Lloyds Checking IO Mortgages for Fraud and other stories

A._Badger

ILW wrote: »

When the taxpayer ends up bailing out both the lender and the borrower, there is an argument for controls

That's a separate issue. The banks are being baled-out because of their exceptionally ill-advised purchases of securitised debt - not because of IO loans.

michaels

I don't understand - are you suggesting that those who own will have some how manage to run up a huge debt far in excess of any assets they have (like the property) whereas those who rent won't have any unsecured debt? Why?

ILW wrote: »

Difference is that it is unlikely that a renter will have a debt of 100s of thousands.

Thrugelmir

A._Badger wrote: »

That's a separate issue. The banks are being baled-out because of their exceptionally ill-advised purchases of securitised debt - not because of IO loans.

Which banks bought securitised debt?

Thrugelmir

michaels wrote: »

And spin it as being responsible and there are people who will be taken in even on house price forums like this. GD would like me and RenoMan to go IO. We have 40% equity in our houses to cushion the banks for any risk so how would a repayment of 50 quid a month make any material difference to the the lenders risk?

Its not the risk factor alone. Banks need to reduce lending exposure to increase capital reserves. Besides lending less, repayment of debt will also provide liquidity in the banks.

With various introduced measures Lloyds is driving towards reducing its exposure to the SLS and the tax on wholesale borrowing that it'll incur.

olly300

michaels wrote: »

Why are the banks looking to see if any T&C are being broken? - easy.

Consider you are lending to someone with an ltv of above 90% but they are on a good rate, may be a 1% over base tracker or a capped 2% over svr. Now suppose you can find some irregularity with their mortgage - may be they lied about their income or don't have a repayment vehicle for their IO loan. Now you have them - offer them your current product that matches their circumstances (say base plus 4.5% - or even more) safe in the knowledge that they can't get a better deal elsewhere - kerching!!!!

This presumes a lot of things.

With:
1. The endowment mis-selling fiasco
2. The FSA and FOS expecting and requiring financial organisations to treat consumers fairly
3. And the rare cases already reported of brokers inflating borrowers incomes in their own records but not on the paperwork they give borrowers plus brokers going out of business.

I can see LloydsTSB trying this and then coming unstuck.

Particularly in the cases where there is no obvious repayment vehicle for the loan but the borrower is well versed or can get good advice on financial matters.

michaels wrote: »

And spin it as being responsible and there are people who will be taken in even on house price forums like this. GD would like me and RenoMan to go IO. We have 40% equity in our houses to cushion the banks for any risk so how would a repayment of 50 quid a month make any material difference to the the lenders risk?

You can have what mortgage you like. I know people on IO mortgages who paid a massive deposit. Everyone has different circumstances unfortunately if banks/BS apply blanket rules to people that's when they come unstuck.

If they apply more discretion then it stops people taking them to court/the ombudsman and even more people going along the same lines.

Thrugelmir

olly300 wrote: »

You can have what mortgage you like. I know people on IO mortgages who paid a massive deposit. Everyone has different circumstances unfortunately if banks/BS apply blanket rules to people that's when they come unstuck.

If they apply more discretion then it stops people taking them to court/the ombudsman and even more people going along the same lines.

Then the banks in time will impose an interest levy on IO mortgages. So the choice will lie with the borrower. No need to enforce anything legal as there's nothing better than hitting peoples pockets.

olly300

Thrugelmir wrote: »

Then the banks in time will impose an interest levy on IO mortgages. So the choice will lie with the borrower. No need to enforce anything legal as there's nothing better than hitting peoples pockets.

Would only work if they ensured the interest rate increase equalled someone going on a repayment mortgage otherwise people would just put up with it.

A._Badger

Thrugelmir wrote: »

Which banks bought securitised debt?

That's the problem. Who knows?

Thrugelmir

olly300 wrote: »

Would only work if they ensured the interest rate increase equalled someone going on a repayment mortgage otherwise people would just put up with it.

What does equalling going a repayment mortgage have to do with it ?

More a question of whether the alternative investment is still better.

As the capital debt still has to be repaid at the end of the mortgage term one way or another.

Thrugelmir

A._Badger wrote: »

That's the problem. Who knows?

Obviously you don't.