Managing A Mortgage Crisis !

The news that the " mortgage holiday " is coming to an end next month is worrying news for those depending on price security for the Australian housing market.  The fact that thousands of Australians were temporarily forced out of work by the coronavirus lockdown could have created  a disastrous price retreat if the banks had insisted that mortgage payments be met as usual during that crisis.

Instead, they wisely offered relief on a case by case basis and as the majority returned to their jobs the mortgage payments quickly returned to pre crisis levels.  Unfortunately, it seems that there are now about ninety thousand people who have not regained their previous employment and who will be affected when the banks insist that contract level payments resume.

The banks are promising that they will " negotiate " rather than force sales to recover delinquent mortgage payments, but unfortunately there are many people who are unlikely to ever regain their previous earning capacity because of ill health or changes in commerce and therefore mortgage foreclosure is inevitable.

We need to remember the recession that happened in 2008 when the banks foreclosed on a small number of delinquent mortgages.  Instantly, the buyers became an extinct species and price retreats of at least ten percent raged across the suburbs.  Fortunately, that lasted less than three months before buyer demand surged back and the house price resumed its former upward trend.

One of the reasons for that house price recession was the ineptitude of the banks to market what was to them an unusual financial asset.  Foreclosed houses were simply left untended to reinforce the image of insolvency.  The grass remained uncut and the banks were keen to accept any offer that restored the money owing on that unpaid mortgage.

It was not hard to find a foreclosed home in the suburbs and canny buyers improving them for resale,. cut the lawns and applied fresh paint - and made a handsome profit.  The loser was the original mortgage holder, who usually not only lost their home but still owed the bank for the unpaid term payments until foreclosure.

It is inevitable that some of these unpaid mortgages will eventually fail to find resolution and end in termination.  Rather than sell at a loss, the banks have an asset that can provide a good return on the rental market, which is far outside the bank's usual area of expertise.

They need to either expand their operational reach to gain that expertise, or come to an arrangement with a Real Estate firm with a substantial rental book to manage such assets on their behalf.  The one certain way to create buyer uncertainty if foreclosures become necessary would be for the banks maintain their usual ham fisted  attitude to foreclosed homes and leave them empty and untended to deepen the crisis.

Hopefully, they learned a lesson from 2008  !