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Parliamentary committee wants regulation for mortgage industry to solve housing affordability.

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Mon day 17 September 2007

Parliamentary committee wants regulation for mortgage industry to solve housing affordability


MARK COLVIN: First came water, then control of Aboriginal communities, now the scene is set for another Federal takeover, this time of credit. The bipartisan House of Representatives' Economics and Finance Committee today released the report of its inquiry into housing affordability. 


The committee says state regulation has been inadequate and too slow to adapt. As a result, it says, the Commonwealth should take over regulation of all credit products as well as mortgage brokers. 


Economics Correspondent Stephen Long. 


STEPHEN LONG: Non-bank lenders and mortgage brokers barely existed when the national rules regulating finance where written more than a decade ago. And it's now widely acknowledged they've slipped through the regulatory cracks. 


The bipartisan Economics Committee of the Federal House of Representatives says that should change. The retiring Liberal Party MP, Bruce Baird, is the committee's chairman. 


BRUCE BAIRD: It seems to be that the major financial providers are not the problem, but there are some rogue operators and particularly mortgage brokers, who are in there encouraging people to commit beyond their capability. 


Now, that the requirement for a certain deposit ratio to be there seems to have been removed by a lot of the financial institutions, there are some lenders who are simply exploiting people and not recognising their ability to pay. So we're saying that there should be greater regulation by the Federal Government. 


At the moment, it is handled by the states, and we're saying if it was controlled by the Federal Government, then we'd have greater uniformity and they could crack down on the rogue operators. 


STEPHEN LONG: That would see all those involved in providing credit brought under federal legislation: banks, non-banks, as well as mortgage brokers. The irony is the recommendation comes just as the states have finalised uniform legislation to regulate the mortgage-broking industry. 


New South Wales Fair Trading Minister, Linda Burney, was coordinating the new laws and she isn't happy. 


LINDA BURNEY: Well, I can say it once, and I'll say it twice: Peter Costello is a hypocrite. He knows full well that it's been his own department that has put the brakes on a national initiative that I'm leading in New South Wales, to actually put some regulation around the credit card and the mortgage industry. 


STEPHEN LONG: But just about everybody else seems to think national regulation is a good thing. Dr Steve Keen of the University of Western Sydney is a debt expert who gave evidence to the inquiry. 


STEVE KEEN: One of the … a double negative question the committee posed was: does anybody here not think it would be a good idea for the Commonwealth to take over? And they said there wasn't a single person who said it wouldn't be a good idea. 


STEPHEN LONG: And there's a good chance they will. Peter Costello has already indicated a willingness to take over regulation of credit and mortgage brokers, even though just months ago, the Federal Government was resisting calls for it to do so. 


Phil Naylor of the Mortgage Finance Association is among those who suspect an election, where mortgage stress is set to be an issue, has turned around attitudes. 


PHIL NAYLOR: Quite clearly that there's a keen interest by everyone to make sure we squeeze predatory lending out of the market, and I think what the recommendations do is to go down that path, which we support. 


We've been fighting for years for a regulation of mortgage and finance brokers and it’s, I guess, somewhat bemusing and perhaps a little bit frustrating that now the Federal Government and the Opposition have suddenly discovered this issue. You know, this has been an issue for five years, and working with the state and territory governments, we're just about to the point of, I think, having some draft legislation released. 


Nevertheless, we do support the Federal Government taking over this area. It always has been our view. 


STEPHEN LONG: The report found that there are problems with predatory lending and mortgage stress, but they're minor. Some think that's a misreading, among them the consultancy, Fujitsu. 


It's just done a report, which found that at least 40,000 households in Australia have been subject to predatory lending, and more than 70,000 are in mortgage stress. 


Fujitsu's Martin North. 


MARTIN NORTH: Well, I think the report looks backwards over the last few years rather than the current state of the industry, and perhaps takes a look at how things could play out, given the credit crunch, and some of the other recent issues. 


I think there's mortgage stress today, and there's more latent stress in the industry, in other words, we're going to see more people in significant difficulty when it comes to repaying their loans. 


STEPHEN LONG: He doesn't think the report goes far enough: 


MARTIN NORTH: I'd like to see specific regulation in the broker sector, where I think a lot of the issues actually lay today. And I think there should be more disclosure immediately in terms of the underlying rifts inside the books that the lenders have. 


STEPHEN LONG: The Federal Parliamentary committee thinks Australia won't suffer the fate of the United States, where dodgy lending has precipitated the worst mortgage meltdown since 1929. Steve Keen disagrees. 


STEVE KEEN: Ultimately, I think we're going to be about half to two-thirds as bad as America is turning out to be, and that's pretty extreme. America is looking at something like one … over one per cent of its households going bankrupt. Now, I don't think we'll anything quite that scale, but I think we'll see a fairly substantial contagion from this mortgage problem, which will mean a recession. 


I think America is going to go through one, almost without a doubt. I think we're going to have a homegrown version as well as being affected by the backwash from America. 


MARK COLVIN: Dr Steve Keen of the University of Western Sydney, ending Stephen Long's report.