We have the amazing circumstance that the governors of the reserve bank (did I vote for these guys?) seem to be determined to control inflation no matter how many people suffer a profound decline in their standard of living, including bankruptcy and forced sale of their home, whilst the Government meekly apologies (sorry?) for this. My heart goes out to these people who made a reasonable decision at 6% interest but not at 10%.
My pay rise is CPI generated and changes annually September to September. My last rise was 1.9%- clearly inflation has gone wild!!
However from the banks point of view they have seen it all before.
Thus it is always quite easy to find some unemployed person who has been given an inappropriately large mortgage and then create a sense of the sky is falling using the media. Unfortunately for the down rampers and hysterics the the reality is different with only about 0.3% of Australian residential mortgages in serious trouble and these are generally covered by mortgage insurance. The banks are unlikely to take a total or even partial write down on these on any of these and usually easily cover their costs and then some.
I give you the following,
"IN A special ministerial statement on the credit crisis yesterday, the Treasurer, Wayne Swan, observed that Australia has got off reasonably lightly so far, and results overnight from the big US mortgage insurer, PMI, and its local subsidiary, PMI Australia, underlined that fact.
The US parent announced a net loss of $US915.3 million ($988 million) for the year to December, including a $US190.8 million loss on mortgage insurance, and a fourth-quarter hit of $US776.1 million for its share of losses racked up by a 42 per cent owned monoline bond insurance operation, FGIC.
Wholly owned PMI Australia was in much better shape, posting a profit of $19.9 million for the fourth quarter, and a full year profit of $95.4 million - reflecting higher insurance premiums and investment income, offset by an increase in insurance claims and provisions.
Expressed as percentage of premium income, claims and provisions rose from 25 per cent to 46.4 per cent, but that is in line with similar points in the housing and interest rate cycle, and only half as high as the early 1990s, when mortgage rates peaked at 17 per cent and unemployment reached 11.5 per cent nationally.
The results reflect starkly different market conditions. In the US, PMI is guaranteeing mortgages in a market where loan default ratios on investment-grade mortgage debt are running at 5 per cent, and defaults on subprime mortgage debt are approaching 20 per cent. On top of that, it has the additional problem of exposure to the monoline bond insurance business, through its holding in FGIC.
Here, PMI Australia has a third of the mortgage insurance market, no exposure to subprime mortgages, and the overall mortgage default ratio is 0.3 per cent'.
Reported by Malcolm Maiden March 18, 2008 Brisbane Times
I don't think the big four (five?) are quite finished yet-despite the ABC report. WE ARE NOT THE USA.
