This site is brilliant for ‘back then’...Barnaby Joyce did all the ranting in the 2013 Opposition re SUB PRIME
LOW DOC LENDING...then LNP won the election 2013 and Barnaby was then gagged by Tony Abbott!
Its shows that BJ understood perfectly well that the mortgage loans were dangerous to Mums and Dads.
He notes the mechanics that Bankers were using alternative income verification procedures
27 May 2013
https://barnabyisright.com/tag/rmbs/
From ceiling insulation to school halls to “green” loans to computers in schools to set-top boxes, every “investment”
that our Treasurer touches, ends up totally ‘Franked’.
From the SMH:
Arrears on mortgage repayments spiked to a record high in the first three months of 2011, as more Australians struggle with rising costs, Fitch ratings agency says.
Arrears on prime residential mortgage-backed securities (RMBS) of 30 days or more hit a record high of 1.79 per cent in the first quarter, from 1.37 in the final quarter of 2010, the group said, as Christmas spending and the Queensland floods forced more Australians to struggle in repaying their mortgages.
RMBS are home loans which are bundled together and sold to institutional investors by banks and mortgage lenders. Misrated RMBS were at the heart of the subprime crisis in the US which lingers to today.
As we have seen previously (“How Australia Will Look When The SHTF“), Government has “invested” $20 billion of
borrowed money into Australian RMBS since the GFC, to prop up our housing bubble.
Including an extra $4 Billion which he approved in April – (ie) after the period of increasing arrears that is mentioned in the SMH article.
This news gets much worse though:
The increase in arrears for the most fragile band of mortgage borrowers, low-doc loans, with payment delays of 30 days or more hit 6.74 per cent in the first quarter, up from 5.7 per cent in the final quarter of 2010, a higher level than December 2008 quarter, when the financial crisis hit and the Reserve Bank began rapidly lowering rates.
Low-doc mortgages are written for riskier borrower than prime mortgages, which are written for customers who have a reasonably safe ability to borrow.
Delinquencies of three months or more on conforming low-doc mortgages, which are used by people who are self-employed for example, soared past 5 per cent in the March quarter, from about 3 per cent the December 2010 quarter.
Would YOU have “invested” any of that borrowed $20 Billion in low-doc RMBS? Or, did you stick with “prime” RMBS?
From the AOFM website:
Purchase of RMBS – Program Update
Minimum Eligibility Requirements
* Low documentation loans, that is loans underwritten using alternative income verification procedures, may be included in mortgage pools.
Oooooooooo!
AOFM ‘franked’ another $20 Billion.
Fresh Financial Crisis “Around The Corner”
31May
https://barnabyisright.com/tag/rmbs/
More warnings that GFC 2.0 is on the way … and that those toxic financial inventions called derivatives will be front and centre again.
From Bloomberg:
Mark Mobius, executive chairman of Templeton Asset Management’s emerging markets group, said another financial crisis is “around the corner” because the causes of the previous crisis haven’t been solved.
The total value of derivatives in the world exceeds total global gross domestic product, creating volatility and crisis in stock markets, Mobius told reporters inTokyo today.
“Are the banks bigger than they were before? They’re bigger,” Mobius said. “Are the derivatives regulated? No.
Are you still getting growth in derivatives? Yes.”
The global financial crisis three years ago was caused in part by the proliferation of derivative products tied to U.S.
subprime loans and contributed to the collapse of Lehman Brothers Holdings Inc. in September 2008.
How relevant is all this to Australia?
Very.
Australia’s Big Four banks have recently been downgraded by Moody’s credit rating agency, mainly due to their reliance on off-shore borrowing.
What this means in practice, is that another GFC-style credit “freeze” in the USA and/or Europe would again bring our banks to their knees in a matter of weeks, begging for Government (ie, taxpayer) financial support. The granting of which is exactly what has brought Ireland to the brink of total bankruptcy.
Even more worrying, Fitch’s credit rating agency recently placed 54 ‘tranches’ of Australian residential mortgage-backed securities (RMBS) on ratings watch “negative”, due to increasing arrears by overstretched mortgage borrowers.
These are the same kind of exotic financial derivatives that brought down the USA financial system. And the same
clever “investments” that government has poured $20 Billion into. What’s worse, those who have invested in
RMBS that include “low doc” loans. Can you say “sub-prime”?
But in my view, perhaps the biggest concern of all is our banking system’s combined $15 Trillion in Off-Balance Sheet “Business”, which is mostly in, that’s right, derivatives.
Barnaby J