Property Council PM’s dirty and dangerous FHB brain fart

Scummo revealed at Domain:

A $500 million plan to help first-home buyers into the market did not go through cabinet and has not been modelled for its impact on property prices, as experts warn the policy will struggle to meet its objectives.

The first some members of cabinet heard about the plan, which will see the government effectively guarantee a portion of loans taken out by first time buyers, was when Prime Minister Scott Morrison announced it during the Coalition’s election campaign launch on Sunday.

More at Banking Day:

Banking Day was told by several industry sources on Monday that the policy was slapped together by the coalition in the last week after the Housing Industry Association floated the idea to the caretaker government.

The policy, which has triggered a stream of concerns over responsible lending and the residual liability that taxpayers might wear for defaulting borrowers, took most consumer and industry groups by surprise.

The coalition appears to have consulted with no industry groups about the policy apart from the HIA – the peak body representing the construction and development sector.

So, the PM, a former researcher at the Property Council, hands out a great boondoggle at the 11th hour to his mates. This is corruption.

Moving into the policy itself, it works at cross-purposes, via Banking Day:

Putting to one side the merits of supporting small lenders, the scheme as it has been explained so far by the coalition seems to have been conceived with a cross-purpose: to support young homebuyers get a loan and also to bolster loan activity for second tier lenders.

The two objectives are not entirely compatible.

Not all small lenders offer competitive home loan rates and many sell mortgages that are more expensive than offers from ABA-member banks who were not consulted about the homebuyer support scheme.

There is a risk with a policy that preferences some lenders over others that borrowers could be enticed – in this case by the government – into mortgage products that might not be among the best deals available in the market.

The Coalition government and the Labor opposition need to explain why the scheme is going to be operate on a preferred lender model, rather than one that is borrower-directed.

But wait, there’s more, at the AFR:

While bankers said they were awaiting further detail, they said loans under the scheme could attract significantly higher capital charges compared to loans in which customers put down a larger deposit or took up lenders mortgage insurance.

If so-called mortgage risks weights were increased from 25 to 50 per cent on a $475,000 loan, a bank would need to charge up to 1 per cent more on a home loan in order to maintain the same return on equity.

Bankers however said different risk weight rules applied to loans with mortgage insurance for major banks as compared to regional lenders.

And more:

John Trowbridge, an insurance industry veteran who was a senior member of the Australian Prudential Regulation Authority, said the intervention would partly unwind the Howard government’s $108 million privatisation of the Housing Loans Insurance Corporation.

“This sounds like a government-run lender’s mortgage insurance vehicle, so that’s a surprise,” Mr Trowbridge said.

If the scheme does render the LMI business defunct, how are the existing LMI businesses, that guarantee some half a trillion in risky mortgages, going to grow their revenue bases to protect their equity? As such, their capital and even viability becomes an open question, threatening further higher costs to existing insured FHBs. Or are we just going to nationalise?

This is what happens when a desperate housing flunky somehow stumbles into a prime ministership.

David Llewellyn-Smith
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  1. And people want to vote for…

    LNP = Ex Property Council
    ALP = Big Australia

    Are you all mad????

    I wrote this to a radio station..

    Hi X…

    The LNP have been in power now for over 6 years and just weeks out from an election, come up with a brain fart of an idea on helping first home buyers, that had not even been modelled.
    Policy on the run and a cruel one at that. It shows you just how impoverished this government are when it comes to ideas on helping ease housing affordability issues. ALP just as bad.

    Both the major parties are not serious about housing affordability.

    God help our kids.

    It shows you they are not serious about housing affordability at all.
    If they were, they would tackle the real problem – population.
    But no we can’t do that – it would upset the retailers, the property developers and the Chinese too much….”

    People… start to think about your vote and what damage to future generations, complacency and a vote for ALP or LNP will mean. It means a sellout of our kids futures.

    • rob barrattMEMBER

      Of course they don’t give a @@@k about affordability. Both parties see falling house prices as political suicide. Their (lack of) immigration policies demonstrate this quite clearly. Richo had it dead right – “whatever it takes” (to get to drive the Gravy Train). When the last of our car manufacturing industries left for more business-friendly climes we crossed an economic Rubicon. Our economy can be quite safely described as:
      Dirt and house prices.
      As for it’s sustainability, well, I think all here know the inevitable outcome. The debt bomb will finally implode it.

      • Lets be honest – crashing property prices isn’t just political suicide but could leave the country in 3rd world status. Financial distress has a way of causing real community issues including violence and real suicide as well. Saw on North’s youtube channel Camden has higher domestic violence and the cops were quoted as saying “mortgage stress”.

  2. $ 500 million of 20% deposits = $ 2.5 billion of mortgages……not a lot in a $ 6 trillion dollar market. i think they might have forgotten how large a bubble they blew.. At least $ 10 billion needed for anyone to notice at all. Think of the opportunities for fraud !

    • Jumping jack flash

      6 trillion debt dollars…

      that’s a lot of interest extracted from the productive side of the economy each week to pay for that nonproductive debt wad.

      what’s the average interest rate? 4%? Higher?

      • C.M.BurnsMEMBER

        nearly all banks mortgage products have a comparison rate of nearly 5%, which is the comparable, all-in rate once charges and fees are accounted for.

    • DominicMEMBER

      Is that $6trn debt or $6trn property ‘values’ (at current levels)?

      I have a feeling it’s the latter, but in any event $6trn to $5trn to $4trn … and so on. These valuations all rest upon a mountain of debt.

  3. “This is what happens when a desperate housing flunky somehow stumbles into a prime ministership.” – consider it stolen.

  4. Jumping jack flash

    “If so-called mortgage risks weights were increased from 25 to 50 per cent on a $475,000 loan, a bank would need to charge up to 1 per cent more on a home loan in order to maintain the same return on equity.”

    Stone the freaking crows!

    Banks actually considering the risk associated with 3rd-rate desperate aspiring debt slaves and individualising their interest rates to suit? This should have been done a decade ago, and not just by 1%. Insurance has been doing it for years with premiums. What is interest but a premium calculated using the (properly considered) risk of default?

    475 thousand units of debt is far too many for me to own with my anxiety, but I’m sure some hapless rube will jump at the chance to seize them all, launder them against a property, and fling them all into someone else’s bank account.

  5. I’m hoping this idea dies post election, as 1 dumb brain fart, then again this is Australia, we think of the dumbest policies possible and implement them.

  6. BubbleyMEMBER

    Darwin apartment buyers now have to stump up a 40% deposit before they can buy a place.

    I wonder if the gov will go that high?

    But the real story is how this policy (I use the term loosely) was so corruptly and hastily cobbled together.

  7. Is this FHB assistance for Australian born citizens only ?
    Or also new migrant citizens & PR who are already extensively used as a proxy for the foreign criminal syndicates to evade FIRB in laundering the dirty money into modest Australian housing – old flats & now small modest houses to run as migrant only cash in hand bunkshare.

    Won’t this turn out like the NRAS & Negative gearing – another Australian taxpayer funded subsidy to foreign owned (via local PR migrant proxy) acquisition of Australian residential low end housing to rent out cash in hand to the 2.561 million migrant TR influx?

    Where do people think the 2.561 million TR migrants live?

    83% live in ‘private shared rental accommodation’ (ABS)
    That’s 2.1 million migrant non residents in such ‘private shared’ accommodation.
    At a conservative 5 migrants per small unit or house – that’s at least 400,000 ex Australian dwellings now converted to migrant occupancy.

    And at $170 a week each for the ‘bunk, wifi, bag of rice & toilet roll deal (market standard) that’s $19 billion cash rent being paid but only $10 billion (legal occupancy or rent minimum) being declared.
    Rivers of gold.

    As example.
    A $500,000 old run down small 2 bed unit in Granville or Burwood with 6 migrants in it pulls in $1,020 a week or $53,000 cash a year but only declares $300 or $15,500. (Minimum rent or legal occupancy only)

    The vast majority of the 2.561 million migrant TR are third world adult unskilled poor, living week to week in working & living illegally.

    89% are concentrated in Sydney & Melbourne.

    Fact check.
    We had 2.431 million temporary residents in Australia in March 2018. Source VisaSure & DHA (links at bottom)

    It has grown subsequently by 130,000 net new TR or 5.3% to now 2,561,000 as of March 2019.
    (The DHA website & quarterly tables at the bottom of the VSure page)

    2.3 million or 89% of the Temporary Resident visa holders are concentrated in Sydney & Melbourne (ABS)

    🔹Sydney pop 5.2 million.
    🔻1.3 million Temporary Residents.
    ◽️1 in 4 people.

    🔹Melbourne pop 5.0 million.
    🔻1.05 million Temporary Residents.
    ◽️1 in 5 people.

    We need a Royal Commission into our broken Visa system, FIRB, and a National housing audit.
    There are your root cause issues in Australian housing affordability & Australian housing loss.

  8. Sure looks like a government sponsored LMI that is designed to fail so that the real guilty parties (banks and private LMI and speculators) can point fingers at the government and demand it do something to fix the problem that it clearly created. which will end with governments guaranteeing everything just like in Ireland.

  9. Ross Greenwood interviewed the minister for Social Services Paul Fletcher and grilled him over the fact there are about 110,000 FHBs every year and that this policy only funds 10,000! There’s no plan on how and who gets it. The Minister essentially admitted it was policy on the run and that finer details would be worked through. Amateur hour.

    • DominicMEMBER

      First come, first served. The rest can get f#***d!
      I don’t see what the issue is.

  10. Great so another bailout backstop for banks, first it was saving deposit guarantees and now lending deposit guarantees. It’s awesome when you can privatise the profits and socialise losses. This is just more poor policy so banks can keep writing their low doc loans and not get downgraded.

    If people don’t have the deposit they don’t deserve to own or borrow the property, if the prices are too high well they will come down once the banks stop lending to people who can’t afford it in the first place.

  11. bigpadaricoMEMBER

    And Labor just immediately agreed with it, right? They should have pointed out that it is a poorly thought through act of desperation.

    • Nah, it’s housing related and they have already pushed alot on the Neg gearing changes. My guess is they thought if they opposed the idea of FHB’s getting into the market it would be a contradiction that could cause issues at this stage of the election. better to agree and make it a non- separation between the parties.

      • bigpadaricoMEMBER

        Makes sense. Game theory. When you’re in front just match whatever your opponent does. Disappointing but understandable.

  12. “While bankers said they were awaiting further detail, they said loans under the scheme could attract significantly higher capital charges compared to loans in which customers put down a larger deposit or took up lenders mortgage insurance.”

    The amount above 80% will be government guaranteed and therefore has a 0% risk weight. Some tweaks to APRA reg cap rules might be required to confirm this but otherwise the scheme is pointless because it won’t reduce costs.

  13. I’m confused, are they offering to guarentee the ‘deposit’ so save some LMI when borrowing > 80% or are they actually providing a ‘deposit’ loan? ABC seem to think the later….
    “The Coalition’s new plan seeks to arrest the decline by lending would-be buyers up to 15 per cent of the purchase price, provided they’ve saved at least 5 per cent for themselves.”

    I thought they were just allowing FHB to borrow more and not pay LMI i.e. the Government would cover that…..

    • Mining BoganMEMBER

      We’ll never know. Australian economic policies are shapeshifters.

      You can never really land a glove on them,

      • I’m with you Brother, NFI what is going on with policies in this country. They seem to make it up as they go along while keeping one ear on the focus groups/polls/MSM. Pathetic!