Bad banks outed on public list

• By HELEN POW
• From: The Sunday Telegraph
• October 17, 2010

THE worst banks and lenders will be publicly named and shamed by the Financial Ombudsman Service (FOS).

The financial institutions and banks with the most customer complaints for sloppy service, excessive charges or misleading information on products, will for the first time be placed on a public list.

The Ombudsman hopes that by outing the worst offenders, financial firms will improve their service.

"Consumers, the public and the media need to access this information to see who the problem banks are," Consumer Credit Legal Centre principal solicitor Katherine Lane said.

"This sort of reporting is essential otherwise we, the public, cannot scrutinise what is going on and it will just continue.

"We need to know who is worst so we can approach the failing financial institutions and the regulator and ask what is being done."

The FOS received 19,107 complaints in the 2008/09 financial year a 33 per cent spike compared with the previous 12 months.

There was a 33.5 per cent surge in complaints about consumer credit over the year the bulk of which involved home loans and credit cards from 4645 to 6202.

Consumer Credit Legal Centre deals with 16,000 banking complaints each year and another 1000 involving insurance companies.

The centre said it had seen a huge increase in complaints regarding mortgage hardship and repossessions, with National Australia Bank proving the worst offender.

GE Money was also up there in terms of complaints about its interest-free credit cards, which lawyer Katherine Lane said were causing people on low incomes "no end of trouble".

The Australian Bankers' Association chief executive Steven Munchenberg said: "The only reasonable way of doing this, if the FOS has to do it at all, would be to have the number of complaints by institution as a percentage of their total customers.

"Everything we have seen so far gives us real concern that the information will not be fair."

 

 

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Mortgage delinquencies highest in Sydney and surrounding suburbs, new report warns

Wednesday, 13 October 2010 10:28
Patrick Stafford – Smart Company

 

The Fairfield-Liverpool region and outer suburbs of Sydney are among the worst areas in the country when it comes to mortgage delinquencies and investors should keep an eye on these areas, a new report from Moody's Investor Services reveals.

But the author of the report also says Australia has a relatively low amount of arrears compared to similar economies and urges investors to examine the details of each area and not take the results on face-value. The report points out some areas are over or under-represented when it comes to mortgage delinquencies.

"If you compare our economy to other economies, like the US, or Britain or Spain, you will see our delinquencies are doing quite well in comparison. However, what this report does is highlight the areas within the country that you should keep an eye on," author Arthur Karabatsos says.

The Fairfield-Liverpool region, which includes suburbs such as Fairfield, Liverpool and Casula, recorded a delinquency rate of 2.77%, while Outer South Western Sydney, including suburbs like Macquarie Fields and Campbelltown, recorded a 2.55% delinquency rate.

The report defines a delinquency as failing to make one or more mortgage payments, meaning they are over 30 days in arrears.

The top 10 worst areas were listed as:

·         Fairfield-Liverpool (NSW)

·         Outer South Western Sydney (NSW)

·         North Western Sydney (NSW)

·         Central Coast (NSW)

·         Hunter (NSW)

·         Canterbury-Bankstown (NSW)

·         Lower Western WA (WA)

·         Central West (NSW)

·         Far West-North Western (NSW)

·         Mid-North Coast (NSW)

The report also shows that North Western Sydney, including suburbs such as Penrith, Mt Druitt and Blacktown, account for 6.48% of all 30+ day delinquencies. It is the only region classified as "highly elevated" in terms of contributions to overall delinquencies.

Karabatsos says the report uses the "Moody's Mortgage Performance Indicator" to compare regions, and claims it to be a more accurate measure. He says if a region has an MMPI of over "1", then those region's delinquencies are over-represented compared to the overall country.

For instance. Liverpool-Fairfield represents 4.24% of all arrears in Australia – but the region only accounts for 2.05% of loans. Therefore, the region is given an MMP of 2.07, and is classified as over-represented. Karabatsos says investors should pay attention to this ranking as it will give a more accurate picture of the market.

"When people look at postcodes, they can't get a picture of what's going on. I've had comments from investors about these postcode-based lists, and they literally try and find road maps and figure out the proximity of one postcode to the other."

"But what this does is helps investors find where the problematic loans are. We have gone to this new regional approach because I, for instance, can pick up straight away that Sydney is where all the problem areas are."

Melbourne and Brisbane have recorded some of the strongest results in the country, with three of the top 10 best performing areas located in Melbourne.

One of the biggest factors in high delinquencies is higher LTVs, Karabatsos says. He claims that "without exception, borrowers who have missed at least one repayment have a higher LTV and loan balance than all other borrowers within the same region".

In the All Gippsland region in Victoria, borrowers have a weighted average LTV of 62.52% and an average loan balance of $133,776. However, those who are 30+ days delinquent have LTVs of 73.30% and loan amounts of $$152,667.

However, Karabatsos declined to comment on how these LTVs are affecting the wider-housing market, saying Moody's is conducting further research in that area. Overall, he says, the report should be issued as a warning for investors.

"Look at the results, and see where certain arrears are over-represented. There are some areas in Sydney that are performing very badly but you need to look at whether these areas ore over-represented or not, and what the index categorises them as in terms of their overall contribution to delinquency rates."

Dark side of the honeymoon

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Personal Message:

Dark side of the honeymoon

October 13, 2010 - 3:00AM
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Informal debt agreements outside of the Insolvency Act

A new breed of "debt-help'' competitor is springing up, especially online, with names like nobankruptcy.com.au and mybudget.com.au, as well as minor start-ups such as creditplanb.com.au.

These services specialise in helping people overloaded with debt set a budget, negotiate affordable repayment plans with creditors and manage repayments – for a fee.

They are effectively creating informal debt agreements outside of the Insolvency Act.

Their customers, the people overloaded with debt, are not left with a lifelong black mark against their credit profile but may be without rights.

Fox Symes has dominated the debthelp industry for almost 10 years with its daytime television marketing strategy and slogan: "One thing saved me, a phone call to Fox Symes.'

In the past two years, Fox Symes has helped thousands of consumers repay $55 million to their creditors through a debt agreement registered under Part IX of the Bankruptcy Act.

The company administered 51per cent of all debt agreements registered with the Federal Government's Insolvency and Trustee Service (ITSA).

Fox Symes charges, on average, $100 per month in fees to collect one big repayment from the debtor and distribute it to creditors, who accept an average total repayment of 76 cents in the dollar of the debt owed.

That is expensive but that service comes with rights, said Fox Symes director Deborah Southon. "There are a number of operations negotiating de facto debt agreements with creditors but there is nothing there to bind creditors to the agreement,'' Ms Southon said. "A debt agreement is binding on creditors as well and provides debtors with certainty.

"Some people criticise formal debt agreements but they bind creditors as well to a deal and give debtors rights and let debtors move on.''

The marketing of Part IX debt agreements as pseudo debt consolidation instruments has been consistently criticised by consumer advocates and financial counsellors for years but they consistently deliver for creditors who have largely come to support them post-2007 reforms.

Nobankruptcy.com.au's Christian Oey said anybody could negotiate with their creditor if they were persistent enough. "You have to be patient and persistent and try to get to a person with authority over the computer,'' he said. "That's what we do and it can take time but it works.

"It is easier for us to do it for people. We know how things work.'' Mr Oey is a critic of formal Part IX debt agreements.

"There is no reason why heavily indebted consumers should sign a debt agreement. They are an act of bankruptcy that stays with you forever,” he said.

"Sometimes we have to be persistent and patient but we generally get to talk to decision makers at the creditors and do a deal that doesn't involve a debt agreement - that is good for everyone.

"Often people don't understand what the full consequences of a debt agreement are.''

Ms Southon said consumers should be aware that informal or de facto debt agreements do not prevent creditors from taking action in the future. "Informal debt agreements are a problem,'' Ms Southon said.

"A similar trend is emerging in the United Kingdom.

"There are some notorious small operators in this area.''

Formal debt agreements face another challenge from the government.

Changes to bankruptcy laws will add an up-front government fee to formal debt agreements from October 1.

The fee is expected to be $200 - plus an ongoing trailing commission on repayments of 1 per cent, which will be payable to the Federal Government's ITSA.

The debt help industry is already under pressure, and not just from economic stimulus payments and low interest rates.

There are only 14 registered debt agreement administrators left in Queensland.

There are 36 in Australia.

"The new fee will be problematic,'' Ms Southon said. "I wouldn't be surprised if the fee meets a lot of consumer resistance.

"What is ITSA going to do if a debtor refuses to pay the fee or can't pay the fee?

"These people can't pay their bills now.''

Credit Card Interest – the Ignored Rate-Rise Impact

Interest rates are set to rise again next month in a “double-whammy” for low-income families struggling with rising mortgage and credit card repayments.


“This latest interest rate rise will have a devastating impact on credit card holders, already struggling to pay back their debts compounded by punishing interest, as well as their mortgages.” says Christian Oey, CEO of NoBankruptcy.com.au.


“The focus at this time each month is on the impact on the home market and mortgage repayments, but what about the 15-20% rates being paid by credit card holders? They’ll increase again too.”


“We’re seeing more and more credit card debt repayments crippling families, rending apart peoples’ lives and forcing more people into bankruptcy,” said Mr Oey.


NoBankruptcy.com.au is a company specialising in Informal Debt Agreements, negotiating directly with creditors on their clients’ behalf.


“NoBankruptcy is a specialist team of debt negotiators, helping clients become financially sound once more, through direct debt management. We genuinely want to help people get back on their feet.” said Mr Oey.


Many factors can lead to people who were once financially sound becoming unable to meet their commitments. Job loss, illness, divorce and family issues can all have the effect of people taking their eye off their finances, allowing them to fall into disrepair.

Big banks eye independent rate rises

Big banks eye political environment to gauge risks of independent rate rises, says analyst Scott Murdoch

From: The Australian September 08, 2010
THE big Australian banks are forecast to independently lift key mortgage rates, to take advantage of the current political environment.

An analysis by Credit Suisse has found the major banks could raise their rates by up to 20 basis points, outside of the official cycle with the Reserve Bank of Australia.

A move of that size would ease the current pressure from higher funding costs but also increase the banks net interest margins, a key barometer of profitability.


The Commonwealth Bank of Australia has been named as the first bank likely to move because it has the highest level of share of the Australian residential mortgage market.


The bank, which is Australia's largest by market capitalisation, has a 26 per cent home loan market share compared to Westpac’s 24.3 per cent, National Australia Bank’s 13.1 per cent and ANZ’s 12.9 per cent.

Credit Suisse analyst Jarrod Martin said it was increasingly likely the banks would move out of sync with the RBA, given the current political climate.

"The political risks are clearer," he said.


"With a minority federal government now being formed by Labor, the major banks can now better assess the political risks associated with undertaking an out of cycle mortgage rate increase.


"We believe it's a prospect given the apparent funding cost and net interest margin pressures currently affecting bank core earnings growth."


Mr Martin said an increase, of up to 20 basis points, would reflect the constant pressure on the banks earnings due to higher funding costs.


The major four banks have to raise more than $100 billion over the next year to fund their current and future mortgages.

"This should be viewed as a glass half empty issue," he said.


"While such a development would be a positive incremental development for bank earnings it should be seen as defensive in nature and highlights the core earnings pressure in the industry.


"It helps compensate for the number pressures on bank core earnings but it does not increase the sustainable earnings power of the sector."


Still, a price leader needs to step forward. In the past, Westpac and the NAB have taken the lead and raised outside of the RBA but have faced intense political criticism and scrutiny.


Westpac currently has the highest standard variable rate of 7.51 per cent, compared to ANZ's 7.41 per cent, CBA's 7.36 per cent and NAB's 7.24 per cent.


"A price leader needs to emerge," Mr Martin said.


"We see CBA as the most natural price leader that needs to emerge to allow industry-wide mortgage rate increases to be effected," he said.


The analysis found that if mortgage rates were hiked by 20 basis points, each of the banks would experience an increase in their net interest margin.


CBA's net interest margin would move from 2.04 per cent to 2.13 per cent while Westpac’s would lift from 2.27 to 2.37 per cent.


The impact at the banks with smaller mortgage books would be less significant. ANZ’s margin would rise from 2.42 per cent to 2.49 per cent and NAB from 2.25 per cent to 2.31 per cent.

Blog-smacked!: Poker machines = STUPIDITY TAX

Blog-smacked!: Poker machines = STUPIDITY TAX: "All this talk about poker machines reminds me of an old saying I like: Poker machines are just another STUPIDITY TAX!"