At 71, Linda Schmidt should be enjoying retirement.
But for the past two years the Perth nurse has been crippled by debt, and fighting the banks.
“I just survive from day to day, black dog trotting around behind me,” she told 7.30.
She owes more than $3 million to half a dozen lenders.
The loans cover her own home and, not one but 11, investment properties.
Her superannuation has plummeted from more than $500,000 in 2012 to just $540.
Now she is faced with the prospect of losing her home.
Growing mortgage stress has led to consumer advocates calling for the banking royal commission, which meets for public hearings in Melbourne tomorrow, to examine irresponsible mortgage lending and the way banks assess whether loans are affordable.
‘I feel like a punchbag’: Schmidt
So, how did a woman in her late 60s on a nurse’s salary manage to borrow so much money?
Ms Schmidt started investing in property years ago as a way of earning a passive income.
At one point she had 14 investment properties, most of them serviced by interest-only loans with half a dozen different lenders.
Her plan was to build a portfolio of investment properties and retire early — a strategy she had learned over years of attending wealth creation seminars.
It all seemed possible during WA’s mining boom years.
But then the downturn came and her properties became harder to rent.
Today, instead of retiring early, Linda Schmidt is still working night shift as a nurse trying to service an enormous debt.
Many of her loans are thousands of dollars in arrears because she cannot meet the repayments.
“I’m exhausted. I’m so tired, I can’t sleep,” she said.
“I feel like a punchbag.”
Financial ombudsman investigating
One of Ms Schmidt’s most recent loans was taken out with Westpac four years ago through a mortgage broker.
Despite already owing the bank close to $ 1 million, at the age of 67 she managed to secure another loan for $360,000 to buy yet another investment property through her self-managed super fund.
She now sees how unrealistic her plan was.
“Oh, absolutely, but I relied upon the banks to work this out,” she said.
“I relied upon the banks to sit down and work it all out with me.”
The loan was approved after Ms Schmidt met Westpac’s criteria, and the property was initially rented out but it later became vacant and lay empty for 18 months.
Now her payments are in arrears and Westpac is threatening to take possession of the property.
Ms Schmidt has taken her case to the Financial Ombudsman Service claiming the loan was unaffordable in the first place.
She claims she only saw three pages of the loan application form which she signed.
When she applied recently for the full form, she said she was shocked by its contents.
Ms Schmidt claims the document overstated her assets, including her superannuation, and underestimated her existing debts.
Westpac said privacy provision meant that it could not discuss individual customer issues.
“Westpac is investigating this matter and has been working with the Financial Ombudsman Service to ensure a fair outcome. Westpac has been in touch with the customer directly to offer hardship assistance and support at this time,” it said a statement to 7.30.
“We take our responsible lending obligations seriously — it is not in our interest or our customers’ interest to issue loans that cannot be repaid.
“We assess all interest-only loans on our customer’s ability to make repayments for the life of the loan, including the principal and interest period.
“We are always looking at ways to enhance staff and external broker assessments of our customers’ financial circumstances so we have a fuller picture of their ability to repay their loans in good times and in bad.”
Banks have a duty to ensure loans are appropriate: advocate
At the same time, Ms Schmidt is caught up in another dispute with WA members’ bank, P&N.
P&N has repossessed two of her investment properties and has given her until April to pay her debts or lose her own home in Darlington.
The case is currently before the ombudsman.
From a cottage in WA’s wheatbelt, veteran consumer advocate Denise Brailey is taking on the banks on behalf of distraught borrowers like Ms Schmidt.
“The point is the banks have a duty to ensure that they don’t approve inappropriate loans,” Ms Brailey said.
“From the income she had, they were using projected rentals to suggest she may afford it, but there were huge risks which were not explained to her at that time and should have been.”
She is trying to negotiate with the banks to help Ms Schmidt keep her home.
“I think the solution is to try and get the banks involved to have a look at a process that might see her keep her home,” Ms Brailey said.
P&N, which refinanced three of Ms Schmidt’s Westpac loans in 2015, said it was committed to the principles of responsible lending.
“P&N Bank is unable to discuss the specifics of this particular matter. However, P&N Bank supports and is cooperating fully with the review currently being undertaken by the Financial Ombudsman Service and we look forward to its independent findings on this matter,” a spokesperson said in a statement.
“As a responsible lender and customer-owned bank, P&N Bank takes its responsibilities to members very seriously and is resolute in its compliance with both its own internal standards and the regulatory requirements of both ASIC and APRA.
“When issues arise, P&N Bank works with its members to achieve a resolution that is fair and reasonable to all parties concerned.”
The Australian Banking Association’s Tony Pearson offered a word of warning for potential borrowers.
“I can’t comment on the specific details of this case, but banks do take their responsible lending obligations very seriously,” he said.
“We also would counsel borrowers, though, to be prudent in their borrowings and not to bite off more than they can chew.”
Thousands of loans outside interest-only criteria: analyst
Finance sector analyst Martin North runs a rolling household survey and has found that nationally more than 145,000 households will fall outside current interest-only assessment criteria when they come to reset their loans over the next four years.
The borrowers will either have to sell or switch to principal and interest.
He predicts this, and falling demand from investors generally, will have a big impact on the market.
“That is going to put significant downward pressure on property prices and my central case for the next 12 to 18 months is that we are going to see a 10 to 15 per cent drop in property prices directly as a result of this,” Mr North said.
Ms Schmidt does have some equity in at least two of her remaining properties.
But there will little left for retirement once all her debts are paid.
“I’ve been pretty down and very humiliated, because I’m a fighter and I’ve tried very hard to do the right thing,” she said.
“It’s been enormously difficult.”