Northern Rock to pay out compensation for the Together Mortgage

Graham_Devon

41,000 customers are going to receive an average of £6,300 each.

Significant in anyone's book.

Possibly more significant considering the taxpayer is funding it. Secondly, no one has suffered any detriment and third, NRAM bought the test case upon itself.

This relates to the unsecured loans on the mortgages (i.e. the 125% mortgage) for mortgages taken out between 1999 and 2008. All due to an error in the paperwork.

It's often been muted on here before now that these types of loans could well be the next PPI. Could this be the start of it?

"Together" mortgages were offered by Northern Rock, allowing customers to take an unsecured loan of up to £30,000 alongside their mortgage, and repay the "top-up" loan at the same rate as the mortgage.


The offer proved attractive, but the High Court judge said documents

related to unsecured loans of between £25,000 and £30,000 taken out between 1999 and 2008 were incorrect and customers should be paid back interest and fees.

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/11285163/Former-Northern-Rock-customers-set-for-258m-payback-after-court-ruling.html

Linton

The taxpayer may well not be funding it - the "bad" NR bank, which is what this is, is making a nice profit (£692m in the latest 6 months results) as the mortages werent as risky as feared. Many of these appear to have been sold on.

Graham_Devon

Linton wrote: »

The taxpayer may well not be funding it - the "bad" NR bank, which is what this is, is making a nice profit (£692m in the latest 6 months results) as the mortages werent as risky as feared. Many of these appear to have been sold on.

Errr, that's like saying Lloyds haven't funded any PPI claims as they made a profit.

chucknorris

Graham_Devon wrote: »

It's often been muted on here before now that these types of loans could well be the next PPI. Could this be the start of it?

What next? Claims against interest only mortgages, can you imagine someone arguing along the lines of:

'Honestly I never knew that I would have to repay the loan'.

Surely the clue is the name 'loan'?

Linton

Graham_Devon wrote: »

Errr, that's like saying Lloyds haven't funded any PPI claims as they made a profit.

Eh???? You claimed that the taxpayer is funding mortgage mis-selling compensation. NRAM is making a pretty good profit, is also repaying the government loans and is selling off the mortgages. So it should have plenty of money to cover the compensation costs.

Overall it should mean that NRAM isnt quite as good a golden egg layer as it may otherwise have been, not that the tax payer has extra money to find.

Graham_Devon

Linton wrote: »

Eh???? You claimed that the taxpayer is funding mortgage mis-selling compensation. NRAM is making a pretty good profit, is also repaying the government loans and is selling off the mortgages. So it should have plenty of money to cover the compensation costs.

Overall it should mean that NRAM isnt quite as good a golden egg layer as it may otherwise have been, not that the tax payer has extra money to find.

I claimed it, because that's what is stated in the articles on the Guardian, BBC and Telegraph.

For instance

Guardian

Christmas has come early for more than 40,000 people who had a personal loan with Northern Rock after the high court ruled they are in line for windfalls averaging £6,000 each. They are set to be quids-in despite the fact that none of them are said to have lost out financially. And the taxpayer will be picking up the £261m bill.

Telegraph

The court judgment said about £258m could be paid out in compensation by taxpayers, as the government now owns the part of the bank that made the loans.

Financial Times

But taxpayers, who own NRAM, will foot the bill, unless the group successfully appeals against the decision — a move it is discussing with lawyers.

Generali

Linton wrote: »

Eh???? You claimed that the taxpayer is funding mortgage mis-selling compensation. NRAM is making a pretty good profit, is also repaying the government loans and is selling off the mortgages. So it should have plenty of money to cover the compensation costs.

Overall it should mean that NRAM isnt quite as good a golden egg layer as it may otherwise have been, not that the tax payer has extra money to find.

Aren't the profits increases in the value of the mortgage book as interest rates stay lower than predicted?

IIRC, NRAM posted a huge 'kitchen sink' loss in its first ever set of results and has posted profits since on the basis that things are better than the very worst case scenario used in that first financial statement.

Thrugelmir

Linton wrote: »

The taxpayer may well not be funding it - the "bad" NR bank, which is what this is, is making a nice profit (£692m in the latest 6 months results) as the mortages werent as risky as feared. Many of these appear to have been sold on.

Still a long way to go before the outcome of NRAM is quantified. Still some 500,000 mortgages to be redeemed. As time passes what will be left is the dross.

purch

chucknorris wrote: »

What next? Claims against interest only mortgages,

If no actual financial loss was suffered as a result of paperwork irregularities, then paying out "compensation" is ridiculous.

Miss selling PPI contracts that the holder couldn't claim against, was basically theft so compensation for the monies paid makes sense, but a line needs to be drawn somewhere.

michaels

I was wondering how it is decided how much compensation should be paid for paperwork errors where the customer has suffered no detriment. Obviously a banking arrangement is asymmetric and thus the banks should be expected to get it right but if the damages awarded are essentially punitive then surely they should be fines paid to the govt rather than compensation to customers who suffered no loss?

michaels

Generali wrote: »

Aren't the profits increases in the value of the mortgage book as interest rates stay lower than predicted?

IIRC, NRAM posted a huge 'kitchen sink' loss in its first ever set of results and has posted profits since on the basis that things are better than the very worst case scenario used in that first financial statement.

Indeed, some might even question why captive NR customers are being penalised with punitive interest rates that do not reflect their actual risk level merely so that the taxpayer can reduce their losses on the loan book as a whole.