Prevent A Credit Default During A Time Of Mortgage Stress

Media Release

Prevent A Credit Default During A Time Of Mortgage Stress

12 February 2013

For the thousands of Australian home owners who are under financial strain, interest rate cuts may have come too little too late – but a consumer advocate for accurate credit reporting says those families falling behind on mortgage repayments need to be educated about what they can do to try to keep their home and their good credit rating.

CEO of MyCRA Credit Rating Repair, Graham Doessel says it is vital that when someone is suffering financial hardship of some kind that they open up a dialogue with their Creditors as early as possible.

“Too many people go into denial about their debts, and this only makes the long term prospects for recovery much worse. If I could give one piece of advice, it would be to talk to your bank and as soon as you encounter difficulties,” Mr Doessel says.

Despite a recorded decrease in mortgage delinquency rates across the country to 1.2 per cent in September 2012 from 1.6 per cent in March 2012, credit ratings firm Fitch Ratings has recorded some continuing troubled areas where delinquencies remain high.

Many of these ‘repayment blackspots’ have reportedly been impacted by the global economy through a drop in tourism numbers. [i]

Mr Doessel’s credit repair firm deals with many clients who are attempting to salvage their lives and their credit rating after financial hardship, and he says sometimes effective communication and persistence may have prevented defaults.

“If you are suffering hardship, get on the phone and discuss it with your bank. They may not issue a default on your credit file if you successfully negotiate to put repayments on hold or reduce the repayment amount - as long as you make a firm plan to get back on top of things, and you are able to stick to it,” he says.

Credit file defaults are issued after credit accounts are 60 days in arrears, and late payment notifications are issued after repayments are one payment cycle late.

Mr Doessel says the ramifications of having credit file defaults are generally refusal of mainstream credit – including credit cards, store cards and mobile phone plans for the 5 year term of the listing. Too many late payment notations may also impact credit approval.

“If you are able to borrow, often the interest rate is much, much higher. If your bank can’t contact you, they may even issue you a Clear-out which has a 7 year term,” he says.

“So you want to avoid having your credit rating black listed if possible.”

People who need to negotiate with their lender because of hardship issues should now find the process much easier.

Last year credit reform saw the introduction of changes to procedures for hardship applications. From 1 March 2013, The National Consumer Credit Protection Amendment (Enhancements) Act 2012 takes effect, giving debtors a statutory right to request a hardship variation if they cannot meet their obligations under a credit contract regardless of the amount of credit that is provided under their contract. [ii]

Tips for Applying For Financial Hardship

1. SPEAK UP. Firstly, you need to make it clear to your bank that you fear you may fall into arrears on your repayments – especially if you have a situation of temporary difficulty, such as unemployment or illness.

2. WHAT CAN YOU AFFORD TO PAY? Work out what you can afford to pay prior to requesting a hardship variation. You can get budgeting advice through ASIC’s Money Smart website www.moneysmart.gov.au.

“This would involve taking the bull by the horns and doing up a serious budget on what’s coming in and what your repayments are on all of your credit accounts,” Mr Doessel says.

3. BE PRECISE. Put your request in writing and keep a copy as a record. You may need to use the actual words “financial hardship variation” for your lender to officially recognise the request, and to avoid confusion as to what you’re asking for.

4. KNOW YOUR RIGHTS. Check your loan agreement as to the terms you entered into around financial hardship. Those agreements post-1 July 2010 have a clause which requires the lender to respond to you within 21 days.

Creditors are legally required to consider a person’s request for variation on payment arrangements, but are not obliged to agree to any hardship variation proposal put forward. If a lender either refuses or fails to respond to your hardship request, you can lodge a complaint with their independent dispute resolution scheme, such as the Ombudsman they are a member of.

5. DO YOUR RESEARCH. Research how to apply for financial hardship. You can do this through ASIC’s MoneySmart Website, or through sites like Money Help, a website run by the Victorian State Government.

6. BE CONSISTENT. If you do get a variation on your repayments – keep up all repayments on time every time. And keep an open dialogue with your bank.

“This fresh chance may be the catalyst to put in place some real changes in how you think about credit – taking a fresh look at ‘things’ ‘wants’ and ‘needs’– and making credit work for you next time instead of the other way around. This doesn’t ensure that mistakes won’t happen with your credit file, but it will ensure that a negative credit listing won’t make its way to your credit file through any fault of yours,” Mr Doessel says.

[i] http://www.news.com.au/realestate/news/australias-mortgage-blackspots/story-fncq3gat-1226570977744#ixzz2KAbn7xXq

[ii] http://www.asic.gov.au/asic/asic.nsf/byheadline/ASIC+Credit+Reform+Update+-+latest+issue?openDocument http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;db=LEGISLATION;id=legislation%2Fbills%2Fr4682_third-reps%2F0001;query=Id%3A%22legislation%2Fbills%2Fr4682_third-reps%2F0000%22

ENDS

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