub-prime. All three together are clear cut.

High LVR is clear sign that borrower is not able or willing to save money. It also increases bank risk of losing money if borrower defaults. Loan size relative to income is indicator of borrowers risk taking attitude and ability to repay loan in the event of significant rate increase. Repayment as a percentage of income is good indicator of borrowers ability to meet ongoing obligations.

Income rise is not issue because most of defaults happens in first 5 years. Even in the link you posted they claim that loan is sub-prime if repayment equals 50% or more of disposable income (around 30% of gross income as I claimed).


Quote:
 
In Australia, sub-prime is generally considered to be low-doc and no-doc,


So why you than compare our percentage of sub-prime loan with USA? If we count only low-doc and no-doc loans in USA their sub-prime rate wouldn't be much different that ours. Time showed that most of foreclosed homes were not financed with low-doc and no-doc, but loans that you consider to be "prime".

Quote:
 
as we don't have things like ARM and NINJA loans (thankfully).


You just said that we have NoDoc loans - they are NINJA-s

I would not agree with you regarding ARM. Almost all loans in Australia are discounted with banks being able to remove discount and change rate at any time and at their own call. These discounts are not so significants but when combined with large loans and repayments they could be crucial for many borrowers survivor.

Quote:
 
Our regulatory environment for banks is also fairly rigorous compared with the US, so although our banks have exposure to residential property (some would say too much), the issuance of loans is still well controlled, and banks have fairly good reserves.


There is no regulation that forbids bank to issue 150% LVR loan equal to 10 times annual income to a person who defaulted a year ago. This is just myth that goes on. Banks, and especially mortgage dealers were giving loans to everybody. Even now, 23 year old apprentice could easily get 97% LVR 5 times income loan with repayment equal to 40% of gross income (60% of disposable income). That is subprime by any measure.
http://popping-bubble.blogspot.com/

Thinking of an Australian property speculator (PI):
Inaction = missing opportunities.
Missing opportunities = losing.
Too much thinking = inaction.
Thinking = missing opportunities.
Therefore thinking = losing.

disgraceful little man Frank Castle owes a house to Salvation Army

Profile "REPLY WITH QUOTE" Go to top
 
stinkbug
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Rave - the problem is that we don't have decent definitions. You make a reasonable argument, but there are still holes, and we don't have data to plug them.

Either way, only hindsight will tell us what happened, and after the event.

Will prices crash? I think they already have.
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While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

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Admin
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Quote:
 
Banks lower lending standards to protect market share

Published 4:54 AM, 24 May 2012 Last update 4:54 AM, 24 May 2012

Westpac Banking Corp Ltd has defended relaxed mortgage lending standards, saying that healthy arrear rates, unemployment levels and strong savings rates reduce the risk of a fall-out in the property market, according to a report by The Australian.

“I see no evidence of lending standards being relaxed,” Westpac head of retail banking Jason Yetton said, according to The Australian. “We know that credit growth is very weak at the moment but if there had been changes to credit standards, that would start to show up in our delinquencies. But our 90-day delinquencies were flat in the first half and if you look on a longer-term trend it hasn't moved that much.”

A report released by Credit Suisse earlier this week says “industry liaison” shows the top four banks are reducing lending standards to offset the current bout of slow lending growth.

Residential mortgage growth is increasing five per cent per year, which is one of the slowest rates for at least the past 10 years, The Australian noted.

Mr Yetton pointed to domestic savings rates, which are at a two-decade high, as an issue that has pushed banks to discount their mortgage rates.

Read more: http://www.businessspectator.com.au/bs.nsf/Article/Banks-lower-lending-standards-to-protect-market-sh-pd20120523-UKQ4R
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