Imagine if lo doc/no doc loans were still around

I started investing around the time that these products were available, they were amazing times. Was anyone else using these products?

It meant if you had cash/equity you could continue purchasing property, servicing loans was not an issue whatsoever, the income/figure required to service the loan was applied and we just signed off on this. BTW this practice no longer exists and at the time was not using mortgage brokers from SS.

We do have Lo doc product on the market today but there are more hoops to jump.

Could you imagine how quickly you could grow a portfolio for example in the recent Sydney booming market if these products were available today, equity rising and just keep buying.




MTR

 

They weren't called Lie Docs for no reason. Yes, they were literally 1 page loan applications with a space down the bottom to sign saying 'I can afford the repayments". Fond memories

 

Now your scaring me, I didn't think it was ever that easy but I've never gone down that path before. I would be happy if the usual cash out for 'investment purposes' from the big four was as easy as it once was.
Surely we don't need ninja loans.

 

that easy
I know an investor declaring I think around 700k pa income

We won't see this again, servicing loans will only tighten with APRA changes

 

I believe this was the standard lo doc/low doc form used back in the day!!

 

haha.. like this

at the time many got burnt when bank policy changed and investors could no longer access Lo doc no doc. it hurt many investors who were not able to service debt using equity.

I guess this is one of the reasons US property market crashed, dummy loans, dummy valuations to people who could not service debt.
I believe there is a movie at the moment about this, anyone seen it?

 

I'm glad they aren't around anymore. They were an incredibly dangerous product as people lied on them. I don't know why people would lie on them, it's a contract after all, but it seems ethics went out the window in the favour of greed.

Yes they allowed almost limitless opportunity to succeed but limitless opportunity to fail big time. Imagine how much debt people could have gotten into in mining towns, bust times etc if they could just keep signing off on their own serviceability.

 

I agree, can be very dangerous

This is one of the reasons they were canned.

 

Just watched the big short. Funny story where strippers had 6 investment properties and landlords took mortgages in the name of their dogs. Those were the days of low docs

 

was it good movie??

 

I remember when you didn't need to show a tax return. Just a letter from your employer saying the amount you made.

There is still quite a few loop holes such as having a real estate agent write a letter saying the amount of rent a property gets even if it's not tenanted at the time. I guess that why they use rental caps 80% I think?

 

I've never understood why a lender wants a REA rental appraisal. There's the standard joke about "Do you want the rental appraisal from the Sales Dept or the Property Management Dept?" (PM Dept more likely to tell the truth as they might be responsible for finding a tenant at their quoted value).

The Valuer puts his opinion of rent on his val anyway.

 

Was a great movie. I'm sure they may be a bit loose with the truth but that doesn't ruin a good story.

They should have a sequel where MTR goes and buys the properties for $10k each after the storm is over

 

You will find that in the non fiction documentaries section.

 

If these products are still around now or if they return, where and what type of properties would you buy ?

 

I wish I was there rather than watching though, too late now

 

I wish I could get a loan like that. Stupid damn servicability calculations that don't reflect actual affordability. Apparantly we cannot even service the loans we currently have according to the banks, despite the fact we are actually doing so. Ggrrrr....

 

Sure was. And this is how it worked. Go out and get an ABN. 1 day later walk into a brokers office with your ID and evidence of 30% deposit, and you could have a 70% LVR No Doc . The only signature required from you was a signature to say you can afford the repayments. No further verification required. They were phased out @ 2008, because banks couldn't securitise them after the GFC. They were Australia's version of "NINJA" loans - No Income, No Job or Assets - except you had to stump up 30% to qualify , unlike 105% NINJA loans being given away in the US to anyone who could fog a mirror... so the banks considered them reasonably safe products... which I guess is fair enough when there's a 30% deposit involved.

There are still kinda sorta similar products around but they are a little more difficult to qualify for. For starters, you cant do the 1 day ABN thing any more. Generally speaking you need an ABN for 2 years in order to qualify , but still....if you have an ABN registered for 2 years and you are GST registered and can demonstrate you have 30% deposit available + stamp duty, there ARE products where all you really need is an accountant who likes you and who will sign a declaration saying you can afford the repayments, and you can get 70% LVR . No showing financials, payslips or BAS statements . The rates are quite OK too, considering...

 

Those were far looser than any lo doc ever available here. They were NINJA loans. And, they were non recourse. You could literally default, hand the keys back to the bank and it would take them months and months ( if ever) to go after you. It was called "jingle mail" by bankers...

Imagine you lived in a US McMansion worth $1 Million, with a 500K mortgage with Bank of America. Your neighbour had a similar home with a 300K mortgage with Citibank or Countrywide, and for whatever reason - usually when the 2/28 "APR " loans caught up with them - that is to say, the 2 year intro "adjustable percentage rate" - what we call variable rate reverted to the remaining 28 year term, @ 3% higher - and they got into arrears.

Sitting down? ... ok... so here's what you could do. You could walk into your neighbours bank and buy out his debt for 300K and move into his house, mail your keys back and leave Bank of America chasing you for 500K... which more often than not they couldnt get from you as the loan contracts were non recourse in most states of the USA.

Unbelievable...? Yep. But true.

Anyway- Australian Lo Docs were never that loose.... not even close. just saying

 

Its the decade to deleverage, or you'll be stuck in that predicament for a looooong time. And so will many others. We are only 6 months in to the new lending regime, and its already being felt. As more time passes, more people will be caught in these situations. Many people will find it increasingly hard to renew I/O terms or refinance for better deals, based on post APRA calcs.

How do you tackle it? Well you can get lucky... ie
Get very large pay rises ( some people can achieve this, but we have entered the lowest wage growth in 3 decades so most wont get joy here)
Get very very very large rental increases ( again, some may pull this off, but in most cities yields are falling not rising- and with lots of supply coming online in most cities... unlikely many people will be seeing the sorts of rental increases required to make a meaningful difference to servicing )
Be lucky enough to enjoy some form of windfall (1 in a million)
Get an inheritence and pay down debt (once, maybe twice in a lifetime? )


Or you can get disciplined and deleverage. For most people, deleveraging is the only realistic plan that will get a result. It's not sexy. It's not fast. But it will pay off if you embrace it



Or you can do neither of those things and just sell up. ....