AUSTRALIA'S Mortgage Crisis 2008 May

AUSTRALIA'S mortgage crisis is deepening and for the first time threatening to produce "affluent stress" - financial grief among higher income families - as new figures show that more than 700,000 households will come under some mortgage pressure by June.

About 300,000 are expected to fall into the worst "severe stress" category, possibly leading to forced sales and foreclosures, as consumers struggle under the weight of higher interest rates and rising living costs.

The major banks, faced by higher funding costs, are expected to again raise their variable mortgage rates by about 15 basis points, putting even more households under severe mortgage stress.

The dire predictions are contained in the latest JP Morgan/Fujitsu Mortgage Industry Report. It says more than 700,000 households will come under "mild" stress, the symptoms of which include borrowing on credit cards to make mortgage repayments.

Bank profits are now expected to come under pressure.

"The real question is, if the RBA does not move interest rates, can the banks actually increase their home loan rates?" he said.

The probability of a further RBA rate rise in May has now dropped sharply.The Australian Securities and Investments Commission released an alarming report that showed that a number of fringe lenders and mortgage brokers were refinancing consumers into loans they could not afford.

The report found some fringe lenders would allow borrowers to enter into a cycle of unaffordable loans in which they defaulted and refinanced several times until the equity in their home was exhausted.

Mortgage broker numbers are tipped to halve from 10,000 to 5000 in the next two years.