Wednesday, December 20, 2006

Lo Doc Home Loans under Fire

A NSW judge has made a key ruling on the low doc home loans. The NSW Court of Appeal found that a loan made to a pensioner and his wife should be revoked, because insufficient effort was made to check the couple's ability to repay and it relied only on the security of the family home.

The Mortgage Industry Association of Australasia has issued warning on its web site noting that lenders, including those who source loans from mortgage brokers, have to satisfy themselves that the person can repay the loan. The rising use of low-documentation loans is causing problems, because some of those borrowers are in arrears.

I can see the point of the lender and the mortagee in this case. I do feel that some lenders are taking advantage of some mortgagees such as pensioners and people with poor english skills as they do not really understand what they are getting themselves into BUT I do think people should be responsible for the contracts they make and it is there own fault for signing.

This could cause some drop in the housing market as borrowers are going into the arrears and won't be able to pay their mortgage thus more homes on the market. But longer term this could be more of an issue with less people being able to apply for a home loan.

Its an interesting case and I think it could hurt some of the banking stocks longer term.

Good Luck investing

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