NAB refunds $1.7 million for overcharging interest on home loans

ASIC says National Australia Bank Limited (NAB) has refunded $1.7 million to 966 home loan customers after it failed to properly set up mortgage offset accounts.

Following customer complaints, NAB conducted an internal review which found that between April 2010 and August 2017 it had not linked some offset accounts to broker originated loans. This resulted in those customers overpaying interest on their home loan.

NAB has refunded affected customers so that they are only charged interest that would have been payable had the mortgage offset account been properly linked from the commencement of the home loan.

‘Consumers should be confident that when they sign up for a home loan they are receiving all of the benefits that are being promoted,’ Acting ASIC Chair Peter Kell said.

‘Where there are errors there should be timely and appropriate action to ensure that consumers are not any worse off as a result of the mistake.’

NAB reported the issue to ASIC. NAB has also engaged PwC to review the remediation approach and to ensure NAB’s compliance systems will prevent a similar error from occurring in future.

NAB has commenced contacting and refunding affected customers.

Background

An offset account is a savings or transaction account that is linked to a home loan account. Any money in the offset account reduces the amount of interest payable on the linked home loan. For example, if the outstanding balance on the home loan is $300,000 and there are savings of $50,000 in the offset account, then interest is only payable on the difference ($250,000).

In this case, NAB failed to link some offset accounts to home loan accounts, which meant that money held in those offset accounts did not reduce the interest payable on the home loan accounts. As a result, consumers paid more in interest than was required.

NAB also conducted a broader investigation which found that the issue only applies to broker originated loans.

NAB will also remediate customers who had an offset account during the relevant period but had repaid their home loan before 2017.

NAB said:

In February 2017, NAB commenced a review into how it processes offset account requests for customers who apply for a home loan through a Broker, looking back to 2010.

This review found that some customers may not have had their offset account correctly linked to their home loan, and that these customers may have consequently paid additional interest.

We sincerely apologise to our customers for this, which was due to administration errors.

All of the customers identified through this review with an open account have been contacted and received refunds. They represent 0.73% of the total number of offset accounts established through our Broker channel since 2010 (approximately 178,000).

NAB advised ASIC about this matter earlier this year, and, over the past 12 months, has implemented a number of measures to improve offset origination processes, and enhanced the ability for customers to review their offset arrangements themselves.

Seven charts on the 2017 budget update

From The Conversation.

Here’s how the budget is looking at the mid-year mark, in seven charts.

The A$5.8 billion drop in the 2017-18 underlying cash deficit compared with the original May budget is due more to higher revenue than lower spending. Receipts are higher by A$3.6 billion and payments are lower by A$2.1 billion.

The higher receipts reflect the stronger economy, which implies higher company tax (up A$3.2 billion) and superannuation fund taxes (up A$2.1 billion).

Receipts would have been even higher if not for stubbornly weak wages growth which, despite stronger employment growth, has tended to dampen individuals’ income tax receipts. These are in fact down by A$0.5 billion.

The estimates of GST and other taxes on goods and services remain unchanged since the budget.

The lower payments of A$2.1 billion are driven by several changes having opposite effects. Some of these are:

  • A$1.2 billion (over four years) lower welfare payments to new migrants due to longer waiting times;
  • A$1 billion (over four years) lower payments to family daycare services due to more stringent compliance checking; and
  • A$1.5 billion (over four years) lower disability support payments due to lower than expected recipient numbers.

There is not much change in the net debt projections relative to those in the 2017-18 budget. Net debt is A$11.2 billion lower at A$343.8 billion in 2017-18 (around 19% of GDP). Debt stabilises in 2018-19 and starts to steadily decline thereafter to about 8% of GDP in the next ten years.

The lower deficits as a share of GDP are obviously reducing debt, but one factor tending to increase debt is student higher education loans. These are projected to increase by 32% from A$44.4 billion to A$58.8 billion over just the next four years.

The economic outlook continues to be a puzzle. National output of goods and services, real GDP, is expected to grow slightly slower in 2017-18 than the budget forecast – 2.5% compared with 2.75%.

However this is an improvement on the 2% achieved in 2016-17. And it is expected to increase further to 3% in 2018-19.

The economy is being driven by strong global growth and strong domestic business investment. Australia’s major trading partners are forecast to grow (meaning real GDP growth) at a weighted average of 4.25% in each of the next three years.

Wages and household consumption are the puzzle – they are not growing as fast as expected from the stronger than expected employment growth (up 0.25% on the budget to 1.75%) and lower than expected unemployment rate (down 0.25% on the budget to 5.5%).

Household consumption growth is down 0.5% on the 2017-18 Budget forecast to 2.25%. This has in fact become a global phenomenon due to higher costs and job insecurity from the forces of globalisation and automation.

Commodity prices are notoriously volatile and hard to predict, yet they are critical to the budget forecasts because they impact the revenue of resource companies which feeds into company taxes and other taxes.

Iron ore prices are assumed to remain flat at US$55 per tonne over the forecast period, as in the budget. This forecast is almost certain to be wrong because iron ore prices never stay flat for long – the problem is that we can’t say in which direction it will be wrong.

The same applies to thermal coal prices which are assumed to be flat at US$85 per tonne which is again consistent with the budget forecast.

Australian taxpayers continue to bear most of the burden of budget repair. The government can claim with some justification that their efforts to reduce payments further have been thwarted by the Senate.

Excluding the effect of Senate decisions, new spending has been more than offset by reductions in other spending. The gap between the revenue and payment is reducing at the rate of about 0.6 percent per year.

As a share of GDP payments are expected to be 25.2% in 2017-18, falling to 24.9% of GDP by 2020-21 which is slightly above the 30-year historical average of 24.8% of GDP.

Wage growth has been revised down from an already low 2.5% in the budget to 2.25% in MYEFO. With the Consumer Price Index forecast to grow at 2%, wages are barely keeping pace with inflation – growing in real purchasing power by only 0.25%.

This provides a meagre compensation for labour productivity growth which is implied to be about 1% in MYEFO. Wage growth is expected to pick up by 0.5% next year to 2.75%.

This is important because it underpins government revenue growth, yet it’s brave to expect the deep forces that are keeping wages down in Australia and around the world to turn around and exactly match the 0.5% growth in real GDP expected to occur next year.

New measures since the budget have increased the deficit on both the revenue and expenditure sides of the budget. On the revenue side, for example, higher education changes reduced revenue by A$76 million and the GST by A$70 million.

On the expenses side, needs-based funding for schools has cost an additional A$118 million and improving access to the Pharmaceutical Benefits Scheme costs A$330 million. The roll-out of the NDIS in Western Australia adds another cost at A$109 million, and Disability Care Australia at A$362 million.

Author: Ross Guest , Professor of Economics and National Senior Teaching Fellow, Griffith University

Blackstone taps Australia’s shadow-lending market with La Trobe stake

From Reuters.

Blackstone Group has snapped up an 80-percent stake in property financing company La Trobe Financial for an undisclosed amount, in a move that will help the New York-based investment giant expand in Australia’s lucrative mortgage-lending market.

This deal comes as Australia’s push to control a bubble in its red-hot housing market, by reining in bank lending, forces some property developers in the country to look outside the regular banking system to secure financing.

The Blackstone-La Trobe partnership aims to focus on the A$1.7 trillion Australian mortgage loan market and service small to medium enterprises “who are finding it increasingly difficult to obtain credit from the traditional bank sources”, the companies said in a joint statement on Monday.

La Trobe will use the tie-up to attract retail investors for its A$2 billion Credit Fund and its A$4.6 billion mortgage loan portfolios, according to the statement.

Chief Executive Greg O‘Neil will continue to head the Melbourne-based company while Blackstone will appoint two directors to La Trobe’s board.

While Blackstone has been a prolific investor in Australian commercial real estate with about A$9 billion ($6.9 billion) in property purchases in the last seven years, the deal with La Trobe marks the private equity giant’s entry into small-business mortgage lending in the country, according to a spokeswoman.

The broader shadow banking market accounts for about 7 percent of Australia’s total financial assets, according to the country’s central bank.

These lenders are funding some developers at more than double the interest rate for the same type of loans that the country’s big banks were providing just a few months earlier, before regulatory pressure forced them to limit exposure to new projects.

Chief executive Greg O’Neill will retain 20% ownership and continue in his role while the existing management and executive team will also remain unchanged.

O’Neill said the opportunity for La Trobe to partner with Blackstone was the perfect fit for staff, customers and the business.

“The specialist credit space is experiencing a defining period of change and growth around the world right now and it is critical that we continue to build on our strong capital position, expand our networks and draw on global best practice,” he said.

“We look forward to working closely with them over the coming years to expand and substantially grow our retail and institutional investment programs and our specialist lending offerings.”

La Trobe Financial manages investment mandates in excess of A$13 billion, including a retail Credit Fund of almost $2 billion and over $1 billion of public RMBS bonds issued.

AFG Highlights The Number Of Mortgage Broker Related Investigations

AFG has today called on the banking Royal Commission to recognise the significant inquiries that have already been conducted into the mortgage broking sector and the important role mortgage brokers play in the Australian lending market, as the government outlines the inclusion of mortgage brokers in the scope of the banking Royal Commission.

“The mortgage broking channel accounts for more than 53% of the Australian lending market so it is unsurprising that we are in the mix, however 2017 has also been marked by significant regulatory scrutiny of our industry,” said AFG CEO David Bailey.

“The ASIC Review of mortgage broker remuneration and the ongoing Productivity Commission inquiry into competition in the financial system have both looked at the structure of the mortgage broking sector.

“We are confident Justice Hayne will recognise the unprecedented data collection process conducted by ASIC in their Review of mortgage broker remuneration has thoroughly examined our industry.

“The ASIC report recognised the important role that mortgage brokers can play in promoting good consumer outcomes and strong competition in the home loan market and we are confident any other examination of our sector would find the same,” said Mr Bailey.

The Combined Industry Forum (CIF), made up of representatives from across the mortgage industry, has submitted a report to government that outlines a package of reforms to address the proposals made in the ASIC review.

“The Productivity Commission is also undertaking a significant examination of the competitive landscape and mortgage brokers are a key lynchpin in providing that competition.

“The Royal Commission, and the industry as a whole, needs to focus on how competition can be further improved and this should include the impact the government guarantee has on competition.

“Ultimately, the findings of this inquiry should assist the government to promote a competitive and stable financial industry that contributes to Australia’s productivity,” said Mr Bailey.

“The mortgage broking sector provides vital competition to deliver on that aim.

“AFG has 45 lenders on its panel with more than 37% of borrowings going to lenders other than the four major banks, and we remain committed to ensuring choice and competition remains for Australian consumers.

“This competitive tension ensures consumers continue to have choice and most importantly benefit in terms of home loan price and service because of the service brokers deliver on a daily basis across the Australian lending market,” he concluded.

Auction Volumes Decrease Across The Combined Capital Cities

From CoreLogic.

The final week of auction reporting for 2017 returned a preliminary auction clearance rate of 64.2 per cent across the combined capital cities, increasing on last week when the final auction clearance rate fell below 60 per cent for the first time this year, when only 59.5 per cent of auctions cleared. The number of homes taken to auction fell this week, after the surge in activity recorded over the 4 weeks prior when volumes remained consistently above the 3,000 level. There were a total of 2,865 auctions held this week, down on last week when 3,371 auctions where held across the capitals and only slightly higher than volumes from the same week one year ago (2,735).

Melbourne and Sydney both saw an increase in preliminary clearance rates this week, with 67.3 per cent and 60.8 per cent of auctions clearing which was up on the previous week when both cities recorded their lowest clearance rates of the year. The smaller auction markets returned varied results this week, with Adelaide recording the highest preliminary auction clearance rate of 70.1 per cent, while only 43.3 per cent of auctions sold in Perth.

2017-12-18--auctionresultscapitalcities

Virgin cuts investment rates

Virgin Money has announced multiple rate reductions on its new fixed rate investment products.
This reflects easing on funding rates (now future expectations of higher rates have eased) and competitive pressure for share of lending.  Expect more banks to follow. Existing borrowers are still paying the higher amount of course.
The changes, which come into effect tomorrow (19 December), will decrease rates on the 1-5 year fixed rate interest only investment products and the 4 year fixed rate principal and interest product.

Changes are as follows:

Term Current rate (p.a.) New rate (p.a.) Change
Investment – Fixed interest only
1 year 4.49% 4.39% -0.10%
2 year 4.39% 4.14% -0.25%
3 year 4.39% 4.29% -0.10%
4 year 4.59% 4.29% -0.30%
5 year 4.69% 4.59% -0.10%
Investment – Fixed principal and interest
4 year 4.44% 4.29% -0.15%

CommInsure pays $300,000 following ASIC concerns over misleading life insurance advertising

ASIC says CommInsure will pay $300,000 towards a consumer advice service and have its advertising sign-off processes independently reviewed after ASIC raised concerns about certain instances of its life insurance advertising.

ASIC commenced investigating CommInsure in April 2016, which included a review of CommInsure’s advertising of two life insurance policies:

  • Total Care Plan, sold through financial advisers
  • Simple Life Insurance, sold directly to consumers

The review looked at advertising from mid-2013 to March 2016 and found that misleading and deceptive statements are likely to have been made on some of CommInsure’s websites about the extent to which customers would be entitled to cover for trauma if they suffered a heart attack.

The statements may have led a policyholder to believe they would be entitled to a lump sum payment if they suffered a heart attack in general, when in fact only certain types of heart attacks, which met certain medical criteria as defined in the policy, were covered.

In response to ASIC’s concerns, CommInsure will commission an external firm to conduct a compliance review of its advertising sign-off processes and procedures. The review will look at whether CommInsure’s processes and procedures ensure compliance with the ASIC Act, and make recommendations to improve compliance if required.

CommInsure will report to ASIC by 30 June 2018 on the results of the review and the changes implemented.

As previously announced, CommInsure updated the definition of heart attack in its trauma life insurance products in March 2016 and is reassessing past claims under the updated definition back to October 2012. To date, CommInsure has paid additional benefits for 32 claims, totalling approximately $4 million as a result of the reassessed claims.

ASIC has now concluded its investigation into the life insurance business of CommInsure.

Background

CommInsure will make a $300,000 payment to the Financial Rights Legal Centre which will be used for the Insurance Law Service, a national specialist consumer insurance advice service operated for the benefit of vulnerable, low income and disadvantaged consumers.

ASIC released a public report on its investigation in March 2017 [17-076MR]

Following concerns raised by ASIC, CommInsure applied its updated heart attack definition back to October 2012, which was the date at which international cardiology bodies published an updated consensus on the appropriate clinical marker for heart attack.

S&P Says Mortgage Arrears Lower In Oct 2017

The latest report from S&P Global Ratings covering securised mortgage pools in Australia to end Oct 2017, showed 30 day delinquency fell to 1.04% in October from 1.08% in September. They attribute part of the decline to a rise in outstanding loan balances during the month, and many older loans in the portfolios (which may not be representative of all mortgages, thanks to the selection criteria for securitised pools).

+90 Day defaults are still elevated, see the chart below.

Here is their state summary

Overall trends across the states show the differences across states, with WA and NT still significantly above other states.

The ACT recorded the lowest arrears levels, at 0.58%. QLD and WA, where arrears have been more elevated for some time, recorded another month-on-month decline in mortgage delinquencies. In QLD, arrears fell to 1.39% in October from 1.47% in September. In WA, they declined to 2.12% from 2.21% a month earlier, against a backdrop of increasing loan balances. Home loan arrears also declined in NSW and VIC, but by smaller  magnitudes. In NSW, arrears fell to 0.75% in October–the second lowest in the country–from 0.79% in September. In VIC, arrears declined to 0.94% from 0.96% the previous month.

In terms of the outlook, they say:

“improving employment conditions and low interest rates have helped to keep mortgage arrears low, but risks remain. Australia’s high household indebtedness, which has outpaced income and GDP growth for some time, leaves borrowers vulnerable to a change in economic circumstances. We do not expect arrears to increase much above current levels while these relatively benign economic conditions persist, particularly given the high level of seasoning in the Australian RMBS sector”.

MYEFO – There’s a Consumer-Shaped Hole in Our Budget

On first blush, the revised federal budget has improved according to the MYEFO (Mid-Year Economic and Fiscal Outlook) released by the Treasurer  today.  But consumers are the weak link, and wage growth and consumption a problem – no wonder there is now talk of tax cuts for consumers! In addition, more savings are forecast, including an extension of the waiting period for newly arrived migrants to access welfare benefits and a freeze on higher education funding.

The budget is, they say, on track to return to balance in 2020-21, and overall debt as share of GDP is set to fall further. The latest projected surplus of $10.2 billion in 2020-21 is an improvement of $2.7 billion compared to May’s Budget estimate.

At the 2017-18 Budget, gross debt was projected to be $725 billion in 2027-28. Gross debt is now projected to reach around $684 billion by 2027-28 — a fall of around $40 billion. But absolute debt is still rising!

The improvement is driven by a rise in company profits, and company tax take. Commodity prices helped also, although they remain a key uncertainty to the outlook for the terms of trade and nominal GDP, especially in relation to the Chinese economy.

They say the fall off in mining investment is easing, while non-mining business investment is predicted to rise (a little), but we think overall business investment remains an issue.

Real GDP is forecast to grow by 2.5% in 2017-18, lower than at budget time (2.75%). Beyond that, real GDP is forecast to grow at 3% in 2018 19, per the original budget.

The 2017-18 forecast is lower driven by anemic outcomes for wage growth and domestic prices.  More than 360,000 jobs at a rate of 1,000 jobs a day having been created in 2017.  Yet, wages are now forecast to remain lower for longer, with index growth of 2.25% in June 2018, 0.25% lower than at budget time, and 2.75% to June 2019. They admit wages growth is lower than expected, but they still hope lifting economic momentum will lift wages, eventually – despite the very high levels of underemployment, and structural changes in working patterns. This lower forecast for wages is expected to weigh on personal income tax receipts and slow household consumption.

Finally, the assumed Treasury yields are set quite low, for modeling purposes.  Rising rates in the USA and elsewhere may lift rates faster.

 

 

Brokers to be included in royal commission

From The Adviser.

The Governor-General has now issued the Letters Patent to the Honourable Kenneth Madison Hayne AC QC, formerly a judge of the High Court, establishing the royal commission.

Notably, the Treasury outlined that the Letters Patent require the Royal Commission to inquire into the conduct of financial services entities, “including banks, insurers, superannuation trustees, holders of Australian financial services licenses and intermediaries, such as mortgage brokers”.

Intermediaries between borrowers and lenders have been added following the government’s consultation with the appointed Commissioner on the draft Terms of Reference, which were released earlier this month.

The royal commission will examine allegations of misconduct or conduct which falls below community expectations. The commission will be focused on identifying ways to ensure that Australia’s financial system continues to work efficiently, effectively and in the interests of consumers.

Commissioner Hayne is authorised to submit an interim report to the Governor-General no later than 30 September 2018, and required to submit a final report no later than 1 February 2019.

“The financial system plays an important role in the lives of all Australians and we encourage all interested parties to engage with the royal commission,” the Treasurer Scott Morisson said.

“The Government has already taken comprehensive action to deliver better outcomes and protections for banking and financial services customers.

“This includes moving to establish a new one-stop shop to resolve customer complaints; significantly bolstering the powers and resources of the Australian Securities and Investments Commission; creating a framework to hold banking executives accountable for their actions; and boosting banking and financial services competition.”