Government loans causing hardship

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For 20 years, thousands of hard-up Australians have been living in a mortgage nightmare and this time the banks are not at fault.

It was a social experiment that went horribly wrong for 27,000 unsuspecting borrowers including Dianne Cowling.

In 1988, the single mum was living on a pension but to her astonishment was offered her dream home.

Dianne was given a $59,000 loan by the then Victorian Labor Government to buy a modest weatherboard in Melbourne's east.

It was a spiralling debt trap and over 20 years, Dianne paid back over $100,000 but her principal had not reduced at all, it increased to $71,000.

"What people don't understand about these sub-prime loans that this shonky government gave to the most poorest in our society was that we pay back over nine times what we borrowed," she said.

"Your loan that you get through a reputable lender, like the bank, you only pay back two-and-a-half times."

The loan structure was complex, clearly benefiting the government lender.

Charges included the going inflation rate plus market interest rates, which in the late 1980s reached almost 20 per cent.

But borrowers - usually pensioners - were not required to pay any more than 27 per cent of their income, so repayments did not cover even the interest.

Interest was charged on outstanding interest and the borrowers plunged into poverty.

Now an aged pensioner, Leslie Addison was 44 and a single mother of two when she signed up for a $79,000 government housing loan two decades ago.

Leslie's first loan statement showed she was doomed.

"I sort of felt like I was trapped in it and I couldn't get out of it," she said.

"What happens is if I sell it, where am I going to go and I just thought it will be fixed up and it never ever was."

Leslie said she still owes $45,000, and that is despite paying $147,000 in interest, for years sacrificing over half her pension to the loan as well as her $10,000 superannuation policy.

Social justice officer for the Victorian Uniting Church, Dr Mark Zirnsak, said his mission is to right a government wrong.

"One client we dealt with was going without hot water to make extra repayments," he said.

"She turned off the hot water so she could add extra in to make the loan balance go down faster in her case.

"We don't think people should have to be suffering hardships for a loan scheme that was dodgy in its design."

Of the 27,000 mortgages issued between 1985 and 1996, around 2200 are outstanding.

Dianne has finally refinanced hers and will subdivide and sell off her backyard to pay out her debt.

For Leslie, there is no end in sight.

"I don't want anything for nothing, none of us do," she said.

"We want what we were promised, home ownership."

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