Homefund Chief 'concealed Rights'
Sydney Morning Herald
Wednesday May 11, 1994
The former managing director of FANMAC, the fundraising arm of the beleaguered HomeFund scheme, concealed from more than 20,000 borrowers their legal right to cut their mortgage payments if their incomes dropped, a new report has revealed.
According to the final report of the parliamentary inquiry into HomeFund, the former FANMAC chief, Mr Michael Lynch, chose to "conceal and thereby deny mortgagors' rights" until it became necessary to admit the rights as a result of external pressure.
Clause 12 of the mortgage documents stated that borrowers had the right to repay only 27 per cent of their income on a loan if their income dropped.
"(Mr Lynch) only acknowledged the contractual rights of mortgagors under the original Clause 12 when external pressure was applied early in 1992 and it became obvious these rights were about to become widely known," the report states.
According to the inquiry committee, the Department of Housing and its former executives were guilty of a "grossly irresponsible practice" by not making borrowers aware of their rights.
"On the one hand, the department was advertising the scheme with the guarantee that payments could be reduced without qualification to 27 per cent of gross income if a borrower's income was reduced," the report said.
"On the other hand, when this circumstance actually arose after the mortgage was undertaken, the Department of Housing, then FANMAC were pressuring borrowers into quickly resuming their original level of payments by offering a reduction in payments for a limited amount of time and even foreclosing where a resumption had not occurred. Only as a result of external pressure (was) the department forced to allow borrowers their due entitlements."
Accounts obtained by the Herald last year revealed that FANMAC paid Mr Lynch $1.6 million in 1992, up from $1.3 million in 1991. The company paid$3.8 million in dividends to its mostly private shareholders - even though the State Government was forced to provide a $79 million subsidy to HomeFund that year.
The committee summonsed Mr Lynch, who now lives in the United States, to appear before it last year but received no response from him or his solicitors.
The 800-page report, tabled in State Parliament yesterday, took 13 months to prepare and was endorsed by the seven-member bipartisan committee despite a distancing statement from Liberal MPs over its severe criticism of the former Housing Minister, Mr Schipp, and former Premier, Mr Greiner.
The inquiry, as reported by the Herald on Saturday, found Mr Greiner and Mr Schipp "failed to exercise due prudence and caution" by allowing the HomeFund scheme to blow out by $400 million in three years.
The report is scathingly critical of the Department of Housing's administration of the scheme and its failure to consult Treasury properly on the State's financial risk following the massive expansion of lending between 1988 and 1991.
The inquiry found the Treasury Secretary, Mr Percy Allan, and his staff were isolated from decision-making in the scheme because the department saw Treasury as a "potential obstacle to its ambitious expansionary ethos for HomeFund".
"However, the committee believes a significant liability still rests with Mr Allan for his passivity as the Department of Housing, which he considered to be in crisis and without expertise in 1988, engaged in massive HomeFund expansion from 1988 to 1991."
Last year's decision by the Premier, Mr Fahey, to accept advice from the Minister for Housing, Mr Webster, to provide an extra $180 million to the scheme despite its serious problems was also questioned by the committee.
"In retrospect, the committee queries the judiciousness of an interim program of this size ... the committee considered that both the Premier and the Minister for Housing were misled by advice provided by the Department of Housing to support an interim program," the report said.
The inquiry was established more than 12 months ago after the ALP moved a motion of no confidence in Mr Schipp, which failed by one vote.
The committee consisted of three Government MPs and three ALP members, and was chaired by the Independent MP for South Coast, Mr John Hatton, who had a casting vote.
Its report chronicles the dramatic expansion of the scheme - from an annual lending target of $150 million in 1988 to $1.5 billion a year in 1991-92.
The rescue package is expected to cost the State $500 million.
THE HOMEFUND SCANDAL
1986: Labor State Government launches mortgage scheme for low income earners.
1988: Major expansion and promotion of HomeFund by Greiner government -annual lending target balloons from $350 million in 1988 to $1.5 billion in 1991/92.
1991: Mortgage interest rates drop below HomeFund set rates.
1992: May Trade Practices Commission (TPC) launches inquiry. Protest rallies by borrowers.
October TPC report recommends low income earners "locked" into loans seek legal redress. Housing Minister Robert Webster appoints banker John McMurtrie to review HomeFund.
December McMurtrie report finds half of HomeFund borrowers would be better off with commercial banks. Government slashes scheme by half over next six months.
1993: January 1,000 people attend protest rallies. Government raises mortgage assistance from $15,000 to $20,000 for borrowers in trouble.
March ALP reveals 100 borrowers illegally evicted. Government offers$5,000 grants to help borrowers quit scheme.
April Revealed: HomeFund rescue cost, $120 million so far.
April 21 Housing Minister, Joe Schipp, survives no-confidence motion by one vote. Parliamentary inquiry, chaired by Independent MP, John Hatton, established. Andrew Rogers QC appointed to hear complaints and arbitrate compensation claims. All $5,000 grants suspended.
December QC's report finds borrowers entitled to compensation. Government announces $400 million rescue package. Homefund borrowers encouraged to refinance, accept financial assistance or relocate to public housing. Borrowers have until June to decide their options.
1994: May Parliamentary committee tables final report.
© 1994 Sydney Morning Herald