Credit tap to be turned back on, full strength?

NoCookies | The Australian

the economy.

After warnings from the Reserve Bank of a credit freeze because banks were becoming too scared to lend, Josh Frydenberg will ease the liability imposed on banks over so-called bad loans and shift responsibility to the borrower.

Small businesses, which face the toughest hurdles in accessing credit, will be the first to benefit from the deregulatory move to allow more credit to flow to consumers that would be essential to the economic recovery.

At the other end of the pendulum, the government has pledged greater protections for vulnerable borrowers, low-income earners and welfare recipients at risk of extortionist conditions from loan sharks and payday lenders.

But home buyers are set to become among the greatest beneficiaries, with the slashing of approval times for loans and the scrapping of inquisitorial processes by banks that, according to the Reserve Bank of Australia, had become excessively “risk averse”.

...

 

Words are often cheap but what is the mechanism to make them achievable? If there is a $100k+ shortfall - the same issue exists of who has the liability, the bank who lent or the borrower who has no finance to repay?

 

But the punters want to blame the banks when they get into a default situation l.

Time to buy shares in mortgage insurers

 

Lending to get easier under credit shake-up

 

Read the fine print again.

 

What could possibly go wrong:

 

Definitely looks like we are heading to pre-Royal Commission days for bank lending and if so, this credit boom will have major impact on property values!


"..The days of being asked by the big banks about every dollar of your expenditure from Uber Eats to Netflix to secure a loan to buy a home or a small business could soon be over.

In the biggest shake up of credit laws in decades, the Morrison Government is set to encourage faster, easier loans to get the economy moving and help first home buyers get onto the property ladder...

Mr Frydenberg will argue the changes will shift the balance of responsibility from “lender beware” to “borrower responsibility” to be honest about your capacity to service a loan.
The shake up follows a warning from the Reserve Bank Governor Phil Lowe that policymakers needed to accept that some loans will go bad without blaming it all on the big banks."

 

When I first read this, alarm bells started going off in my head.

But thinking about it, maybe this is good thing? If done sensibly; I.e. LVRs that never breach 80/20 perhaps; or working on a more sensible loan-to-income ratio for the borrower, it could be a good thing?

 

There are other hurdles, but it's a change in direction. And these things tend to pick up momentum.

 

Its pretty much sounding like full strength to me. Sure, more onus on the borrower responsibility but the article mentions no real caveats around LVRs or income to loan ratios. We will see what happens, I guess.

I don't know why borrowers aren't simply forced to sign off on a clear, simply-worded declaration form that says something like "the bank will endeavour to research and profile you for serviceability as best as possible; but if you've omitted anything of significance that would impact your ability to repay in the foreseeable future, then we can't be held liable for this, if it didn't show up in our evidenced pre-assessment work".

A statement resembling that would assert the requirement for banks to do their homework as much as able; whilst also re-asserting borrower liability.

 

Don't think there are any other 'hurdles' by the tone of the article (unless Investor loans are restricted) and the impending legislation - looks like this will be the single largest catalyst for prop market and prop values in a long while and once passed, we will see massive lending to flow through...

NoCookies | The Australian

"Lending laws imposed on banks during the global financial crisis will be abolished in a bid to inject an “adrenaline shot” into the economy by lifting onerous barriers for home buyers and small businesses to access loans.

In a major structural shake-up of the 2009 consumer credit protection laws passed by the Rudd government, about 100 pages of regulation will be torn up to help funnel billions of dollars of locked up credit back into the economy.

After warnings from the Reserve Bank of a credit freeze because banks were becoming too scared to lend, Josh Frydenberg will ease the liability imposed on banks over so-called bad loans and shift responsibility to the borrower"

 

Listen guys.... before everyone misunderstands this mornings news.

What appears to be happening here is that the treasurer wants one regulator rather than two deciding on lending standards. So he is looking to legislate to have ASIC removed from its responsibilities. Why? well its simple .... ASIC is in charge of the "responsible lending" stuff , which is what is making the banks scrutinise every line of your bank accounts, transaction accounts and credit card accounts , which is turn slowing down loan processing to the point where it takes weeks to get loans approved, which in turn is bogging down credit growth - according to the treasurers logic. So he is proposing to speed things up by removing that roadblock by kicking ASIC and the responsible lending stuff to the kerb.

But please understand, all it does is end the requirement for banks to scrutinise your living expenses. The treasurer does not appear to be proposing that the other regulator ( APRA) have its powers changed. That will mean that the stuff they hold responsibility for - sensitised assessment rates at P&I remaining terms for example, and Debt to Income ratio's for example..... both of which have a far bigger impact on borrowing capacity than living expenses- are not going anywhere - at least that's how I am reading it based on the information we have seen so far.

So this may be far more about speeding up loan approvals than jacking up borrowing power. Yes there may be less scrutiny of living expenses and yes that may mean that a one size fits all HEMS is adopted across all lenders and yes that means that some people would see an improvement to borrowing capacity - specifically, those who spend far more than HEMS - but so far, what we are seeing doesnt add up to a proposal that we go back to the pre APRA rules.

This also needs to be passed as legislation, so you can be certain its going to see all kinds of horse trading and modification and compromises before it happens.... if it happens.

Lets all calm the farm Wait and see. This isn't an instant fix to anything - yet

 

Agreed with the gist of your assessment Euro and well put but the 'catalyst' is multifold, clear and will have a 'monumental' impact on lending (and therefore prop values).

1- Labour has already been calling on the gov to relax the 'stricter' lending laws to pump liquidity into the economy. You will not see much horse trading as both labour and libs are one on this matter. I see this legislation sailing through in the parliament in record time.

2- Treasurer is making clear that this is not an 'administrative' change from 2 agencies over-looking responsible-lending VS one. The only outcome of this legislation is to shift responsibility of servicing from 'lender' to the 'borrower' and doing away with changes introduced by Royal Commission. These changes will be 'axed' and it goes further to highlight that changes from 2009 (Rudd era after sub prime crisis) will be 'axed' too. Therefore, this will bring in tens of billions of new lending to household and small businesses.

3- The prop values as a result (especially those sought by first home buyers) will see a significant and material change, especially when you combine these with the lending rates in 2%s, FHOG, various grants from State gov and new build grants, no SD for FHB etc. I believe this will significantly change the sentiment and we will see 2021 with the highest growth in prop values in a long time.

4- It is possible that this measure is stop-gap and the gov might have to go back again on this in a few years' time but on all indications, this will kickstart a new era of massive lending. This will however have to be paired with turning taps on for immigration as well to keep the demand balance (which we will see in coming months) and together, they will kickstart the economy in a big way.

 

We shall see. It's a long way from being law, and it's a long way from implementation. Between now and then, we have vaccines ( not just their creation, but also their delivery and immunity effect) and withdrawal of stimulus to deal with . And we have the deferral issue that's starting to get closer to D day.

Just one example, following an AMP webinar event yesterday with Shane Oliver
AMP have apparently spent significant resources on reviewing their deferral arrangements over recent weeks, and what they advised yesterday was this;
25% of AMP's loan book is on deferral arrangements. 16% of the book are recommencing repayments on IO terms for 1 year at some time in the next month or two, but cant afford P&I yet. But 9% have not been able to commit to that, and 3% have already been triaged /placed into extreme financial hardship arrangements with a view to transitioning to sale. I would expect that most lenders have /will have reasonably similar exercises going on and probably have similar scenarios playing out .... which indicates that its entirely possible that anywhere from 3% - 9% of loan deferrals will not transition back to repayments... I don't know whether that % gets better or worse in March when JS and JK are withdrawn/reduced, but I think we can all agree the figures are unlikely to get better when they are withdrawn/reduced. So if we don't have a vaccine delivered and providing mass immunity by then, we should be realistic about what faster loan approvals will achieve other than faster loan approvals.... especially when it may take years for poorer nations to get their hands on a vaccine ... some of whom are the very nations we get lots of toursists and students from.

Faster loan approvals are welcome... not sure a hazardously at risk banking system choc full of 10-15 x income DTI ratio's is what anyone wants though....

Lets all calm the farm

 

banks never followed rules until RC and then prices declined 10% till may 2019. RC said follow rules and then house prices went up 10 to 15% till COVID. not sure when did we really had any rules that were followed by banks? its just pump and dump PR stunt. this can only put a floor on the prices but not shoot them to the moon.

 

Already have some people screaming how this will lead to another United States housing bubble situation from the 90s.

 

@euro73 was there any information in the AMP webinar about their spread of loan products around the country (at least by state?)

 

No they didn't break down loan sizes or LVR's or IO/P&I by state or any other measure . But we can make some educated guesses about their loan book.
1. Their product suite is not too different to others. They offer variable rates with offset and fixed rates without offsets....
2. Pre APRA they had a lot of IO and INV business on their books because of their Master Limit facility, unlimited cash out policies and their extremely generous servicing calc - for example, they assessed existing debt at "actuals" + they accepted 100% of rental income for servicing. They also had an SMSF product with 100% Offset .

Anyone with a large portfolio and a broker tasked with getting them every drop of borrowing capacity has probably had AMP lending or considered AMP lending at some point - certainly quite common pre APRA. But for those who may not recall - they shut down IO lending and INV lending completely for quite a while in 2016 in order to purge that back book and get down below the APRA mandated limits .... They literally stopped lending to investors at any LVR - full stop. Later , they re-commenced but with far more conservative policies around servicing, rental income etc... so my guess is that their book is quite "standard" or "typical" of what many lenders are carrying these days , by and large. They may still have some legacy stuff on their books from the pre APRA days at crazy high DTI's, but when you allow for book run off and IO terms expiring , most of that stuff should have migrated to P&I or refinanced elsewhere by now.

 

And....... news just in

 

I was curious because I recently saw this from NAB which I thought was interesting ...