In the face of rising unemployment amid the global economic crisis, the Rudd government has announced that the four major Australian banks are willing to help borrowers experiencing financial hardship.

This in reality seems to be nothing new as under the Code of Banking Practice and the Consumer Credit Code there have always beens provisions  available for borrower experiencing hardship and all lenders must comply to the Consumer Credit Code. It is yet to be announced whether the Rudd government is just scoring political points or if there is any real additional assistance being offered.

The announcement really has only added to the public feeling that they need to be with on of the big four banks to the detriment of all other providers of finance. Several of the mortgage managers and non-bank lenders have already spoken up about the “announcement”.

In the past only borrowers with enough equity to cover any capitalised interest payments have been allowed “Payment Holidays”. It is interesting that no mention has been made of Lenders Mortgage Insurers as they are really the companies that need to make the decisions as they are going to wear any losses if the borrowers ultimately default.

Under Rudd’s announcement, if customers are temporarily unable to make repayments due to unemployment, the banks will consider postponing mortgage repayments for up to 12 months, in effect granting them a mortgage "holiday". During this period with interest may be capitalised into the loan or borrowers might be able to make interest-only repayments for a short period of time.

Chief executive of the Australian Bankers' Association, David Bell, says each customer's circumstances will be different and as such, each will be assessed on a case-by-case basis. Is this going to assist those most likely to become unemployed, especially the influx of first home buyers buying with little or no equity?.

While the agreement between the four major banks and the Federal Government will affect 80% of the mortgage market. The remaining 20%, who have loans with smaller banks, credit unions, building societies or non-bank lenders, are not part of the deal.

The Treasurer Wayne Swan is said to currently be in discussions with these institutions in regards to their participation in a similar scheme, and many already have procedures in place for helping those in financial hardship.

Federal Shadow Minister for Housing and Local Government Scott Morrison warns those who take advantage of the temporary assistance need to be aware that they'll end up with greater debt and higher repayments at the end of the day.