MKM Capital head of operations Michael Watson believes that Australian mortgage brokers can expect to see non-conforming loans and lenders return to the forefront during 2012.

Non-conforming low-doc home loans got a bad wrap with the introduction of NCCP legislation in 2011. However low doc home loans can still be NCCP compliant and should not be avoided.

“The biggest challenge arising from the introduction of the NCCP has been to communicate to brokers that low doc, coded loans can still be written with confidence in the NCCP environment.

Watson said that brokers should capitalise on any non-conforming clients they find, as a continued tough credit and business operating environment is expected this year.

Non conforming loans can bring a far more significant income for the mortgage broker than standard loans.

The biannual survey by data intelligence company Veda, discovered that 4 out of 5 Australians are worried about their ability to meet debt repayments in the future. This is a significant increase from 3 our of 4  this time last year.

Given the global economic woes and economic problems locally, many businesses are closing their doors leaving twenty percent of survey respondents are struggling with their current levels of debts.

However, about 29 per cent of this sub group were considering applying for more credit in the next six months, the survey found.

It is a worry that consumers already heavily in debt are looking to take on further debts in order to maintain their current lifestyle and not fall into arrears with car loans, home loans, credit cards, etc.

The survey found people aged 25-34 were the most worried about their ability to repay debt and the most likely to borrow more in the next six months.

About 70 per cent of this age group had received help from a family member to repay debts compared to about 35 per cent for the rest of the population.

The Fitch Dinkum Index demonstrates borrowers are finding it easier to meet their repayments. Home Loan Arrears in the 30-plus day category have declined for the second consecutive quarter, and Fitch structured finance analyst Courtney Miller said that further declines are expected to this figure over the next 12 months.

“The stable mortgage performance in Q311 is an indication of borrowers coping better with their loans.

Given the recent drops in cash rate by the RBA and the subsequent rate reduction for most loans, it should be easier for mortgage holders to keep up repayment obligations.

Thirty-plus day arrears fell 17bps over the quarter to 1.52%, while the proportion of borrowers more than 90 days behind saw a slight improvement, down to 0.63% from 0.67% the previous quarter.

Low-doc borrowers remain the market segment with the greatest percentage of home loan arrears. The ratio of mortgagors more than 90 days in arrears hit its highest peak since the inception of the Dinkum Index, reaching 2.87%. However, Fitch said the RBA’s cash rate cuts presented hope for low-doc borrowers.

Certainly the fact that home loans are becoming cheaper across the board is likely to have a positive impact on mortgage arrears levels.

New data reveals 80 houses are repossessed a month, while up to a third of people in the worst-hit suburbs are struggling to cover rent payments.

The rental stress epidemic has engulfed NSW, where up totals of the families experiencing rental stress have to forego purchasing essential items such as food.

Borrowers who can not meet their home loan repayments generally have their homes repossessed by the lender. The number of people whose homes were repossessed by banks during 2011 has soared by 22.5 per cent.

In the 10 months to November, the Supreme Court issued 2466 writs of possession, with 825 executed.

Many more people are unable to afford their home loans and are putting them up for sale to avoid bank repossession.

However given the recent declines in property prices, not every home owner will be able to sell their home for enough to repay their home loans. First home buyers who had only purchased recently and borrowed up to 95% may find that they have no equity in their home and are unable to sell it for enough to repay their mortgage.

New modelling commissioned by Australians for Affordable Housing reveals the worst hit areas in NSW for housing stress are Sydney, Wyong, the mid north coast, the Hunter and far north coast with one in five families paying most of their income on rent or mortgage.

Across Sydney, those in Auburn, Fairfield, Canterbury, Strathfield, Bankstown and Liverpool are the hardest hit, with up to 28 per cent in those areas suffering housing stress.

The review, included a relatively small sample of only 16 mortgage brokers and their complance with NCCP in the six months since NCCP regulations were introduced.

Results of ASIC review had identified that low doc loans are an area of potential risk of non-compliance with respect to responsible lending regulations.

The major risk in terms of non-compliance with the responsible lending for loans promoted as low doc was the steps taken to verify a consumer’s income, as many brokers continue to view low doc loans as they would asset loans.

“The requirement is for brokers to make reasonable inquiries about the borrower’s needs, objectives, financial circumstances and an active effort to verify those financial circumstances when assessing suitability for any proposed loan.

With low doc loans some brokers continue to do the bare minimum in verifying borrower income.

Many brokers will only conduct tests required by the lender with respect to low doc products – sometimes lender requirements fall short of ASIC expectations and this is where mortgage brokers are expected to make up the difference.

While overall most brokers were fulfilling the new responsible lending obligations and attempting to adhere, there was still room for improvement, the review found.

Unfortunately borrowing options are limited for such applicants. While there is access to small payday or cash loans, these tend to level out at $2,000 only, and with that the borrower must demonstrate ability to repay the loan from their income in a matter of weeks. These loans are quite expensive and are not a debt consolidation solution. They were developed to help borrowers out with unexpected expenses between pay periods.

Borrowers with some history of bad credit looking for a true unsecured personal loan are invariable disappointed as such loans simply do not exist.

Essentially unsecured bad credit personal loans do not exist. Various businesses appear to advertise bad credit loans, but read the fine print, most loans will require the borrower to offer some security either in the form of a motor vehicle or a house. Only small payday loans are available but these normally cut out at around $1500 and are only offered for a period of weeks not months or years.

Borrowers looking for a bad credit home loan need to have reasonable income and sufficient deposit to qualify, in most cases a deposit of between 10% and 20% is needed.

Borrowers looking for bad credit car loans will need to demonstrate some stability in income and residential location. Any borrowers with a history of bankruptcy or a part 9 must be discharged from these for at least 6-12 months before being able to qualify for car finance.

It seems that Australia has seen the slowest increase in overall loans taken on by all sectors over the last seven years.

Value of household loans increased from $832 billion in August 2005 to $1.3 trillion in August 2011; but the growth in the last 12 months has been just 5 per cent or $66 billion, the slowest growth since 2005.

“The slowdown in business borrowing has been even more pronounced – in fact, we’ve had negative growth over the last 3 years.

Given the current economic climate, the need to keep debt in check has driven much the the financial decisions taken by businesses, consequently businesses had $65 billion less of debt in August 2011 compared to August 2008.

Not all the debt reduction was voluntary, many small-to-medium enterprises haven’t been able to get access to credit since the onset of the GFC – it shows that many businesses have been actively consolidating debt, either by paying it down or by raising equity.

Access to loans has been difficult since the GFC. When combined with a higher cost of borrowing, more individuals and businesses made a decision to save more and spend less.

Borrowers with some history of bad credit need to be able to offer the security of real estate or an unencumbered motor vehicle in order to qualify for a debt consolidation loan. Car loans for debt consolidation purposes are available where a borrower is able to demonstrate that they are employed and can afford the set loan repayments.

Borrowers with bad credit history who are unable to offer loan security will not qualify for a debt consolidation loan. They may however qualify for a debt agreement.

A debt agreement is a facility which allows a person with unsecured debts in excess of $8,000 to re-negotiate the amount they will be required to pay back to their creditors, thereby reducing monthly debt repayments to a level affordable to them. There are certain requirements and regulations around the debt agreement legislation, consequently not all applicants will be accepted into this program.

It is important to understand that a debt agreement is detrimental to your credit history and while it is a great vehicle to prevent bankruptcy, it is not something we would recommend to a borrower with a clean credit history simply because they have been declined a loan with their bank.

It seems that Melbourne’s northwestern suburbs are amongst the worst debt ridden areas in the country.

More expensive inner-city areas have less debt strain as they tend to have more equity in their homes.

Homeowners who borrowed a large portion of their home loans against their home are in trouble, with late payments and defaults.

And separate RP Data research reveals 95,130 homes bought nationwide since the global financial crisis are now worth less.

RP Data says 15,584 Victorian homes bought since 2008, or 5.5 per cent of transactions, are among those with an estimated lower value.

Many Melbournians are faring well because of prior years of strong property price growth, which is sheltering them from current value drops.

Almost three-quarters of households have properties worth at least 50 per cent more than when they were bought, and just over half have properties worth at least double.

Northwest Melbourne, the Mornington Peninsula and in Melbourne’s southeast were most likely to be battling to meet mortgage repayments.

People n trouble are looking to refinance their loans or for  debt consolidation solution – sometimes it is difficult to qualify for either.