Friday, Jun 29, 2007
Let's not fool ourselves, the mortgage credit squeeze has started
Times: American sub-prime mortgage ills infect UK markets
Readers like David_2004 will take some comfort looking at last month's Nationwide index, seasonally adjusted to omit any bad news, but just turn a couple of pages to find about the real prospects of property. Let's not fool ourselves, banks will protect their interests, and homeowners will be squeezed mercilessly
Posted by confused76 @ 12:58 AM (46 views) Add Comment
14 Comments
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1. sovietuk said...
"Defaults on sub-prime mortgages have surged in America after lenders extended mortgages to people with increasingly weak credit ratings at the end of 2006 and the beginning of 2007 on the basis that climbing house prices would allow them, if necessary, to remortgage their property to meet repayments."
"Instead, house prices plunged, forcing the borrowers to miss mortgage payments. The losses are passed through the capital markets to the funds that bought the securities."
How on earth did the industry get into this position? Did they not employ real economists or use models to predict what was about to happen?
Maybe a few UK based "subprime lenders" (cough -high street banks/building societies) have got their predictions wrong as well.
2. semi-detached-from-reality said...
I was speaking to a guy at work about this today. He said "have you heard about all the detention camps Bush and his cohorts are building?" Well, funnily enough I have, and usually dismiss that sort of thing as a bit conspiratorial; however there is plenty of evidence those camps are out there, and capable of holding far greater numbers of people than usually break laws...
If you have any proof, any proof at all, even a smidgin, that a conspiracy took place it rapidly loses it's theory status and becomes a fact.
3. magnifico said...
Sovietuk, you ask how the industry has let the situation get this bad and why didn't they base their lending plans on solid economics stats.
Unfortunately industries, especially those who deal in financial products, do not regulate themselves, they do not try to keep a sustainable market.
Their interest lies in making hay while the weather is fine, to heck with tomorrow.
4. inbreda said...
magnifico is right. The only other explanation is that by pushing up house prices to a knowingly unsustainable level, and then pulling the rug from underneath people, it enslaves those defaulters to the banks. For example if someone bought a house that was really only worth 50k for 250k, then defaulted and was repossessed and the house sold for what it is actually worth, the individual still owes the bank 200k.
So the bank still gets to collect a mortgage from people who don't even have a house. Now that is cunning.
5. dohousescrashinthewoods said...
Life expectancy in sales is tagret-based to approximately one quarter, so a long-term view is positively disincentivised for the group most likely to influence the decisions of the customer base, whose long-term stability is ultimately what determines the viability of all those exotic multiply-derived financial products.
In short:
If the guy building the foundations won't live to see the building, why would he care? Take the money and move on.
The Baratt model of construction?
6. Benedict said...
From inbreda:
"magnifico is right. The only other explanation is that by pushing up house prices to a knowingly unsustainable level, and then pulling the rug from underneath people, it enslaves those defaulters to the banks. For example if someone bought a house that was really only worth 50k for 250k, then defaulted and was repossessed and the house sold for what it is actually worth, the individual still owes the bank 200k.
So the bank still gets to collect a mortgage from people who don't even have a house. Now that is cunning."
Don't Americans have some kind of bankruptcy proceedings? So the banks lose 200k and destroy their customer base. Not hugely cunning IMO.
7. dohousescrashinthewoods said...
"...again citing difficulties in the debt markets..." - ladies and gentlemen, the list of companies cancelling floats and bond issues due to lack of interest is on the rise.
Looks like a credit squeeze to me. Who loves credit and is going to get squeezed? UK Joe blogs who wants a 10x mortgage to buy a microscopic flat, luxuriously appointed in wattle and daub by unqualified Eastern European slave labour.
HPC..
(wattle and daub = a couple of sticks and a load of bullsh..)
8. mrmickey said...
Close to me they've just converted the old Victorian poor house to designer flats, now is that irony or what.
9. Julian said...
"For example if someone bought a house that was really only worth 50k for 250k, then defaulted and was repossessed and the house sold for what it is actually worth, the individual still owes the bank 200k."
Am I wrong? I thought that the special thing about a mortgage is that it is secured upon the property. In the case of default, surely you just hand the keys back (give them the security as per contract) and arrange a rental before your credit rating takes a plunge.
Surely, the only people who get trapped are those who have greater than £100k of equity, they are trapped when they cant pay the mortgage, but also cant afford or dont want to loose the £100k (perhaps they have other loans secured on it- perhaps it was their pension).
First time buyer may be ok- he has little 'skin in the game'. he goes back to rental. But the BTL landlord who had the 'brilliant' idea of financing the purchase on his own home (because the loan was cheaper) rather than the BTL property stands to loose much more. -The reason the BTL loan was more expensive was because it is more risky for the bank, the 'brilliant' landlord has transferred this risk to his own home.
The world is as complicated as it is, we meddle in things we don't understand at our own risk.
People don't think, don't listen and don't read. Most simply interact with the world on an emotional level, -there is always a cost to this.
10. Hedger said...
"So the bank still gets to collect a mortgage from people who don't even have a house. Now that is cunning."
If you have lost your house, I would think its highly unlikely that a court would rule that you couldnt go bankrupt. So in actual fact you would end up walking away with nothing, even mortgage debt.
I think some comments are right in that you try to make as much as you can before the market turns but conspiracy theories of enslaving mortgage holders to create some new world order is nonsense.
Where do you lot get this crap from?
11. Stoatgobbler said...
Sovietuk - 'How on earth did the industry get into this position? Did they not employ real economists or use models to predict what was about to happen?'
This is quite a telling question which goes to the heart of the issues here.
Firstly, it indicates a belief that we exist in a knowable universe of finite and clear facts - it shows the illusion we all have of understanding, when the world is actually far more complicated and random. Secondly, it indicates a belief that the analysis of events after the fact has some kind of predictive or forecasting power - 'the market crashed in 1987 because of x, therefore as x is happening again, the market will crash again'. Thirdly, it indicates the chronic over-valuation of expert opinion we suffer from these days. My dog has a better track record of stock picking than CNBC's experts.
In short, banks employ thousands of clever people, none of whom have any more power to see into the future than you or I. Unexpected events remain just that, and kill businesses that are exposed to them. This is the danger we face today in the Global Markets.
I bring this up simply because people seem to believe that an economist and a dentist are both professionals, and therefore both should be right every time. This is a dangerous assumption and I would recommend always expecting the least expected outcome in any situation! Cue Spanish Inquisition jokes...
12. Scott said...
Near to where I am from in Stoke, they planned to build some crap flats near to where the coal mines used to run through. Staffordshire University's school of geology wrote to the council saying that the site is so structurally unsafe that they would do a professional evaluation for free. The council did not reply and built the flats anyway. I wonder how many of the residents know that they could go to bed on the 4th floor and wake up 2 floors underground at some time in the future.
13. dohousescrashinthewoods said...
mrmickey, classic, splendidly appropriate - those buying in will spend a couple of decades in peonage.
14. sold 2 rent 1 said...
Scott,
Sounds like it could be another coal related disaster like Aberfan?
http://www.nuffield.ox.ac.uk/politics/aberfan/home.htm