Friday, 28 March 2008

When pain persists, they arrive

ALLEN DIAZLI has seen homeowners come and go over the past 17 years in the mortgage belt of Sydney.

He's one of the Sheriff's men in Bankstown, the officers responsible for carrying out repossession orders for banks and mortgage brokers.

But Mr Diazli has never seen the belt tighten by so many notches in such a short time for so many people.

Since January, he and his colleagues have been repossessing an average 15 homes a week, more than three times the number they were doing three years ago. "This is crazy," he says. "We don't need any statistics to know how bad mortgage stress is for people. We've got a whiteboard that we fill out and it's been chock-a-block for months."

The Reserve Bank warned yesterday it expects more people to fall behind on their mortgage repayments as the full impact of rate rises hits home.

"Looking forward, an increase in arrears is likely," it said in its twice-yearly review of financial stability. The bank estimates there are already 40,000 borrowers who are late with their payments by more than a month. Of these, 15,000 are more than 90 days overdue.

The bank also warned borrowers were now at a higher risk of losing their homes should they fall behind on repayments. The proportion of NSW houses subject to repossession applications had doubled since the mid 1990s. This was partly because more people had loans with non-traditional lenders who were more likely to foreclose quickly.

Repossessions had risen in areas such as western Sydney where borrowers had taken out large mortgages and house prices had fallen below the value of the loan. These borrowers were unable to clear their debts by selling their home and more likely to face a repossession.

Overall, the Reserve said Australian households and businesses were better placed than ones in other countries to weather the wildest financial storm since the early 1990s.

Households were benefitting from low unemployment, lower taxes and rising real disposable incomes, but this belied significant "pockets of stress".

Singling out greater western Sydney as one such pocket, the bank said mortgage arrears here were 2½ times greater than those in the rest of NSW.

The steep rise in interest rates since the middle of last year - 1 percentage point from the Reserve Bank and an average 0.25 percentage points extra from the commercial banks - is expected to see more households fall behind.

For sheriff Paul McAuley, the repossessions he sees around Bankstown are startling.

People are still angry when they lose their houses, but he notices that "people nowadays seem to think, when they take a loan, that it's a risk and that if they take the loan they might end up losing their house".

"That's a big change to the mindset that was around even 15 years ago," he said.

The area's newly-elected federal MP, Labor's Jason Clare, said he is trying to put the issue of housing stress on the national radar for one important reason: "If it's happening here, it will soon be hitting other areas."

Mr Clare's rationale is simple. He believes Bankstown is the canary in the coalmine - the first place to feel the impact of mortgage stress before it hits home for hundreds of thousands of other households.

"One of the worrying statistics about Bankstown is that we have a median income that's below the national average but mortgage repayments that are well above the national average," he said.

"So obviously if you're buying a house for $400,000 or $500,000 in Bankstown, it's going to be a lot more painful paying it off.

"Economists will tell you that the effects of an interest rate rise take about six to nine months to be fully felt, so there's a strong possibility that we're yet to feel the worst of it."

The Money Care financial counselling co-ordinator at the Salvation Army, Tony Devlin, said the past 12 months have been the busiest in recent memory.

He said the proportion of clients using his service because of mortgage stress had more than tripled. About 35 per cent of the 5000 people a year the Salvation Army counsels were under severe mortgage stress.

"What we've found is that where people have been struggling to keep their heads above water, this last year has been the time when they've gone under."

Mr Devlin said finding accommodation for people who have lost their properties has become a major problem. Rental vacancies in Bankstown are below 1 per cent.

■ Australian Prudential Regulation Authority figures show sharemarket volatility in late 2007 wiped $4.3 billion from the superannuation balances of Australians.


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2nd Renaissance -40
Hardship and grief accompanies a complete financial meltdown. People who are concerned about their large mortgages and credit card debts must realise that when (not if) a major depression comes the banks will show them no sympathy; but will seize their property and other assets with the full backing of the rule of law. However, it doesn't have to play out that way.

Just as numbers can change the balance of power when people - acting collectively - decide to free trafficked women from brothels or take over a failed enterprise, so they can turn the tables on predatory banks and other financial institutions. If a few thousand people were to declare their intention to default on their loans, the big lending institutions would quickly sool their lawyers on to these individual families with great indignation and vigour. But, if several million families were determined to abandon their contracts the story would play out very differently.

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