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Banks under pressure to become landlords -

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Banks under pressure to become landlords

The World Today - Thursday, 6 November , 2008 12:46:00

Reporter: Catherine Clifford

ELEANOR HALL: The Federal Government is calling on the major banks to have a good look at their
hardship provisions as more and more Australians default on their mortgages.

One option under serious consideration here and in the UK and the US is for banks to become
landlords. With the global financial crisis shifting all the goal posts, the pressure is on
financial institutions to stop foreclosing and start looking at potential home defaulters as

Catherine Clifford has our story.

CATHERINE CLIFFORD: Mortgage analyst, Martin North, is the managing director of Fujitsu Consulting.
He's been looking at the mortgage industry for nearly 20 years and says while there's been some ups
and downs in that time, he's never seen so many people in trouble.

MARTIN NORTH: Based on the government feedback yesterday, in terms of the economic review that they
just did, we think that by the middle of next year there will be about 1.2 million households in
some degree of mortgage stress which is a big number and about 400,000 of those will be in severe

CATHERINE CLIFFORD: But he says changes are afoot overseas to deal with the problem and the Federal
Government here is watching.

MARTIN NORTH: Well, if you look at the US and the UK in the last few weeks there have been
interventions at a government level which essentially is encouraging banks to find ways to keep
people in their homes and that often will translate to converting a mortgage into some sort of
lease-based proposition or some sort of refinancing program which extends the life of the loan
duration considerably.

CATHERINE CLIFFORD: Rod Stowe is a deputy commissioner in the Office of Fair Trading in New South
Wales. He says there's no legal obstacle for our banks and non-bank lenders to go down this path if
they want to.

ROD STOWE: The consumer credit code applies in all Australian states and territories and it
regulates the provision of home loans, but it doesn't regulate what happens once a mortgagee takes
possession of a residential property.

So if a mortgagee does want to allow a consumer to reside in that house as a tenant the mortgagee
would then have to offer a residential tenancy agreement under the residential tenancies
legislation that applies in that particular jurisdiction.

CATHERINE CLIFFORD: Real estate agent Adrian Gordon is the licensee of Lifestyle Choice Realty, in
Sydney's north-west, and says he's seeing property prices fall by as much as 15 to 20 per cent in
his area, well above the national average.

He says the banks and non-bank lenders have to think laterally about every possible option now,
even if it's more complicated than using the courts to foreclose.

ADRIAN GORDON: Yeah, I can see some positives and negatives out of that, is that a positive is
obviously to keep the people and families together into their own house and have some sort of
payback or lease arrangement but, then, with lease arrangements there is a lot of legalities which
the Residential Act has got in place through the Office of Fair Trading but it would definitely see
a decrease of these skyrocketing rents that are going around at the moment.

CATHERINE CLIFFORD: Where do the banks and non-bank lenders sit on this? Well, the Commonwealth
Bank told us it is currently reviewing its hardship provisions. The non-bank lenders we contacted
are yet to return our calls.

But general manager for corporate relations with St George Bank, Jeremy Griffith, says his bank is
not ruling anything in or out, but says landlord status, even if only for a temporary period, is
not part of the core business of St George, and says economic conditions in Australia have not
deteriorated as much as they have in the UK and US.

JEREMY GRIFFITH: Well, our first priority is to keep the homeowner in the house. That really is the
absolute last resort that we would respond to that, you know, we've got a portfolio of 450,000-plus
houses. We've only got 80 houses in repossession. So, you can clearly see that a) the economic
cycle is pretty strong still in Australia and also clearly it is not a policy of option.

ELEANOR HALL: St George Bank's Jeremy Griffith ending that report from Catherine Clifford.