Buying Debt for an Investment?
Some very interesting discussion has gone on recently in the Australian Financial Review (AFR) regarding possible solutions to banks having large debts that can be out of control in times of economic uncertainty.
It has been stated that Australia should have a scheme where by investors could purchase mortgage debt from banks and lenders in the hope of securing a fixed rate return that would ease the pressure of banks and also allow for a lucrative market that investors could capitalize on.
The MFAA (Mortgage and Finance Association Australia) is asking for an introduction of a Canadian style National Mortgage backed securities program to allow ongoing competition in the mortgage market.
No one in the upper regions of Senior management has commented on such a scheme as yet, except for NAB Chief Executive John Stewart who has stated that he see’s no reason for why this would be needed in Australia.
Question:
1. Would you consider this as a good thing or a bad thing for mortgage payers?
2. Would you invest in such a scheme, eg; buy someones mortgage and secure a 12% return on the rate?
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3 Responses for Buying Debt for an Investment?
Buying Debt for Investment purposes is very risky. I wouldn’t advise it, but then again you are technically in for lots of profits if you are willing to become a modern day ‘loan shark’.
1. Short term – spreading risk would be good for mortgage payers and banks. Longer term – resentment about rate rises becomes more personal as it is seen to be individuals who are profiting at the expense of others; rather than just an “institution”.
2. No. I like the idea of using my wealth to help others, but I think there are better ways.
Editors Note: I agree Mark – although there is potential to make money from buying other peoples debt, I too would rather use it in a more productive way.
