The big four banks have agreed to provide relief for those with a mortgage who lose their job in this recession.
The scheme is flexible and can range from foregoing any payments for twelve months to paying only interest during this period. Any money owing to the banks as a result simply gets tacked onto the other end of the loan !
The problem is that it is not automatic and not everyone will be offered relief. Each application will be judged on a case by case basis and in reality it is as much a case of protecting the bank's bottom line as helping recession victims.
The ultimate financial disaster for a bank is taking possession of someone's home. In some cases the mortgage value is greater than the hoped for sale price and the bank will be forced to sell at a loss. The unfortunate former owner then has no home and an ongoing debt to the bank.
Banks are neither trained or psychologically adept at selling real estate. A home presented for sale needs to look well maintained. The lawns need to be cut and it helps to have a " lived in " look.
Once the owner departs and the home reverts to the bank decay sets in. The junk mail accumulates, grafitti appears and the lawns become a jungle - and sometimes squatters take over !
The banks will seek to avoid that fate by carefully screening each application. A lot will depend on whether they think the owner will find another job reasonably easily - and their own judgement on how long this recession will last.
The least likely to be offered relief are the owners of homes in positions of sales demand. There is more value to the bank of avoiding foreclosure of a house that would be hard to sell. By avoiding that option there is a chance that the recession may end, house prices may lift - and the bank's bottom line may avoid a hit.
Obviously any form of relief is better than a hard line attitude but it will be interesting to see how this scheme works in a practical sense - and whether the government manages to get the smaller lenders to climb on board !
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