I live on the Sunny Coast and our good friends took out a low doc loan to buy a house. The hubby is a house renderer and inflated his annual income to secure sufficient money to build a new home and then added further borrowings to install a pool. They did this to try and cash in on the property bubble. They were late to the Party and should take responsibility for their actions.
Initially the big banks knocked them back, but they ultimately secured a loan with Homeside/NAB.
When the house building boom in our region subsided his income deteriorated. They are now massively in arrears to the tune of $20k. The wife has opened a child day care business from home and is earning the majority of income. It's still not enough. They can't control their spending and have three kids in Private Schools on reduced fees after crying poor. They asked the Bank to send them a default notice so that they can access their superannuation. The Bank did so this week.
But here's the killer. Whilst the Bank may be accused of being reckless they infact insisted on "mortgage insurance" being taken out by the borrower. What this means is that the Bank can call on this insurance to cover any losses. The borrower is then responsible and liable to the insurer who will no doubt chase them into bankruptcy, which I'm sure is inevitable for them.
So if you think mortgage insurance protects YOU it doesn't. It protects the borrower and YOU remain liable for the debt, albeit to a different entity.
