As flood and cyclone victims across Queensland and New South Wales start to take stock of their homes and businesses, they may not know that their obligations to lenders still apply unless they take some necessary steps NOW to prevent being defaulted. We look at what flood victims should do to get back on their feet again and in the process, hopefully save their credit file.

By Graham Doessel, Founder and CEO of MyCRA Credit Rating Repair and www.fixmybadcredit.com.au.

Today the Credit Ombudsman COSL has urged lenders to show compassion to flood victims when considering cases of financial hardship.

Ombudsman Raj Venga says lenders and mortgage managers have previously responded sympathetically to borrowers who have experienced financial stress as a result of natural disasters and hopes they will continue to do so.

“We expect they will again show the same compassion to affected borrowers in Queensland and northern New South Wales, and take into account COSL’s Position Statement on financial hardship.  We also urge borrowers who may be experiencing financial difficulties as a result of the flooding to contact their lenders or mortgage managers as soon as possible to discuss payment variation options available to them,” he said in Australian Broker today.

How could I be affected by defaulting on my loan?

Obviously, if you default on your loan for a certain period of time, you risk the bank taking the home. But even if you default once, but then begin to make up the repayments you are still putting your future at risk.

If you fail to make repayments on our loan past one payment cycle, you will probably end up with a late payment notation on your credit file. If that extends out to more than 60 days, the bank will list a default on your credit file. Once you have a default against your name – it will stay there for 5 years. The intention of adding default credit listings to credit history is to warn future credit providers you would potentially have trouble keeping up with repayments. Likewise, as part of ‘responsible lending’ it would mean the credit provider would be acting irresponsibly to lend you money – so most don’t.

A default on your credit file means you have very little access to mainstream credit for the five year term.

What can I do if I am experiencing mortgage stress due to the storms and or floods?

Ask for help early!

The Australian Bankers’ Association (ABA) told Australian Broker banks are already offering a range of emergency relief packages to assist people affected by the severe weather in Queensland and New South Wales.

Steven Münchenberg, chief executive of the ABA, says:

 “If someone’s home, income or business has been affected by the floods or storms, they should contact their bank as soon as they are able to. Banks are providing support to help their customers get back on their feet.”

Banks offer a range of support options and the assistance provided will depend on their individual circumstances and needs, but may include:

■ deferring home loan repayments;

■ restructuring business loans without incurring fees;

■ giving credit card holders an emergency credit limit increase;

■ providing payment holidays on personal loans or credit cards;

■ refinancing loans at a discounted fixed rate;

■ waiving interest rate penalties if term deposits are drawn early; and

■ deferring repayments on equipment finance facilities.

 “If you are worried about the financial effect of the flooding and storms, talk to your bank about the support that is available. It is often not well understood that banks do offer their customers assistance during these difficult times and go beyond what might be legally required to offer immediate financial relief and support to affected customers and their communities. If you know someone affected, let them know that banks are offering emergency packages,” Mr Münchenberg says.

“The best way to contact your bank is to speak to your relationship manager or call the bank’s dedicated emergency relief or financial hardship support number. These numbers can be found on the ABA website www.bankers.asn.au or at www.doingittough.info along with additional information to assist people that might be experiencing financial difficulty. You can also speak to a free, independent financial counsellor by calling 1800 007 007.”

Tips for Applying for financial hardship

– Work out what you can afford to pay prior to requesting a hardship variation. 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. The best place to start looking for some help would be ASIC’s MoneySmart Website. If you feel like you’ll struggle across a number of credit areas in the short term – consider requesting a reduced payment for other credit accounts as well.

– Put your request in writing and keep a copy as a record.

– You may need to use the actual words “hardship variation” for your lender to officially recognise the request, and to avoid confusion as to what you’re asking for.

– 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.

– 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.

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