Battlers Easy Meat For Loan Sharks

Sydney Morning Herald

Friday March 14, 2008

Jessica Irvine Economics Correspondent

PREDATORY mortgage brokers are deliberately targeting vulnerable borrowers, refinancing them on loans with higher interest rates and repayments and charging more than $30,000 in some cases for the pleasure.

A report by the Australian Securities and Investment Commission has exposed the cases of three vulnerable borrowers who lost their homes despite refinancing with a broker.

In one case, a young couple with three children who were unable to meet mortgage payments because the male partner had trouble finding work were transferred by a broker onto a new loan with a interest rate of 10.6 per cent, up from 7 per cent previously. This increased their monthly repayments on their $502,000 loan by nearly $1500, from $3183 to $4633.

The family lost almost all the equity in their home and were forced to sell 12 months later.

The commission said it was a classic case of "equity stripping", where a predatory broker refinanced a struggling borrower on a loan they could not afford in order to collect substantial fees along the way.

In this case, the family ended up paying $30,980 in refinancing costs, with two-thirds of that going to the broker and most of the remainder to the fringe lender.

The cost for refinancing through a mainstream lender should have been just $670, the commission said, although mainstream lenders had tighter credit criteria.

The commission's acting director for consumer protection, Delia Rickard, said the problem was a result of predatory behaviour by brokers and the vulnerability borrowers.

A less detailed study of 14 different borrowers found that in all but two cases the broker failed to disclose all fees and costs associate with refinancing.

© 2008 Sydney Morning Herald

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