SuperUser posted on January 20, 2012 18:32
Banks face home loan suit
Chris Vedelago
January 15, 2012
Source: theage.com.au
AUSTRALIA'S banks could be facing a massive new class action over allegations that their mortgage lending practices have put thousands of families in severe financial stress or at risk of losing their homes.
Organisers estimate that up to 300,000 mortgage holders would be eligible to participate in the action, which is expected to focus on first home buyers and lower-income households who received loans since the onset of the global financial crisis.
The proposed lawsuit has drawn qualified support from law firm Maurice Blackburn, which is already engaged in the country's largest class action over alleged fee gouging by the big banks.
The potentially landmark case is being orchestrated by retired British insurance broker Roger Brown, who will seek claimants through the website www.takingonbanks.com in early April.
''The people we are talking about are experiencing severe financial hardship through no fault of their own because they shouldn't have been given a home loan in the first place or they have been lent way too much money,'' Mr Brown told The Sunday Age. ''I think the banks have a case to answer for the irresponsible way they have been lending.''
The case is expected to be argued under provisions of the Competition & Consumer Act and the National Credit Code that prohibit unfair contract terms and reckless lending.
Maurice Blackburn principal, major projects, Ben Slade said there was a legal basis for challenging the lending practices of Australian banks that had ''unlawfully'' and ''wantonly'' put consumers in home loans they were unlikely to be able to repay.
''There are thousands of families out there who are over-committed in circumstances where the institution knew or ought to have known at the date of making the loan that they would not be able to maintain the repayments over the life of that loan," he said.
''The only impact of making that loan would be to deprive them of their deposit and extract repayments to a point where they could no longer pay. The bank then moves in on its security - being the forced sale of the home - leaving these families high and dry and much worse off than they were when they got the loan in the first place.''
Mr Slade believes the strongest claims will likely be from those who have lost their homes through distressed sales or foreclosures.
There were 1877 foreclosure applications lodged by banks and other lenders in the Victorian Supreme Court in the 11 months to November, up 12 per cent on the same time in 2010. There were nearly 2500 applications in 2009.
Mr Brown believes a more liberal interpretation of consumer law could see up to 300,000 potential claims from struggling home owners going back to 2008.
Of particular interest are bank lending practices around the period of the global financial crisis, when record low interest rates and the boosted first home owners grant saw hundreds of thousands of buyers enter the market.
About 1.71 million new loans for owner occupiers have been made nationwide since 2008, including 485,000 for first home buyers, according to the Australian Bureau of Statistics. At the same time, the size of the average bank-issued home loan has jumped by $60,800 to $295,800.
But Maurice Blackburn has stressed the firm's official participation in a class action or any other lawsuit will hinge on the strength of the claims and securing independent funding to cover the costs of running the case.
Mr Brown told The Sunday Age that preliminary funding was being underwritten by a London-based ''international financial service group'', which refuses to be publicly named.
Banking industry spokespeople declined to comment on speculation about a potential lawsuit.
Stephen Munchenberg, chief executive of the Australian Bankers' Association, said that the Australian banking system was well regulated and complied with ''very high'' lending standards.
''Foreclosures by Australian banks are very low,'' he said.
Delinquencies of 90 days or more - which puts a home owner at serious risk of foreclosure - did increase over the last financial year, although they are tipped to fall following the recent interest rate cuts.