Bad Credit Loans, Bad Credit Home Loans – Bad Credit Finance Australia

As more people fall into arrears on their loans, banks have increased their penalty fees.

According to the RBA the banks have had a 9 per cent increase in penalty fees on loans to $536 million as borrowers struggle with their loan repayments.

And the banks are also under pressure to recoup more than $1 billion per year from other areas.

ANZ is the first of the major banks to be hit with legal action on fees. Customers lodged a $50 million class action in the Federal Court yesterday alleging it wrongfully charged hundreds of millions of dollars in penalty fees in the past six years.

While this legal action is more of a test case for the banking industry, it may be the first of many to follow.

ANZ acknowledged exception fees were unpopular, but said it would defend the legal action. “It’s a big leap, however, for a fee to go from being unpopular to being unlawful. ANZ will be defending this claim vigorously,” said ANZ’s Australian operations chief executive, Philip Chronican.

ANZ had reworked its fees and charges in December.

Banking analysts said the loss of fee income was a blow for the sector already feeling the squeeze from a sharp rise in wholesale funding costs.

Exception fees on credit cards make up the largest share of penalty fees paid by households.

For ANZ, a potential $50 million payout represents little more than 1 per cent of this year’s expected profit. But analysts said the impact on its bigger rivals could be larger.

To avoid penalties from the regulators, banks have in the past removed various penalty fees to appease customers.

Westpac will be the biggest hit, losing $300 million in annual exception fee revenue, translating to $210 million in lost earnings. Commonwealth stands to lose $200 million in revenue, translating to a $135 million hit to earnings. The annual revenue impact for ANZ and NAB is also about $200 million.

The main point of contention in the legal action against ANZ is that the bank had been ”unjustly enriched” by the penalty fees at the expense of those customers paying the fees.

Two years ago, the Office of Fair Trading in Britain had initiated legal action against the NAB over bank charges.

NAB’s Clydesdale Bank was one of seven British lenders that had challenged the ability of the OFT to investigate whether overdraft fees were fair under laws governing the terms of consumer contracts.

While the consumer watchdog won its initial legal bid to investigate the fairness of charges, this was later overruled by a higher court. The equivalent of $4.6 billion in annual revenue was at stake had the Office of Fair Trading won.

Recently, Australian banks argued against the introduction of rules banning ”unfair terms” in contracts, a measure that would reduce their ability to enforce fees

Short-term and Caveat lenders are about to form their own industry association in an effort to improve the industry’s questionable public image.

According to HomeSec Express director Paul Stone, the association, to be called the Australian Short-Term Lenders Association (ASTLA) will attempt to provide “one voice” for caveat lenders, as well as establishing an acceptable code of conduct for the industry.

In the light of new regulations introduced with the National Consumer Credit Code, this is definitely a must.

“For a number of reasons, the short-term business lending industry is very fragmented,” said Stone, “As a result, it tends to be that regulators only hear the negative stuff, such as where a loan is used inappropriately for consumer purposes.”

The body will enforce a code of conduct for all lenders who are members, as well as providing a complaints resolution process for consumers and businesses and regulatory updates for member lenders. It will also liaise with government and regulators, with one of its first priorities to make a formal response to ASIC’s consultation on phase two of the national consumer credit regulation. However, Stone also highlights that simply making caveat lenders more visible will also be a key task for the association.

While the only Caveat Loans that hit the media tend to be disasters, the industry also boasts numerous satisfied customers. ASTLA’s about showing that caveat lending isn’t some shady secret society: it’s an essential service for small businesses.”

The launch of ASTLA follows comments from ASIC’s senior executive leader for deposit takers, credit and insurance providers, Greg Kirk, who told the Australian Financial Review that the regulator would be prioritising action on caveat mortgages last week.

One in five mortgage holders believe they will have to  spend less on food  in order to keep up with their home loan repayments, a new survey has found.

According to a recent survey conducted by Beat Home Loans, almost half of all 25-34 year old home owners are paying more than 40% of their monthly household income on their home loans, compared with 28% for 35-44 year olds and 19% for 45-54 year olds.

These results are certainly alarming and are indicative that the highest levels of mortgage stress in Australia are experienced by the young.

While interest rates have been at very low levels for the last couple of years,  borrowers who have entered the mortgage market during that period have only been used to those rates. These borrowers are the ones who will suffer most from predicted rate increases over the next 12 – 24 months.

Mortgage arrears in Australia are expected to grow in the next quarter as mortgage holders feel the pinch of earlier rate hikes.

According to a new report from Fitch Ratings, mortgage arrears in Australia dropped in the second quarter but, this will probably change in the third quarter, especially as a result of low doc borrowers already on maximum lvrs over-extending themselves to purchase a home.

While borrowers have been coping fine in past few months, the overall affect of several interest rate increase earlier this year as well as the expectation that new increases will come

“If so, arrears might increase further, and in the low doc conforming sector they might reach a new historical high.”

The number of borrowers that are more than 30 days behind on their mortgage repayments dropped to 1.32 per cent last quarter – down from 1.38 per cent.

Among low doc borrowers, arrears grew slightly in the second quarter – rising from 17.7 per cent in the first quarter to 18.2 per cent.

For the sixth time in a row, the RBA moved the Australian rates up in May 2010 to 4.5 per cent from 4.25 per cent.

Most economists would say an unemployment rate of around five per cent or so marks the limit for growth without accelerating wage inflation.

The unemployment rate in August 2010 was 5.1 per cent.

So if the economy grows faster than it needs in order to keep unemployment steady, the RBA will feel obliged to increase the cash rate up to slow it down.

The bad news is that the economy is already growing faster than a steady-unemployment pace.

According to the national accounts released last week, growth in real gross domestic product (GDP) was 3.3 per cent, its long-run average, over the year to June.

What’s more, the annualised pace over the first half of the year was even faster at 3.8 per cent.

If the economy continues to grow at that rate, employment growth will be above average and the unemployment rate will fall.

Unless we are to face another GFC, we are safe to assume that the Australian economy will continue to grow at current rates at worst and at much higher rates at best.  The natural outcome from this will be increases to the Australian Cash rate.

Associated with a healthy growing economy is a flood of real income and a potential investment boom.

The quarterly capital spending survey the ABS published ahead of the national accounts indicated an increase in business investment in the order of 30 per cent in 2010/11.

All other things being equal, that spending would add around 15 per cent to GDP at current prices (not adjusted for inflation).

Consequently it is reasonable to expect that the RBA will need to move on rates more than once over the next 12 months simply to control inflation.

The rate of defaults and arrears on Australian mortgages stabilised last quarter, according to new research.

Based on Moody’s Investors Service, clean credit home loan defaults greater than 30 days remain steady at 1.39 per cent, compared to 1.34 per cent in Q1 2010.

Non-conforming mortgage defaults and arrears over 30 days grew a little to 13.74 per cent in June from 13.02 per cent in March.

“Borrowers in outer south-western Sydney and Fairfield-Liverpool are experiencing greater mortgage stress as compared to other regions. These two regions feature the highest proportion of home loan arrears and defaults, with 2.5 per cent to 3 per cent of mortgages falling into arrears of 30 plus days past due,” Moody’s senior analyst for the structured finance group Arthur Karabatsos said.

“If interest rates hold, there is no reason to expect great pressure on mortgage arrears. If they were to increase beyond these ‘neutral’ levels — that is, neither stimulating nor constraining the economy — delinquencies may rise, although we don’t expect to witness the 1.63 per cent seen in January 2009.

Pepper Home Loans has announced a drop in the interest rates on both its Flexi Advantage and Self-Employed Advantage products.

The non-bank lender has slashed up to 25 basis points off its Flexi Advantage product, taking it to just 8.49 per cent on mortgages with a loan to value ratio of up to 70 per cent.

Up to 50 basis points were reduced off the Self-Employed Advantage Home Loan, taking the interest rate to 8.74 per cent on loans with an LVR up to 70 per cent.

Pepper has also made a number of product policy changes to introduce more loan flexibility to the borrower.

As part of the policy changes, second jobs and casual employment will now be seen as an acceptable income.

Furthermore these mortgages will now be available up to $1 million for loans with an LVR up to 80 per cent.