fixed mortgages should banks gain from their sub-prime fiasco

kingstreet · 27 March 2014 at 5:37PM

When I first started in the industry in the mid-80s, the only mortgages that were "securitised" into a RMBS were the prime, sub-75% "cream" of the lenders' books.

These RMBS were AAA rated by S&P and Moody's.

IMHO had that continued, we would never have had a credit crunch.

What happened is US lenders had so much money washing around, they started to chase more profitable and at the same time more risky business. They securitised sub-prime stuff, but instead of packaging all the sub-prime stuff together, it was mixed with prime and near-prime, so the buyers of the security didn't know what made up their investment.

Hence, when problems started to arise with mortgage defaults, none of them new the extent of the potential damage.

Alongside that, you had the likes of AIG and MBNA selling credit default swaps, insurance which should have been backed by collateral, being allowed to do so simply on their AAA ratings.

Eventually, the whole house of cards came tumbling down. The weekend of Lehmans demise 14/9/08, we were about I< >I away from a barter economy when HBoS was very close to being unable to open for business on the Monday morning.

It could have been a lot worse.

jonesoswestry · 27 March 2014 at 6:11PM

dunstonh wrote: »

In June 2008 the Bank of England base rate had begun to fall from its peak of 5.75% a year earlier, and was now at 5%. I’m not persuaded HSBC could have known or predicted that the rate would fall to 0.5%, where it has remained for almost four years.

I do appreciate that if they’d stayed on the reversionary rate in 2008 Mr and Mrs G would now be paying only 1.5% interest rather than HSBC’s variable rate (currently 3.94%). But I’m satisfied that Mr and Mrs G were aware of the implications of staying on the Home Buyer Mortgage variable rate in 2008. I think it likely they took into consideration the possibility of upward movement in the Bank of England base rate when they opted for another fixed rate product.

My final decision is that I do not uphold this complaint
----

Mr B complains that the five year fixed rate product he was advised to take out is too expensive. He says that National Westminster Bank Plc (“NatWest”) should have ‘forecast’ what interest rates would be in the future, and have advised him accordingly.

I appreciate the points that Mr B has made and I agree that, with the benefit of hind-sight, a two year fixed rate followed by a tracker rate product may well have been cheaper.
However, just because a mortgage product is not the cheapest available, does not necessarily mean that the product recommended was unsuitable, or that a cheaper product should have been recommended. Likewise, I cannot reasonably agree that NatWest could have been expected to have predicted, with any accuracy, what would happen to interest rates.

My final decision is that I do not uphold this complaint

Mr D says that The Royal Bank of Scotland Plc charged excessive interest on a fixed rate mortgage he took out in 2007. The regulator found that RBS had been guilty of misconduct relating to its submission of rates which formed part of the process of setting the London Interbank Offered Rate, or “LIBOR”. Mr D says that this affected interest rates available in 2007, including his fixed rate
mortgage.

Our adjudicators did not recommend that the complaint should be upheld. The second adjudicator pointed out that the initial rate was fixed and the subsequent rate was not linked to LIBOR – it was for Mr D to decide whether to accept the loan on the terms offered by RBS or not.

In all of the circumstances, I don’t consider that the RBS’s actions have caused Mr D to suffer any loss. In any event, Mr D agreed to a fixed rate mortgage with RBS – I don’t consider it would be fair to treat him as if he had agreed a different rate.

My final decision is that I do not uphold this complaint.

I totally agree with the FOS on 1st case as the events had already happened and its his decision not the banks.

I totally agree with the FOS on 2nd case for the same reason.

I would need more information on the 3rd case as to when in 2007 he took out the mortgage. I am not sure whether the Libor fixing has affected mortgages either and would need more information.

Many thanks for the links and proof that the FOS are looking into similar issues to mine.

One day as with other issues more facts will come to light

jonesoswestry · 27 March 2014 at 6:33PM

kingstreet wrote: »

When I first started in the industry in the mid-80s, the only mortgages that were "securitised" into a RMBS were the prime, sub-75% "cream" of the lenders' books.

These RMBS were AAA rated by S&P and Moody's.

IMHO had that continued, we would never have had a credit crunch.

What happened is US lenders had so much money washing around, they started to chase more profitable and at the same time more risky business. They securitised sub-prime stuff, but instead of packaging all the sub-prime stuff together, it was mixed with prime and near-prime, so the buyers of the security didn't know what made up their investment.

Hence, when problems started to arise with mortgage defaults, none of them new the extent of the potential damage.

Alongside that, you had the likes of AIG and MBNA selling credit default swaps, insurance which should have been backed by collateral, being allowed to do so simply on their AAA ratings.

Eventually, the whole house of cards came tumbling down. The weekend of Lehmans demise 14/9/08, we were about I< >I away from a barter economy when HBoS was very close to being unable to open for business on the Monday morning.

It could have been a lot worse.

Thank you for you extremely accurate summary of the situation as it was.
These are precisely the circumstances I have been trying to express.
Who outside the Financial Industry could have predicted any of that.

tomtontom · 27 March 2014 at 6:56PM

Were you advised that this was the best product for you, or were you given a variety of products and chose which one you wanted? The key facts given to you would state whether you were advised or not.

You're never going to prove whether the banks did or did not know things were going to go tits up. I would not waste your time on such a complaint.

jonesoswestry · 27 March 2014 at 7:22PM

tomtontom wrote: »

Were you advised that this was the best product for you, or were you given a variety of products and chose which one you wanted? The key facts given to you would state whether you were advised or not.

You're never going to prove whether the banks did or did not know things were going to go tits up. I would not waste your time on such a complaint.

Thanks for reply.

We had come to the end of a deal with Nationwide and were moving property from a house we had just extended.
We were getting a bigger property but were downsizing our mortgage as we had done up a house in a lovely rural spot.

We were not advised we looked around all comparison and finance section compares and came to the conclusion this was by far the best deal for what we were looking to do and we paid a fee for the deal.

We still maintain this was a good deal under the circumstances we were aware existed. I still fail to see why people think this odd.

I have no complaints on the staff we dealt with in Barclays whatsoever.
If there was any underhand business (and I haven't stated anywhere I think there was) it would be higher up the chain.

It is about principal as to why I make the complaint. Everyone's circumstances are different.

zizouzidane11 · 27 March 2014 at 8:25PM

jonesoswestry wrote: »

I still fail to see why people think this is odd.

I have read every post in this thread and I still fail to see your point.

Thrugelmir · 27 March 2014 at 8:51PM

zizouzidane11 wrote: »

I have read every post in this thread and I still fail to see your point.

A total lack of understanding of how mortgages are financed. Along with a linking of totally unrelated issues.

I would comment further but I'm beginning to feel like a broken record.

The common theme these days is the lack of personal responsibility for peoples own decisions.

tigsly · 27 March 2014 at 9:38PM

Did you look up what your exit fees were?

I was locked into a mortgage on a higher rate (i think it was around 5%) and worked out it was cheaper topay the 'lock in fee' .. as on my new rate - the fees would be covered if the rate remained low for 6 months.. that was 2 and 1/2 years ago!

You can't blame a bank = for you choosing a product and stiking with it for 10 years!

jonesoswestry · 28 March 2014 at 7:49AM

tigsly wrote: »

Did you look up what your exit fees were?

I was locked into a mortgage on a higher rate (i think it was around 5%) and worked out it was cheaper topay the 'lock in fee' .. as on my new rate - the fees would be covered if the rate remained low for 6 months.. that was 2 and 1/2 years ago!

You can't blame a bank = for you choosing a product and stiking with it for 10 years!

I am totally capable of working out whether it would be cheaper or not at 6% fees it is not.

jonesoswestry · 28 March 2014 at 7:50AM

zizouzidane11 wrote: »

I have read every post in this thread and I still fail to see your point.

That only tells me more of you than
me

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