Lloyds Checking IO Mortgages for Fraud and other stories

Generali

Apologies if this has already been posted, I don't recall seeing it:

http://www.google.com/hostednews/ukpress/article/ALeqM5jpouGC-Y3JyxlxDNUu6u2g3MZvqQ?docId=N0147321286460847700A

Lloyds spot check plan for brokers
(UKPA) – 3 days ago


Lloyds Banking Group is introducing spot checks on brokers to ensure that customers with interest-only mortgages have a way of repaying their loan.


The lender has written to brokers telling them that it plans to randomly select mortgages they have arranged and ask them to provide evidence that the repayment vehicle customers said they had in place actually exists.


The move is the latest part of a strategic review the group is carrying out on interest-only mortgages.


Earlier this year it announced that it would be charging people with interest-only mortgages 0.2% more than those with repayment ones. It has also reduced the repayment vehicles that it considered acceptable for interest-only mortgages, to exclude the sale of a business, an inheritance or the sale of the property against which the mortgage is secured.


Instead, customers must show they have an endowment, an equity ISA or other investment in place to repay their loan. They can also show that they will use a pension, savings or money from the sale of a second home in the UK to clear the balance.

(my bold)

I guess a lot of people ticked the box marked 'yes, I have a repayment vehicle in place', reading in place of those words 'yeah, blah, small print'. In fact I can think of at least one friend who has done exactly that although I shouldn't imagine his mortgage is with Lloyds.

In other news (link)

Proposals by the Financial Services Authority (FSA) to reform the mortgage market could leave many potential borrowers in danger of being frozen out, according to What Mortgage.



In July, the FSA recommended imposing affordability tests for all mortgages and making lenders ultimately responsible for ensuring the borrower's ability to pay, as well as providing extra protection for vulnerable customers.



However, the Council of Mortgage Lenders (CML) responded this month that has these changes been in effect from 2005, around 3.8 million "good" house purchase loans may not have been granted.
Ben Wilkie, editor of What Mortgage, said the FSA needs to listen to industry voices like the CML and in any case, lenders already take steps to reduce their risk.



"Making a cut off for first-time buyers would ruin it for people who want to move house, people who want to remortgage, people who want to invest in property or people who want to downsize when they retire," he added.

Make of that what you will. It's unlikely to be positive for house prices. Potentially good news for landlords with plenty of equity though.

A._Badger

Pretty typical of a bank to pretend that their repayment 'vehicles' are going to be any more viable than an owner's business, an inheritance, or whatever else in the long run.

How rapidly (and conveniently) the memories of bankers seem to fade.

ILW

A bog standard repayment mortgage is a pretty solid repayment vehicle.

Radiantsoul

A._Badger wrote: »

Pretty typical of a bank to pretend that their repayment 'vehicles' are going to be any more viable than an owner's business, an inheritance, or whatever else in the long run.

How rapidly (and conveniently) the memories of bankers seem to fade.

Presumably the banks are after something they can take a legal charge over. I suspect that a business will be ok if the individual is prepared to give a legal charge over the assets, but not if the owner merely offers a promise that the sale of the business will provide cash.

A._Badger

Radiantsoul wrote: »

Presumably the banks are after something they can take a legal charge over. I suspect that a business will be ok if the individual is prepared to give a legal charge over the assets, but not if the owner merely offers a promise that the sale of the business will provide cash.

I don't doubt that's what they want to think. I just remember the shenanigans over the mis-sold (and misbegotten) endowment plans.

I trust these 'vehicles' about as much as I trust many other financial 'products' (ie, not at all).

What would be interesting would be to know to what extent this is a genuine concern. In other words, how many defaulters there really are.

shortchanged_2

About time too. Interest only mortgages helped fuel the house price boom by making houses 'seem' affordable for many people.

Many people were/are overstretching themselves on interest only mortgages just to get that house they wanted and probably will have diddly chance of ever being able to pay back the capital at the end of the mortgage term.

A sensible way forward is to get rid of all interest only mortgages therefore many people with all their jackanory stories, combined with the banks cannot help to fuel another stupid house price boom in the future and hopefully house prices can return to a more stable realistic level again.

Graham_Devon

If borrowers can't show these things, what would happen?

antrobus

Graham_Devon wrote: »

If borrowers can't show these things, what would happen?

They're going to charge them an extra 0.2%.

madnessofBruno

Graham_Devon wrote: »

If borrowers can't show these things, what would happen?

They sell to me for 50% of my valuation

Radiantsoul

A._Badger wrote: »

I don't doubt that's what they want to think. I just remember the shenanigans over the mis-sold (and misbegotten) endowment plans.

I trust these 'vehicles' about as much as I trust many other financial 'products' (ie, not at all).

What would be interesting would be to know to what extent this is a genuine concern. In other words, how many defaulters there really are.

Well in times of rising house inflation every mortgage had a repayment element as the capital outstanding fell. But as prices have stagnated the risks of interest only mortgages has increased. I suspect that it is a reasonable assumption that other financial products might have returns correlated with house prices increases. But from the banks point of view it increases the security they have.

A._Badger

Radiantsoul wrote: »

Well in times of rising house inflation every mortgage had a repayment element as the capital outstanding fell. But as prices have stagnated the risks of interest only mortgages has increased. I suspect that it is a reasonable assumption that other financial products might have returns correlated with house prices increases. But from the banks point of view it increases the security they have.

The degree of that risk has still to be quantified. My twitching antennae suggest the presence of spin.