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What's the deal after the mortgage shuffle?
IveSeenTheLight
Posts: 13,322 Forumite
Very interesting article about the effect of the mortgage shuffle.
http://news.bbc.co.uk/1/hi/business/7329151.stm
http://news.bbc.co.uk/1/hi/business/7329151.stm
:wall:
What we've got here is....... failure to communicate.
Some men you just can't reach.
:wall:
What we've got here is....... failure to communicate.
Some men you just can't reach.
:wall:
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Comments
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IveSeenTheLight wrote: »Very interesting article about the effect of the mortgage shuffle.
http://news.bbc.co.uk/1/hi/business/7329151.stm
PEOPLE WHO TOOK HIGH LOAN-TO-VALUE DEALS
Led by Northern Rock, the high loan-to-value mortgage was a popular choice not so long ago.
..
Some have argued that these borrowers were too much of a risk.
Ha ha - Northern Rock is so screwed! Those idiots handed out money on some of the riskiest bets and now their greedy board will have to pay for it.
Oh, wait......... D'OH!
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Every pound less borrowed (to buy a house) is more than two pounds less to repay and more than three pounds less to earn, over the course of a typical mortgage.0 -
come on !!!!!!......
although we don't always agree, i respect your posts as logical and well thought out arguements.
...we both know that the failing of NR had nothing to do with lending at high LTV's.0 -
come on !!!!!!......
although we don't always agree, i respect your posts as logical and well thought out arguements.
...we both know that the failing of NR had nothing to do with lending at high LTV's.
Northern Rock operated a reckless strategy of maximising lending by offering 'competitive' (ie. cheap and easy to get) lending on the basis that they could borrow short-term cheaply from the money markets, lend long term and securitize the resulting debt and sell it on.
Their whole strategy was reckless, top to bottom but it did lead to a stratospheric rate of expansion and helped them gain market share massively. It was the drying up of the credit market that brought them down but their strategy was flawed all the way along the line and the end product - large 'cheap and easy' loans - was an intrinsic part of that strategy.
The irony is of course that as their stupid business plan ended up in nationalisation to bail them out, we end up paying for their reckless lending. That was what I was getting at.--
Every pound less borrowed (to buy a house) is more than two pounds less to repay and more than three pounds less to earn, over the course of a typical mortgage.0 -
Northern Rock were fundamentally brought to their knees by overzealous media reporting and a requirement for transparency on the part of Gordon Brown.
If they'd been allowed to conduct their business without the scaremongery splashed all over the papers it would have generated a few column inches once the loan had been declared in a reasonable period of time.
It is disgusting this company was taken down on hearsay, the media and Gordon Browns idiotic requirements for publication of central bank borrowing are completely responsible for the situation and ultimately the buck stopped at his door as a result.
The public at large simply do not comprehend bank borrowing on this scale, they read and hear journalists spout nonsense and scenarios that are never going to happen and panic to the extent it causes a run on the bank.
It seems you've be sucked in by the same nonsense.
I agree the company should not have been bailed out, but it simply should not of been put in that position to start with...that was the governments fault, therefore they have to deal with it.0 -
Northern Rock were fundamentally brought to their knees by overzealous media reporting and a requirement for transparency on the part of Gordon Brown.
If they'd been allowed to conduct their business without the scaremongery splashed all over the papers it would have generated a few column inches once the loan had been declared in a reasonable period of time.
It is disgusting this company was taken down on hearsay, the media and Gordon Browns idiotic requirements for publication of central bank borrowing are completely responsible for the situation and ultimately the buck stopped at his door as a result.
The public at large simply do not comprehend bank borrowing on this scale, they read and hear journalists spout nonsense and scenarios that are never going to happen and panic to the extent it causes a run on the bank.
It seems you've be sucked in by the same nonsense.
I agree the company should not have been bailed out, but it simply should not of been put in that position to start with...that was the governments fault, therefore they have to deal with it.
Northern Rock failed because their business strategy (borrow cheap money short term, lend long term, securitize the debt) was unsound.
Once the credit markets locked up they had no future. They had to be bought out by the government to prevent a collapse in confidence in the banking system as a whole and that was because of the very public run - but there was no way that they could have continued in business over the longer term. They would either have had to be taken over by another bank and asset-stripped or else bailed out the by the governement and 'stripped down' to be taken over by another bank eventually, as is happening.--
Every pound less borrowed (to buy a house) is more than two pounds less to repay and more than three pounds less to earn, over the course of a typical mortgage.0 -
Alan
The run on the bank was the least of its problems IMO.
The amount of money it raised from deposits was irrelevant when compaired to the money it borrowed from the capital markets.
!!!!!! is correct in that when ability to borrow short got more expensive (i.e. libor shooting up), NR were always in trouble. With no appetite for their MBS, they had a huge balance sheet which was becoming ever more expensive to finance.
This is the reason why NR failed.
Yes they leant high LTV's etc etc. but whether this is going to be a huge problem remains to be seen. Its a shame really as their mortgage processing in terms of underwriting and operations was a step above their peer group.
In fact their loans are still performing extremely well0 -
Northern Rock were fundamentally brought to their knees by overzealous media reporting and a requirement for transparency on the part of Gordon Brown.
No NR's business model was to expand using cheap short term debt, best practice says to use a mixture of long term and short term debt. In order to expand quickly they used huge amounts of short term and where always at risk to a credit crunch.
The fact that they had 100% plus mortgages on there books means that they have assets on there books which in a housing crash they where always going to have huge problems, the credit crunch got them before the housing crash did effectively.
The run on NR was due to media pressure and NR need not have gone to the wall if the panic did not happen, but they were to blame for having such a risky business model.0 -
Northern Rock failed because their business strategy (borrow cheap money short term, lend long term, securitize the debt) was unsound.
All banks borrow short and lend long. It's what they do. It's why a run on a bank is fatal to its prospects.
The problem Northern Rock had was it sailed a little to close to the wind in terms of its reserves.0 -
All banks borrow short and lend long. It's what they do. It's why a run on a bank is fatal to its prospects.
The problem Northern Rock had was it sailed a little to close to the wind in terms of its reserves.
OK, borrow short from the international money markets and lend long.--
Every pound less borrowed (to buy a house) is more than two pounds less to repay and more than three pounds less to earn, over the course of a typical mortgage.0 -
But they weren't dependent on retail deposits, so the "media-driven" high street run on the bank had only minor effect.The main problem was the international markets refused to lend to them, and that wasn't caused by them getting scared by headlines in the Daily Mail.poppy100
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