Wednesday, Feb 13, 2008
What if the banks start offloading their portfolios period....
CBS News: "Jingle mail:" The Awful Sound Of "Voluntary" Foreclosure
As the foreclosure crisis deepens, banks and lenders are talking openly about one of their worst fears: "jingle mail" – the phrase that describes what happens when a borrower gives up on a house and a mortgage, and simply mails the keys back to the lender and walks away from the mortgage.
What did we just see Egg do? that's right, penalise good customers. What makes you think a bank won't start selling homes where the mortgage payer is bang-up-to-date, simply because a "repossessed property" due to default fetches less at auction. Wait and see. Stranger things have and yet will happen.
Posted by lvmreader @ 08:31 PM (1241 views) Add Comment
29 Comments
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1. quiet guy said...
"What makes you think a bank won't start selling homes where the mortgage payer is bang-up-to-date"
I'm a little confused here lvmreader: how could a bank repossess a property when mortgage payments are up to date? I can see a bank trying to punish good customers with sneaky curent account charges and high mortgage renewal fees but any bank that was seen to be doing what you are suggesting would have a PR chernobyl on their hands.
The other thing I want to say is that although the "jingle mail" story is interesting, it has little relevance here. If you walk away from a mortgage in the UK, the bank can come after you.
2. lvmreader said...
Err, @quiet guy, they can (and do) come after you in the United States also. People have made the decision that it is not worth paying increasing amounts for a depreciating asset.
You cannot see the relevance to house prices? Try harder. It is really quite clear.
If banks can dump up-to-date on payments credit card customers, why can't they do so for mortgage customers - who may be current now, but may default in 3 months.
I would be looking to offload most investment banker mortgages right now if I were unfortunate enough to be a highly geared mortgage lender.
3. lvmreader said...
@quiet guy,
You clearly have never read the smallprint on a loan. The bank can recall a loan at any time for any reason.
Did you not know this? Have you not read of people's credit being curtailed or withdrawn simply because of other factors?
4. Mick said...
Mortgages are different from credit cards or other unsecured leanding , for a bank to repossess a home they have to gain a county court judgement, if a buyer was up-to -date on payments a judge would not grant a repossession order. Also why would banks want to start repossesssing homes with mortgages on them if they have droped in value as in order to sell the property the next buyer would have to obtain a mortgage . Who is going to give the next buyer the mortgage and who would take out a mortgage if banks were repossessing up-to -date payers.
5. enuii said...
Correct me if I'm wrong, but if I follow the above logic correctly this would be pretty obviously a good move by the Banks with regard to offloading mortgages secured on 1/2 bedroom lifestyle apartments. Values of these are already plunging, plus as they are all in the same block in the same area their resale values will stick out like a very sore and badly infected thumb!
6. uncle chris said...
Maybe someone can clear this up for me and my non-fiscally minded brain. If you, as a UK citizen, were to hand in your keys to the bank and then declare yourself bankrupt, can they still chase you for any loss after selling the property once you're 12 months is up?
7. Will said...
Egg had the risk management systems of a five year old, and cutting accounts in retrospect will inevitably leave a couple of seemingly "good" customers losing out. The issue is whether these customers would have been given the credit cards in the first place, not if they kept their payments up. Even bad credit risks can be "good" customers for a period.
Observing outliers is what the papers do, not what most sound businesses practice. Otherwise inflation would be about 40%.
The issue of whether foreclosing early on mortgages will be in the best interests of a bank is unclear. Seems unlikely, unless the bank needs the cash. Either way, they can just do that by raising their mortgage rates.
Less hassle, leaving the user to remortgage or sell. And to be honest, less of a conspiracy theory.
8. lvmreader said...
@uncle chris,
Speak to your friendly, neighbourhood insolvency practictioner.
Better still, see what our American cousins are up to with these 2 links:
9. lvmreader said...
In Foreclosure? Walk Away & Save Money
http://www.neuralmarkettrends.com/2008/01/28/in-foreclosure-walk-away-save-money/
Ugly posted this interesting LA Times article his Del.icio.us link role a few days ago. It seems that people with upside down mortgages (where your mortgage is greater than the value of your house) are voluntarily letting their properties be foreclosed on.
A homeowner who can’t sell his house tells the L.A.Times, “Foreclose me. … I’ll live in the house for free for 12 months, and I’ll save my money and I’ll move on.”
Banks and lenders fear this kind of thinking — that walking away from a house could be the smart economic move — appears to be on the rise. Wachovia, in a conference call yesterday, warned investors that increasing numbers of homeowners are walking away from their homes by choice: “… people that have otherwise had the capacity to pay, but have basically just decided not to because they feel like they’ve lost equity, value in their properties…”
It sure makes business sense to me why homeowners are doing this, cut your losses and get out but is it the right thing to do? I don’t know if its right or wrong but I do know that the Banks need to start being more accommodative to all borrowers now. Lending has gotten so tight that our mortgage company wants to charge us $5,000 just to refinance our investment property, and we have great credit!
With all this voluntary foreclosure activity, is it time to be a foreclosure vulture capitalist? Not yet, wait till the banks are choking on supply.
10. lvmreader said...
http://tinyurl.com/24gsoh
FBI Reports More Foreclosure Scams In 2007
01-17-2008
The Federal Bureau of Investigation (FBI) has noticed that the number of mortgage and foreclosure related frauds have increased considerably. The FBI reported that the total number of mortgage fraud cases in the fiscal year 2007 nearly tripled from that in 2003.
The growth of foreclosure scams are expected to carry over this year as the ongoing saga of the housing crisis continues.
In Nevada, state officials are also seeing an increase in these types of scams.
Nevada residents are being warned to look out for the following signs to know if you are or have been a victim of a foreclosure scam.
***It is likely a foreclosure scam if you are required to sign a deed or other papers in exchange for a promise that the seller will pay off your mortgage although no escrow is opened.
***It is likely a foreclosure scam if someone offering you a deal tells you that a real estate agent or title company is not required in the transaction.
***It is likely a foreclosure scam if you are told that the buyer will be taking over the payments of the house.
***Finally, it is likely a foreclosure scam if the buyer tells you he will buy your house for the sum of the mortgages you owe and an additional amount of money which he will pay in cash.
If you believe you have been the victim of mortgage fraud, you are being requested to contact the Secretary of State's office immediately at (702) 486-2440, or (775) 688-1855.
11. wiltshire said...
Someone on here a while back mentioned that lenders can demand payment of 'negative equity' sums on a loan. So if you've got a 100k mortgage and your property is worth 80k the lender can demand the 20k at any time. Anyone know exactly how that works?
12. quiet guy said...
@lvmreader
Thanks for feedback. I'd really like to ficus on the UK law about voluntary repossession. I still ask a question: has anybody an example of a UK bank repossessing a UK property bought with a mortgage that is not behind on payments? I still say that any UK bank trying this would get a brand new rear orifice courtesy of the media.
@wiltshire
Your question is even more intrgiung. If memory serves, the governer of the BoE said "House prices are a matter of opinion. Debt is fact." How on earth do you establish the value of a house without actually selling it? Sure a valuer can provide an estimate but the *price* is determined when you sell; everything else is opinion.
13. European-bear said...
Unlike the USA, the lender can still pursue the borrow after the house has been repossessed and the occupier evicted. Handing in the keys is not such an easy option in the UK...
14. Blindleadtheblind said...
IVMR is correct. If a bank finds itself insolvent because its assets and liabilities dont meet the legal requirements needed to stay in business then they can (and are sometimes forced to) call in loans even if the individual is not in any sort of payment arrears. It is similar to the decision taken by egg just recently. It rarely happens but it it comes to a dog eat dog situation the bank will always protect itself at the cost of the individual. Thinking otherwise is naive
15. Orwell said...
QG. Don't be an idiot. You simply cannot do it. A mortgage is a Legal Interest pursuant to Section 1 of The Law of Property Act 1925. The only estates capable of exisiting are freehold and term of years absolute (leasehold to you). These run irrespective of the Legal Interests provided that one is not dispossessed by an estate holder with (provable) better title and as 95% of property in the UK is registered now this won't happen (Compulsory Registration Order 1990).
Provided the terms of the Legal Interests are being met then that holder of the Legal Interest cannot upset the estate on which that interest is dependant. It is true however that if the borrower gets behind sufficiently for the Court's intervention (usually three whole months) then the Court will force sale of the Estate to realise the Legal Interest.
16. doom&gloom said...
@lvmreader. I'm fairly sure that a UK bank could not repossess a house unless the mortgagee had defaulted in some way. I can check the T&Cs of my last mortgage to be sure, but I'm sure that they could not repossess you before your agreed period (2yrs/5yrs/whatever) was over. They have to go to court to begin repossession proceedings and no court would allow them to take a house from a good borrower. remember - it is the morgagee that owns the property, and the bank has to have good grounds for repossessing.
Of course if they refuse to offer you a new discount rate then your initial rate expires. And some borrowers may not be able to get a discount rate anywhere else either, meaning they will have to pay the SVR and will probably default pretty soon after that. That is what I think will happen 1 or 2 yrs from now.
17. Doom&gloom said...
...and I've heard (mainly from this forum) that a US bank which forecloses only has rights over the property, whereas in the UK the bank can persue you for your other assets (car, cash, etc) to make up the shortfall between the mortgage amount and whatever it manages to sell your house for.
Of course once you declare yourself bankrupt it means you have nothing left anyway so the bank haven't got much else to take from you.
18. Omg said...
Quiet Guy,
This is just peoples imagination running away with them. Extrapolating the Egg actions to evicting up-to-date mortgage holders is total nonsense. For a start, being that they were up to date, Egg didn’t do anything other than withdraw an credit facility that wasn’t being used. If banks pulled mortgages it would bankrupt most people whom the demands were made upon. It simply doesn’t make sense to do that.
Although the small print (usually on any form of credit/loan/mortgage agreement) allows the lender to demand repayment in full, I believe this is so that they can demand it all back when you default, i.e. If you miss your payments, they will take you to court for the whole lot, not just a couple of months worth of repayments. The doom sayers on here will have you believe that banks need to recapitalise at any cost, including recalling all their retail loans and bankrupting their customers in the process. I believe that is total nonsense.
A lot of people seem to have an agenda on here, frankly I think a lot of people just like to espouse their "radical" or "apocalyptic" views simply because they have an audience. Make sure you consider everyone’s motivations with their posts and decide yourself on whether a) people have any real knowledge of what they are talking about b) just entertaining themselves and their audience. Adjust how seriously you should take people accordingly. I have found that the more apocalyptic or vengeful the posting the more of a wacko the poster is.
We have been through cycles before and that is exactly what we are going through now. Sit back, relax and rideit out. No one is going to knock on your door and kick your family out on the street if you are not defaulting.
19. crash bandicoot said...
How does an IVA work? Aren't you just responsible for the first £15k of debt? If your negative equity is beyond this then what is the point in the banks pursuing further court action and instructing bailiffs if they have no hope of recovering any more than £15k.
20. crash bandicoot said...
During the last crash some guys that I knew were running a family engineering business. The banks closed all of their credit/loans and forced them to be repaid. They were not bad debtors and were in good shape. Interestingly several other local businesses experienced the same fate. It was speculated at the time that the bank was only doing this to viable businesses that it thought would survive the upheaval................. On the flip side the family closed down the business then bought it all back at a vastly reduced rate from the receiver so they did OK in the end.
21. planning4acrash said...
Of course they can punish homeowners with good records, tho I doubt it will be as severe as suggested, more a drip approach. Customers under stress won't be able to pay extra, yet those with good credit can, and banks need more money. Sooo, it makes sense to raise rates on those who are secure, leave them stable for those on the edge. In the end, that could get prudent peep's to a similar level of problems as sub-prime, then prime becomes sub-prime, and those who never missed payments start protesting, possibly handing the keys in and possibly missing payments. The system is so interconnected that prudent borrowers cannot expect to be unaffected by other unprudent borrowers or expect to not be affected by choosing a stupid bank that made massive miscalculations.
22. inbreda said...
" I still say that any UK bank trying this would get a brand new rear orifice courtesy of the media."
I think a BTLer with lots of mortgages against lots of properties that are mostly new build flats - even if they hadn't defaulted - would be a prime candidate for having their loan pulled from under tehm. The bank could very easily blame it on the developers/new build flat fraud that has been happening recently, and could well please shareholders by taking assertive action to distance themselves from what are obviously very high risk loans. They can even use the excuse that they weren't aware of this fraud previously. I think they could offload a lot of risky mortgages which would increase their capital, which would help them ride the credit crunch.
Seems perfectly plausible to me.
23. geed said...
Jingle Mail...thats funny. :)
24. Andymoir16 said...
Surely the fly in the ointment is that the banks won`t get any money if they do this? where is a struggling BTL landlord going to get the money to pay off his called in loans? People have mortgages (mainly) because they don`t have money, Calling in the loans will make people homeless, but won`t make them pay. This is what happened during the great depression when banks panicked. As I understand it some states in America will pursue while others won`t. Am I correct?
25. talking rot said...
A mortgage is merely an agreement [contract] between two parties. Either party can re-negotiate or end the contract should they so wish but there can be unpleasent side effects to ending a contract.
I've never had a mortgage, (and do not have the intention to get one), so I've never read Mortgage Terms and Conditions. What I do know is a former collegue of mine was told by TSB (if I recall correctly - but could be wrong) that they would not be willing to continue his mortgage at a review point. Basically he had to get another mortgage to pay off his TSB one.
This happened in 1992 and so things might have changed since.
26. dbnazz1 said...
Not an expert on this one but i find it hard to believe that a lender could call in the mortgage at its will. Just don't see this one stacking up. If it could be done, which i doubt, it would undermine the Uk's whole way of life by putting a giant crack through the whole system. The consequences of such an action would be to large to be allowed to take place.
27. quiet guy said...
Thanks for all comments about UK repossession law.
@Orwell
Well I may be an idiot but I don't have a mortgage :) Perhaps there has been a misunderstanding; I was just asking a hypothetical question.
@inbreda
I was really thinking of the family home situation rather than a BTL property portfolio. That said, I suspect that a lot of people have lied about their income to get a mortgage and may come to regret it.
Judging by the comments, the main risk is that those who have paid their mortgage reularly may get stung by banks when renewal times comes up.
28. lvmreader said...
A bank can call in a loan at any time for any reason. They do not need to go to court.
29. Uneed said...
IVMreader is absolutely correct. I was once a banker before I stayed in a Holiday Inn. A bank can call you in the middle of the night and recall a loan,If at "anytime" that banks becomes insolvent..they are going to ask for their money..Just like that "Loan Shark" in Vegas does. And you will be out knocking on doors to find a bank to refinance your loan that "IS" solvent! And it has happened before and it can happen again.