The banking industry says all home lenders should sign up to the federal government’s initiative to support borrowers who have lost their job and are struggling with mortgage repayments.
Treasurer Wayne Swan announced on Sunday that 144 retail banks, building societies and credit unions have now signed up to the government’s set of “principles” that assist borrowers who are experiencing financial difficulties during the tough economic times.
“People will have some more flexible options if unfortunately they become unemployed and experience difficulty paying off their mortgage,” Mr Swan told the Nine Network.
“While Australia is weathering the global recession better than most countries, we are not immune to its impacts, including an expected rise in unemployment.”
The government is forecasting the unemployment rate to reach 8.25 per cent in mid 2010 compared to 5.7 per cent in May.
In April the government had made an agreement with just the ANZ, the Commonwealth Bank, National Australia Bank and Westpac to sign up to the protocol.
Now all members of the Association of Building Societies and Credit Unions (ABACUS) and all retail members of the Australian Bankers Association (ABA) with a focus in the mortgage market are now signatories to the Principles.
ABA chief executive David Bell said he would like to see all other lenders not under the regulatory eye of the financial watchdog do the same so that all borrowers get access to the same assistance.
He said after examining Supreme Court applications for repossessions, the ABA found that between 65 and 80 per cent do not relate to banks, but to other lenders.
“Unlike banks, non-conforming lenders – which are not regulated by the Australian Prudential Regulation Authority – are not prudentially supervised and often need to act more quickly on a mortgage default than a bank,” Mr Bell said in a statement.
Mr Bell said banks are different because they want to work with their customers to look for solutions to problems with their loans, especially as the difficulties may be short-term and banks want to keep long-term relationships with their customers.
The government’s protocol means that financial institutions will be able to offer a range of options to assist mortgagees who are facing financial hardship.
These options include postponement of mortgage payments for up to 12 months, a reduction in the amount of each payment due under the contract,
interest-only breaks on loan repayments and fee waivers.
“It is also backs up with the ability of people to basically question whether banks or building societies or credit unions carry through this protocol by the ability of people to access the Financial Ombudsman Service,” Mr Swan said.
“Of course, these options won’t be appropriate in every case, and financial institutions will make assessments based on the borrowers ability to meet new contractual obligations in the long-term,” Mr Swan said.