UK Government to Underwrite New Mortgage Lending

Jimmy_31

Sibley wrote: »

Yeeesssss.
We've been saved.

House prices will rocket up now.

Finally, you admit you are in the 5hit financially:)

the_flying_pig

ess0two wrote: »

Some bitter whines of despair in that link.

also some interesting stuff, e.g. a quote from mervyn king about somethign similar in 2008

Quarterly Inflation Report - 13th August 2008


Elliott Gotkin,
Bloomberg Television: I know someone touched on this just before about the Special
Liquidity Scheme there was a report in The Times this morning
talking about it perhaps being extended and also the potential
for mortgage backed securities to be guaranteed perhaps on a
temporary basis by the Government, at least on the Special
Liquidity Scheme which I think was your idea in the first place.
Any plans to extend that, is it needed?

Mervyn King: No, as I said before the Special Liquidity Scheme was
introduced, the scheme itself will continue for some time
because we've offered genuine support to swap illiquid assets
into liquid assets. And the window for that closes in October,
but the support, that continuing swap will continue for up to a
period of three years. So that's a significant support.
I think there is a very big confusion in much of the discussion
about the mortgage market. The issue about the mortgage
market is not liquidity; it's not a question of having illiquid assets
and being able to swap them into liquid ones. The issue about
the mortgage market is whether the business model of some of
the mortgage lenders needs to be adjusted and whether there is
sufficient sources of funding to supply mortgage lending.
Funding is not something that a Central Bank can provide. A
Central Bank can swap a stock of assets from liquid to illiquid
form; it can't supply funding to finance investment. That has to
come by mobilising savings in the economy at home or abroad
and transferring that to fund investment. That's what the
financial sector is there to do. Some parts of the financial sector
may now find themselves in a position where the funding models
that they had no longer seem appropriate and need to be
adjusted. We are going through a period where a significant
adjustment is needed in the financial sector and where the scale
of the balance sheet devoted to mortgage lending is not going to
go back to where it was in the first half of 2007.
On the question of guarantees all I can say is the Federal
Reserve, most of our colleagues for the last 30 years have been
pointing to the great dangers of offering government guarantees
to mortgages. They pointed out that if you offer a government
guarantee to a mortgage, remember they spent a very long timePage 27
Quarterly Inflation Report - 13th August 2008
trying to press the argument that Fannie Mae and Freddie Mac
were not guaranteed by the Federal Government, they could
see the risk that if people believed it then they would be able to
attract funds more cheaply than any other source, mortgage
funding would go through that source and the Federal
Government would end up in a situation where it would find it
very difficult to avoid guaranteeing it and that's the problem they
find themselves with now.We don’t guarantee lending to other forms of borrowing; we
don’t guarantee lending to manufacturing borrowing, there is no
reason why in the long run you need to have any guarantee of
lending to the mortgage market. And it would be a very
dangerous move to move to a situation where the government
saw its major role as guaranteeing lending. How can - why
should the taxpayer take on the risk of borrowing by individual
borrowers some of whom are risky it’s the lenders who should
take the risk and assess for themselves the riskiness of that
lending.And what we saw in the first half of 2007 was that not enough
attention was paid to monitoring the riskiness of that lending.
The last thing we want to do is to tell lenders it doesn’t matter if
they monitor the riskiness, the Government will guarantee it. So
that's not the route to go down.
We are going through a difficult adjustment in the housing
market. The sooner we can make that adjustment the better.
But pretending that there's some magic solution here is not the
answer and certainly it is nothing to do with the liquidity as many
of you have pointed out very effectively in your own columns.

grizzly1911

Thrugelmir wrote: »

In March 2009 after completing a thorough review of HBOS's mortgage book. Lloyds estimated that around 28% of mortgages were outside its own risk tolerance. In its latter days HBOS was driven by market share not banking fundamentals.

Don't dispute that. All the government would be doing is endorsing a flexing upward of that tolerance.

One of the reasons for asking for a deposit out of accumulated funds is to reduce the risk as well as gaining some commitment from the borrower as they have something to lose.

Add to that an over valued property, or an expectation of such and that risk profile multiplies.

If the accumulate deposit is lost it is hard on the borrower but the equation has more chance of working.

We don't know the terms of a proposed scheme but I would be surprised if the Government wouldn't ask for a "fee" of some sort (roiled into the mortgage?) and will no doubt pursue any defaulter for repayment.

Appreciate that a fundamental cannon of lending is the ability to repay and picking the winners limits the risk - if it was that easy to do.

As for the banks needing to hold more capital against high LTVS, in reality that should remain IMO as the package still remain a high risk gamble with no borrower stake.

grizzly1911

Jack_Johnson_the_acorn wrote: »

Initially rejected by HSBC.... Even though we where only asking for 2x are combined income and both with perfect credit history....

Perhaps they had just met their quotas at that time.

Jack_Johnson_the_acorn

grizzly1911 wrote: »

Perhaps they had just met their quotas at that time.

Yes, Most likely, Natwest virtually bit are hands off, even kept the bank open for an extra half hour to accommodate us.

Jimmy_31

tclick wrote: »

This is good news for all of us in the construction supply industry. Long may it continue.

2011 has been the worst year on record for us but we have seen a slight pick-up in the last few months, signs of things to come?

There were always two industries that were the first indicators of coming recessions, Print and Construction.

The construction industry is getting worse by the day.

Firms are still going bust every week.

The banks are now calling in their debts from the construction firms they have thrown money at. (this will put a large firm in the area under if the rumours are to be believed)

January we will probably see an increase in the number of construction firms going bust.

People are already leaving the industry to work in supermarkets or factorys as the wages end up the same.

Plenty of lads had trouble paying the massive increase in their van insurance this year, if it goes up again next year lots more will leave the industry.

Wages are still going down whilst tool costs go up.

The construction industry is on its last legs in some areas and i see no signs of improvement at all.

Jack_Johnson_the_acorn

Jimmy_31 wrote: »

The construction industry is getting worse by the day.

Firms are still going bust every week.

The banks are now calling in their debts from the construction firms they have thrown money at. (this will put a large firm in the area under if the rumours are to be believed)

January we will probably see an increase in the number of construction firms going bust.

People are already leaving the industry to work in supermarkets or factorys as the wages end up the same.

Plenty of lads had trouble paying the massive increase in their van insurance this year, if it goes up again next year lots more will leave the industry.

Wages are still going down whilst tool costs go up.

The construction industry is on its last legs in some areas and i see no signs of improvement at all.

So you'll be glad of this news then??

HAMISH_MCTAVISH

grizzly1911 wrote: »

Not impossible but when money is a stake, greed takes over, these things happen. Bit like money laundering keep on shuffling it and repackaging it for long enough may be no will catch you.

So essentially what you're saying is that MBS are a bad idea because you think there's a chance someone somewhere at some point may get greedy.

Which is like saying all companies are a bad idea because some people at Enron got greedy....

And that's just daft.

If the human race can put man on the moon, we can surely figure out the right label to put on a tranche of mortgages. Prime or sub-prime.

It's really not that hard....

Jimmy_31

Jack_Johnson_the_acorn wrote: »

So you'll be glad of this news then??

No.

I would rather be out of work than have another scheme to prop up house prices come in and give me a bit of work for terrible wages.

chewmylegoff

HAMISH_MCTAVISH wrote: »

If it's underwritten by a AAA rated govt, there's nothing "supposedly" about it. It's genuinely AAA.

until the govt loses its AAA rating. of course, underwriting high volumes of risky mortgages wouldn't be capable of impacting on that rating would it?

Well actually it was the near-fraudulent inclusion of sub prime mortgages in AAA rated MBS that caused the problem.

it wasn't the fraudulent inclusion of sub-prime in MBS per se that caused the issues, it was the misplaced perception about possible default rate amongst those sub-prime mortgages. everyone knew what was inside the MBS, they just believed that the senior tranches would be ok because defaults would only impact on the equity tranches. this turned out to be a load of old !!!!!!.

But are you really trying to claim it's impossible to create a low risk MBS that does what it says on the tin and doesn't include a big wad of sub prime slime???

not at all, if you put a geographically mixed bag of 60% LTV mortgages into a MBS i'm sure the senior tranches would be pretty low risk.

that is not what is being proposed here though, is it.

what is being proposed is that we create very high LTV mortgages for people who cannot otherwise access the mortgage market (95% LTV+) and put them in a MBS which the govt underwrites.

furthermore, why would the banks care what they put in the MBS? they don't need to worry about whether the mortgagee can actually pay back the loan. they can sell it on and the govt will take any losses. even better they can write the mortgages and then sell the equity tranche of the MBS to their own investment bank - the govt takes the risk.

so basically when there is a recession, instead of the banks losing money becoming insolvent and the govt bailing them out, the govt just takes the losses straight in the face, loses its AAA rating because the markets fear that it cannot meet the losses, and we all end up paying....again.

i suppose at least it's more efficient though and we don't have to go through the bothersome bailout stage.

i would rather the govt just gave FTBs money to use as a deposit. at least you know how much it has cost and you don't have unknown liabilities on your hands.