IO2PI rollover updates

I'll correct that for you.
They can and do Service their existing debt, they are just unable to apply for new funding or refinance (which is worse) due to the BS measures that have been put in place.

Said a while back that Apra and the RC have got a lot to answer for. I also said will have a big impact on economy.

The saddest part is we pay for these clowns

 

We can't seriously be blaming them for slowing down the property bubble and not letting it get out of control?

Stopping Banks getting away with lax lending guidelines is no good for anyone in the long run. A bit of pain now is much better than a heart attack later.

 

Isn’t he saying can’t service as P&I, only IO?

I’m not sure responsible lending is BS.

 

Slowing down property prices (I won't use your word bubble) yes.
Taking a sledgehammer to it with complete disregard to the rest of the economy absolutely they are part of the blame.

 

As I've said in the past. If you have an IO loan it will revert to P&I eventually and guess what, you don't have to apply for that so servicing is not an issue. Also if you want to swap now, its a simple tick and flick so again servicing is not an issue

 

I always believed that the correction is proportional to the overshoot above fundamentals during boom times. What we are seeing is not unexpected by any measure. Plenty saw this coming and started taking action couple of years ago.

The only people that are really suffering are those that ignored the signs, got lost in the frenzy and went beyond their means.

If the property market can't even handle a 30% correction - what does that tell us? It was getting out of control and needed to be tamed.

As much as it pains me to see my borrowing capacity decrease, I for one am happy for all the macro prudential steps taken in the best interest of economic future.

 

Absolutely agree.
However with regard to the property correction, most will get through ok, some won't.
I heavily reduced my discretionary spending quite a while back when the lenders started hitting investors and IO rates as the writing was on the wall. Thousands of others have done the same with discretionary spending also. So in actual fact, this has very little impact to my property holding which is long term peaks and troughs anyway.
It is having an affect on retail, car industry and multiple other facets of the economy and I am contributing to that with my reduction in spending.
So in "my personal situation only" the economy is being affected more than my property holding

 

It will be painful but necessary for the next couple of years. Retail spending was flying when property was booming. I hope businesses made hay while the sun was shining so to speak.

 

it is the "adjustment" that we had to have. Poor APRA and RBA, they do nothing they get belted, they do something they get belted. Cannot please everyone hey? Love how people shout "they are wrong", obviously everyone is an expert.

The good news if the speculation would have continued as it was we would have had a much much more debt overhung, and much more violent correction eventually.

Regardless. Looking at Westpac the situation is much more "orderly" than anything so far

 

You’re missing the point. Many people cannot afford to service the loan as P&I and were relying on prices increasing/refinancing, neither of which is now gonna happen.

 

Roughly a third of borrowers surveyed in the lead up to the RC admitted lying to various degrees on their mortgage application. Yes, verification should take place however the realities are (were) that they only verified as far as they were legally required to. Some onus has to be placed on us as a collective set of borrowers and those who actually filled out the mortgage applications. Someone filled them out and it wasn't the underwriters!

One of the things that makes me sick is that as a borrower you can essentially complain to AFCA now and there is no recourse on the part of the mortgage broker who wrote you a loan. I had one guy recently laughing about how he got money back from the bank for fees he said he wasn't aware of, even though his broker had an email chain categorically explaining the fees, with an acknowledgement. Didn't matter though, AFCA didn't want to know and the bank paid this guy his claim. Disgraceful behaviour as people now seek to take advantage of the outcome.

I'm not pro-bank or anti-bank. I've fought my fair share of battles with my various lenders but I understand that they serve a purpose in our society and we'd all be much worse off in the even of a collapse. More importantly, I have a set of ethics and if a borrower blames the bank in totality for their financial problems then it's more a matter of stupidity than ignorance.

- Andrew

 

You mean "cannot pass a servicing calculator" I think?

If they could not service the actual debt we would be seeing 45% mortgage arrears, followed by 45% mortgage delinquency...followed by total collapse of Australian RMBS...followed by Australian Credit Crisis...followed by the Big 4 being bailed out by Govt.

 

Remove "stopping"

 

I'm missing the point?? Righto

So the 45% of applicants that can't afford P&I, had their finance approved on the proviso that their property increased in price during the IO term (generally 3 - 5 years) or on the proviso that they would refinance prior to the IO period expiring?

Let me give you a quick and basic 101 into real world.

- IO loans were assessed at rates a lot higher than they are today 6.5%+ as an example
-IO loans (in most cases) reduces borrowing capacity, as generally your servicing is calculated on the remaining P&I period. EG. 30y loan with 5y IO, Your capacity to repay calculated at 25y P&I

So unless;

- the 45% of these people obtained their finance fraudulently
- the bank intentionally committed fraud for nearly half its customer base
- the 45% of people are no longer employed
- I could go on here ...
... so unless the above took place. They WILL be able to service.

Granted some living expenses may have been understated a little and these 45% of people may have less money to spend on discretionary and luxury items (which is more an issue for the economy rather than their P&I loan), but they will have funds to service their loan.

Just in case it may be you who is actually missing the point.

It really is comedy hour around here sometimes.

 

Unless they sell before hitting arrears? as many would be sitting on equity gain from 2014/15,
it doesn't help the market, adding ongoing downward price pressure, but these investors don't get in to arrears and spoil their credit ratings.

I think a bit of that has happened in 2018 ie arrears didn't increase dramatically but price kept falling, prices don't fall so much so fast without urgency.

 

Can someone show me how to post one of those gif things. Preferably one beating a dead horse

 

In the light of penalising IO rates majority of those who could-have would-have preemptively switched to PI .
Of those left may be a decent percentage either can't extend IO loans under fresh assessment rule based on real expense and many of those who can't extend find it hard to sustain the repayment rise.

What's changed from late 2017?
Banks started assessment based on real expense rather then imaginary expense,
The first tranche of 120bn IO reset was due in 2018.
Is there a correlation between this and price falls during this period? i think so.

 

How about banks turned off the taps. As simple as that
Imaginary expense this, real expense that ..... the real expense as you put it is actual imaginary expenses today.
IO tranches ..... oh my

 

in-spite of preemptive switch forced by penalising rate,
Westpac still has 55% of their total IO loan books due this year. next and 2021, a decent chunk of this potentially originated under in 2015/16 under old assessment rule, so still a risk, no?

 

Old assessment rule in 2015/16 when servicing was calculated at 7%
Absolute Gold