Archive Article: The Home Fund Mess
February 28, 2009

Wesley Mission has been a pioneer in credit counselling though its Credit Line service. One of its longest-running tasks has been that of helping the victims caught up in the HomeFund scandal. Some progress has recently been made by the Federal Court in settling the problems caused for the borrowers who have been badly burnt by the scheme.

Greg Kirk of the Public Interest Advocacy Centre, writing in the current edition of the Centre’s “Bulletin”, provides an overview of the HomeFund debacle. HomeFund was a government-sponsored home loans scheme with the stated purpose of assisting people who could not afford to borrow on the private home loan market to buy into home ownership. Commonwealth-provided housing monies were used by the NSW Government as a security against which to borrow much larger amounts of money on the private financial market. These were then lent to low-income borrowers. From 1986 to 1993, 57,000 loans were issued.

In retrospect, the scheme was one of those government failures, which had a worthy purpose, but which was so flawed that one can hardly imagine how sensible people could be so stupid. Both NSW political parties, by the way, have been involved at varying times in this shambles. It began as a Labour creation and then the Liberals expanded it.

In essence, the HomeFund scheme started at a low rate of repayments and then the repayments increased considerably. It was assumed that these costs would not be too hard to repay hard because inflation would take care of them.

But the scheme was based on a set of assumptions, all of which turned out to be wrong. For example, it assumed that inflation would remain high, that commercial interest rates would also remain high, that wages would steadily increase by at least six per cent per year, and that the employment market would remain strong.

The failure of these overly optimistic assumptions resulted in the HomeFund borrowers being very deep in debt. Indeed, I met a person who owed more to the scheme than her home was actually worth. This meant that she could not just sell the home, pay off the loan and go back to living in rented accommodation. The Great Australian Dream of owing a home had become a nightmare.

Mr Kirk’s article goes into some detail in the legal complexities of the case, which I do not have the time for here. Even this part of the tale of woe, by the way, reflects poorly on the NSW politicians and bureaucrats.

The Federal Court’s settlement took place in April this year. One lesson from the HomeFund mess is that the political system failed the borrowers because it only sought a quick fix to the crisis at the least possible cost. There was not enough attention given to the long-term issues involved. Second, the legal system was hindered by some political decisions and so it could not operate as quickly and as effectively as should have. Finally, the true cost to borrowers, in financial terms, and also in relationship breakdown, health and related problems under the crushing burden of debt, together with the flow on costs to the community, were never addressed or accounted for.

To conclude, owning your own home remains a very important way of avoiding poverty. We still need to find ways of including all Australians in the Great Australian Dream.