UK Government to Underwrite New Mortgage Lending

Jack_Johnson_the_acorn

:rotfl::rotfl::rotfl:

Jimmy_31 wrote: »

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.

:rotfl::rotfl::rotfl::rotfl:

ruggedtoast

I am willing to bet this either never happens or is so watered down when it does it makes no impact whatsoever. Where is the money going to come from for it? Oh right, even more tax and more tax and then more tax. But your house might go up by 0.3% as a result.

Useless.

Jimmy_31

Jack_Johnson_the_acorn wrote: »

:rotfl::rotfl::rotfl:

:rotfl::rotfl::rotfl::rotfl:

I thought you might find that very hard to believe.

I will probably be able to buy a house outright within the next 12 months.

Im also getting out of the building game when i buy a house.

I would rather be out of work than have a corrupt housing market pushing up the price of a roof over your head.

HAMISH_MCTAVISH

chewmylegoff wrote: »

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?

Very probably not.

I don't think anyone is talking about underwriting "high volumes of risky mortgages".

Just sane, sensible, prudent and historically normal mortgage lending, which is badly required due to our dysfunctional and wholly broken mortgage market.

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 !!!!!!.

Nonsense.

Most of those bondholders had absolutely no idea of the incredible levels of mis-selling and fraudulent origination practices that composed the bulk of the sub-prime component.

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.

And I'm pretty sure that 99% of it would be extremely low risk.

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.

Actually, we have no idea what, if anything, is being proposed.

But I doubt it will be 95% plus.

If I had to guess, I'd suggest it will be 75% to 95% lending which is eligible, and even then only with a fee to cover the MIG.

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.

Again, are you really suggesting it is beyond the wit of mankind to create and enforce regulations which prevent such levels of abuse?

Really?

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.

To be honest, I'd rather they just gave FTB deposit grants too.

But the entire point of underwriting rather than funding is that it's a significantly cheaper process.

We know repossession rates, even with 2007 lending standards and a whopping great recession and house price crash, are around 1% on average.

Assuming an average loss upon resale of 25% (which is pessimistic, but still), then the cost for such a scheme is somewhere around 0.25% of total funds loaned.

Versus perhaps 10% or 15% of funds loaned if you were actually funding deposits via FTB grants....

MiserlyMartin

Dan: wrote: »

I thought the Torries would stop all this 'proping up' nonsense and just let the banks and markets be.

So did I but they are turning out to be more and more like the Labour party as we go on!

MiserlyMartin

the_flying_pig wrote: »

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

Quarterly Inflation Report - 13th August 2008

.
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.

Blimey, King speaks sense for a change

chewmylegoff

HAMISH_MCTAVISH wrote: »

Very probably not.

I don't think anyone is talking about underwriting "high volumes of risky mortgages".

Just sane, sensible, prudent and historically normal mortgage lending, which is badly required due to our dysfunctional and wholly broken mortgage market.

you suggested earlier in this thread that this should be done at very high volume. the proposal is to underwrite lending to people who currently cannot access the market - i.e. people without a 10% deposit. QED.

Nonsense.

Most of those bondholders had absolutely no idea of the incredible levels of mis-selling and fraudulent origination practices that composed the bulk of the sub-prime component.

ok, well you can think that is nonsense if you like. however, it is what actually happened as far as i understand it, being somewhat close to some of the goings on. there was not a fundamental disclosure issue - the contents of these things were there for anyone to look at. the whole point of the MBS (or CDO) structure was that you could create an AAA security out of rubbish by diving it into tranches and getting the lower tranches to take all the losses first. the top tranche could never lose. we'll have to agree to disagree if you think that is "nonsense".

And I'm pretty sure that 99% of it would be extremely low risk.

there is no need for the govt to be underwriting "extremely low risk" mortgage lending though is there. this is not about helping people with a 40% deposit to buy a house. they can get a mortgage already.

Actually, we have no idea what, if anything, is being proposed.

But I doubt it will be 95% plus.

well it is being reported that it is to help FTBs who do not have the deposits currently needed to get a mortgage.

and surely if it is going to have the game changing impact that you and turnbull suggest on the first page of this thread, it will have to result in more mortgages being made to people who currently cannot get a mortgage i.e. do not have a 10% deposit.

If I had to guess, I'd suggest it will be 75% to 95% lending which is eligible, and even then only with a fee to cover the MIG.

if that is what the proposal is, it's hard to see it making too much difference, as most of that group could have already got a mortgage. there aren't thousands of people sitting around with 25% deposits unable to get a mortgage.

Again, are you really suggesting it is beyond the wit of mankind to create and enforce regulations which prevent such levels of abuse?

Really?

well the track record isn't the best.

To be honest, I'd rather they just gave FTB deposit grants too.

But the entire point of underwriting rather than funding is that it's a significantly cheaper process.

We know repossession rates, even with 2007 lending standards and a whopping great recession and house price crash, are around 1% on average.

Assuming an average loss upon resale of 25% (which is pessimistic, but still), then the cost for such a scheme is somewhere around 0.25% of total funds loaned.

Versus perhaps 10% or 15% of funds loaned if you were actually funding deposits via FTB grants....

underwriting is of course cheaper up front, but it carries much greater risk down the line. it's not repossession rates that matter - it's whether the MBS pays out on its obligations to its holders. arrears are enough to make it fall over.

of course lending or granting people money up front costs money now, so is unattractive. much better to take on uncertain future liabilities as you won't be in government when they bite.

pretty much every governments policy for everything, ever.

still, as lots of people have said already, it seems likely that if this does come to fruitition it will be watered down and half-@rsed to the point that it doesn't really matter either way - not much risk, not much impact, not many people helped.

Emy1501

Wow can't believe everyone is getting so excited about the government looking at some proposals suggested by the CBI which seem to have very little details

I suspect what we will get is FTB's with less than a 25% deposit willing to buy new builds will have to find only a 5% deposit with the lender/builder funding the rest and the government underwriting about 20%

Percy1983

HAMISH_MCTAVISH wrote: »

Nope.

Let me know when the funds are actually issued. An AIP means nothing.;)

We are way past AIP, we are full application, fully approved as long as payslips match up (sent in the post today), solicitor and surveyor both instructed and house up as 'SOLD STC'. No chain on either side so full steam ahead.

In short its a done deal, luck has nothing to do with it we have managed our finances well and here is the reward.

I will add its a 5 year fix at 4.99% which isn't all too shabby for 10% deposit and the mortgage payments will be less than 25% percent of our income.

Happy days indeed :j:beer:

HAMISH_MCTAVISH

chewmylegoff wrote: »

you suggested earlier in this thread that this should be done at very high volume. the proposal is to underwrite lending to people who currently cannot access the market - i.e. people without a 10% deposit. QED.

We don't know what the proposal is, but it is entirely disengenious to suggest that anyone with a 10% deposit can access the market.

This is clearly not the case.

Banks are rationing high LTV lending because of the capital requirements, and AFAIK somewhere around 90% of mortgage applications with a 10% deposit are rejected.

And those that are accepted are usually at absurdly high interest rates, which has less to do with risk premiums and more to do with profiteering.

.

ok, well you can think that is nonsense if you like. however, it is what actually happened as far as i understand it, being somewhat close to some of the goings on. there was not a fundamental disclosure issue - the contents of these things were there for anyone to look at. the whole point of the MBS (or CDO) structure was that you could create an AAA security out of rubbish by diving it into tranches and getting the lower tranches to take all the losses first. the top tranche could never lose. we'll have to agree to disagree if you think that is "nonsense".

Apparently you weren't close enough.....

The federal government late Friday filed lawsuits against 17 financial institutions, including some of the nation’s largest banks, alleging a pattern of fraud in their packaging and selling of roughly $200 billion worth of mortgage-linked securities. The suits amount to one of the most significant legal actions to emerge from the rubble of the financial crisis nearly three years ago.

The allegations by the Federal Housing Finance Agency, which is seeking unspecified compensation, penetrate the heart of Wall Street’s role in helping lead the economy to ruin. The FHFA claims these institutions knowingly peddled shoddy deals without informing investors.
http://www.huffingtonpost.com/2011/09/02/banks-sued-subprime-mortgage-deals_n_947349.html

there is no need for the govt to be underwriting "extremely low risk" mortgage lending though is there. this is not about helping people with a 40% deposit to buy a house. they can get a mortgage already.

I didn't say there was.

I stated 99% of 60% LTV lending in the UK is already extremely low risk. Versus your comment that only the senior tranches would be low risk.

well it is being reported that it is to help FTBs who do not have the deposits currently needed to get a mortgage.

Or to help those who do have the deposits pay lower interest rates.

Or to help those that do have the deposits, but are rejected due to mortgage rationing.

and surely if it is going to have the game changing impact that you and turnbull suggest on the first page of this thread, it will have to result in more mortgages being made to people who currently cannot get a mortgage i.e. do not have a 10% deposit.

How many times already......

Most people with a 10% deposit are rejected.

If you for one moment think that a good credit score and a 10% deposit will get everyone a mortgage in this country, you need to have your head examined.

Banks are rationing mortgages!!!

They change the application criteria around monthly so as to shrink the eligible pool of borrowers until it matches the limited pool of funding available.

if that is what the proposal is, it's hard to see it making too much difference, as most of that group could have already got a mortgage. there aren't thousands of people sitting around with 25% deposits unable to get a mortgage.

Actually, I'd suggest there are tens of thousands of people sitting around with 25% deposits unable to get a mortgage. Conrad has often posted of people unable to get approved with high deposits due to job quirks, such as contract work, self employed, etc.

I rather suspect it's more like hundreds of thousands of people with 10% deposits unable to get a mortgage.

And a million or more people with less than a 10% deposit unable to get a mortgage.

underwriting is of course cheaper up front, but it carries much greater risk down the line. it's not repossession rates that matter - it's whether the MBS pays out on its obligations to its holders. arrears are enough to make it fall over.

of course lending or granting people money up front costs money now, so is unattractive. much better to take on uncertain future liabilities as you won't be in government when they bite.

pretty much every governments policy for everything, ever.
.

Underwriting is cheaper up front and cheaper down the line.

No sane person can suggest defaults would ever reach 10% to 15% of mortgage lending in the UK.

Even the most generous underwriting terms in history, that covered arrears as well as default, would only cost in the region of 3% of funds loaned (before clawback from borrower, far less as a net figure), versus 10% to 15% for funding deposits directly.