Sunday, February 12, 2012

just bought a house? do yourself a favour & don't think of it as yours until you pay it off!!

Australian banks are conservative, risk averse and socially inept

In a recent transaction I was involved in, I sold a property where the loan and Title were held by one of the big banks. I made a nice little profit and was pretty happy with myself until the bank called. 

"I'm not sure if we can let this sale go ahead!" said my branch manager!

With four days to settlement, I was pretty annoyed and had to apologise later for the language I used to express my lack of affection for the bank at that moment.

I have another loan with the bank that had required mortgage insurance. To reduce their risk, the bank either wanted to keep the mortgage on the property I sold (stopping the sale), or they wanted all of the profit I was making to reduce their risk exposure on the other loan. 

They hold the Title, so they can do this!

In the world of banking I can understand the need to please shareholders. I can also understand the need to keep ahead of the competition. What I wonder about is where in the level of priorities do customers sit. Clearly, not near the top. Further, I wonder where banks stand on social responsibility. Any bank that lends to people in a relatively volatile market (created by them and their international cousins) up to and beyond their limits, knowing that a rate rise is inevitable, is not socially responsible.

Consumers are always blamed for getting into too much debt, or spending beyond their means, but it is usually big banks that ultimately determine who can borrow and how much. A secured loan, especially against a house, at least guarantees a foreclosure and repo if things get bad enough, as the Title always sits in a bank safe for the life of the mortgage, and often beyond if you forget about it.

I ended up making a deal with them where I let them put 66.66666% of my profit on the other loan to reduce the amount owing. This meant I received a lot less of the profit than I wanted to, but such is the power of the bank, this was a win for me, as they nearly didn't compromise.

My conveyancer is good and she didn't spot this. I work in finance alongside mortgage brokers and they were surprised by this turn of events.
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