The impact of bankruptcies, unemployment and underemployment on loan arrears

I attended the AMI Leadership Development Conference on the Gold Coast on 2 August and found the presentations from Steven Blinco (APRA) and Paul Caputo (Genworth Financial) interesting for their complementary, but different, assessment of factors relevant to credit quality and therefore the "next wave" of loan arrears.

Steven Blinco cited the number of bankruptcies, likely increases in unemployment and the flow through of economic problems to the SME/commercial sector and then to households as key risks for loan arrears.

Paul Caputo also cited what he calls "underemployment": reduced working hours, cuts to overtime and minimal base pay increases (if any) resulting in increased difficulty in repayment of mortgages.

Caputo also referred to the disconnect between what financial planners tell a couple they need to live on in their retirement ($65,000 pa) and what bank loans officers allow for the same couple for living expenses ($15,000 pa each).

He also analysed the factors which influenced the likelihood of mortgage default including the absence of genuine savings by borrowers, particularly "low doc" borrowers.

References:

  • Genworth's 2009 Mortgage Trends Report
  • Proposed Bankruptcy Act amendments (note in particular the proposal for a maximum bankruptcy period of 12 months for first time bankrupts with the possibility of earlier discharge and an increase in the minimum debt for a creditor’s petition to $10,000, from $2,000)
  • Bankruptcy statistics
 
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