As Seen on 60 Minutes

For anyone who saw the 60 Minutes story on channel 9 on 11 May, they would have seen Peter Overton's coverage of the mortgage crisis affecting working Australians.

The story detailed the reckless lending practices in the US sub-prime market and described how an average Australian family with a mortgage is doing it tough. The story introduced a family who simply wanted to get ahead but was hamstrung by reduced wages, crippling mortgage payments, overdue utility bills, rising fuel costs and other debts.

The story described how the family over committed themselves with debt and how this, following a change in their circumstances and the economy, had a massive and devastating affect

Whilst its natural to feel compassion and empathy for the struggling mortgage holder, suffering under the burden of extreme financial distress, they (along with other contributing factors) are partly responsible for their condition. Furthermore, if they have any hope of recovering from their position, they should take ownership of it and work proactively to overcome it as opposed to looking for someone or something to blame for their condition.

All too often people will cling onto an unaffordable property because they have a sentimental / emotional attachment and in so doing, deny themselves the necessities such as food, transport, clothing etc. Of course this sort of comment is a lot easier to make from a third party perspective, but often when you are so close to an issue its difficult to see the wood for the trees.

This said; when it comes to the application for credit, the credit provider and the consumer have a shared responsibility. In other words, the credit provider must make sure that the consumer can reasonably afford to repay the debts, allowing for a certain degree of comfort. If the credit applicant does not meet the criteria, then the loan should be declined and the applicant should be made aware of why it was declined and what conditions need to be met before the loan is approved. In this way the credit provider can supply useful information to the applicant.

In contrast to this, all too often an application will be declined with the applicant applying over and over until a non-conforming credit provider, with arguably less stringent credit criteria, agrees to the loan. The applicant in this scenario has found the answer they were looking for but at a greater (possibly unaffordable) cost.

Here, it's very difficult to pinpoint any one person to blame for the future failure of the loan.

Was it the applicant for making multiple applications with credit providers until one of the less-conforming providers agreed to the loan? Did the broker who submitted the loan know that the client may have affordability issues? Or, was it the lender who agreed to the loan only to charge massive interest to offset the risk? The answer to this question is debateable and contentious - but ultimately the responsibility must rest with the borrower because they understand their budget best and they must equip themselves with an understanding of the conditions of the contract moving forward. Added to this, there needs to be better facilities in place so that serviceability issues can be identified quickly and acted upon in a way that benefits both the consumer and the lender.