What's Going On Here?

[bricksnmortarhaha]

Apols if this has already been discussed on here (especailly to grumpy old man), but I'd not heard about this going on until a friend told me about it last night.

This friend has a mortgage with Morgan Stanley and got a call from them recently asking if he was happy to go onto their SVR or if he planned to take his business elsewhere. Knowing what was coming, because the same had happened to a friend with a Morgan Stanley mortgage, he told them he was really happy to stay with them.

This week he got a call from them saying they'd like to offer him a one-off payment (7% of the mortgage, I think) to take his business elsewhere. Again, having been pre-warned, he said he'd want more than that and MS told him that the figure is definitely negotiable, so he's holding out for 10% of the mortgage or more. So if you've got a mortgage with MS, you know what to do!

But what I'm intrigued by is what's going on here? MS are clearly tidying up their balance sheet, but surely as an investment bank they chopped up my friend's mortgage into a thousand little pieces years ago and sold it off to his pension fund. I find securitisation a bit mind-boggling, so apols if this is a stupid question, but are they paying to call in money that they don't really own? Clawing back what they can before the whole system collapses? Is this another big fraud that's about to unravel?

Are any other mortgage providers doing the same?

[Liquid Goldfish]

interesting snippet

Yvette Cooper was supporting sup prime lending

Tue, 01 Aug 2006

The large American investment bank, Morgan Stanley, have extended their operations in the field of UK residential lending . They have launched a range of new mortgage products aimed at the increasingly struggling first-time buyer market. First-time buyers are facing a difficult task on the whole, as a booming housing market has driven house prices through the roof in the last five years.

The loan products, termed flexishare by the bank, are launched through the Morgan Stanley company, Advantage. They will enable would-be homeowners in the UK to borrow more than is currently allowed. In return, the bank will take a share of the capital appreciation or depreciation of the underlying property .

According to the bank, the launch is part of efforts to build the UK residential loans business, and marks the move from securitiser and underwriter into fully-fledged mortgage lender . One director from Morgan Stanley said: "If you're a securitiser of residential mortgage loans, you are one or two steps removed from the underlying lending. The mortgage platform that we are building puts us in the flow from start to finish."

The British Housing Minister, Yvette Cooper, pledged her support for initiatives of this type. Global investment banks have traditionally had interests in the UK mortgage market, and this trend appears to be growing.

[Liquid Goldfish]

So are Morgan Stanley seeing the writing on the wall and exiting the UK market ASAP?

they stopped taking new business in February 2008 according to soem Googling I've just done

[Guest tbatst2000]

But what I'm intrigued by is what's going on here?

I don't know for certain, but this is what I suspect is happening:

1. MS wrote, say, 100M of mortgages to your friend and people like him.

2. they then packaged those mortgages up into a bond (aka a Mortgage Backed Security or MBS) and sold it on to some set of investors.

3. the bond is now being sold in the secondary market at 80% of its face value despite the underlying mortgages not being in default to that rate.

4. they buy it back at 80M (maybe they've already done that).

5. by going around the people with the mortgages and offering to split the difference with them if they'll pay the money back and go elsewhere they make an instant profit.

6. everyone's happy except for the mugs who bought the bonds in the first place.

[Sybil13]

So how would that work?

If you took a 100% mortgage for £200000 in the last few years , property now valued at £140000 , can you transfer to a new lender ?

[Salty]

Apols if this has already been discussed on here (especailly to grumpy old man), but I'd not heard about this going on until a friend told me about it last night.

This friend has a mortgage with Morgan Stanley and got a call from them recently asking if he was happy to go onto their SVR or if he planned to take his business elsewhere. Knowing what was coming, because the same had happened to a friend with a Morgan Stanley mortgage, he told them he was really happy to stay with them.

This week he got a call from them saying they'd like to offer him a one-off payment (7% of the mortgage, I think) to take his business elsewhere. Again, having been pre-warned, he said he'd want more than that and MS told him that the figure is definitely negotiable, so he's holding out for 10% of the mortgage or more. So if you've got a mortgage with MS, you know what to do!

But what I'm intrigued by is what's going on here? MS are clearly tidying up their balance sheet, but surely as an investment bank they chopped up my friend's mortgage into a thousand little pieces years ago and sold it off to his pension fund. I find securitisation a bit mind-boggling, so apols if this is a stupid question, but are they paying to call in money that they don't really own? Clawing back what they can before the whole system collapses? Is this another big fraud that's about to unravel?

Are any other mortgage providers doing the same?

I once gave a tramp 20p "for a cup of tea" so he would go away because he stank and frankly I was a little bit scared of him.

Do you think it's like that?

[Liquid Goldfish]

This friend has a mortgage with Morgan Stanley and got a call from them recently asking if he was happy to go onto their SVR or if he planned to take his business elsewhere

MS only did sub prime

so will your friend will able to remortgage in the current market?

[Optobear]

I once gave a tramp 20p "for a cup of tea" so he would go away because he stank and frankly I was a little bit scared of him.

Do you think it's like that?

[bricksnmortarhaha]

MS only did sub prime

so will your friend will able to remortgage in the current market?

He doesn't seem worried about being able to remortgage. He seems financially fairly secure, if a little more exposed to the property market than I'd feel comfortable with. But he is self-employed so presumably the mortgage was self-cert and therefore sub-prime by default (excuse pun)?

[cashinmattress]

I reckon its cheaper to take the hit now, even at multiples of £10k, versus the inevitable insolvency auction price and losses of £100's of grands down the road.

These snakes are gamblers and know when to cut their losses.

Edited May 24, 2009 by cashinmattress

[porca misèria]

The loan products, termed flexishare by the bank, are launched through the Morgan Stanley company, Advantage. They will enable would-be homeowners in the UK to borrow more than is currently allowed. In return, the bank will take a share of the capital appreciation or depreciation of the underlying property .

Looks clear enough. They're making offers to buy out their share of the depreciation.

[Danny Deflation]

MS only did sub prime

so will your friend will able to remortgage in the current market?

My brother, who's never shy to discuss his financial situation with me, has an Advantage mortgage (Advantage are part of the MS group). His mortgage is called "near prime" (sub prime-lite). His credit rating's not disastrous, but being self-employed and with a late credit card payment or two it was the best deal. The mainstream lenders did look at him, but they offered considerably less favourable deals.

He is currently on the lender's SVR - with not enough equity to remortgage in the current climate - but I don't think he's that bothered: the SVR is comparable, or just 1 or 2 per cent higher, than a mainstream lender. Certainly not the double-figures that are typical of sub-prime mortgages.

Anyway, he was contacted by his lender recently and they said they would waive early redemption penalties, and I think they may have mentioned knocking some amount of his mortgage, if they could find him a better deal. Apparently they came back with a WORSE deal (considerably less favourable SVR) and so my brother told them to go hang.

As a previous poster writes, it's damage limitation. They're happy to make a moderate loss now, than a huge loss with the impending repos and bankruptcies. I also don't believe their terms and conditions, when written a few years ago, took into account that interest rates would end up very low, so they are probably making a loss on that.

Edited May 24, 2009 by Danny Deflation

[Sybil13]

I once gave a tramp 20p "for a cup of tea" so he would go away because he stank and frankly I was a little bit scared of him.

Do you think it's like that?

GOOD ON YOU McTavish would have spat in his face.

[jackster1]

I know someone who was offered 25% of the value of the mortgage to move it somewhere else (it was an advantage mortgage)

He seemed to think it was because of the very very low interest rate he is now paying ie his mortgage payment is under 40 quid a month the lowest he would be paying if he remortgaged would be around 320 quid a month,

This was the reason he seemed to think he was been offered a settlement

[Game_Over]

Anyone offered a deal like this should be seriously worried IMO

Because the bank obviously considers that they are in negative equity and highly likely to default

What the bank are doing is taking a smaller hit now rather than a much bigger hit later

Presumably, the only way they are going to be able to take their business elsewhere is by stumping up a much bigger deposit and paying a much higher interest rate, hence the bribe.

[pokercola]

As others have said, it is pretty obvious what they are doing. They think that offering your friend 10% of his mortgage is a better deal than holding an asset that may still depreciate another 30-40% and even after that is illiquid.

[daedalus]

Apols if this has already been discussed on here (especailly to grumpy old man), but I'd not heard about this going on until a friend told me about it last night.

This friend has a mortgage with Morgan Stanley and got a call from them recently asking if he was happy to go onto their SVR or if he planned to take his business elsewhere. Knowing what was coming, because the same had happened to a friend with a Morgan Stanley mortgage, he told them he was really happy to stay with them.

This week he got a call from them saying they'd like to offer him a one-off payment (7% of the mortgage, I think) to take his business elsewhere. Again, having been pre-warned, he said he'd want more than that and MS told him that the figure is definitely negotiable, so he's holding out for 10% of the mortgage or more. So if you've got a mortgage with MS, you know what to do!

But what I'm intrigued by is what's going on here? MS are clearly tidying up their balance sheet, but surely as an investment bank they chopped up my friend's mortgage into a thousand little pieces years ago and sold it off to his pension fund. I find securitisation a bit mind-boggling, so apols if this is a stupid question, but are they paying to call in money that they don't really own? Clawing back what they can before the whole system collapses? Is this another big fraud that's about to unravel?

Are any other mortgage providers doing the same?

Here is how it works:

Morgan Stanley UK has probably been told by head office to get out of the mortgage business.

This means that they have to sell the mortgage business. Somehow.

This means they have to sell the pool of mortage loans they own (and never got round to securitising).

And I presume it is sub-prime mortgage pool (since that is the only sort of mortgage business investment banks seem to have been into).

What do you think the current market price for a load of UK sub-prime mortgages is, these days?

I can tell you, it isn't 100p in the pound. It probably isn't 90p in the pound. Maybe 80p in the pound, perhaps?

So if Morgan Stanley has to sell their £10mn pool of loans, they'll only get about £8mn for them.

On the other hand, if they persuade all the the borrowers to repay their loans, EVEN giving each of them a 10% bonus, they will get £9mn back, which is a better outcome.

Go figure.

[Cole Trickle]

Sounds to me like a classic case of dangling the carrot infront of the donkeys nose!!

Why on earth would the pay out thousands of pounds to punters to get rid of them?? Because Morgan Stanley know they wont make any profit!!! Most of these are probably sitting pretty on a VERY GOOD RATE!!

But go on all you greedy parkers..........take the carrot then pay through the nose for it for YEARS to come!! -