Here's a list of Building Societies lending to sub prime borrowers!!

baby_boomer

Nationwide seems to have 16-17% of its loan book as commercial loans.

It started a "controlled experiment" in impaired mortgages in March 2007 and USB also does buy-to-let, but I couldn't find proportions specified.

I do know that Portman (now Nationwide) sensibly pulled out of buy-to-let lending on new build flats several months ago.

free4440273

I am really surprised and shocked to see Nationwide (and Scarborough) on that list:eek: I thought they were the sensible guys?

bristolleedsfan

free4440273 wrote: »

I am really surprised and shocked to see Nationwide on that list:eek: I thought they were the sensible guys?

http://news.bbc.co.uk/1/hi/business/6360715.stm :think:

noh

free4440273 wrote: »

I am really surprised and shocked to see Nationwide (and Scarborough) on that list:eek: I thought they were the sensible guys?

Why does offering subprime loans make them not sensible?

Nigel

MattB_4

noh wrote: »

Why does offering subprime loans make them not sensible?

Nigel

Because the media has made it a dirty word of course! Subprime doesn't instantly equal low quality business. Nationwide is pretty risk adverse as things go.

baby_boomer

The Portman society it has taken over invented the category of "light prime" (or something very similar) in order to blur the boundaries between quality & risky lending.

The semantics are always interesting. After a while, societies started muttering among themselves that it was risky (profit wise) NOT to venture into riskier lending .

baby_boomer

noh wrote: »

Why does offering subprime loans make them not sensible?

Why has Alliance & Leicester just raised its sub prime fixed rate mortgage by 1.16% when fixed rates are falling?

bristolleedsfan

baby_boomer wrote: »

Why has Alliance & Leicester just raised its sub prime fixed rate mortgage by 1.16% when fixed rates are falling?

higher risk loan rates are increasing

harryhound

My limited experience, for what it is worth, is that the accounts are like trying to drive using the rear-view mirror. If and when there is bad news it gets buried in the small print or simply ignored.

Only an investigative newspaper (have we go any left?) or other media organisation has the time & expertise to ferret out the truth. Otherwise one might spot tit bits of rumour on sites such as this or in (say) Private Eye.

Many years ago I bounced into a branch of Chelsea BS, looked at the normal slim set of accounts that tell the member very little. So I asked the teller if she had anything more detailed and she gave me the official return the organisation had to do to its then regulator (a large A4 standardised document - I was a little disturbed by some of the things I found in there,
eg a BIG loan to someone to set up a livery stables).

My mortgage used to be with "Leeds Permanent BS". Leeds disappeared into Halifax (Then I got two lots of shares:D). My understanding was that Leeds was more "rescued" than merged, as it had exceeded its permitted ratios by trying to lend too fast ("over trading"). I had a good look at the abbreviated accounts they produce for members, but could find no hint of any difficulties pre merger.

Working for a public company (who is still paying my pension;)), I created a computer program to "revalue" the assets. Basically the finance management had spotted a change in the rules for accounting and they could now pretend that the rusty assets would soldier on for about 20% longer than originally forecast. My program created an extra 3 million of profit in a total of about 60 million. I looked at the year end accounts , hoping to find a mention of the magic money I had made: not even a little tiny footnote !

In the last housing slump (circa 1990) a number of property interests went bust (The wry joke was that the largest brand of hotels was "Trust House Forte" and the second largest chain was "The receiver and Manager"). At this time, I know of a small property developer, financed largely by Nationwide, who went down the pan taking 2 million of other peoples' money with him.

The current property boom must be a British record for length of its run and percentage increase in prices. During the last dozen years, people and organisations have got more "adventurous", and each time the risk has paid off. That initial lying awake at night mulling it over was not needed, it worked out OK, so next time lets take a little bit more risk - it is just human nature. Eventually the brain persuades itself that there is no need to worry; it has the Midas touch.

So now we have self certified loans of over 100% Loan to Value, securitised and sold on to bigger fools. The system is suffer paralysis, because the banks don't know where the high risk loans have gone.

Don't expect the published accounts to solve this problem; we just have to rely on the "mutter from the gutter".

Rafter

The problem is that savers want to receive 6.4% on their savings and pay 6% on their mortgages (if they are a good credit rating)

It costs a building society about 0.75% per year on average to run itself.

So immediately it is a loss making business!

So..... the great savings rate doesn't last long and ends up being below base rate after a few years - which customers don't like much.

Andy they look for business that has a better margin to try and boost their income: Hence Buy to Let, Self Certified Mortgages, Sub-prime etc.

Now the question comes as to whether someone who has a county court judgement in the past should never be able to buy their own home - whatever the reason. That would be very unfair.

However, they are a higher risk and should pay a premium - which they do.

As to whether building societies should be offering such loans, and as a result pay higher savings rates that is really up to their members to police the board, and also the FSA to make sure the societies aren't taking unnecessary risks with members money.

On the whole, societies don't - although there are some examples above where they have been reckless. I think any society that is lending more than 25% each year on non-traditional and high loan to value loans is being reckless.

Even if 20% of these loans went bad, most societies could cover the lossed from their 'reserves' without putting the savers money at risk.

The society would probably have to be taken over, the managers would be sacked, but no savers would have lost their hard earned savings.

Nor would the government have to have paid out compensation.

The other alternative is that a 'super-safe' society is set up, but one that pays a really bad rate of interest on savings. Problem is it would soon go out of business because moneysavers with their best buy tables will go to someone higher risk, particularly when the government has promised to bail out any major bank that gets into trouble anyway.

R.