MSE News: The mortgage ticking timebomb

bankshater

Judge cancels LI family's mortgage, berates lender

November 25, 2009 By JOHN VALENTI. AND JENNIFER SINCO KELLEHER. john.valenti@newsday.com., jennifer.kelleher@newsday.com
A Suffolk judge awarded a Long Island family their East Patchogue house, wiping the slate clean on their mortgage debt and ruling that the bank holding their home loan had acted in a manner "so completely devoid of good faith that equity cannot be permitted to intervene on its behalf."
In a terse, no-holds-barred decision rendered Nov. 19, Suffolk County Supreme Court Justice Jeffrey A. Spinner.:T:beer:

LizEstelle

Thrugelmir wrote: »

Martin, whilst your argument is well made.

If I was a mortgage provider. Where could I borrow £5 billion at 2% as you quoted in your article as the going swap rate.

The lender could get a better return by investing Government securities.

The LLoydsHBOS Group quoted around 3.8% as the average rate of their mortgage funding across the whole group as at the 30th June. As they control in the region of 29% of UK mortgage lending. That must be a fairly representative figure for the market.

On a personal note I have a life time base rate tracker, .35% above base. So my lender is losing money on my business. Somebody else has to compensate for this.

The mortgage market will take some years to resume to "normal" conditions. As the excesses of the past need to be washed out of the system.

Very kind.

How about shareholders, for one?

I keep getting told that mortgage products, especially trackers, are a gamble and you have to take the rough with the smooth. Ok, so why do others have to 'compensate' for this such that, in principle, lenders' shareholders never have to?

The managers, as approved by the shareholders, have made a duff set of decisions relative to one set of borrowers - shareholders should be made to feel the pain of their lousy choice of managers. They should not be allowed simply to jack up the profits they make on other borrowers so as to insulate themselves from the effects of those decisions.

Thrugelmir

LizEstelle wrote: »

I keep getting told that mortgage products, especially trackers, are a gamble and you have to take the rough with the smooth. Ok, so why do others have to 'compensate' for this such that, in principle, lenders' shareholders never have to?

My lender is a mutual building society so has no shareholders.

The Lloyds Group in its entirety is losing money and isn't paying dividends to shareholders. So how do the shareholders compensate?

Trackers are merely SVR mortgages that have a guarantee of tracking BOE base rate. Historically the large lenders SVR's tracked BOE base by around 2%. Though there were always complaints that rates weren't changed quick enough after BOE rate changes. To the deteriment of borrowers.

Joe_Bloggs

There is an opportunity for Lloyds Banking Group shareholders to chip in and help the cause with a £13.5 billion rights issue proposal according to this Telegraph article here.
J_B.

owensky

Thankyou MSE for raising the point we've all been shouting about since the 'BOE base rate' came down last year! We came out of a fixed self cert with Accord straight on to their SVR 5.34% which hasnt changed till now UP TO 5.99% wef 22nd Nov and all they cud offer was a fixed 6.24%. We are literally stuck with nowhere to go except on the streets. Gordon Brown is a waste of space.

LizEstelle

owensky wrote: »

Thankyou MSE for raising the point we've all been shouting about since the 'BOE base rate' came down last year! We came out of a fixed self cert with Accord straight on to their SVR 5.34% which hasnt changed till now UP TO 5.99% wef 22nd Nov and all they cud offer was a fixed 6.24%. We are literally stuck with nowhere to go except on the streets. Gordon Brown is a waste of space.

It's about time he did something, correct.

And Martin Lewis should be lifting the phone to Downing St, or as close as he can get to that situation, to say that he is abandoning his bank charges campaign and switching instead to a programme of publicising this total iniquity which has gone on for far too long.

Batchy

Gordon, is looking after number one, and thinking how he can get votes...

We need a political reshake in the UK, too much that GB did in the past was for his own status and reputation improving, what he didn't do was implement policies and proceedures to secure the UK nation as a whole.

GB is a disaster waiting to happen if he gets voted in for a full term.

LizEstelle

So here's something he could do to make sure that the pains and gains of the recession aren't shared out in the dreadfully skewed way which some lenders prefer.

Martin, do your stuff.

dots_thots

It's extremely likely the waves of Option ARM resets pending later this year in the US could kick off some more banking problems over here.


Image taken from: http://ftalphaville.ft.com/blog/2010/03/02/162856/coming-soon-1000bn-resetting-recasting-us-arms/

Most of these "voluntary" rises are based on deals when the mortgages were arranged, before near-term potential base-rate hikes etc. are factored in.

It's also true that because of the UK's debt problem foreigners may decide not to buy as many gilts, and with government already crowding out borrowing, interest rates could rise quite a bit.

The banks are insolvent and if house prices crash they will be forced to start selling all the property they have on their books. Currently they're not doing that; the legal changes mean they can value at fantasy prices and look solvent. If it became clear they may not get rising prices for a long time, they'd start selling and that would snowball into drastic house price reductions and defaults as the bubble deflates further.

These precarious circumstances combined with career politicians add up to one thing and I think the government (both parties) and all the central banks have made it very clear what they would do if this happened.

They will sacrifice the pound on the alter of keeping people in overpriced houses they can't really afford and let the British people as a whole suffer. They will inflate the pound away to almost nothing in attempt to drive and keep domestic interest rates down. If they felt they had to, it wouldn't surprise me to see them nationalising mortgages by the hundreds of thousands as private lenders refuse to play the game again. They'll be the only game in town. This would help ensure housing appears to be rising or staying steady in nominal terms, whilst the real values drop off a cliff. That way, they spread the damage between everyone. They can try to push the blame onto whatever and whomever else they can think up (see history - it's been going on for centuries) and hopefully manage to get away with it. If they can get it to happen gradually, by the time people figure it out it'll have been too late.

The politicians who don't understand all of this will just let it happen because people will want something done and they'll feel like they are doing something.

If they attempt this what I think will actually happen is a currency collapse. If we are ever gonna sort these problems out we need more people who truly understand the different between money and currency and more people who think in terms of values not prices.

In terms of re-mortgaging..., I would factor it in if you can. Your debt may be inflated away so if your income can hold its value or you have assets that can be sold to pay your house off you could do very well out of it. If I was in this position, I think I would try to get a long-term fixed rate now just in case rates do rise and to offset risk while we're waiting for the BofE to react, but I would try and squirrel away money into real assets that are undervalued like precious metals etc. that will at the very least hold value if my prediction unfortunately comes true. You may not get the best deal in hindsight because nothing is certain but I know it'd make me sleep better.