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Issue 574, 5 October 2007 - All unions should back the Greens

Mortgage crisis hits working poor

UNDERLINING THE mortgage squeeze, a recent Australian Prudential Regulation Authority report said that mortgage defaults rose from $49 to $210 million in 2006. Those figures, representing a 329 per cent rise, are based on an analysis of mortgage insurance claims.

There were 3642 mortgage repossessions in NSW in 2006, up from 1611 four years ago.

According to News Limited's resident economist, Terry McCrann: "We are only just beginning to understand that the ripples from the US subprime meltdown have run further and longer than we'd anticipated a month ago�

"Did I say 'ripples'? Perhaps bloody great tsunami would be more apt� Remember, a month or so back when the meltdown happened, when local financial institution after institution loftily dismissed any exposure to US subprimes? Any direct exposure. No, Australian banks had not lent to sub-primes there or, generally, here. Our low-docs are not a direct equivalent to their subprimes.

"[But] the 'Aussie' problem is the global one� People have been able to borrow extraordinary sums to buy property, at extraordinarily thin margins-the so-called 'discount' on bank mortgage reference rates.

"Where the rubber might hit the road for ordinary Australians is in the end of that ease of access to mortgage credit and its price."

This trend reflects a similar crisis of debt among working people in the US as a result of the subprime mortgage crisis. Subprime mortgages were offered to low income American borrowers with poor credit ratings desperate to buy a house. But these mortgages have higher interest rates than "prime" mortgages. Many people are now defaulting on these subprime mortgages, and this has triggered the panic across world markets.

It is estimated subprime borrowers face average rises in repayments of 26 per cent a month. Nearly 110,000 US homes were repossessed in August-a record high.

In Brooklyn, New York, repossessions have doubled in the last year. One analysis found that 6100 families in Brooklyn could be at risk of losing their homes by the end of 2008.

Many have criticised the lending companies at the heart of the subprime crisis. New Yorkers For Responsible Lending highlights the "predatory practices in the financial services industry". It is campaigning for the introduction of tougher legislation to defend borrowers from abusive practices that also appear to have targeted minority groups.

George Bush has proposed a Federal Housing Administration programme, called FHA Secure, to deal with the crisis. But this will not help those who are worst hit.

To qualify for any help, borrowers must have at least 3 per cent equity in their homes. Because many people were pushed into borrowing more money than their homes are now worth, they have negative equity and are not eligible for the programme.

Some 27 per cent of people who have seen their mortgage payments increase have missed a payment. This means they are ineligible for government help. Hundreds of thousands of people could lose their homes. Meanwhile Bush spends $720 million a day on the war in Iraq-which could buy homes for almost 6500 families or healthcare for 420,000 children.