Our Investment mortgages are with Challenger, one of the funds that has now sealed Investors from withdrawing their funds. I feel very sorry for those people who might now be very worried, but at the same time we hold their money and dont plan to exit. Just interested in the implications of all this?
Challenger Mortgage
- Thread starter Pushka
- Start date
Pushka, Goanna
We have a very significant amount of $ invested with one of the other companies that has frozen redemptions for investors. Our interest and distributions continue to be paid - on time - each month and we don't need access to the funds for some time yet. I'm not even close to losing any sleep over this situation!!!!!
Challenger Howard is the largest mortgage fund in Australia. Collectively, these companies provide tens of billions of dollars of mortgage funding for all the smaller lenders and mortgage originators - firms like RHG, Bluestone, and a myriad of others. Losses on the share market are one thing - this is quite a different matter entirely!! Australia is a very small country relative to the USA - if the government here were to idly stand by and allow one of these funds to 'collapse' (and note here that I'm talking about the Australian funds) , the ramifications for Australian society as a whole - and for many years into the future - would be unthinkably horrendous!!!
It simply will not happen!
I don't have a great deal of faith that the government will come up with an effective solution in the short term, but KRudd has already said that the government will 'do whatever it takes' to sort this mess out - and they HAVE to: it would mean total political annihilation to do otherwise.
I don't think the ensuing period is going to be easy - or pretty - and I believe that it will take quite a long time before we are through the worst of this crisis. But going under? No. I think the worst we will see (in relation to this particular question) is that some of the foreign funds will eventually exit the Australian mortgage market (perhaps AXA, ING - don't know - I'm just speculating) - and that finance may be even harder to get than it otherwise would have been. But don't quote me - I'm certainly no expert!!
Cheers
LynnH
We have a very significant amount of $ invested with one of the other companies that has frozen redemptions for investors. Our interest and distributions continue to be paid - on time - each month and we don't need access to the funds for some time yet. I'm not even close to losing any sleep over this situation!!!!!
Challenger Howard is the largest mortgage fund in Australia. Collectively, these companies provide tens of billions of dollars of mortgage funding for all the smaller lenders and mortgage originators - firms like RHG, Bluestone, and a myriad of others. Losses on the share market are one thing - this is quite a different matter entirely!! Australia is a very small country relative to the USA - if the government here were to idly stand by and allow one of these funds to 'collapse' (and note here that I'm talking about the Australian funds) , the ramifications for Australian society as a whole - and for many years into the future - would be unthinkably horrendous!!!
It simply will not happen! I don't have a great deal of faith that the government will come up with an effective solution in the short term, but KRudd has already said that the government will 'do whatever it takes' to sort this mess out - and they HAVE to: it would mean total political annihilation to do otherwise.
I don't think the ensuing period is going to be easy - or pretty - and I believe that it will take quite a long time before we are through the worst of this crisis. But going under? No. I think the worst we will see (in relation to this particular question) is that some of the foreign funds will eventually exit the Australian mortgage market (perhaps AXA, ING - don't know - I'm just speculating) - and that finance may be even harder to get than it otherwise would have been. But don't quote me - I'm certainly no expert!!
Cheers
LynnH
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Good to hear LynnH. People holding the mortgages want to pay them, people providing the mortgages are ok with that. Now, lets keep that equation going and all will be good.
I think the frozen redemptions is a good idea; no bank, even the best managed bank in the world, would have enough funds if everyone wanted out at once.
Exactly, Pushka!
The way I see things is that for these companies to 'go under', one of two things would have to happen:
1. There would be a 'run' on the funds and existing mortgages would have to be called in or re-financed elsewhere (very messy, to say the least) - and the companies have ensured that this won't happen by freezing redemptions.
OR
2. Those borrrowing the funds would have to default on their mortgages - in large numbers. The company we are invested with has low LVRs (under 50%) and less than 1.5% of its loans are in arrears. And borrowers want to keep borrowing, so I can't see this happening either.
So ... as long as you (and your lovely tenants!) keep paying your mortgage - so that I can keep getting all that lovely interest and distributions every month - then we'll both be happy little vegemites!
Cheers
LynnH
The way I see things is that for these companies to 'go under', one of two things would have to happen:
1. There would be a 'run' on the funds and existing mortgages would have to be called in or re-financed elsewhere (very messy, to say the least) - and the companies have ensured that this won't happen by freezing redemptions.
OR
2. Those borrrowing the funds would have to default on their mortgages - in large numbers. The company we are invested with has low LVRs (under 50%) and less than 1.5% of its loans are in arrears. And borrowers want to keep borrowing, so I can't see this happening either.
So ... as long as you (and your lovely tenants!) keep paying your mortgage - so that I can keep getting all that lovely interest and distributions every month
- then we'll both be happy little vegemites! Cheers
LynnH
As a mortgage holder I am more wondering about liquidity issues and the implications on undrawn funds sitting there until the borrower decides they want them (and meantime paying no interest) Is this a luxury the funds can still afford? I know that very recent changes to the loan conditions mentioned that access to redraw would be withdrawn if they saw it as increasing their risk in any way. Not implying this is a widespread concern - just wondering specifically with Challenger.
I would hav thought yes. In most cases the interest bearing acount earns less than the loan so you would not do it, but I would argue it was still generating income...
Cheers,
The Y-man
An interesting question, GoAnna.
The following is my very humble opinion only, but ...
From talking to a couple of guys who work for the fund where we are invested, I know that they are very client-focused and there is concern within the industry at the amount of FUM that has been exiting the funds over the past many months. My very distinct impression is that they will put the interests of their clients (investors) before that of the mortgage holders if they felt they had to. So it may well be 'a luxury the funds can no longer afford'. (I stress, IMVHO).
But I cannot comment re Challenger, as we do not have funds invested with them.
Cheers
LynnH
I have several loans with challenger through one of the mortgage originators. When the credit crisis started getting ugly I took the advise of a mortgage broker and drew down any funds I had available in redraw and put them in a high interest account with one of the top 4 banks (in case things really got ugly and they froze redraw). Of course the interest I receive does not cover the mortgage repayments so their is a cost in doing this but I see it like taking out insurance so that I am in control of those funds.
I did enquire about the tax side of things and my new savings account can be classified as an investment so I can claim any shortfall on the mortgage repayments on tax. (this is my understanding, not tax advice!)
I did enquire about the tax side of things and my new savings account can be classified as an investment so I can claim any shortfall on the mortgage repayments on tax. (this is my understanding, not tax advice!)
hi all
the issue is not the deposits ( per mr rudd)
nor is it the mortgages as the lender is not worth anything if he calls in the loans and clears his book as the book is the value of the business.
the big issue is the on going funding.
now I was told a few years ago from a funder that you have to watch who your development and your mezz funders is with and its only in the last 12 months that has come home to roost.
and thats the issue that is flowing thru now.
because challenger was a mezz or developemnt funder( or a funder of a funder that is or was) and so were alot of the other corporate entities were funder then and simply can't now.
because they simply not have the abilty to pay the fund to the developers.
I currently have one where the funder has liquidated and that in lieu liquidates the developer and he in turn lquidates the builder and its a snow ball effect.
and the trouble is that there is very few in this market that want to take on this debt as the debt is up or around 80% and very few like that.
we do but as I said to a developer on friday we are not a charity and for this market there is very little if any funding so its a case of find some one or simply die.
and there will be more.
so if you have a deposit with a lender then it could come within mr rudd rules.
if you have loan to a lender again he will sell the book so you are relatively safe.
if you have development funding with a lender and you think they will be closing there doors you are in big trouble and there is no one to save you.
the biggest growth market is liquidation and they are flat out at the moment.
so every time you here challenger, australian unity, what was mfs, babcock and brown, CRI, suncorp,and bankwest, capital finance do I need to leave a space for the rest.
they are all into funding into development sites in the liverpools and the gold coasts of this world.
and when they freeze those withdraws.
they also freeze their exposure and if and when the admin guys come with their shinny new $2,000.00 suits.
your in trouble.
oh and those shinny suits are paid by the liquidated companies.
and just for those guys that have not been thru liquidation and or an administration and you think you have months even years before they come to your door.
the guys that I am meeting had me on the phone taking about buying out the site when they got the suits come in and i'm meeting with the suits on monday so it very quick.
try telling that to the wife.
had a good day on the site darling (wife)
yes not bad (builder)
met a administrator and he just took over the site and we are up to our eyeballs in invoices that he just told me
we are not getting paid for
and he will be our liquidator
he thinks amd we could lose the house.
so all in all not a bad day.
sound funny or unusual.
well not really as it has happened twice this month and the month not over
one developer sold all at a 100k hair cut not sure at this stage on the builder still working thru his
and the other not sure at this stage developer gone for sure maybe able to save builder
oh and before you say the devloper and the builder should be able to take legal action against the lender.
yes they can and they will win.
and then they are 10C in the dollar and an unsecured ceditor so they are in line with the newspaper agent for non payment of the newspaper bill
so worthless and cost more then its worth.
this is the real carnage out there.
most banks are holding and trying to assist on the way thru which is good but the ones that close and everytime I read in the fin review that another fund is in admin go have a look at who they were funding.
its like a doctor use to do in ambulance chasing because that closing just cause carnage on the site they funded.
just a different slant.
and when the fund can't generate enough income to cover the cost of doing business tahts when the s--t will bit fan
and we go ambulance chasing again.
funny but sadly true
and marg4000
who said it wont happen in your quote.
because they need to start to buy the fin review and get about 3 months of the back issues and the list the funds in admin.
I am waiting for a big one to fall a babcock/ suncorp/ challenger/aust unity/etc
can't happen
that just made me laugh.
when will it happen is more closer to the mark.
I can tell you one thing for sure if those cranes do not start to appear on the skylines of syd melb and bris with in 6 months
there will for me be at least two banks that will be clearing there offices
with the take your coffee cup with you.
the issue is not the deposits ( per mr rudd)
nor is it the mortgages as the lender is not worth anything if he calls in the loans and clears his book as the book is the value of the business.
the big issue is the on going funding.
now I was told a few years ago from a funder that you have to watch who your development and your mezz funders is with and its only in the last 12 months that has come home to roost.
and thats the issue that is flowing thru now.
because challenger was a mezz or developemnt funder( or a funder of a funder that is or was) and so were alot of the other corporate entities were funder then and simply can't now.
because they simply not have the abilty to pay the fund to the developers.
I currently have one where the funder has liquidated and that in lieu liquidates the developer and he in turn lquidates the builder and its a snow ball effect.
and the trouble is that there is very few in this market that want to take on this debt as the debt is up or around 80% and very few like that.
we do but as I said to a developer on friday we are not a charity and for this market there is very little if any funding so its a case of find some one or simply die.
and there will be more.
so if you have a deposit with a lender then it could come within mr rudd rules.
if you have loan to a lender again he will sell the book so you are relatively safe.
if you have development funding with a lender and you think they will be closing there doors you are in big trouble and there is no one to save you.
the biggest growth market is liquidation and they are flat out at the moment.
so every time you here challenger, australian unity, what was mfs, babcock and brown, CRI, suncorp,and bankwest, capital finance do I need to leave a space for the rest.
they are all into funding into development sites in the liverpools and the gold coasts of this world.
and when they freeze those withdraws.
they also freeze their exposure and if and when the admin guys come with their shinny new $2,000.00 suits.
your in trouble.
oh and those shinny suits are paid by the liquidated companies.
and just for those guys that have not been thru liquidation and or an administration and you think you have months even years before they come to your door.
the guys that I am meeting had me on the phone taking about buying out the site when they got the suits come in and i'm meeting with the suits on monday so it very quick.
try telling that to the wife.
had a good day on the site darling (wife)
yes not bad (builder)
met a administrator and he just took over the site and we are up to our eyeballs in invoices that he just told me
we are not getting paid for
and he will be our liquidator
he thinks amd we could lose the house.
so all in all not a bad day.
sound funny or unusual.
well not really as it has happened twice this month and the month not over
one developer sold all at a 100k hair cut not sure at this stage on the builder still working thru his
and the other not sure at this stage developer gone for sure maybe able to save builder
oh and before you say the devloper and the builder should be able to take legal action against the lender.
yes they can and they will win.
and then they are 10C in the dollar and an unsecured ceditor so they are in line with the newspaper agent for non payment of the newspaper bill
so worthless and cost more then its worth.
this is the real carnage out there.
most banks are holding and trying to assist on the way thru which is good but the ones that close and everytime I read in the fin review that another fund is in admin go have a look at who they were funding.
its like a doctor use to do in ambulance chasing because that closing just cause carnage on the site they funded.
just a different slant.
and when the fund can't generate enough income to cover the cost of doing business tahts when the s--t will bit fan
and we go ambulance chasing again.
funny but sadly true
and marg4000
who said it wont happen in your quote.
because they need to start to buy the fin review and get about 3 months of the back issues and the list the funds in admin.
I am waiting for a big one to fall a babcock/ suncorp/ challenger/aust unity/etc
can't happen
that just made me laugh.
when will it happen is more closer to the mark.
I can tell you one thing for sure if those cranes do not start to appear on the skylines of syd melb and bris with in 6 months
there will for me be at least two banks that will be clearing there offices
with the take your coffee cup with you.
Another very interesting post, grossreal!
BTW, that wasn't marg4000 who said that it "won't happen" - she was quoting from a post of mine.
Re-reading my original ramblings in light of grossreal's post, it's clear that my comments were very 'general' in nature - one of the problems, I guess, when trying not to be too verbose and not to make the posts too long.
Marg, you make a good point re Estate Mortgage and all the resultant chaos that caused - if my memory serves me correctly, this happened before the advent of APRA and a good deal of the financial regulatory legislation, didn't it??? I didn't mention Estate Mortgage for that reason. My comments about 'the government not letting it happen' were made partly in the context of the current financial regulatory environment ... and also (very much) in the context of today's political reality.
So, to clarify some of the comments made in my previous posts ...
When I made my original post (#5), I had in mind the funds that had made the television news headlines in the latter half of last week - AXA, Perpetual, AMP, etc. - all very sizeable funds ..... and it was these funds that I was referring to when I said I didn't believe that the government would allow them to collapse.
I note that the weekend edition of AFR (page 38) has a full list of funds which have been frozen - including Australian Unity and Wellington (now the 'owner' of MFS?) which you have mentioned - and others including APN, Centro, City Pacific. Mirvac etc etc.
City Pacific and Wellington - no surprises there, since they've been in the financial news for months, as have BNB, Macquarie and some other REITS. The collapse of any of those funds would not surprise me at all - but they were not the ones I was referring to.
If you don't mind, grossreal, I have two questions:
1. Do you believe that the funds I mentioned (AMP and Perpetual - let's leave aside AXA, since it is foreign-owned) are in any danger of collapse??? And, given the sheer size of these funds in relation to others named in the AFR list, do you believe the government would adopt a 'hands-off' approach and let this collapse happen???
2. You mention "at least two banks that will be clearing their offices" - I would be interested to know which banks you think will go under??? (PM me, if you'd rather not name 'names' on the forum).
I'm looking forward to hearing your opinions/views.
Cheers
LynnH
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hi Lynnh
bit hard to do guess as I can't get to what there debt levels are nor can apra at this stage
so I can only give you my crystal ball view and remember my crystal ball does not give the same as yours
as my crystal ball directs me to markets that will correct
not that have corrected.
but my bets are on suncorp, challenger, babcock,capital finance, and I think that we will see one of the big four come out with a shot out of the blue once the dust has settled .
now all of this are into the development area.
and thou I don't think perpetual are in this boat at this stage as I don't know there current position
what I will say is that most loans outside of the majors I have seen were thru perpetual just under a different name and thats development as well. will the government let them die
no the government will do as it has done in everything lately and they will back every loan to the full value of the loan.
and then find out that thats about 4 times our gdp and then will try to redo it and it will be to late.
and then will quaranteen to just this fund or that fund
and this is not good for anyone
I spoke to a old builder and he remember as do I that the same thing happened in 74 and the then government pulled them all back from the brink then
but they used from my memory the comm bank
well that was because it was a government bank
thats not the case this time and there is no bank that will take on these loans.
and heres a loan and you tell me any bank that will lend.
the site is 90% complete has the units sold and the deposits taken and they have 12 months to settle
the site owes say 10 mil and needs 300k to finish and has 13 mil in sales
so there is 3 mil sat there looks good
but the funder liquidates so now the developer has to go to the market for the 300k to finish with a liquidator telling everyone that he wants his money
heres the rub
the site is at 77% of val and there is no lender that doing over 75% on comm at the moment and thats without the 300k
with the 300k thats 80% and thats the max for a mezz lender.
(and the funder wants there money back) and is charging default interest to the developer if he was at 12% he's at 15% today and the liquidator is clocking up hours as he see a big juicy fee at the end and has stopped his capitalised interest as the funder is not allowed to increase debt.
the developer can take legal
where is the propblem here
he needs money to take legal and legal is not going to probono it
as both he and the developer are unsecured creditors.
he can't get a cash investor in as they charge 5% per month and they stop at 80% (thats us)
and for the 6 months for the 300 he has to find another 90k plus legals and get under the 80% lvr which is not going to happen as his debt level is increasing as the liquidator add fees each day.
he can try to get the buyers to buy early but they say look we have a liquidator for the lender and you can't finish
so you will have a liquidator as well.
he can't get family or friends because most likely they assisted at the start.
so if you can tell me how this guy gets his 300k to finish and the 10 mil + to the funder and has any chance of holding his house,as the funder also has that via the fixed and floating charge on the company and his quarantees.
you are doing better then us.
this is one of the largest wholesale soups that I have been involved in and there is loan ranger on the white horse.
there is a black horse with a reaper riding it and alot of people are going to get hurt.
for me this is out there and we are assisting to solve some of it.
and if you have not seen it in your market well take a lookat liverpool penrith blacktown, gold coast, even maroubra,
and mr rudd is saving the deposit holder but there was nothing in anything that I have seen to say that he has quaranteed that a lender will keep lending you and if he doesn't what then.
hard but true
bit hard to do guess as I can't get to what there debt levels are nor can apra at this stage
so I can only give you my crystal ball view and remember my crystal ball does not give the same as yours
as my crystal ball directs me to markets that will correct
not that have corrected.
but my bets are on suncorp, challenger, babcock,capital finance, and I think that we will see one of the big four come out with a shot out of the blue once the dust has settled .
now all of this are into the development area.
and thou I don't think perpetual are in this boat at this stage as I don't know there current position
what I will say is that most loans outside of the majors I have seen were thru perpetual just under a different name and thats development as well. will the government let them die
no the government will do as it has done in everything lately and they will back every loan to the full value of the loan.
and then find out that thats about 4 times our gdp and then will try to redo it and it will be to late.
and then will quaranteen to just this fund or that fund
and this is not good for anyone
I spoke to a old builder and he remember as do I that the same thing happened in 74 and the then government pulled them all back from the brink then
but they used from my memory the comm bank
well that was because it was a government bank
thats not the case this time and there is no bank that will take on these loans.
and heres a loan and you tell me any bank that will lend.
the site is 90% complete has the units sold and the deposits taken and they have 12 months to settle
the site owes say 10 mil and needs 300k to finish and has 13 mil in sales
so there is 3 mil sat there looks good
but the funder liquidates so now the developer has to go to the market for the 300k to finish with a liquidator telling everyone that he wants his money
heres the rub
the site is at 77% of val and there is no lender that doing over 75% on comm at the moment and thats without the 300k
with the 300k thats 80% and thats the max for a mezz lender.
(and the funder wants there money back) and is charging default interest to the developer if he was at 12% he's at 15% today and the liquidator is clocking up hours as he see a big juicy fee at the end and has stopped his capitalised interest as the funder is not allowed to increase debt.
the developer can take legal
where is the propblem here
he needs money to take legal and legal is not going to probono it
as both he and the developer are unsecured creditors.
he can't get a cash investor in as they charge 5% per month and they stop at 80% (thats us)
and for the 6 months for the 300 he has to find another 90k plus legals and get under the 80% lvr which is not going to happen as his debt level is increasing as the liquidator add fees each day.
he can try to get the buyers to buy early but they say look we have a liquidator for the lender and you can't finish
so you will have a liquidator as well.
he can't get family or friends because most likely they assisted at the start.
so if you can tell me how this guy gets his 300k to finish and the 10 mil + to the funder and has any chance of holding his house,as the funder also has that via the fixed and floating charge on the company and his quarantees.
you are doing better then us.
this is one of the largest wholesale soups that I have been involved in and there is loan ranger on the white horse.
there is a black horse with a reaper riding it and alot of people are going to get hurt.
for me this is out there and we are assisting to solve some of it.
and if you have not seen it in your market well take a lookat liverpool penrith blacktown, gold coast, even maroubra,
and mr rudd is saving the deposit holder but there was nothing in anything that I have seen to say that he has quaranteed that a lender will keep lending you and if he doesn't what then.
hard but true
