Banks brace for tidal wave of mortgage defaults

According to Richard Gluyas at The Australian, Australia’s major banks have deployed more staff to their financial hardship units as loan deferral periods for mortgage and small business customers begin to wind down. The banks are also anticipating a sharp rise in loan defaults as government stimulus measures begin to be scaled back.

National Australia Bank has begun contacting customers who had deferred their loan repayments, but CEO Ross McEwan recently told a parliamentary committee that 20% of these customers have failed to respond to its calls, emails and text messages:

“The thing that distresses me right now is, when we’re making calls to customers to check in, 20 per cent won’t pick the phone up or call back, even if we text, email and phone,” Mr McEwan told the committee…

The revelation prompted a special plea to bank customers from AFCA chief executive David Locke… “If you received a deferral on loan repayments from your bank earlier this year and continue to experience financial hardship as a result of COVID-19, it is extremely important that you contact your bank as soon as possible to talk about the options available to you”…

The concern among the banks is the extent to which $240bn in deferred loans — including $167bn in housing credit (9 per cent of total accounts) and $55bn in SME loans (17 per cent of total accounts) — turn sour after deferrals expire at the end of March next year…

“It’s not so much the calm before the storm; it’s more like the nirvana before the storm,” Jefferies’ veteran bank analyst Brian Johnson said.

“No one really knows what’s going to happen when the support is withdrawn, but it’s hard to conclude that things are not going to get a lot tougher.”

Mr Johnson said it was “alarming” that 20 per cent of NAB’s customers on repayment holidays had failed to respond to the bank’s calls.

The amount of economic support scheduled to be withdrawn over the next month is going to be massive.

The Grattan Institute estimates that emergency income support will be reduced from $18 billion a month (10.7% of monthly GDP) to $3 billion a month (1.9% of GDP) for the six months beyond:

The deadline for withdrawing superannuation is also set for 31 December. Early superannuation release has also provided $33 billion of additional disposable income to households. Thus, its removal will drain household disposable incomes further.

UBS has estimated a similar collapse in emergency support:

As you can see, emergency support is scheduled to fall from more than $100 billion in Q3 to around $30 billion in Q4 and then less than $5 billion in Q1 2021.

When viewed in this light, there is a good chance that many thousands of Aussie households will be unable to meet their mortgage repayments and will be forced to sell. If this happens, it will obviously place significant downward pressure on property prices.

Unconventional Economist
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  1. TailorTrashMEMBER

    20% of non paying customers not returning calls …..must be some very stressed bankers at the moment ….they used mortgage brokers to hand out the debt like lollies …now might need to hire a few knee breakers to get it back

    • Reus's largeMEMBER

      Release some research that says that house prices are going to go up, get the talking heads on TV to spruik it up and then more of the 20% answer the phone as they think that things are all good again. Saves on paying the knee breakers!

      • “Release some research that says that house prices are going to go up, get the talking heads on TV to spruik it up..” – they are doing it already but not for the reasons you said. They are doing it so they can scrap the last of the fools to buy the p[properties of those half smart that agreed to sell.
        It’s damage control now. Expect super to be used to reduce loans and there will be controls in place so people can’t use the super for anything else. Banks to access people’s super direct as one option.

        • two plus twoMEMBER

          That would be a significant development if that were in any way involuntary. I believe assets in super are protected from bankruptcy creditors currently. People might be willing to do it if it were the difference between losing their home or not, and fair enough too, if they want to, but being forced to? Dunno about that…

          • it will not be involuntary. People here are stup1d and will agree for the bank to take their super so they can keep their mega loan that will be somewhat reduced. Lower wages that will come with the new jobs will offset most of the loan reductions so majority will still struggle.

    • happy valleyMEMBER

      Yep – no care, no responsibility when the banksters let the brokers stuff their loan books full of rubbish loans and now no care, no responsibility when they call the knee cappers in. Pass the Cristal and caviar say the banksters.

    • Yep, and that’s just the 20% not answering.
      Renters have been seen as the dregs of society for so long. The way I see it is all the decent people these days ARE the renters.

    • China PlateMEMBER

      perhaps the 20% are ahead of the curve and have started by ditching their phones to save some cash.

    • Should campaign for early prisoner release so they don’t catch Covid….then instant subbie role with big 4 …ABN required (or not)….get one of their mates to run straight out prison vocational courses (paid by gov) win win dirty work & extrra bonesetting & X-ray work for medical hero’s whose hours will dwindle post Covid as everyone really sick has suicided from pain unless they could get to pharmacy after GP and fill their codeine script:) Australia…Treasure Island..for some

  2. JK to get extended fo sho. As sure as the Melbourne Football Club capitulating in the face of a finals chance.

  3. There is a sense of mild panic in the words of McEwan, Locke and Johnson as the punters do an Emu to the banks. For NAB alone I make it around 30,000 mortgage owners not responding. At $370,000 average loan size that’s $11.1B on NAB’s books. If we assume the same 20% for the entire $240B of deferred mortgages that’s $48B of people not even taking calls to talk about options. Add another 50%, circa $70B of loans which will likely fail.

      • This is what makes the suspension of solvency laws until end Q1 2021 so critical. I reckon they may even be suspended further if it means banks dont need to declare NPLs. Because the moment they do we can be sure BBSW goes higher and mortgage rates rise. I find myself wondering is some RBA ‘facility’ gets fired up to stuff those forks giving mortgagees with cash.

        But it also points to just how cloaca puckering desperate the government will be to get house prices higher. I cant see how they go within a bulls roar of sustaining domestic demand while that size – circa $48 Billion – worth of borrowings is trying to retrench debt.

      • But, but ….. haven’t we been told for the last 20 years to just think positively and it’ll all be fine?!

    • Popcorn ready. Apra was really smoking dope when they let the banks defer all that debt and still call it performing. Deferrals should come with a capital charge. We just kicked the issue down the road.

      Separately, this is why I don’t believe in time travel. As some Irish banker could’ve learnt from Australia and delayed the implosion of the celtic tiger! Just keep extending and pretending ….

    • Most of these people will just be thinking why answer ?

      They would be thinking that the banks have no right to call them, the law is there – banks can not do anything. When its time they will just go back to work and start repaying their loans. Simple.

      No one thinks anything has changed – no one.

  4. What would be good to invest in at the moment? I’m thinking repossession business, cash converters and those storage units…

    • I had a mate that used to run the darlinghurst loans office at taylor square. Really sketchy business to be in – you need to be on top of what security you accept.

      • I could suggest ex Israeli soldiers as muscle.
        Seriously polite, seriously disciplined and well trained.
        Get the job done. Minimise your underworld contacts.
        I would say it’s a space the bikies etc have moved into, and you may face interesting competitive contacts.

        • Someone ElseMEMBER

          Nah, the Israelis have a habit of believing their own publicity and overestimating their abilities.

          Know any ghurkas?

          • Knew someone who was one of their British Commanding officers many years ago.
            And yes, he was incredibly tough.
            But if I was collecting debts, I’d want my debtors rattled, not dead.

  5. I can just imagine the 20% seriously thinking that ignoring the problem will make it go away. They deserve everything that’s coming

  6. So say you are one of the punters avoiding the bank’s calls/emails etc?

    Surely the next thing that happens is your PayWave stops working at Woolies/the Servo/Dan Murphys?

    I would definitely be opening a new transaction account at a new bank to whom I owed nothing and switching over my salary/JK payments there.

  7. Look, we all know that mortgage debt in Australia is in the hands of those most able to service it. These people are obviously just too busy to return calls to their bank. It’s probably the elite of our community: senior executives, industry and political leaders, great achievers in science and technology, and of course, real estate agents and mortgage brokers.

  8. The 20% not responding to the NAB are probably smarter than you think. They probably already know that they are going to lose the house so,
    Ignore all communications , and make no payments until the mortgage holiday ends. Force the banks to go through their financial hardship protocols, still make no payments. By the time they get evicted it would be 18 months from their last payment. If they kept everything in cash and hidden, then declare bankruptcy and 5 years later they are all good to go again.
    Here’s a thought though, what are the chances that most of that 20% are SME’s with their homes used as security on business loans and they are going to default twice.
    It can get bad fast