Non conforming lenders in tough economic times

Discussion in 'Loans & Mortgage Brokers' started by Peter_Tersteeg, 24th Mar, 2020.

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  1. Peter_Tersteeg

    Peter_Tersteeg Well-Known Member Business Member

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    Many people here may not remember what happened almost 12 years ago during the GFC. Quite a few lenders found themselves unable to access funds due to a liquidity crisis. The lenders defaulted on their commitments, they passed the costs of those defaults onto their customers. Some lenders went under and the liquidators passed on costs to the borrowers to be able to pay creditors.

    In many cases, people weren't in a position to refinance for various reasons. Some were paying obscenely high rates for years after everything else recovered.

    Now after five years of APRA regulation we've seen people's borrowing power erode. In some cases servicing calculators allow people to borrow only 40% of what they could have using the same figures in 2015. The effect on investors has been profound.

    The lenders that have been outside of APRA regulation have been a bit of a saviour for many investors. They can lend more than the mainstream because they use alternate funding sources and don't come under APRA oversight. Their lending critiera has also tighened, but the likes of Liberty & Bluestone have come back into the market trying to compete with the mainstream.

    This month there's been two rate cuts. Most lenders passed the first on in full, this afternoon I had 17 emails from lenders regarding their response to last weeks rate cut, as well as what they're doing to help borrowers through the Coronavirus crisis. One stood out from Bluestone, here's the highlights...

    * Bluestone are increasing rates for new customers by 0.35%. Investment loading of 0.50% will also be applied to investment loans.
    * Maximum LVRs are being applied to all loans.
    * Cash out is being restricted to $30,000.
    * Certain industries are being excluded. Tourism, hospitality, entertainment, retail.
    * Numerous types of income are being excluded. Dividends, holiday and short rental, overtime, commissions, bonuses.


    Other mainstream lenders are talking about rate cuts, repayment holidays and hardship assistance. These guys are talking about rate increases and restricted lending. When some of the brokers that experienced the GFC indicate that they're nervous about non-conforming lenders and go on about exit strategies, this is what we're talking about. Right now I imagine that a lot of people's exit strategies have been invalidated as well. Refinancing isn't an option if you don't have a healthy source of income.

    A few weeks ago I was looking at Bluestone thinking that they were starting to look fairly friendly again. Today I'm thinking I'm glad I didn't go there and I've generally tried to avoid other non-conforming lenders.

    If history is any indicator, after the non-conforming lenders, it will be the neo-lenders and tech disruptors that will be next.
     
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  2. Brady

    Brady Well-Known Member

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    Not just non-conforming...

    Macquarie Bank shut up shop for home lending.
     
  3. Jess Peletier

    Jess Peletier Mortgages, Finance & Property Strategy Aust Wide Business Member

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    This is EXACTLY why I always have very thorough risk management conversations with clients before using those lenders. It takes a particular risk profile that - quite frankly, most people don't have...OR, they don't have sufficient reserves
    They're funded differently now though I believe?
     
  4. Hetty

    Hetty Well-Known Member

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    Interesting. What’s a non conforming lender? A non bank? Like Liberty?


    @Brady when did they do that? My broker was talking about moving our CommBank loan there last week (I’m not keen though, already got two with Mac)
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    I think, and hope, Brady was talking about what Macq did years ago. I haven't heard anything this time round.
     
  6. Marty McDonald

    Marty McDonald Mortgage broker Business Member

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    They were like a non bank back then using securitisation for funding...now they are a balance sheet lender like a big bank. That is my understanding anyway.
     
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  7. Peter_Tersteeg

    Peter_Tersteeg Well-Known Member Business Member

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    Macquarie transitioned to balance sheet funding 3-5 years ago. Only a very small percentage of loans are securetised now. They've also done a number of things locally to isolate themselves from their international exposure.

    I haven't seen anything from any lender about withdrawing from the market at this point.
     
  8. Peter_Tersteeg

    Peter_Tersteeg Well-Known Member Business Member

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    Just spoke with my BDM at Macquarie. This is definitely not the case.

    * Macquarie has released information on hardship provisions for borrowers.
    * They are reviewing some lending policy around employment sectors (which I imagine every lender is doing).
    * They're reviewing documentation across all of their work-flows to figure out how to remove any face-to-face interaction. This includes identification procedures, privacy forms, broker interviews, loan documents and mortgage of land documents.
    * Macquarie is fully balance sheet funded at this point.

    I think Brady may be referring to the trouble Macquarie had in 2008. My experiences with them has been they've learnt a lot from that and worked very hard to improve their position in the market. In many respects they're way ahead of the major banks.
     
  9. Redom

    Redom Mortgage Broker Business Member

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    No surprise really.

    Bank funding costs have blown out, these are being passed onto customers.

    The gov't has a $15bn securitisation program targeting non-banks to help reduce their funding pressures through this time.

    The bigger banks have this too, but have access to unprecedented monetary policy stimulus effectively 'doing whatever it takes' to drive funding costs down.
     
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  10. Trainee

    Trainee Well-Known Member

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    Are non banks seeing the sort of liquidity crunch that occurred during the gfc though? Not just increase in credit spreads, complete lack of liquidity.
     
  11. Peter_Tersteeg

    Peter_Tersteeg Well-Known Member Business Member

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    Probably not after 2-3 weeks. A couple of months and some could be in trouble.
     
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  12. mrdobalina

    mrdobalina Well-Known Member

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    I have a large loan with a non conforming lender (Liberty). It's effectively a line of credit I was planning to draw on to invest in the turnaround in the equities market.

    What's the likely scenario that will play out here? Could they call on the loan completely? Increase the rate stupendously? Sell the loan to another lender?
     
  13. Gen-Y

    Gen-Y Well-Known Member

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    There isn't a liquidity issue right now.
    It is lack of procedure and direction.
     
  14. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    I will add my 2 bobs worth.

    Pre GFC Mac had a similar funding source as Old Rams, borrow on short term bonds and on lend on long term mortgage backed securities. I think Rams had 30 day roll overs and were out pretty quick, couple with 2 to 3 % exit penalties for borrowers leaving.

    BOTH new RAMS and new Macq are Tier 1 Banks, and are afforded the same benefits and have the same obligations as the Big 4, and the next 10

    Mac cherry pick good clients, price risk to LVR, are fussy on cash out, have PC black list for IPs, and have small commercial exposure.

    Suncorp on the other hand would have a large chunk of commercial................while BOQ does 98 % FHB stuff.

    ABL/Bendigo just piked out of new commercial lending last week.

    In the Non bank sector you have

    • Non Banks
    • Non conforming specialist lenders

    Non Banks are lenders like Firstmac Resimac, and various small brands funded by similar


    Most of their biz is A grade , Resimac has some lending in the credit affected or specialist security area, FM does not.

    Pepper has a large component of A grade, but used to be mainly for credit affected or specialist security

    Liberty simialr to Pepper, but also a decent chunk of commercial and SMSF

    All these lenders still need to comply and demonstrate responsible lending, and ASIC edicts. but are not shackled by APRA, which affords the ADIs some extra comfort and in part lower costs.

    Bluestine tried to get out of the Non conforming sand pit at a not bad time

    anyways, thats my version


    Ta
    rolf


    hope that helps
     
  15. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Undrawn facilities will the first taregetted.

    It costs money to keep these open - lots of it

    Even mainstreams like Worstpac have the following clause in LOCs

    Repayable on demand..........



    We dont need to worry about non banks per se, the risk is u have YOUR money with them that things become personal.

    Even U bank, which is warehouse funded by Nab...........

    6.1 Requesting redraw
    If you make additional payments on a facility account and the annual percentage rate on the account is a variable rate of interest, you may request to redraw from the account. We will agree to your request unless:

    • the amount you request is more than the available credit on the facility account;
    we reasonably believe that you are unable to repay your loan in accordance with the contract for your loan or may be unable to do so if we make the redraw available to you;
    • we reasonably believe that the information given to us about you is misleading or false;
    • we reasonably believe that we are unable to enforce a security;
    • you are in default.​


    ta
    rolf
     
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  16. mrdobalina

    mrdobalina Well-Known Member

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    The facility I have has not been drawn. Perhaps I should draw it out and offset it again other loans, to minimise the risk that the loan could be withdrawn completely.
     
  17. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    Have a read of your loan agreements for those other loans. The lender is probably allowed to take money in accounts and apply it to debts owed to them.

    Also consider the tax consequences.
     
  18. mrdobalina

    mrdobalina Well-Known Member

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    The other loans with offset facilities are with other unrelated banks.
     
  19. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    You missed the point of my post.

    Read the loan statements for the loans with these banks.
     
  20. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Maybe u meant the T&Cs

    Im on my 3rd Corona and lime, you might be too :)

    ta
    rolf
     
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