Big banks' profits: Are the glory days of mortgage lending over?

Increased Mortgage Lending competition for the big four banks, and major banking reform from the Gillard Government could see the major banks profits shrink.
The problem is that every government reform aimed at the banks in Australia have eventually added to the bottomline of the big mortgage lenders.
Mortgage loan exit fee reforms: The fly in the ointment
Before Christmas I wrote to the Prime Minister and advised her of the fly in the ointment of the Wayne Swan solution to our mortgage woos.

Make it a no brainer to switch mortgage lenders by removing exit fees on home loans and the rates would fall.

Mortgage exit fees are not the problem
The problem was that mortgage managers, the securitised lenders that helped to reduce mortgage interest rates by 3% were the very ones that would be most hurt by the reform, because they charged the most by way of deferred establishment fees on their mortgages. These deferred fees had a sunset clause of about 5 years, so most people never paid these anyway.
But it gave a way for securitised mortgagelenders to pay mortgage brokers a commission to compensate them for their efforts.
Ralph Norris cries Crocodile Tears over the Mortgage Managers plight.
[Crocodile tears are the tears one cries whilst devouring our prey.]
The funniest thing is that the CBA who have all but destroyed the mortgage managers loan sector, with the help of Kevin Rudd's Banking Guarantee support, now says he is hurting for the small end of town. This is just a ploy, but Mr Norris does make the same point I rose last year. That is that the exit fee ban will hurt small lenders more than the big four banks [if we only focus on the fee income, and not the mortgage market.]
Australia's Banks. Are they too big to control?
Based on Ralph Norris's [CEO of CBA] comments and the reality of the power and control of the Big Four Banks, its time to ask the unthinkable. Are the banks too powerful to control. Have they become the Mafia of Austalia, where they can do what they like and still be supported by the government? Sometimes the lines between the profit motive, the public good, and business ethics are blurred and this I believe is where we are in the banking debate right now.
The business Power of the banks. A case on point
Norris claims that "The moves to limit excess fees on credit cards and improve credit protections will have a similar perverse effect as far as the reaction from the major banks.
"The new national credit protection regulations means that banks simply have a higher cut off level for those to whom they are willing to provide credit."
Does this not smell of a lender who thinks he owns the lenders and credit space? If so is he right. I say yes to both propositions!
The law of unexpected consequences
The best intentions of government regulations often create unexpected consequences,because they neglect the big picture. That's why doing nothing can often be better than doing something when it comes to Government Policy. The Government needs to focus more on the purpose of the reform and how it will affect the mortgage industry as a whole. Winning at all costs can cost too much.
Any reform has to be balanced with the planned growth non bank lenders. That means a no bank involved sector of mortgage lenders.

Mortgage Lending to be given a boost from non bank lenders

Why Home Buyers need more competition in  Mortgage Lending

Australian non bank securitised mortgage lending has been in the doldrums since the Global Financial Crisis hit in 2008, and as a result Australia's big four banks have over 92% of Australia's loans. This is from less than 75% when the non bank lenders were their strongest. That is not good for home buyers or homeowners, and its why The major banks have increased their profit margins on mortgage lending, and want to raise it even higher.

Government support of non bank mortgage lending

To counter what would have been the complete loss of the non bank mortgage sector sales in 2008, the Rudd government expanded to $16 billion a RMBS purchase plan to assist the survival of Australia's non bank mortgage lenders, who had been taken out of the market during the GFC.
The interesting thing is that Macquarie Bank an investment bank and Westpac, one of the big four Australian banks, are sponsoring the shows Sydney, Melbourne and Brisbane to promote the investments. Westpac were seen as the the worst offenders in raising interest rates above the official cash rate set by the RBA.

Australia's non bank mortgage lenders go from major players to feather dusters

Australia had been a big player in the securitised mortgage lending business up to the global financial crisis, and everyone thought that Australia would follow the US in the loss of home values and therefore mortgage security, but this never happened.
Australia was the fourth largest RMBS market in the World with $100 billion market, but since the US sub prime mortgage crisis growth has all but evaporated.

Non Bank Mortgage lenders represent a great investment opportunity

There has never been a RMBS default in Australia, so mortgage loan securitisation should be a great investment opportunity.
Source: Mr Mortgage

RBA keeps interest rates at 3.0 percent as Australia Economy looks solid for recovery.

Australian home owners, home buyers, new home builders and retailers and mortgage lenders appears to have escaped the recession that has swept the World, with the Reserve Bank of Australia deciding to leave interest rates unchanged at 3 per cent, when the board met today at its June Meeting.
The decision to keep interest rates at its 45-year low is good news for the housing industry, home buyers and mortgage lenders and was widely tipped by economists.
Economists believe that the Reserve Bank is right in keeping its powder dry, in case further interest rates cuts are necessary who towards the end of the year, if in fact they are needed.
In a statement released this afternoon, Reserve Bank governor Glenn Stevens said there was evidence emerging the global economy is stabilising.
Australia's economy looking good.
"The turnaround is clearest in China and some other emerging countries," he said.
"Recovery in the major countries is likely to take longer to begin and be slower when it does occur."
Mr Stevens said although the effect of low mortgage rates was yet to be seen, future rate cuts were possible if the economy continued to deteriorate.
"The prospect of inflation declining over the medium term suggests that scope remains for some further easing of monetary policy, if needed."
The Reserve Bank cut the official cash rate by 25 basis points in April ending 425 basis points worth of reductions since September.
The central bank has since indicated it is in no rush to lower rates further as it assesses the impact of its easier monetary policy stance and the Federal Government's stimulus packages.
The stimulus packages have worked their magic and have lifted the retail industry, with figures out yesterday showing consumers spending a record $19.4 billion shopping in April.

Mirvac shares jump in value on new loan deal

Mirvac Group, the residential property developer, said today it agreed terms for a new unsecured loan facility of $805 million, replacing an existing $1.1 billion syndicated facility that had been due to expire in June.
Nine of the 13 lenders in the syndicate participated in Mirvac's new facility.
The property developer’s shares were up 14 per cent at $1 by mid-afternoon, after falling 31 per cent in the three previous days. The benchmark S&P/ASX 200 Index was 1.2 per cent higher.
Investors earlier this week sold stocks in property developers and trusts - which had previously been depressed because of refinancing, debt and earnings concerns - to boost their holdings in Westfield and Lend Lease after they announced large share placements.
Under the new Mirvac facility, $755 million was refinanced from the previous facility, with $50 million of utilised capacity from other facilities renegotiated as part of the new unsecured bank syndicate, Mirvac said.
The new facility’s term expires on January 31, 2012 and has an interest cover covenant of 2.25 and the total liabilities to total tangible assets covenant ration of 55 per cent remains unchanged, the company said.
Mirvac also said it revalued all of its trust's 58 assets in the six months ended December 31, resulting in a total revaluation decline of $236.3 million.
The company said its share of net losses from joint ventures and associates in the first half was $88.1 million, including net losses from fair value of investment properties and derivatives of $96.3 million.

Easy home mortgage finance with no physical home appraisals

Mortgage lenders are approving home loans without inspecting properties, forking out to applicants without a deposit and encouraging clients to shoulder debts far beyond their means.
More than half of all standard mortgage applications are now done without an onsite inspection and lending competition is encouraging banks and other institutions to extend loans quickly and cheaply, Fairfax reports today.
Banks are also urging people to take on debts which swallow up to half their income.
One-quarter of loans to people with bad or incomplete credit histories had been approved without on-site inspections, relying instead on a drive-by or statistical analysis of local sales data.
The average loan-to-value ratio of new loans in NSW has risen from 51 per cent in 2003 to 75 per cent this year.
Australian Property Institute president Gregory Preston said borrowers were at risk.
"If they get caught out and are forced to sell the borrower is sort of out on a limb," Mr Preston said.
Source: AAP