Lloyds Checking IO Mortgages for Fraud and other stories

Thrugelmir

Kenny4315 wrote: »

(for example, I have BTL income they don't take into account because their calculator uses an interest rate that is 4% more than I'm actually ever going to pay, that's just plain lazy).

On what grounds can you predict this?

Conrad

It's really very simple. You tell a Bank you have an ISA - indeed you can even start one, but as they are not assigned, the client may then cancel it.

What a funny world - we have threads dedicated to the miselling of endowments and ISA's and others claiming we must have one of these packaged investments that may well not produce a decent retrun whereas OVERPAYING THE CAPITAL IS GURANTEED ASND NOT SUBJECT TO INVESTMENT RETURNS.

Thrugelmir

Conrad wrote: »

It's really very simple. You tell a Bank you have an ISA - indeed you can even start one, but as they are not assigned, the client may then cancel it.

Random spot check checks be will undertaken through out the term of the mortgage.

So 15 years into a 25 year term. You are uncovered. Time is to short to repay for many.

Generali

Thrugelmir wrote: »

I believe the original post was made in the context of UK mortgage lenders. Hence my question.

Somewhere between most and all I would imagine would have held some of the AAA rated tranche. I shouldn't think many held the equity tranches (the most risky parts) in the retail part of the bank. The investment banking arms, where they existed, may have held some of the risky stuff. Even then I don't see why they'd have held it as a buy-and-hold position, perhaps as a trade.

Kenny4315

Thrugelmir wrote: »

On what grounds can you predict this?

They compare it to percentage above base, I'm on a lifetime tracker which is a different amount above base.

RenovationMan

Thrugelmir wrote: »

Random spot check checks be will undertaken through out the term of the mortgage.

So 15 years into a 25 year term. You are uncovered. Time is to short to repay for many.

I dont think there are any stipulations in current mortgage terms and conditions that the repayment vehicle has to be on target to pay off the mortgage, nor that the bank can demand to see proof of this.

With many investment products the early days are eaten up by costs, this was certainly the case with endowments, and so the bulk of the return is in the latter years. How then could the bank at year 5 demand you to abandon a repayment vehicle because at that point it doesnt cover the mortgage even though it was on track to cover it by the end of the investment term? Many investments have maturity bonuses that can form a large part of the return, i.e. the termination bonus of an endowment.

What if the stock market has had a wobble in year 10 and the repayment vehicle is worth less than the outstanding mortgage, is it to be scrapped even though it could more than recover by year 25?

Its one thing to check that people (still) have repayment vehicles in place, but quite another to start dictating how much they should contain at a certain point in time and definitely quite another to demand that they are closed down (with any early closure expenses or losses soaked up by the mortgage holder) and the mortgage converted to repayment.

Generali

Part of the problem from the bank's POV is that if you're lying about having a repayment vehicle in place, what else are you lying about?

Also, from the bank's POV, the higher the LTV, the higher their risk. If they think that you're putting money aside that they can go after in case of repossession and they then discover that doesn't exist they are taking a bigger risk than they think.

I know from personal experience that financial life can fall apart very easily, even if you are highly skilled and reasonably frugal.

Thrugelmir

Kenny4315 wrote: »

They compare it to percentage above base, I'm on a lifetime tracker which is a different amount above base.

Both Skipton BS and N&P BS have broken their mortgage promise. Citing the exceptional circumstances clause to increase increase rates. So a lifetime tracker may not be "lifetime".

Thrugelmir

RenovationMan wrote: »

I dont think there are any stipulations in current mortgage terms and conditions that the repayment vehicle has to be on target to pay off the mortgage, nor that the bank can demand to see proof of this.

With many investment products the early days are eaten up by costs, this was certainly the case with endowments, and so the bulk of the return is in the latter years. How then could the bank at year 5 demand you to abandon a repayment vehicle because at that point it doesnt cover the mortgage even though it was on track to cover it by the end of the investment term? Many investments have maturity bonuses that can form a large part of the return, i.e. the termination bonus of an endowment.

What if the stock market has had a wobble in year 10 and the repayment vehicle is worth less than the outstanding mortgage, is it to be scrapped even though it could more than recover by year 25?

Its one thing to check that people (still) have repayment vehicles in place, but quite another to start dictating how much they should contain at a certain point in time and definitely quite another to demand that they are closed down (with any early closure expenses or losses soaked up by the mortgage holder) and the mortgage converted to repayment.

In 2007 around 35% of all mortgages were made on an IO basis. With prices peaking that year. It is highly probable that many don't have the spare cash to fund the saving required to repay capital. This is the target for the measures. Not those are financial responsible and have the ability to save and invest money.

A check of income will be sufficent to see if people could afford the mortgage on a repayment basis if required to do so.

Investing in the stock market to outperform a repayment mortgage dictates that more money should be saved to provide a buffer. To ride the ups and downs of the markets. As there is no guaranteed formula to estimate the return. However it seems reasonable that people shouldn't be speculating with their one of their most important life time possessions. As why should the more conservative bail out the reckless? If it all goes wrong.

antrobus

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.

It was the banks that sold the securitised debt in the first place, and the securitised debt is only a problem to the extent that the underlying debt that was securitised has become non-performing. I'd presume that you would find many examples of IO loans in the non-performing category.