Dominique Grubisa, founder and CEO of DG Institute, joined hosts James Treble and Chris Kohler on Your Money to discuss mortgage stress in the current market and how to get out of financial trouble.
Despite falling house prices in many parts of Australia a large number of people, in fact, 31% of homeowners, are still experiencing mortgage stress. In the interview, Dominique explained how to get out of financial trouble.
Chris Kohler: Dominique, I suppose, as prices fall, we assume that mortgages fall and that’s a good thing. So, why are more people in mortgage stress?
Dominique Grubisa: I think, because we’ve had very low rates for a very long time, people have fallen in a lot of debt. In the past, we didn’t really have tight lending practices, banks lent willy-nilly, pretty much to just about anyone with a pulse. Since the Banking Royal Commission, it’s really hard to get a loan and people who’ve been surviving on debt are no longer able to get more debt.
James Treble: You deal with people day to day in this situation. What are the signs that you’re getting into mortgage stress?
Dominique Grubisa: When you’re robbing Peter to pay Paul, for instance when you are getting more and more credit cards. A big sign you’re in mortgage stress is when you’ve got more going out than you’re getting in.
Chris Kohler: That’s obviously a very stressful time. What would you say to people out there who are seeing a few of these red flags for themselves, what are the important steps that they need to take?
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Dominique Grubisa: First thing you have to do is put your hand up. The legal system is built to help you, especially in the wake of the Royal Commission after it was revealed that a lot of dodgy lending went on.
You’ve got rights around that. First thing to do is contact your lender and tell them you’ve got financial hardship. By law, they have to then work with you.
When they do that, the next thing you can do is ask for your loan assessment file. By law, you’re allowed to have what the bank had when they assessed your loan. And if you’re still able, look to refinance your loan. There’s a lot of good rates out there at the moment. And banks are jockeying for business. There are some lenders out there giving $2,000 cash per property that’s transferred.
There’s also the Australian Financial Complaints Authority. If you think you’ve got a loan you shouldn’t have got – an irresponsible loan – you can apply to them to get that set-aside or varied.
James Treble: The second point there that you’ve got, Dominique, is an interesting one. ‘Don’t loan shop’, now is it natural that people start to think, “Oh I can change my loan and increase it or get more money,” how do you deal with that one?
Dominique Grubisa: What I’m seeing a lot of now is people thinking, “I need to refinance and get more money and my current bank won’t lend to me because they’ve lifted the bar on lending.” then they go to a broker or they go to another bank and what then happens is every time you apply for a loan you get an inquiry on your credit report. And because banks are a lot stricter now. They look at those credit reports and say, “Oh, this person’s applied four or five times. We don’t want to lend to them if no one else does”.
Chris Kohler: Dominique, you mentioned there before, your legal rights when you’re in an unenviable position here. I suppose a lot of people out there might be a bit surprised to hear that they can go to their bank for help and rather than be scared of what the bank might say. Can you elaborate a little bit more on what you are entitled too?
Dominique Grubisa: Yes, we have a banking code of practice that the banks voluntarily comply with, as well as credit laws nationally – Australia-wide laws to protect borrowers.
What that can mean is that first of all, they can’t give you what they call an irresponsible loan. They have to really make sure that you can afford the loan that you’re getting. As well as, they have to help you if something happens, if you get sick or you can’t work or there’s some form of hardship.
Basically, if you can’t pay your loan, there has to be a reason for it. Either you shouldn’t have got it in the first place because you could never afford it. Or, you could afford it at the time but something else has happened in your life where you can’t now. Either way, there are laws to protect and help you.
James Treble: Sometimes it’s that hard medicine of we just need to grow up and start to take responsibility for our spending habits and change. I know of a movie, Shopaholic, where another character was famous for just spending, spending and loading up cards. But there are these other sites that are like payday sites. Now, I always thought this was quite an American model, but are we seeing more of that with people trying to get more debt and find money wherever they can?
Dominique Grubisa: Yes, I think it is. It’s very much an instant gratification society now. With digital finance and the world becoming a lot more sophisticated, people are really into buying now and paying later.
And, they can’t afford it.
Chris Kohler: One step back, the other thing that seems to be going on is that wages growth just is not increasing at all, really. And doesn’t seem to be likely to take off anytime soon. And then, the banks seem to have decoupled themselves from the reserve bank. And seem to be hiking interest rates. I suppose, it feels almost willy-nilly at the moment. So, I mean, is this just a difficult environment to find yourself in?
Dominique Grubisa: Yes. I think the market has shifted a bit, because we loved our debt and banks lent to us so easily. There just wasn’t enough money in Australia to do that. So, our banks borrowed offshore to be able to lend to us. Now that offshore rates have gone up, they’re passing that on to us. It doesn’t matter what the reserve bank says, they’re paying the wholesale rates offshore.
James Treble: Dominique, we have you on the show quite regularly and we love your insights. Because you speak from positions where you had issues many years ago. And you fixed them yourself. Now you share that knowledge. And I think that’s so profound. You have dealt with a couple recently who had severe mortgage stress, tell us how you helped these people in South Hedland.
Dominique Grubisa: What happened in that situation was that they had got into mining town stress. A lot of investors bought into the mining town boom, that was great when you could get people renting from you, paying you $3,000 and $4,000 a week. That serviced your loans. So, people were buying million-dollar houses with million-dollar loans. And then after the mining boom, that million-dollar house is only worth like $200,000.
James Treble: Frightening.
Dominique Grubisa: And your $1,000 a week tenant is now a local paying you $100 a week. Investors got in way over their heads. But, the great news is with the Australian Financial Complaints Authority, there’s an argument that that was an irresponsible loan. So, for example, that property in South Hedland was miles underwater, upside down. The mortgage was way more than what the property was worth. It was sold for like a $500 thousand-odd shortfall and the AFCA made the bank write that down to $90,000.
James Treble: How hard is that process? I mean, this is hard to then find out who you almost take that litigation too, to say this person was responsible enough to get the loan. But really, it shouldn’t have been given to them in the first place.
Dominique Grubisa: Well, the great news about AFCA is it’s pro-consumer. So it’s there for the little guy. It’s an online complaint. It’s not legal at all. You don’t need a lawyer. The banks don’t get lawyers. And it just makes you mediate and facilitate. And their orders are binding. The bank can’t then go to court and appeal that and lawyer up. And with their deep pockets make the little guy feel out of his depth.
Chris Kohler: Well, that was a fantastic result for them in South Hedland with that huge write down on that debt. How about a client in Karratha, what’s the story behind this one? And how did they sort out some of their issues here?
Dominique Grubisa: What happened here was that the client asked for their loan assessment file. And when we looked at that we said, “How did ever get this loan? There’s no way that they could ever have afforded that.” And then we took that complaint to AFCA and said it was an irresponsible loan. And AFCA agreed and they said, “Okay, they could never afford that loan. They could have afforded a loan that was $80 thousand less.” So, they adjusted the mortgage and the debt for an $80 thousand write-off. So, they took $80 thousand off the mortgage.
James Treble: It’s an amazing result, Dominique. I’m wondering in this market at the moment, we’re talking about a lot of interest-only loans coming off the ball and not being renewed. There’s actually a glut going down the hose that we’re waiting to arrive. That are really going to be in quite a lot of financial stress. So, for people watching at home now, what’s the sort of advice that you can give to people to start to deal with it, to be calm about it and then obviously, seek solutions?
Dominique Grubisa: The system is there to help you. Banks are still lending, even as little as 3.99% on interest only loans. So, the first thing to do is look at refinancing. A good broker should be able to get an indicative okay before they formally put anything through. So you’re not going to get little black marks against your credit score. And if you can’t do that, then put your hand up and say to your lender, “I’m in trouble.” And it’ll be one of two reasons, you could never ever afford it in the first place, or something’s happened, you’ve lost your job or the mining town industry’s crashed, or whatever it is. There’ll be a reason. Either way, the bank has to work with you and there’s something that can be done to improve the situation. And if the bank won’t work with you, then the Australian Financial Complaints Authority will make an order to help you.
Chris Kohler: So, Dominique, do people need to seek out independent advice? Or can the handle this sort of stuff on their own through the channels that you were just talking about?
Dominique Grubisa: They don’t need to get a lawyer. They can handle it on their own. In fact, I’ve put together a debt course for them at DebtCourse.com.au so that they’re empowered to do it themselves.
James Treble: I love when you come in here with the solutions. And you stay calm through it all. Because there’s nothing more stressful than having debt. And it can become overwhelming for families. And unfortunately, people have got into this position as the markets cooled off. So, amazing results, Dominique to share with us today. Thank you so much. We really love to see how clear you can solve people’s problems just by cleverly talking them through it.
Lawyer, Asset Protection Specialist and Property Educator
Dominique Grubisa is a practicing legal practitioner with over 22 years of legal and commercial experience. She is a property investor and developer, an entrepreneur with businesses in Australia and Southeast Asia, a speaker, educator, writer and published author. You may contact Dominique at firstname.lastname@example.org or visit the DG Institute website for more information.
This column has been written for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.