Churn is a term used to refer to mortgage loan turnover. Borrowers refinance regularly to take advantage of cheaper interest rates offered to them and sometimes, as a recent case has illustrated, to service accrued but unpaid interest on a prior loan.
The recent case of Permanent Mortgages v Cook in Australia is worthy of comment for two reasons:
Operational and compliance risks can be critical at the coal face of origination of small ticket financial assets. A financier of retail mortgage assets will need to ensure it is satisfied that the steps that were taken on origination were legally compliant and in accordance with procedures manuals.
Increased consumer credit regulation may not be necessary in places like Australia. As the case below demonstrates, the current laws can, and do work.
In the case Mr and Mrs Cook had a history of defaulting on their loans and refinancing. Over the period 1992...