Northern Rock Is Accused Of Selling Off 1,100 Repossessed Homes At Bargain Prices

[Little Professor]

The bank that precipitated the credit collapse and was taken over by the Government has been accused of selling off job lots of repossessed homes at knockdown prices. [HOW VERY DARE THEY??? ]

The shocking findings of a Mail on Sunday investigation show Northern Rock properties are being offered for sale with ‘get rich quick’ profits for fat-cat property developers based on exactly the same deals that triggered the banking system meltdown in the first place.

Northern Rock denies selling job lots of repossessed homes with large discounts.

But this newspaper has established that a list of more than 1,000 homes put up for sale by Northern Rock was used by a self-styled ‘repo man’ to offer ‘cashbacks’ of up to £42,000 to investors who snap up bargain-priced homes.

The ‘cashback’ is created by taking out a mortgage for 85 per cent of the Northern Rock guide price on a repossessed home, having purchased it for just 70 per cent of that price.

The list was drawn up by property investor Ajay Ahuja, who said the details of the properties were obtained from Northern Rock. Millionaire Mr Ahuja, 36, is unashamedly aggressive in his business methods and offers what he calls a ‘repossession hunter service’. He said Northern Rock was offering the homes at discounts of nearly 50 per cent because its overriding aim was to get its mortgage money back [HOW VERY DARE THEY???] - not to get the best price for the previous owner.

‘Northern Rock just wanted to get rid of them,’ said Mr Ahuja. ‘The prices were awesome. Very attractive. 'The Northern Rock list was at a 40 to 45 per cent discount on the market.

Two weeks later, on November 5, Mr Ahuja emailed fellow investors with details of the Northern Rock homes, proclaiming: ‘The bargains are back!’

Today’s disclosures reinforce claims that some banks are willing to sell the homes at way below their market value because their only concern is to recover the value of the mortgage.

[Little Professor]

Land Registry records show it was bought in 2004 for £480,000. Having repossessed it, Northern Rock says it is for sale at an asking price of £425,000.

But in Mr Ahuja’s list, the same property is on offer at a 30 per cent discount for a mere £297,500.

And to encourage investors - and make a profit himself - he offers a ‘cashback’ created by offering an 85 per cent mortgage on the official market value of the house, £425,000.

This produces a ‘gross cashback’ of £63,750 - the difference between the 85 per cent mortgage and the non-discounted price.

Once Mr Ahuja’s standard fee of £2,350 and other costs are deducted, it leaves a ‘net cashback’, marked up in bright red on Mr Ahuja’s list, of £38,393.

http://www.dailymail.co.uk/news/article-10...ain-prices.html

[the end is a bit nigher]

Once Mr Ahuja’s standard fee of £2,350 and other costs are deducted, it leaves a ‘net cashback’, marked up in bright red on Mr Ahuja’s list, of £38,393.

http://www.dailymail.co.uk/news/article-10...ain-prices.html

What are the 'other costs'?

[Little Professor]

What are the 'other costs'?

Shirt purchasing allowance

[King Stromba]

Stupid question, but surely its still way overpriced?

[huw]

'Getting its mortgage money back' <> 'Writing new mortgages on the distressed properties'

How long before these new borrowers are defaulting?

:angry:

[puppee]

The bank that precipitated the credit collapse and was taken over by the Government has been accused of selling off job lots of repossessed homes at knockdown prices. [HOW VERY DARE THEY??? ]

The shocking findings of a Mail on Sunday investigation show Northern Rock properties are being offered for sale with ‘get rich quick’ profits for fat-cat property developers based on exactly the same deals that triggered the banking system meltdown in the first place.

Northern Rock denies selling job lots of repossessed homes with large discounts.

But this newspaper has established that a list of more than 1,000 homes put up for sale by Northern Rock was used by a self-styled ‘repo man’ to offer ‘cashbacks’ of up to £42,000 to investors who snap up bargain-priced homes.

The ‘cashback’ is created by taking out a mortgage for 85 per cent of the Northern Rock guide price on a repossessed home, having purchased it for just 70 per cent of that price.

The list was drawn up by property investor Ajay Ahuja, who said the details of the properties were obtained from Northern Rock. Millionaire Mr Ahuja, 36, is unashamedly aggressive in his business methods and offers what he calls a ‘repossession hunter service’. He said Northern Rock was offering the homes at discounts of nearly 50 per cent because its overriding aim was to get its mortgage money back [HOW VERY DARE THEY???] - not to get the best price for the previous owner.

‘Northern Rock just wanted to get rid of them,’ said Mr Ahuja. ‘The prices were awesome. Very attractive. 'The Northern Rock list was at a 40 to 45 per cent discount on the market.

Two weeks later, on November 5, Mr Ahuja emailed fellow investors with details of the Northern Rock homes, proclaiming: ‘The bargains are back!’

Today’s disclosures reinforce claims that some banks are willing to sell the homes at way below their market value because their only concern is to recover the value of the mortgage.

:angry: the goverment wants to get economy moving then lets this happen repo's should not be sold to investors these house should be sold at discount to genuine people who want a home and will contribute to the local economy not a bunch of millionaire investors who want to make a quick profit at the expense of the general public these greedy B*******S will end what causing civil war in this country as the working class man has had enough of these W*****S taking the piss why do they want hundreds of millions anyway they never use the money for any good purposes they just hoard it away in their banks and strut around saying look at me if they are not careful their time will come

[ajay]

Shirt purchasing allowance

Mr Ahuja go to

http://www.tmlewin.co.uk/

Edited December 6, 2008 by goldman

[edgexedge]

er, wont anyone offering a mortgage want to know what you really paid for the place, & then offer the mortgage based on that?

Theyll also have a survey done, or calculate the price, & base any mortgage offer on that as well.

[Mikhail Liebenstein]

Land Registry records show it was bought in 2004 for £480,000. Having repossessed it, Northern Rock says it is for sale at an asking price of £425,000.

But in Mr Ahuja’s list, the same property is on offer at a 30 per cent discount for a mere £297,500.

And to encourage investors - and make a profit himself - he offers a ‘cashback’ created by offering an 85 per cent mortgage on the official market value of the house, £425,000.

This produces a ‘gross cashback’ of £63,750 - the difference between the 85 per cent mortgage and the non-discounted price.

Once Mr Ahuja’s standard fee of £2,350 and other costs are deducted, it leaves a ‘net cashback’, marked up in bright red on Mr Ahuja’s list, of £38,393.

http://www.dailymail.co.uk/news/article-10...ain-prices.html

Re-arrange this phrase:

pole barge a touch don't with it

These flats are still overpriced in my book.

[huw]

er, wont anyone offering a mortgage want to know what you really paid for the place, & then offer the mortgage based on that?

Theyll also have a survey done, or calculate the price, & base any mortgage offer on that as well.

Lending > 100% of the purchase price is obviously still part of the NR way of doing things (assuming the article is correct).

[edgexedge]

Lending > 100% of the purchase price is obviously still part of the NR way of doing things (assuming the article is correct).

So it can only work if its also a Northern Rock mortgage, on a NR repo

But it cant work, as NR are only doing max 85% LTV mortgages.

http://www.northernrock.co.uk/mortgages/cu...rates/purchase/

Wonder how long before some newspaper accuses him of fraud

[huw]

So it can only work if its also a Northern Rock mortgage, on a NR repo

But it cant work, as NR are only doing max 85% LTV mortgages.

My understanding of the claim in the article is (example):

valuation: 100k

mortgage: 85k (thus meeting the 85% LTV)

actual price paid: < 85k (with the difference counted as a 'cash-back' from the mortgage advance).

If that's true, it is indeed fraudulent IMO ... and a continuation of the kind of business model/values that drove NR into insolvency in the first place.

[Executive Sadman]

But the Tabloid press (and the BBC) most likely think anything less than previous sold price is Bargain/Below market value/Cruel and unusual punishment to the last owners.

[darwin]

What are the 'other costs'?

Your soul.

[refusnik]

Ken, 49, a sergeant in the first Gulf War who is now a telecoms engineer, paid £82,000 in 1999 for the three-bedroom house in Warwickshire.

...

He owes £140,000 to the bank and £70,000 to a loan company, a total of £210,000, on a house...

I smell a rat :angry:

Dude, where's the other £128,000 gone?

Edited December 7, 2008 by refusnik

[darwin]

I smell a rat :angry:

That would be Ajay.

[Little Professor]

My understanding of the claim in the article is (example):

valuation: 100k

mortgage: 85k (thus meeting the 85% LTV)

actual price paid: < 85k (with the difference counted as a 'cash-back' from the mortgage advance).

If that's true, it is indeed fraudulent IMO ... and a continuation of the kind of business model/values that drove NR into insolvency in the first place.

It's more:

House valuation £100k

NR discounts for a quick sale to £60k

Mortgage=85% of this=£51k

Ahuja then remortgages to 85% of the 'true' valuation ie £85k.

Now after getting back your initial £9k deposit you still end up £20k in profit

I think

Edited December 7, 2008 by Little Professor

[huw]

It's more:

House valuation £100k

NR discounts for a quick sale to £60k

Mortgage=85% of this=£51k

Ahuja then remortgages to 85% of the 'true' valuation ie £85k.

Now after getting back your initial £9k deposit you still end up £20k in profit

I think

I see. Either way, it ends up with a taxpayer-funded mortgage based on the mythical 'full market price'.

It's extremely frustrating that this false meme of full-market-price/below-market-value has not yet died a death. I guess if a government department like the land registry accepts it, a government bank can accept it too.

[edgexedge]

It's more:

House valuation £100k

NR discounts for a quick sale to £60k

Mortgage=85% of this=£51k

who gives the mortgage though?

Ahuja then remortgages to 85% of the 'true' valuation ie £85k.

they will see that there is already a mortgage for £51k on the property, & will see what the previous sale price was. & again, who gives the mortgage?

Now after getting back your initial £9k deposit you still end up £20k in profit

I think

[huw]

The article doesn't make this explicit as far as I can see (I didn't find it to be very clearly written TBH).

But this:

The ‘cashback’ is created by taking out a mortgage for 85 per cent of the Northern Rock guide price on a repossessed home, having purchased it for just 70 per cent of that price.

suggests to me that the mortgages are from NR. What other lender would rely on the NR guide price for its mortgage valuation? There's also the fact that NR could do this while ostensibly shrinking its loan book (which I guess is a target it's been given to meet by its government masters) ... another lender would be expanding its loan book by writing these loans, yet we're told that everybody's avoiding risk and hoarding cash.

Edited to clarify: the benefit/motivation for NR is that they get to turn a defaulting loan into a supposedly solid new loan, albeit having take the hit on the NE (for which they will pursue the previous home owners). So their books look better after the transaction ... the fly in the ointment is that the new loan could well be rotten too.

Edited December 7, 2008 by huw

[edgexedge]

The article doesn't make this explicit as far as I can see (I didn't find it to be very clearly written TBH).

But this:

suggests to me that the mortgages are from NR. What other lender would rely on the NR guide price for its mortgage valuation? There's also the fact that NR could do this while ostensibly shrinking its loan book (which I guess is a target it's been given to meet by its government masters) ... another lender would be expanding its loan book by writing these loans, yet we're told that everybody's avoiding risk and hoarding cash.

Edited to clarify: the benefit/motivation for NR is that they get to turn a defaulting loan into a supposedly solid new loan, albeit having take the hit on the NE (for which they will pursue the previous home owners). So their books look better after the transaction ... the fly in the ointment is that the new loan could well be rotten too.

I still dont see how it could possibly work, NR will at some point in the transaction have to assign a 'value' to the property, which will be used both on the sale side, & on the mortgage side.

At the moment they are sat on paper (potential, not yet realised) losses on the existing mortgages.

If they do what is being said, not only are they now having to realise that loss, but they are also creating another paper loss on the books, as the propert will already be in negative equity.

It all seems very very dodgy to me, & something the FSA need to look at immediately, maybe with police assistance.

[huw]

I still dont see how it could possibly work, NR will at some point in the transaction have to assign a 'value' to the property, which will be used both on the sale side, & on the mortgage side.

At the moment they are sat on paper (potential, not yet realised) losses on the existing mortgages.

If they do what is being said, not only are they now having to realise that loss, but they are also creating another paper loss on the books, as the propert will already be in negative equity.

It all seems very very dodgy to me, & something the FSA need to look at immediately, maybe with police assistance.

The NE will be cleared (from the property, not the original borrowers) at the time of repossession. At that point, NR just has a house to sell, supposedly for as much as it can reasonably get.

Their 'guide price' is the value assigned to the property, all their calculations rely on this. The fact that they can do an 85% LTV mortgage on an inflated guide price makes the books look good as the required boxes have been ticked. The fraud is in that the true value (price achieved) is much lower, and that in reality they are once more doing > 100% mortgages.

There is no paper loss on their books yet IMO; they have a property valued at (guide price) securing a loan for (85% of guide price) so it all looks solid. The loss will not appear until until the new borrower defaults and the guide price is shown to be a fantasy.

That's how I interpret it anyway, as I said the article didn't seem very clear so I wouldn't be surprised if there was more to it.

(edit: in fact, the article seems to be more about outrage that the houses are being sold (ahem) below market value, than about possible fraud in the way the sales are financed. To me, the real story is in the financing).

Edited December 7, 2008 by huw

[LetsGetReadyToTumble]

What's the advantage? You get a mortgage you couldn't have originally afforded, a profit on the deal?

I don't understand the motive. Just looks like you end up with a mortgage you have to pay back anyway.

More importantly.

Anyone know where these repossessions are being sold?

cheers.

Nick

[edgexedge]

The NE will be cleared (from the property, not the original borrowers) at the time of repossession. At that point, NR just has a house to sell, supposedly for as much as it can reasonably get.

Their 'guide price' is the value assigned to the property, all their calculations rely on this. The fact that they can do an 85% LTV mortgage on an inflated guide price makes the books look good as the required boxes have been ticked. The fraud is in that the true value (price achieved) is much lower, and that in reality they are once more doing > 100% mortgages.

There is no paper loss on their books yet IMO; they have a property valued at (guide price) securing a loan for (85% of guide price) so it all looks solid. The loss will not appear until until the new borrower defaults and the guide price is shown to be a fantasy.

That's how I interpret it anyway, as I said the article didn't seem very clear so I wouldn't be surprised if there was more to it.

(edit: in fact, the article seems to be more about outrage that the houses are being sold (ahem) below market value, than about possible fraud in the way the sales are financed. To me, the real story is in the financing).

One part of NR will be responsible for the sale, & will be expecting to see incoming cash at whatever price it is sold at, this must be the 'guide price'

Another part will issue a mortgage at 85% of this 'guide price'

They must surely communicate internally, if not, the current financial mess is the least of the problems at NR!

eg:

Guide price = £100,000

NR issue mortgage for £85,000

NR also expect to see cash of £100,000 from sale, as that is what they have sold it for.

If it really sold for 70%, £70,000, NR have got to account for the £30k difference between their valuation & what theyve had come in as payment.

This is also increasing the debt outstanding for the original mortgage holder.

Surely the guide price has to come from a valuation survey?

All i can think is SCAM!!!