ASIC Credit Roadshow hits the ground running

Brokers seeking to improve their understanding of the soon to be introduced National Credit Regime are encouraged to attend ASIC’s Credit Roadshow as it tours the country from today until April 2010.

The Roadshow, which was developed to assist brokers understand how the impending legislation will affect them and their business, will visit every state and territory capital as well as 24 regional centers.

Each session will give brokers the opportunity to hear how the legal requirements have changed and how to prepare for the changes. ASIC senior executives will also explain how to register for an Australian Credit License, and outline brokers’ general obligations under the new laws.

Attendance is free but registration is required to reserve a seat. Brokers can register at: www.asic.gov.au.

Share falls expected following Wall St drop

The Australian share market is expected to open weaker today after losses on Wall Street last Friday.

Concerns about China's plans to curb bank lending dragged down the Dow Jones Industrial Average, which fell 45 points to 10,099.

In local futures trade, the Share Price Index 200 has shed 18 points to 4,516.

At 9:34am (AEDT) the Australian dollar was worth 88.72 US cents.

IMF questions inflation targeting for rates

The International Monetary Fund has reignited debate about whether inflation targeting is the best way for central banks to set interest rates.

Currently, stable and low inflation is the primary target of central banks.

Australia's Reserve Bank, for example, aims to keep inflation within a 2 to 3 per cent target band, and it uses interest rates to boost or slow down the economy when it looks like inflation will get too far out of that range.

However, according to the IMF's chief economist, Olivier Blanchard, inflation targeting should not be the only tool, and he says stable inflation might not be sufficient, and that low inflation actually lulled many economies into a false sense of security in the lead up to the global crisis.

Notably, he refers to the dangers of falling into a liquidity trap - or easy access to money - which sparked the subprime mortgage crisis.

The IMF is arguing that, in some cases, a 4 per cent inflation limit should be allowed.

Another idea is that lowering interest rates to stimulate the economy in a scenario of rising unemployment may not be the best approach, and that cash handouts or stimulus payments might be a more direct solution.

There is also discussion of perhaps going more directly to banks which caused the crisis in many ways, with tighter regulation to prevent the problems of a few spreading to entire economies.

This discussion is particularly relevant in Australia, as there is already a big debate about the link between government spending and higher interest rates.

We will find out more this week when the Reserve Bank governor Glenn Stevens faces the House Economics Committee on Friday, when it is also likely that Mr Stevens will be asked for his views on the need to cut government debt and to reduce government spending.


(Source: acb.net.au, By business editor Peter Ryan for AM)

Non-bank lender bumps up LVR

In a sign that competition is beginning to reemerge in the market, Australian First Mortgage (AFM) has expanded its loan portfolio to include a 95 per cent loan-to-value ratio (LVR) full doc product with a variable interest rate of 5.84 per cent (CPR 6.19 per cent).

Borrowers will be asked to pay an application fee of $675.00, which includes the cost of one standard valuation.

Suitable for investors, first home buyers and debt consolidation, borrowers have the option of choosing from a range of features including flexible repayment options, AFM said.

“While Westpac recently reduced its maximum LVR from 97 per cent (including LMI) to 87 per cent for new customers, AFM is looking at ways of assisting borrowers entering the property market by offering products with features, competitive rates, and most of all quick turnaround times of a conditional approval within 24 to 48 hours,” said AFM’s director sales and marketing Iain Forbes.

“The interest rates presently on offer from AFM are well below that of most other lenders.

"AFM represents good old fashioned customer service, strength, long term sustainability, and solid alliances,” he said.

Bank guarantee has 'built in' exit strategy

The Federal Government says it has a strategy to reduce the dependence of Australian banks on government-backed guarantee schemes.

Reserve Bank governor Glenn Stevens says such schemes were necessary during the height of the global financial uncertainty last year.

But he says banks should soon be looking to reduce their reliance on the guarantees.

Finance Minister Lindsay Tanner told ABC1's 7.30 Report an "exit strategy" is built in to the Federal Government's schemes.

"The banks have to pay a fee to access that guarantee and already they are retreating from that," he said.

"Early on something like 98 per cent of their foreign borrowing was guaranteed, they were spending the money to get the borrowing because that was the only option open to them. In recent months that's been down to little above 50 per cent."

Mr Tanner says while the Government has no plans to rush banks out of using the scheme, there are options to for the Government to act to wind the scheme up.

"There are options open to us to accelerate that should we choose to do so, we have no plans to do that, we think the market will gradually withdraw the use of the guarantee by Australia's banks and that's exactly how it was meant to work," he said.


Challenges remain

Mr Tanner has also denied the Federal Government has spent too much money on stimulus packages, despite a more upbeat assessment of the Australian economy by the Reserve Bank.

Mr Stevens says the current economic downturn may not turn out to be one of the worst of the post-war era in Australia.

He has indicated economic conditions could improve at a faster rate than anticipated and the next move for interest rates may be up.

Mr Tanner says that does not mean the Government has over-reacted with its stimulus spending.

"I think time will tell as to exactly how severe the downturn is in Australia," he said.

"We've been very careful not to proclaim victory just because we've had a few months of quite positive data compared with where perhaps people were anticipating things would head."

Mr Tanner says despite Mr Stevens' assessment, there are still significant challenges for the Australian economy.

"I think the Reserve Bank Governor is entitled to draw these conclusions, but we've got some very big challenges facing us," he said.

"We're certainly not going to be deviating from our stimulus strategy, that's been critical to getting us thus far with less damage than most other economies, but it's also crucial for the immediate future."


Source: ABC.net.au

RBA flags further rate rises

The Reserve Bank expects it will need to impose another three increases in the official interest rate by the end of this year to reduce inflation as the Australian economy strengthens.

The RBA has increased its forecast for economic growth in Australia, expecting a faster pace over the next two years.

Underlying inflation is forecast to moderate despite the growth, but only once the central bank lifts the cash rate - the interest rate lever used to set monetary policy - in line with current market expectations.

This implies that the Reserve Bank will impose at least another three interest rate rises of 25 basis points, pushing the cash rate up to 4.5 per cent by the end of the year.

In its latest quarterly statement on monetary policy, the RBA increased its forecast for Gross Domestic Product (GDP) over the year to June 2010 from 2.25 per cent to 2.5 per cent, and over the year to June 2011 from 3.25 to 3.5 per cent.

The RBA's inflation forecasts have also been tweaked. It has revised up its underlying inflation forecast over the year to December from 2.25 per cent to 2.5 per cent.

But this is well below the current underlying inflation rate of about 3.25 per cent and the forecast puts both headline and underlying inflation within the RBA's target range.

It says it is possible, however, that the stronger-than-expected performance of the economy over the past few quarters is largely accounted for by bringing forward spending, in which case economic growth will be softer this year as the effects of fiscal and monetary stimulus fade.

But the RBA appears to think it more likely that firmer labour markets, with rising household incomes and wealth, will encourage spending and consumption.

The central bank's monetary policy statement says an improved outlook for the resources sector with higher commodity prices is also likely to bolster economic growth and this is "clearly not due to temporary policy factors".

But the Reserve Bank is more cautious about the outlook for the international economy.

Although it says the outlook for the global economy is much better than feared in the early part of last year - with global growth forecasts revised up to 4 per cent in the next two years - it highlights a series of risks.

Among them is the the durability of the recent economic recovery in the major advanced economies.

"In many of these countries current growth rates are being boosted by the dynamics of the inventory cycle and temporary fiscal measures," the Reserve Bank noted.

"For a sustained recovery to take hold, a substantially stronger pick-up in private demand than has been evident to date will be required.

"Many of these countries also face very significant fiscal challenges that will need to be addressed over time and have bank systems that are still experiencing credit losses from the weak economic conditions."

Coupled with mounting concerns about government debt in southern European countries such as Greece, Spain and Portugal, these global risks may make the RBA board cautious about lifting rates too quickly.

Australia's unemployment has probably peaked at 5.75 per cent, according to the RBA.

But it says it is more likely that the recovery in the labour market in coming months will take the form of an increase in work hours rather than further big falls in the unemployment rate.


Source: abc.net.au
Author: By ABC Economics Correspondent Stephen Long

Government shocks industry, withdraws guarantee!

The Federal Government says its guarantee of wholesale funding for banks and other lenders is no longer needed.

The guarantee was put in place in October 2008 at the height of the global financial crisis to help financial institutions access funding from overseas, ensuring credit was still available in Australia.

The Government says it will be closed at the end of March. The guarantee is expected to earn the Government $5.5 billion in fees by the time it is wound up.

Treasurer Wayne Swan says the guarantee was one of the most important factors in Australia's economic recovery. "Without the guarantee, our banks would have lent less and interest rates for borrowers would have been far higher," Mr Swan said. "This would have led directly to lower growth and more households losing a bread winner right across this country."

Mr Swan has warned banks against raising interest rates because of the guarantee's withdrawal. "If any major bank were to attribute some move above the Reserve Bank rate to a decision such as this, they would be wrong to do so," Mr Swan said. "I think they would incur the wrath of not just the Australian people, but of the Australian Government."

The guarantee of deposits under $1 million, however, will remain in place until it is reviewed in October next year. The Government has also announced it intends to withdraw its guarantee of state and territory government borrowings at the end of 2010.

The Greens leader Bob Brown wants to know how much money the banks made with the backing of the guarantee. "I would have thought the banks would be proud to tell us about that, and that the Government would want to tell us as well," Senator Brown said.

The Opposition says the decision shows the Government's stimulus spending should also be withdrawn.


(Source: abc.net.au)

Back from holidays!

Hi readers!

Well, we are 2 weeks back after the long annual christmas holiday and getting into the swing of it all. It's a bit of a lazy feeling, especially after having so much time off.

We trust you are all well and I warmly wish you and your families a very happy and prosperous new year! (Yes, I know it's February).

I would like to hear/read about what's happening in the mortgage industry in your part of the world. Drop us a comment or email me. And the search continues for more funny/interesting pictures from our readers. You have until the end of the month to make us fall over laughing and I'll send the best pic something yummy!

Until then, take care!!

Light at the end of the tunnel for RHG

RHG Mortgage Corporation Limited looks set to reenter mortgage lending having raised its full-year profit guidance by $10 million after settling two court disputes that could have otherwise threatened the former non-bank lender.

The court settlement was in relation to disputes regarding a claim by German bank UniCredit that RHG had been in default on $324 million in funding provided by it. The claim triggered cross-defaults with other warehouse facilities totalling $2.56 billion.

The claims, if successful, could have ultimately jeopardised a third of RHG’s lending facilities, according to The Australian Financial Review.

But RHG, previously RAMS, told investors yesterday that the various actions in the NSW Supreme Court had been ''commercially'' resolved in the best interest of shareholders in a move that will immediately benefit the company's bottom line.

RAMS was founded in 1991 and expanded from being solely a provider of funds to establish its own retail origination business.

In November 2007 RHG was created when the RAMS brand and franchise network was sold to Westpac. As part of the agreement RHG was prohibited from originating new loans for three years until November 2010.

It is widely expected that RHG will relaunch itself as a mortgage broker after November this year or otherwise look to buy a loan provider next year.

Homeloans expects profit surge

Improving market conditions and robust business activity in the second half of 2009 have raised Homeloans expectations of achieving a significant increase in its net profit after tax (NPAT) result for the half year ended 31 December 2009.

The originator expects to achieve normalised NPAT of between $4.2 million and $4.6 million, a dramatic improvement on the $2.6 million recorded in the previous corresponding period.

According to an ASX announcement, the company said the strong result was due to a continuation of the momentum achieved during the second half of the 2009 financial year.

Full results for the half year ended 31 December 2009 are expected to be announced on Friday, 19 February 2010.