More mortgage funds frozen as bank deposit chaos continues

Three more mortgage funds have frozen withdrawals as a result of being excluded from the Federal Government’s deposit guarantee system.

Three more mortgage funds have frozen withdrawals as a result of being excluded from the Federal Government’s deposit guarantee system.

Mortgage funds AXA Asia Pacific, Perpetual Investment Management and Australian Unity have suspended withdrawals on their mortgage funds, which contain $7 billion of investor savings.

The funds experienced a rush of withdrawals after it was announced they would not be protected under the Federal Government’s bank-deposit scheme.

The latest move means four of the country’s five largest mortgage managers have now suspended withdrawals, with tens of thousands of investors affected.

But Federal Treasurer Wayne Swan says there is no immediate resolution to the dilemma, saying unlike bank deposits, the mortgage funds are market-linked investments.

He urged those affected – many of whom are elderly investors with up to $40,000 now frozen – to seek government assistance if necessary.

“The Government is not and never could be in a position of providing the same guarantee to market linked investments as we are apply to the banking system – they are fundamentally different products.

“So I say to the people who are adversely affected by some of these decisions that have been taken in these managed investment funds, do fully investigate your eligibility for income support through Centrelink.”

But the Government’s approach has come under the attack from opposition leader Malcolm Turnbull. The Liberal leader says Swan is “confronted with the human consequences of his mismanagement and incompetence – the best he can do is tell people whose savings have been frozen to show up at Centrelink”.

Swan and Prime Minister Kevin Rudd last night met with the chief executives of the big four banks to finalise details of a guarantee on deposits. Included in the discussions were details on the threshold at which investors will pay for additional security, which the Government wants to set at $1 million.

But Mortgage and Finance Association of Australia CEO Phil Naylor says a guarantee for mortgage funds, similar to the Government’s guarantee on bank deposits, should be considered.

“I certainly think there is a case for making sure that all irrational withdrawals from those funds are not encouraged, and I think the problem is savings in banks are guaranteed, which makes them look much safer proportionally. This is a distortion in the market.”

But Naylor also says there isn’t a clear fix to the panic. “There’s certainly a concern in the long term. If mortgage funds do start to dry up, I think the Government recognises that in the rush to do everything, that there were unintended consequences. I think they’re trying to fix it.

“As to what the solution is, I’m not sure.”

See also: How mortgage fund investors were duped