Sunday, Sep 16, 2007
FAQs
Times: Bail-out on the high street: what it will mean for you
'Answers' to your questions.
Posted by bufferbear @ 01:36 AM (1249 views) Add Comment
13 Comments
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1. su said...
Wow, BufferBear, you've been busy this morning while burning the midnight oil!
I like these simple articles which can be understood by dumb blondes lacking a degree in economics or mathematics.
Never heard of male pattern baldness being described as "shaven-headed" before. Or does Adam shave his bald patch?
One question which isn't answered here is: what happens to folk's mortgages if a bank folds? Anyone know the answer to that one?
2. European-bear said...
I would imagine that people who hold mortgages from a bank that fails will keep having to pay the mortgage but to the bank's creditors.....
3. tyrellcorporation said...
The mortgage liability gets taken on by the company that either buys out the failing mortage lender or the administrators of the liquidation.... I think.
the home owner doesn't get to walk away with a free house!
4. Lierbag said...
I've read that the situation with US mortgage lenders, is that if they ever hit severe financial troubles, they are able to call in the outstanding balance of the loan as a single repayment - or can repossess the property to raise funds.
Any truth in this? And does it apply with UK institutions?
5. Orwell said...
The mortage is a legal interest equivalent to a legal estate and running with it. Therefore it is an asset that is the most secure assest one can get because it is relised (subject to the value of the land) before sale in priority to the property owner's interest.
6. inbreda said...
Yes - if you have a mortgage the liability does not disappear and you have to keep paying the mortgage.
But if you have savings with the institution only the first few grand are safe. Anything above 30 odd thousand is effectively lost.
That's fair isn't it.
Rather like giving tax badvantages to people in debt and taxing savings interest.
Screw the prudent, glorify the financially indebted spender.
And they wonder why there is insufficient saving for old age. Idiots.
7. Inbreda said...
"Northern Rock’s mortgages are going to be much less competitive in future."
So the next time all of those people with 125% mortgages try to remortgage they will find the deals more expensive.
The downward spiral.
8. talking rot said...
Su
Mortgages from a failed lender are usually packaged up and sold on. The sad thing is, well for debt-stressed home-owners, the buyer of the mortgage can assess the risk and call mortgages in. This means the home owner might end up having to find a new mortgage company in very, very little time. If they can't find one, the buyer of the mortgage can start repossession action.
9. su said...
Thanks guys for all your thoughts on this.
TR. Can the mortgage buyer call the mortgage in on all the mortgages, or only on those who have missed a payment?
10. talking rot said...
Su
In theory, the mortgage can be called in at any time as the mortgage buyer is effectively ending the contract. It is by the same principle that the home-owner can end their agreement with one mortgage supplier to transfer to a different mortgage company - albeit with some administrative charge. Calling in a mortgage is a very big step, extremely bad for the reputation of the mortgage company and is therefore practically unheard of in the UK. Mortgages are, afterall, merely an agreement between two parties and agreements can be re-negotiated or ended.
11. uncle tom said...
Be a little wary about the safety of bank deposits - there are two big caveats:
1) The system assumes that any bank failure will occur in isolation - if several major banks went down together, it would not be possible to find the funds to pay compensation. The 'domino scenario' cannot be wholly dismissed.
2) Retail banking is getting international, and as far as I know, there is no provision for bailing out savers who put their money into savings schemes run by banks from other countries, even if those accounts are denominated in sterling. Look closely to see where your bank has it's HQ..
For the small saver, I would argue that while the risk of a catastrophic meltdown of the retail banking sector is not likely, it represents a large enough risk to justify moving money into the government backed schemes run by NS&I
12. inbreda said...
You'll probably get an anonymous PE company buying northern rock for no more than its outstanding mortgage balances and raising the SVR to 35% and similarly to all fixed rates, on the basis that they either repossess, get the money back as customers remortgage elsewhere, or prey on the people who can't move.
13. bufferbear said...
Hi su,
I was just having a break from the children:)