Borrowers with a history of bad credit but with equity in property may wish to consolidate unsecured debts into their mortgage. In doing so you may find that your monthly repayments are reduced significantly. Naturally to qualify for a mortgage refinance at an increased amount you must be able to demonstrate loan affordability.

If you are not a home owner but own a motor vehicle outright or perhaps a boat or a motorbike, you could use the equity in these assets to apply for a secured personal loan for debt consolidation. Value of your asset must exceed the amount that you wish to borrow.

If you have some history of bad credit, have no assets and are looking to consolidate unsecured debts – you may also wish to consider a debt agreement. To qualify for a debt agreement you must have at least $8,000 in unsecured debts (this can not include your home loan or car loans). If you have previously had a part 9 agreement or were previously bankrupt you will not qualify.

Many business bankruptcies were caused by excessive and out of control bad debts.  There has been a significant surge in the number of Australian companies in administration during the third quarter,  to levels last seen during the 2008 financial crisis, according to figures released by the securities regulator today.

A Senate committee gave its support to the government’s draft plan to upgrade Australia’s credit reporting legislation and processes, prompting Veda adviser Matthew Strassberg to ask for a quick turnaround.

“Two years ago, the Minister for Privacy Brendan O’Connor announced a timetable to ensure passage of credit reporting reforms by mid-2012. We support that timetable,” he said said in a statement.

In view of the growing uncertainty on financial markets and the possibility of another global recession this legislation needs to be given priority.

Mr Strassberg said there were a number of gaps in today’s credit reports that have to be addressed as a matter of urgency. One such gap is the lack on info on the report as to the borrowers true credit limit on all their credit facilities and loans such a personal loans, home loans, car loans and credit cards.

Allowing credit agencies to obtain that type of information could only benefit consumers, he said, because companies would then have a clearer idea of the customer’s financial standing and their ability to pay their debts.

It was a view backed up by the Senate’s Finance and Public Administration Legislation Committee, which handed in its report on the government’s credit reporting draft today.

It would also change the regime from negative, where agencies mostly accessed bad information such as defaults, to positive.

This would offer a more comprehensive picture of the credit position of a borrower.

Borrowers with a history of bad credit as a result of bankruptcy, part 9 debt agreement, property repossession, etc. – ie borrowers who acknowledge that the bad credit was due to some even in their life and the report truly reflects this – will not be able to clean their credit history simply by making a request to do so.

Credit repair is only possible where for some reason the applicant believes that the bad credit is:

- a case of mistaken identity;

- the bill was already paid at the time that the default was lodged and it was lodged in error;

- applicant was never notified that the bill was due, etc.

Credit repair is not an option where you acknowledge the debt and believe that it was placed on the report correctly but would simply like to have the default removed.

Australian Securities and Investments Commission insolvency figures, released yesterday show 9829 companies entered external administration in the 2010-11 financial year, the highest figure since the peak of 10,005 during the global financial crisis.

Businesses who are experiencing tough retail conditions are not finding an understanding ear with the banks, who are making it far more difficult for borrowers to qualify for loans even where the borrower has plenty of equity in their home.

The leader of ASIC’s insolvency team, Adrian Brown, said banks in an effort to  prevent client bankruptcies have gone some way to meet stable clients, in some cases allowing facilities to be rolled over without the provision of further financials.

In addition to borrowing from banks, Australian companies are exposed to US credit conditions through their heavy reliance on North America’s private placement market, the source of a third of the Australian corporate sector debt raised last year.

About $6 billion of the $21 billion in Australian corporate debt that needs to be refinanced next year is sourced from the US private placement market, with $7.2 billion coming from banks, according to research released by Moody’s in March.

While large corporates are able to issue bonds and borrow offshore, the smaller companies that make up the bulk of insolvencies depend on bank finance. The Australian government has introduced tough lending regulations which has meant that much of the low doc home loan business acceptable in the past would be declined today. It is not unusual for small business owners to resort to using the equity in their homes to finance their business debts – however today such financial solutions are more difficult to implement and are more costly than in the past.

Smaller businesses were finding it more difficult to borrow. ”For example, you continue to see not as much finance available for property development, particularly suburban-type property development, while for more blue-chip properties you’ll see there’ll be market finance available.

Ferrier Hodgson partner Morgan Kelly said small to medium businesses were having difficulty borrowing and had also been hit by changes in workplace laws, the threat of a carbon tax and the ATO’s crackdown.

He said banks were also concerned about concentrations of risk in specific areas, such as commercial property.

In theory banks want to lend money – unfortunately the people they are prepared to lend to – do not need to borrow.

According to a report published by Standard & Poor’s Ratings Services, this represents a significant 25 per cent increase in home loan arrears bringing the level closer to the historical high of 1.84 per cent experienced in January 2009.

Subprime RMBS arrears increased by 103 basis points to 11.22 per cent during the same period.

Most years home loan arrears peak early in the year following Christmas spending before easing in March, however current trends suggest that this year arrears continue to increase well int o the middle of the year.

Borrower ability to service home loan debts declined with the extreme flood and cyclone events experienced earlier this year, combined with higher cost of living and mortgage rates, have contributed to elevated arrears in Q1 2011. And with interest rates expected to remain at current levels or higher, there is expectation that home loan arrears could surpass the current peak, until a subsequent boost in economic activity occurs as the repair and replacement of damaged assets gets underway.

Unfortunately unsecured personal loans are only available through banks and other lenders who are unable to assist  borrower with some history of bad credit. Even a telephone bill, since paid will prevent you form qualifying for an unsecured personal loan.

So what are your options:

(i) You may qualify for a home loan if you have sufficient deposit and can demonstrate a reasonable income that will allow you to service your mortgage. In most cases the borrower needs to have a deposit of at least 20% as well as funds to cover the costs of purchase such as stamp duty etc. No deposit bad credit home loans are not available through any lender in Australia.

(ii) You may qualify for a car loan providing you can demonstrate a reasonable income and some stability in employment as well as your place of residence.  You will need to wait up to 12 months after being discharged form a part 9 agreement or bankruptcy before applying for a car loan. You do need to be employed – bad credit pensioner car loans do not exist. If you find anyone who is prepared to lend you for a car despite the fact that you may be on a pension – read the fine print to make sure that you fully understand what this transaction will cost you.

(iii) Short term cash loans are available despite some history of bad credit. However these are payday loans and are available for up to a few weeks only.

(iv) Debt Consolidation via a debt agreement is another alternative. This is an opportunity to formally negotiate down your debts with your creditors for a set payment plan.

During January 2010, Sunshine Coast Council attempted to reach over 217 owners and mortgagees of  properties with rate arrears in excess of three years. Hundreds of letters were mailed out.

The council was happy to negotiate with residents and owners including potentially placing people of a payment plan to ensure that the rate arrears are paid out.

Some residents were referred to the Department of Communities housing services to confirm whether any of these could qualify for mortgage relief loans. Payments and arrangements have resulted in council reducing the longer-term outstanding rates arrears bill by $1.43 million.

Council finance chair Cr Chris Thompson said it had been important to work together with the affected home-owners in an attempt to reduce the outstanding rate balances.

“We have been working in partnership with affected owners in an endeavour to reach arrangements which everyone can live with,” he said.

“These things are never easy for any of us, but I believe we have arrived at a good outcome overall.”

One year down the track, the number of properties with outstanding rates arrears has been reduced by more than half to 64 with outstanding arrears of $842,000.

The council is now intending to commence procedures under Chapter 2, Part 12, Division 3 of the Local Government Act 2009 (Finance Plans and Reporting Regulation) to recover outstanding rates and charges by way of sale of land for all properties, with overdue rates for a period greater than three years as at November, 2009 with the exception of eligible pensioners and owner occupiers without a mortgage.

All affected properties will be put up for Auction and sold by 30 October 2011.

All major banks as well as the Brisbane-based lenders – could take a significant hit as borrowers default on payments, costs rise and demand for new credit falls following the flood disaster.

In the short term there is an expectation of loan growth as the government, along with businesses and households devastated by the floods, turn to the formidable task of rebuilding.

Despite diversifying its business in recent years, BoQ is still holding a lot of local home loans which make up approximately two-thirds of its loan book.

Goldman Sachs analyst Ben Khoo expects athat loan arrears across Queensland will increase. It is unclear at this stage what the full impact will be.

“If banks decide to offer additional loans and an extention to the required repayment terms during the rebuild effort … we might actually see loan growth pick up.”

ANZ, CBA and Westpac said they would allow affected customers to cease repayments on home and other loans for up to three months.

According to a new report from Standard and Poor’s, Mortgage Arrears now sit at 1.41 per cent.

During the same period, arrears for subprime RMBS also experienced a drop, by 0.17 per cent to 11.90 per cent. Total new issuance of Australian RMBS was just below $5.1 billion in Q3 2010—2.3 times the total issuance in the previous quarter.

Prime Mortgage arrears levels are stable at fairly low levels of between 1.4 per cent and 1.5 per cent since the beginning of 2010.  The currently soft property market together with the expectation that rates will continue to increase into 2011 – means that Mortgage Arrears are expected to increase during this year.

However,  Australia’s positive economic prospects and continued strong labor market supporting debt serviceability, would underpin the stable performance of Australian RMBS mortgage portfolios.