Sub Prime lenders

homer_j_3

Thank you Homer_J and I do appreciate that many Advisors like yourself do just this and by the way it is a professional approach. But, (just for example) would any borrower know Mortgage Agency Number Six or Seven, or indeed the next subsidiary created to assume responsibility for the portfolio sale to avoid??

When providing information as you advise borrower will ask what type of company is this and will want to know a little background on them, What they do know is that in a lot of cases this company will be completely different to the company they will end up with. We have not met one borrower who knew up front that their mortgage was going to be transferred/sold, to whom (even against FSA MCOB) and a high percentage had never heard of the company that they are currently with.

To be honest, I dont think that the average customer will know who Kensington are, never mind MAS 1-6. I do have a responsibility to provide information surrounding any lender that I recommend and I have to advise the suitability of the whole package.

I have said before that if I will only use subprime lenders as a last resort so if I was to have a 2 year fixed rate with the Abbey and a similar one with Rooftop, then I would go with the Abbey because they are the high street lender.

However, if I have a client that has had bad credit or cannot phyisically qualify for a prime product then that 2 year fixed product is narrowed down to pure subprime lenders, whether it be rooftop or kensington etc.

Before I will suggest this product and where the client is trying to reduce outgoings, consolidate debt etc, I will discuss the option of debt councilling with a view of setting up arrangements with their exisiting creditors or an IVA if possible where they work to fix their credit problems.

If they advise that they do not want to discuss that or already have and decided against it for whatever reason, I will only then start to proceed with arranging the mortgage.

If the client hasnt specified that there is lender that they want to avoid then I do not mention that there is a possibility that their account may be placed elsewhere. The reason I do not do this is because I ensure that the product that they have been given will deal with their requirements/aspirations and objectives.

It is my view that any accounts that get sold will be sold to another FSA regulated company and that as I survive off repeat business and want my clients to return for further advice as their current deal is expiring. My service goes beyond the advice process and is an ongoing relationship so I am only a phonecall away to help deal with any issues that they may have with the product that I have sold.

I ensure that they are adequately protected as best that they can for their affordability for the unforseeable events. Where shortfalls are clear, I will look to discuss and document these areas and ensure that my client is fully aware of these.

Most borrowers do not JUST expect to be narrowed down to the contractual terms ONLY. Some require future mortgage advise during the early, mid and later terms of the mortgage.

Yes and rightly so but I do not believe that it should be a requirement for either the prime or subprime lenders to have these in place as they would be most likely formulate tied adviser status. You must agree that if a consumer sought advice from somebody independent of any one lender then that provides better service for the consumer.

They were sold to: 'Obscure Mortgage Company' who informed them that they are only responsible to administer the original terms and conditions and (despite their FSA authorised lending status) do not make further advances.

Lets assume their child could have been severely ill and needed an operation (private) and to fund this through remortgage of their house or to release some further available and affordable equity by taking a further advance. They could not. They were also told that they would not accept another 3rd party secured loan on the property. STUCK! They did not enter into the agreement with all or any this knowledge.

They now have his mortgage, tied up thier current and future equity and stopped access to any further secured loans. Administer only/portfilio performance management. Can you or anyone tell us that these sceanrios are untrue?

No I cannot tell you that the scenarios are untrue. They are all realistic and infact part of my advice process.

This is why we provide advice of insurances. I will always look to cover people with the relevant inurances to ensure that we cover against the event of Death, short/medium/long term income protection such as MPPI. PHI etc. The policies that I advise on with regards to Income Protection all have child cover included. Normally this is cheaper than having to take out a further advance.

If I had a client in the worse case scenario, the solution would be very individual to that persons circumstances and would look to review the situation in full to see if there was anything that I could do.

emmaHarris_2

To be honest, I dont think that the average customer will know who Kensington are, never mind MAS 1-6. I do have a responsibility to provide information surrounding any lender that I recommend and I have to advise the suitability of the whole package.

Exactly. They will of course know who the Woolwich and Abbey are etc. By asking this question about who would wish to avoid.

Case No 2:

Lets say they tell you for example Britannia Building Society. You place the mortgage with Kensington. KMC write to the borrower wishing them a long and happy relationship with KMC.

2 weeks after completion it is sold through a (pre-determined) whole loan sale to the newly created Mortgage Agency Number Eight (MAS8) (hypothetical company). MAS8 write to the borrower a welcome letter. Everything seems like that they are a normal mortgage company and lender. Interesting, that they are both at the same Skipton address. MAS8 belongs to the Britannia. Again, the borrower has no choice but now to accept the situation.

The borrower as in the previous example telephones MAS8 and asks to speak to a Mortgage Advisor. They are told they will get someone to contact them. No one does. There are NO Mortgage advisors.

In this case the borrower wishes to discuss a possible 'future' problem. They have received news that his company has closed down. They have plans to overcome this but it may need 3 months. They want to go through these plans with their 'lender'. No one calls back. They are concerned that they cannot immediately make the mortgage payment as despite hundreds of calls, no one will talk to them. There are no mortgage advisors. They have now passed the payment date and an adverse credit has been placed on Experian for being late and additional charges made to the account. They are now technically one month behind.

They own a house with a mortgage of £120k and a value of £300k. They write and telephone and still no one 'can' discuss his mortgage with them. When they call they are only asked "are you going to pay the next instalment"? HML/Lender ignore all letters sent. They receive a threatening letter advising of possible repossession. 2 months has now passed and due to the delays they are now 2 months behind. They tell them they cannot borrow elsewhere, that they have no 'obligation' to provide further assistance and are administrating the account as per the original terms and conditions.

The main earner of the home starts to become ill with worry and concern. CAB cannot really help. Stonewalled by MAS8 until they go into an arrears situation. Now MAS8 can manage the situation of an arrears and a defaulter, despite all efforts by the borrower to stave off such a situation and protect his credit. The main house earner cannot go back to work yet due to the sudden illness, worry and concerns over his family’s future. He cannot anyway borrow elsewhere as his credit is now for the first time impaired. He cannot look after his family.

He talks to the original Mortgage Advisor but sadly, they are unable to help either.

HML of course carry out the client’s wishes and sets the client’s standards of service.
HML are NOT well known to the consumer as you previously advised and we agree. The whole loan sale was agreed 12 months prior between KMC and Britannia. MAS8 was created (Ref: companies house) at this time to accommodate for the next portfolio sale. The borrower met the portfolio sale criteria (the cherry-picking effect) exactly. They had to complete the portfolio sale by a certain specified date to go live and to meet the cost effective sales value of circa £100m or circa 500 properties. HML manage the whole securitisation process. Both the Britannia’s and KMC annual accounts show the sale and purchase of the portfolio on the balance sheet.

The portfolio has a performance rating set by Fitch. The new owners of the mortgage do not and cannot change the terms of the original contract. So, if further lending was applicable then it could not be provided anyway. Hence, no need to waste money on employing Mortgage Advisors. No Mortgage Advisors – No help. MAS8 do not have a reputation to lose. It is a short-lived company designed to manage a specific portfolio.

Even though the borrower was able in the end to secure some work and meet normal monthly payments (just). The borrower asked for more time or an extension to pay and maybe pay the arrears over the whole term of the mortgage. Was denied, as the original terms of the contract would not permit this. The borrower was repossessed within 6 months (considering obtaining the hearing date and processes involved) based on the arrears outstanding. They were repossessed by MAS8 not Britiannia (not calculated in the Governments repossession figures).

In case number 2 the family decided to go their seperate ways. A 23 years marriage ended. The wife went to live with her sister for a short while. The children had to change schools. The father had a heart attack and now cannot work for the first time in his life. Scaremongering? NO. Real, YES. Who is responsible for this mess? The Mortgage Advisor/Broker? The borrower? The original Lender? The current system overall?

emmaHarris_2

You must agree that if a consumer sought advice from somebody independent of any one lender then that provides better service for the consumer.

Yes, we do agree. Sometimes though through TV adverts borrowers will go direct to TML for example and many others. They are Mortgage Advisors after all. The borrower/consumer is quite ignorant in the mortgage world/industry and sometimes some forget this. Everyone sees in their high streets smaller mortgage shops and considering compelling TV advertising that presents to viewers a sense of trust and confidence some people may not like to walk into one of these 'shops'. They do not know or understand the important role they play. It is a changing world. KMC aims are by the way to increase their volume of mortgage enquiries through TML and reduce through intermediaries anyway. When we discuss KMC, yes this can be anyone of them.

emmaHarris_2

Again though without advertising I bring you to Case No 3 (out of many) - Ian Beech!

See my profile for URL

emmaHarris_2

In Case No 2 for example the borrower was asked that if he had known how the sub prime market worked would he have re-mortgaged and he replied NO WAY. Their expectations were that they worked in a very same was as for example the Woolwich etc. Had it been the latter there is more of a chance that together they could have gone through plans to over come a temporary set back. By talking to someone before going into any arrears would have been respected anyway.

Repossession 'should' be the last resort. If he was informed of the practices involved in the sub prime lending market of securitisation/whole loans sales, he continues to say "I would never have risked my family in this way". He says " I did not know what 'administration only' of a mortgage account really meant in the real sense that it is used in the Mortgage Industry". "They tied my hands, stonewalled me and I believe stole the substantial equity in my house along the way". "It's what they don't tell you not what they do is the important factor".

There is a huge difference in mortgage portfolio management and being a valued mortgage account holder with mutual interest at the core of the relationship. As afore mentioned in this thread they do not wish to give too much information to the consumer in case of 'consumer overload'. Personal controls on ones futures are taking away because they do not tell prospective borrowers anything relating to this type of business profile. They told us that they wished they had seen the company accounts of the originator before placing their mortgage and carried out more due diligence to the industry. The phrases prime and sub prime are not generally known or understood by consumers. They have a totally different agenda to that of traditional mortgage company’s.

We believe there should be more openness in this growth market towards providing consumers with more information up front so considered choice can be made and we hope that we will meet the expectations here too of 'Money-savings' at the minimum.

They told us that the motto should read: “Your home may be at risk by the type of company you go with”.

emmaHarris_2

Homer_J you asked me to respond point by point to your multi point response earlier:

Point 1
1. have high street shops (you could actually picket them if you were unhappy) you could equally just write to the FOS

As before mentioned the FOS are struggling to keep up with complaints overall. It can take up to 12 months. By this time repossessions etc have been completed.

emmaHarris_2

Point 2
2. they have reputations to lose -a subprime business would equally have a reputation to lose

Not as much a prime lenders. When they have sold your mortgage as part of a mortgage portfolio (circa 500 properties UK wide) to an obscure and newly created entity whose sole aims are to manage a small portfilio of mortgage accounts for up to 3 years then they have no reputation to lose. The well-known parent company is not cited in any repossession cases and as such do not lose reputation in their markets.

emmaHarris_2

Point 3
3. they carry savers and current bank account holders what has that got to do with a mortgage lender not agreeing to do something in your life changing event scenario

If reputations were to be lost on one part of their business then there would an obvious impact and ramifications to the other parts. Savers & current bank accounts holders may go eslewhere. They have more to lose.

It is the savers and bank account holders who fund in part the ability for prime lenders to provide loans for mortgages. Sub prime fund their loan advances through securitisation and whole loan sales.

emmaHarris_2

Point 4

4. they provide mortgages from these investments - what has that got to do with your example? Some have shareholders too and want profit to be high

As above.

emmaHarris_2

Point 5

5. ROI on a mortgage account to become profitable is circa 7 to 12 yes sof course it is.. thats why all these mortgage companis make a loss on the 2 & 3 year deals - this has nothing to do with the statement you made?

Then they do not look towards a short term return on thier current huge loan book. Hence again they need to tread a fine line and balance of treatment to customers when considering repossessions. The sub prime however is short term ROI. Basically 3 years and the loan book is very small dispersed over the UK, specifically set up to manage this very small portfolio of properties.