The Third Despatch From The Frontline...

[The Masked Tulip]

Fascinating post - thanks.

It is obvious now that the banks are simply driving down the price of housing - using every opportunity to reduce mortgage lending, drive down prices of housing by reevaluating every mortgage request and subsequently saying that properties X, Y and Z are only worth a lower sum.

How long before we are back to 3.5 times salary?

[Umiapik]

Fascinating that they're keen to get their hands on Northern city newbuild flats, you'd have thought they'd want to do anything possible to avoid seizing them.

These sort of properties are absolutely plummeting in value. As soon as someone gets in trouble with one of these properties the bank needs to act immediately. If they hang on for six months, the property's selling price will have dropped by tens of thousands in the meantime, leaving the banks even more out of pocket.

So really, immediate moves to repossess are the rational thing for the banks to do.

[SNACR]

These sort of properties are absolutely plummeting in value. As soon as someone gets in trouble with one of these properties the bank needs to act immediately. If they hang on for six months, the property's selling price will have dropped by tens of thousands in the meantime, leaving the banks even more out of pocket.

So really, immediate moves to repossess are the rational thing for the banks to do.

Yes I know, from what I hear when they go to auction the hammer rarely drops. Therefore, are the banks really acting rationally seizing an asset there's no market for when the alternative is a few months mortgage arrears.

[Not Long Now]

Yes I know, from what I hear when they go to auction the hammer rarely drops. Therefore, are the banks really acting rationally seizing an asset there's no market for when the alternative is a few months mortgage arrears.

They are probably trying to get what they can for a commodity that is only likely to fall in price.

Any shortfall between sale price and oustanding debt is insured anyway.

[Shao Kahn]

How does it work for the home owner getting a remorgage, if the bank revalues the house lower then the existing morgage value?

Also for the first time buyer, if they agree a price to buy a home, but the bank value it lower than the agreed price, what happens then.

1) no re-mortgage.

2) no FTB house purchase,

[leafygardens]

How does it work for the home owner getting a remorgage, if the bank revalues the house lower then the existing morgage value?

Also for the first time buyer, if they agree a price to buy a home, but the bank value it lower than the agreed price, what happens then.

I spoke to a surveyor friend recently. He valued a 2 bed 70s terraced at a price I thought sounded high in this market. He said that he does not take any future projected price drops into consideration. He values at todays prices. That would be the top of the market price less 15%, I guess.

No wonder the EAs windows are full of overpriced houses.

[Yoss]

Informative post, LTV lowered from 125% "Togeva mortgage" to 75%...That size drop should equate directly into market value + panic factor, lay offs etc (nasty spiral)

I guess we ALL are in for a very "Interesting" time.

on a completely anecdotal. I have had 15 leaflets posted through my door this week from people offering to clean windows, cheap conservatories/extensions/Loft extensions (13 more than normal).

oh and 10 page glossy mag from the borough council explaining what benefits you are entitled to with a two page spread on part ownership of new builds on the development up the road that no one is touching.

for only 53K you can "(tiny font) part own" YOUR OWN ONE BEDROOM LUXURY FLAT

or for 64K you can "(tiny font) part own" a 2 BEDROOM LUXURY APPOINTED HOME! it is still a flat with an extra bedroom/bathroom, no extra parking etc.

[the end is a bit nigher]

8) Any BTL not allowed to swap from repayment to i/o, no payment breaks allowed, all rate fees that were added to the

balance "encouraged" to pay off ASAP, and immediate possession proceedings instigated if two payments are missed.

Reduced to one payment for new-build properties unless they call in with a good reason...

There are more and I will post them as I remember them...

BTLs are commercial properties and commercial loans - from the lenders I have worked with, 2 strikes and you're out is the standard ruling

[Shao Kahn]

TCF was designed to protect the customer against the financial provider, in this case, it's protecting the customers from themselves......

Cheers for the news as well SK

In reality TCF is only adhered to the once a year the FSA come to visit - at all other times, it is the same as it ever was, the only difference is the new paperwork...

[Shao Kahn]

Thanks for the info! Another year of 2% monthly falls then.

Can you say where in London that reduction was?

Cannot remember off hand - London is London to me, not living there and all. Can find out next week.

[Shao Kahn]

Fascinating that they're keen to get their hands on Northern city newbuild flats, you'd have thought they'd want to do anything possible to avoid seizing them.

It is probably better to get a slight nick from a falling knife rather than to catch it full in hand at the bottom of its trajectory and slice your hands apart.

[Shao Kahn]

BTLs are commercial properties and commercial loans - from the lenders I have worked with, 2 strikes and you're out is the standard ruling

BTLs are not FSA regulated but are no longer classed as "commercial loans" if they are on residential properties.

"Commercial" BTLs like office blocks, shops, warehouses et al are stil classed as pure "commercial loans" and are classed as "commercial" mortgages, with "commercial" mortgage interest rates.

But, residential BTL is not classed as "commercial". It seems to be a bit of a grey area. The "commercial" aspects of possession still seems to stand though.

As I said, it is a bit of a grey area in terms of legislation.

Edited January 16, 2009 by Shao Kahn

[philip.mather]

BTLs are not FSA regulated but are no longer classed as "commercial loans" if they are on residential properties.

"Commercial" BTLs like office blocks, shops, warehouses et al are stil classed as pure "commercial loans" and are classed as "commercial" mortgages, with "commercial" mortgage interest rates.

But, residential BTL is not classed as "commercial". It seems to be a bit of a grey area. The "commercial" aspects of possession still seems to stand though.

As I said, it is a bit of a grey area in terms of legislation.

One would imagine it's a grey area that's rapidly turning a nasty shade of sticky brown.

Very interesting, keep it up.

[LuckyOne]

Downvaluations becoming more severe

Thank you SK.

As someone looking for fair value, these downvaluations are very interesting to me.

Could you give us some sort of sense as to the average level to which houses are being valued now (eg, mid 2002 or mid 2004)? It would be very useful to compare surveyors' valuations to declines in the indices.

Also, if there are valuations below the "sale agreed" price, what happens generally? Do buyers stump up more cash to get their LTVs to the required level for a "good" mortgage or are sellers having to share in the difference between the "agreed" price and the valuation?

[BXLONDONMAN]

That's the deception of "asking prices" - the degrees between "asking prices" and "actual risk-assessed valuations" are becoming more and more apparent nowadays - it is causing many, many chains to collapse.

really good news thx......keep it coming.prices in london, are far too high they really need to drop.

news like this shows they will come down pretty soon.

[tigsrenting]

Thanks SK. Always good to read your posts. A well deserved bump.

[thecrashingisles]

Thanks SK. Always good to read your posts. A well deserved bump.

+1

[slurms mackenzie]

For newbies, this is third in the occasional series by me, a bored mortgage adviser at a major bank:

1) Downvaluations becoming more severe : worst case was seen today, with a place "valued" at £1.1 million being

downvalued to £350K (this was in London).

2) Each time before the BOE MPC meeting, tracker rates are withdrawn internally and then "repriced" the following day,

typically being increased from the last increment by the same amount that the repo rate was cut...

3) Massive increase of "credit score declines" caused not by adverse credit, but by the risk inherent in the lending

proposition. E.G although their mortgage calculator says that you can still get 90% LTV, NO-ONE does. 75% LTV and

below seems to be all that is accepted now.

4) Scepticism even of the most "prime" borrowers". E.G I agreed mortgage lending of £1 million a few months ago for a

man who was on a self-employed finance solicitor on £300K ltd company salary / dividends - fully provable, as I

reviewed his accounts - with an LTV of 75% for a country mansion - now, after three months and he is looking to go

ahead, they are about to decline the loan and won't even go above £800K on it...

5) BTL, whilst still officially advertised, is impossible to obtin, with the new, harser credit criteria.

6) A "specialised line" has been set up for the increasing amounts of customers in "financial difficulty"

7) Swapping from repayment to interest-only is only allowed on owner-occupier main residence mortgages of below 75%

LTV, any more than that LTV is not allowed and so they have to stay on repayment, and, finally, the best;

8) Any BTL not allowed to swap from repayment to i/o, no payment breaks allowed, all rate fees that were added to the

balance "encouraged" to pay off ASAP, and immediate possession proceedings instigated if two payments are missed.

Reduced to one payment for new-build properties unless they call in with a good reason...

There are more and I will post them as I remember them...

Always good to hear from the front line, would it be rude to tag some on from where i work,

medium sized sub prime lender, most people won't have heard of them but they have been mentioned on occasion on hpc.

Money secured from wholesale markets last year, so not at panic stations however company is in hibernation mode, plenty of people have been sacked on the commercial side for mispricing risk and trust me the price was high to begin with.

Lending now down to a third of what it was ( if i gave exact figures it could identify me but please trust me on this)

Here's the worrying part, since the start of 2009, the delinquency rate is rising by a fraction of a percent (around .1 ) every day, yes that's every day!

Edited January 17, 2009 by slurms mackenzie

[LuckyOne]

Always good to hear from the front line, would it be rude to tag some on from where i work,

medium sized sub prime lender, most people won't have heard of them but they have been mentioned on occasion on hpc.

Money secured from wholesale markets last year, so not at panic stations however company is in hibernation mode, plenty of people have been sacked on the commercial side for mispricing risk and trust me the price was high to begin with.

Lending now down to a third of what it was ( if i gave exact figures it could identify me but please trust me on this)

Here's the worrying part, since the start of 2009, the delinquency rate is rising by a fraction of a percent (around .1 ) every day, yes that's every day!

Does this mean that if the deliquency rate continues to grow at this pace, fully 36.5% of all loans will be delinquent in a year?

[slurms mackenzie]

Does this mean that if the deliquency rate continues to grow at this pace, fully 36.5% of all loans will be delinquent in a year?

Well the delinquency rate was already in the low teens, and it would compound,

by delinquency i mean one late payment or more, i'm not sure how the trend will continue.

Theres no doubt it's shot up this year and it's got people worried, the business model had factored in 30% house price falls but a lot of LTVs are looking shaky if we have to reposses.

[LuckyOne]

Well the delinquency rate was already in the low teens, and it would compound,

by delinquency i mean one late payment or more, i'm not sure how the trend will continue.

Theres no doubt it's shot up this year and it's got people worried, the business model had factored in 30% house price falls but a lot of LTVs are looking shaky if we have to reposses.

Yummy .... More pent up supply from the sounds of things ......

[Blue Peter]

Theres no doubt it's shot up this year and it's got people worried, the business model had factored in 30% house price falls but a lot of LTVs are looking shaky if we have to reposses.

Do you mean that you were lending whilst expecting prices to fall 30%? Is this only recently? or all along?

Peter.

[slurms mackenzie]

Do you mean that you were lending whilst expecting prices to fall 30%? Is this only recently? or all along?

Peter.

The highest LTVs issued in 2007 were at 75% the business refused to do higher, this is a traditional sub prime lender as in they lend to 'sub prime people', so to get any money you needed to have a lot of 'equity' in your property.

In 2007 i was told that the business had been stress tested to withstand a 30% correction, the business was still expanding at that time, but they were cautious, and thought that a correction *could* happen, i guess 30% was there worst case scenario and they were willing to take a risk on not getting money back on some of the loans because of the potential upside.

The highest LTV now is 70% and that's for second charge residentials (think ocean finance etc ...) as they're seen as easier to get the money back on. Commercial .... well erm lets just say it's not good.

Edited January 17, 2009 by slurms mackenzie

[LuckyOne]

The highest LTVs issued in 2007 were at 75% the business refused to do higher, this is a traditional sub prime lender as in they lend to 'sub prime people', so to get any money you needed to have a lot of 'equity' in your property.

In 2007 i was told that the business had been stress tested to withstand a 30% correction, the business was still expanding at that time, but they were cautious, and thought that a correction *could* happen, i guess 30% was there worst case scenario and they were willing to take a risk on not getting money back on some of the loans because of the potential upside.

The highest LTV now is 70% and that's for second charge residentials (think ocean finance etc ...) as they're seen as easier to get the money back on. Commercial .... well erm lets just say it's not good.

Your firm are to be congratulated on being prudent. This is why you are still around.

While the eventual drop may be larger than 30%, it is a stress level that many did not even consider. Thinking as rigourously as you did about the downside is to be lauded even if your "stress scenario" turns out to not be as bad as the eventual outcome.

If every explicit and implicit (think holders of lower tranches of CDOs of MBS) property lender took your approach, we would not be in this mess ......

Edited January 17, 2009 by LuckyOne

[the flying pig]

the £1.1 to £350K fall can't be genuine... probably TM-Lewin style pricing, you know, "this shirt *used* to be priced at £60, but now it's only £25"... only all their shirts are priced like that and no-one has ever seen TM-Lewin charge £60 for a shirt.

more generally though, bring it on!