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Tick tock Apra pressures sending us back to pre deregulation 1996 days ?

Discussion in 'Property Finance' started by Rolf Latham, 16th Sep, 2015.

  1. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    If it were a private or corporate thing, id expect the APRA anti competitive measures would be have been shut down by the ACCC months ago.

    But, because obviously APRA's actions are seen as, and in many parts are protectionist not just to the financial system per se, but every Australian citizen, society has generally been ok, coz after all,
    the banks use the "peoples money".

    We are now seeing free enterprise lenders change 20 + year old competitive advantages such as 15 year IO loans back to 5 years thence new application to align with stalwarts like NAB who have always claimed that they were fiscally responsible and ............. ( google Kings Coaches and see what show for common sense), or stoopid as STG not offering a proper offset on Home loans till recently because it was "illegal" and all other lenders fell foul of the regulations ................

    Its not obvious, and the gov dont wanna talk to much about it, but in the middle term, many of smaller lenders wont be able to compete with this anti competive perhaps socialist? approach to lender regulation, already the majors are back to 80 % share I hear .

    Security, sure........... but at what real commercial cost to the consumer middle to long term

    If the current rate of APRA enforced change continues, IO loans on PPORs are a thing of the past, regardless if its the right thing for the borrower....... the personal impact of something like that ...........lets not bother coz no one is listening anyway !

    Further I see many smaller lenders simply becoming smaller as large lenders at the moment can and will force a rate play, since they have other sources of income and can

    Never in my 16 years in this biz have I seen big 4 regularly match or beat little guys on rate..............., and now often with superior product and branch network.

    Interesting times .........the big 4 will be bigger and fatter courtesy of regulation, perhaps the state should look at nationalising CBA :) .......... sorry I meant buy it back.

    ta
    rolf


    ta
    rolf
     
  2. THX

    THX Well-Known Member

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    It's always been my opinion any time the government (or its ''independent'' arbiters) interfere in the market it is always detrimental.
     
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  3. euro73

    euro73 Well-Known Member Business Member

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    Sure, but it's also fair to say that left to their own devices, banks the world over have proven they cannot be trusted not to cause catastrophic financial calamities from time to time. Is our memory of the GFC that clouded already?
    Now, I'm not arguing for APRA here - but ultimately, some form of regulatory intervention was certainly required - whether the ones chosen by APRA are the appropriate ones or not is worth some discussion.
     
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  4. wombat777

    wombat777 Well-Known Member Premium Member

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    It will make entry and progression much harder. There will certainly be much more competition for mid to high-yield strategies. Many will give up too I think - education / knowledge of strategies is certainly more important.

    Banks are creative and will innovate in time.
     
  5. headsonbeds

    headsonbeds Well-Known Member

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    I'm no GFC guru but there's a bit of evidence that it was caused partially by --- you guessed it -- government regulation!!!

    http://www.businessweek.com/the_thread/hotproperty/archives/2008/02/clintons_drive.html

     
  6. THX

    THX Well-Known Member

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    Except it was interference from government that caused the GFC.
     
  7. The Social Investor

    The Social Investor Active Member

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    If APRA's intentions were pure they would have recommended the new measures apply to Sydney, Darwin and possibly Melbourne markets but what about Adelaide and Hobart. They will suffer and investors should receive incentives to buy into these slower markets
    You can not blame the banks for jumping onto APRAs recommendation with religous fervour
     
  8. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    dont disagree at all.

    An unsustainable industry serves no one middle term ......................

    Its the polit burea clandestine assassination style of work though where no lender dares to speak a word publically, nor has there been any consultation with various other stake holders that I am aware of.

    ta
    rolf
     
  9. Redom

    Redom Mortgage Broker Business Member

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    Geographic based policy, while intuitively logical, isn't really 'first best policy'. The distortions created and interventionist approach is certainly very old school policy. The government, IMO, shouldn't be picking out winners and losers so directly.

    It would ONLY make sense if valuations ('asset quality') was the main and key risk. Like in NZ. APRA haven't identified 'valuations' as the biggest problem. They've identified 'serviceability' as a bigger one.

    It's a little to simplistic to say 'Sydney house prices grew' so APRA cracked the whip. Some of the main 'problems' are a bit deeper and lay with individual's serviceability assessments, interpretations of prudent lending.

    In terms of APRA consultation, could be better sure, agree with you on that one Rolf.

    They would have spoken to each of the major banks individually beforehand, explained to them their concerns and asked banks to tighten up their own individual lending assessments. This happened in mid-late last year. APRA publicly have repeatedly said they've done this and even made the letter they wrote to the lenders public.

    Banks didn't do enough, so they stepped in. They didn't come out swinging hammers without notice and without giving banks time to adjust on their own accords.

    At the end of the day the costs of failure are born by the taxpayer. That means theres a duty of care to all Australians to ensure everything is prudent. All Australians include the majority who don't own serious amounts of property, don't do any investing, etc.

    Given the costs of failure, they are likely to be on the 'overstep and overcautious' side. Being wrong on the 'overcautious' side is so much better than being wrong on the other side of the coin.

    Their stress testing done last year showed that banks would survive without the need for gov't intervention with a 30% fall in prices, a double digit unemployment, and a huge 'recessionary' shock to the economy. Despite that, they've gone an intervened anyway, asked for more capital to be held, and tightened up other regulatory buffers.

    The relative comparison for their APRA's work is international, and on this front, APRA's track record is up there with worlds best practice.

    In terms of GFC microeconomic failures, yes governments definitely had a part to play. But the largest failure on their account was not having appropriate regulatory oversight to stop some of the market level buildup (credit ratings, sub prime lending, etc).

    So far, APRA haven't really shaken the market up all that much. They can do much worse. They can be far more interventionist. They've taken on a 'light' touch approach and are trying to let the market do the adjusting with a few little nudges.
     
  10. jaybean

    jaybean Well-Known Member

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    At times I've thrown some pretty frightening doomsday scenarios at you which you've rightly shot down (e.g. banning IO, "margin calls", etc). I've never thought to ask you - a much more level headed person than most - what your thoughts are. If worse comes to worse - what are some realistic "worse case" scenarios?
     
  11. Redom

    Redom Mortgage Broker Business Member

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    @jaybean - i don't think there'll be too much more, i suspect this will achieve what they're after and the market may slow down with less of a build up of key risks.

    Worse case scenario is difficult to say as it would depend on what type of risk is being built up.

    For example, this is the framework they'd use, depending on the risks they may see:
    1. 'Asset quality' risk - valuations are a big risk in pockets, so postcode restrictions may apply with LVR caps to protect against overzealous valuations.
    2. 'Credit quality' risks - if its in relation to serviceability, further restrictions on marginal borrowers, less exceptions, tighter credit policies.
    3. 'Surviveability risks' - in relation to future rate rises, higher assessment buffers.

    We may see some further tightening on I/O lending as its an obvious risk area and if people aren't paying down their loans - the banks are 'gambling' that the value of their properties hold or increase. But they've really got to sit down with Treasury and sort that part out, as the system incentivises interest only lending on PPOR's with the taxation system now.

    I also do think that some of these changes are structural fixes to mortgage lending - not temporary wand waving to Sydney house prices. The only temporary part is pricing changes - as thats just regulatory cost and isn't good policy. Its 'macro prudential' - short term temporary lending policies to cool markets and promote financial stability.

    I've met some of the key decision makers at the regulatory authorities on a one on one basis, know many of their staff, have read their work, histories, experience. I've advised, studied, and have even co-authored a book with them on international credit markets. They are some of the smartest and most impressive people i've ever come across. They may not be successful investors, very rich or gifted with property - but they are undoubtedly very well trained on markets and very methodical.

    Their aim isn't to bring down the economy and hurt people. Its to protect people. Sure they can do what there doing in different ways, approaches - or not do anything at all. But most of what their doing has been pretty well justifiable in my opinion (so far!).

    As a broker, i've seen scenarios where clients do need protection from their own success! Success is great, they are incredibly successful investors, but risks increase as lending increases. The system should have those risk buffers in there. I've also thought that the system had cracks in it. Serviceability was such a non issue 6 months ago, the 'borrowing' wall was almost a theoretical concept that wouldn't actually be seen or hit by most so long as they purchased within a price point.

    They've simple corrected a few wrongs, and made a few tweaks at this stage. Nothing to be too overly upset about at this stage. In fact, i suspect in a years time as people begin to forget about the 'PRE APRA' days, this new norm will seem to fit in with peoples logical guesstimates of what borrowing power should really be.
     
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  12. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    dont know about that per se......, thats the populist view, and the reality, 85 % of the populous is untouched so why worry............



    have a chat to the late 20 early 30 somethings that have been eating Indo Mie to date and worked 80 hours week for decade, paying nice income tax, now being asked to sell "all" their 4 mill IP portfolio to now buy their 1.2 mill 3 bed fibro PPOR shack............


    There are plenty out there, just not a majority to make enough noise, and they wont bother either., most of them will either just get on with it, or as is increasingly the case, sell up, leave, take their IP with them and invest their time brains and effort in a smart country ( which i believe Australia was once, now we are smart chipped) One can milk a cow for a long time if you look after it and love it, but you can skin it once only.


    while its all good and well to blame lenders for their exuberance ( and there is some good argument there) there is an addiitonally powerful argument that if this irrational and exuberant lending has been going on under APRA guidance for a decade or more under the governance of the regulator ............................ ummm........... who has let it go for that long ??

    ta
    rolf
     
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  13. Redom

    Redom Mortgage Broker Business Member

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    I don't know why now Rolf - my theory is there wasn't any reason to look under the rug until recently. A boom puts a magnifying class on lending standards. They would've used normal soft testing before, but now they've looked much deeper into it.
     
  14. wombat777

    wombat777 Well-Known Member Premium Member

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    I wonder whether small brokers will struggle, particularly if much of their market is investment lending. Surely the proportional reduction in approvals and commissions will hurt?

    It is an industry that seems to rely on churn of financing deals via investors???
     
  15. THX

    THX Well-Known Member

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    I think that lends credence to Rolf's opinion. If their stress testing revealed that, it seems their actions are excessive and will do more harm than good to the market.
     
  16. jpcashflow

    jpcashflow Well-Known Member Business Member

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    In any hard or testing environments there will be business that will be impacted but to be honest this is needed.
    If you look at the environment in Australia there are to many brokers, to many lawyers, to many of everything. So when times are tough the bad / lazy will quit and the hard working / innovative business will grow.
     
  17. tobe

    tobe Well-Known Member

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    I doubt there are many brokers these changes would have had any impact with yet. There are quite a few business models that rely on investors, but they are geared towards first timers, ( let me show you how to build wealth thru the equity in your home) who for the most part aren't affected by these changes.
     
  18. HomePage

    HomePage Well-Known Member

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    Actually, the APRA's conclusion from this stress test was that while our banks could handle the immediate effect of such a stress scenario, they lacked sufficient resilience to bounce back quickly from such a shock. Recent APRA changes are aimed at shoring this latter deficiency. Reference: http://www.apra.gov.au/Speeches/Pages/Seeking-strength-in-adversity.aspx#a8
     
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  19. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Some will struggle - and others will thrive.

    I see opportunity in the current environment. There have been an increase in new clients who weren't able to get finance with their current lender/broker.

    Cheers

    Jamie
     
  20. Redom

    Redom Mortgage Broker Business Member

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    Great link, thanks!

    The biggest economic crisis ever in Australia will definitely test the banking systems and individual institutions resilience (it would anywhere). I'd probably bet that given the counter-party risks in the system, some smaller players would fall (not the majors). But according to the two APRA scenarios that they modelled last year, large institutions that are 'too big to fail' would survive. From memory, their capital levels would deplete to below 4-5%, but still survive. They'd have to find mechanisms to build those ratios back up (which APRA have gone on to fix by asking for regulation to assist that resilience).