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the_duke_of_hazzard

Lenders Not Lending

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My dad's been in the mortgage lending business for over 20 years (and still is, in a more tangential way). I asked him today what he thought of the "upturn". "What upturn?" was his response.

No one's lending, or wants to lend. Not only that, but a few high-ups at various lending departments have said that they are not chasing arrears, simply adding the arrears onto the size of the loan. A cheap caretaker for overvalued property, then.

There's nothing new in this, he said it was a trick they used "in his day" to keep the arrears down back in the 80s.

I'm wondering whether the banks are waiting for inflation to bail out the borrowers, and their balance sheets? It certainly explains why none of them want to lend at high LTVs.

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My dad's been in the mortgage lending business for over 20 years (and still is, in a more tangential way). I asked him today what he thought of the "upturn". "What upturn?" was his response.

No one's lending, or wants to lend. Not only that, but a few high-ups at various lending departments have said that they are not chasing arrears, simply adding the arrears onto the size of the loan. A cheap caretaker for overvalued property, then.

There's nothing new in this, he said it was a trick they used "in his day" to keep the arrears down back in the 80s.

I'm wondering whether the banks are waiting for inflation to bail out the borrowers, and their balance sheets? It certainly explains why none of them want to lend at high LTVs.

Thanks for the anecdotal.. interesting reading and backs up other recent anecdotals we have heard.

You say your dad hasn't seen a huge uptick recently, and in the grand scheme of things the recent blip in lending figures are still miniscule, but does he have any insight into the general sentiment at the lending companies and the outlook going forward. Are they still braced for further house price deflation?

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Thanks for the anecdotal.. interesting reading and backs up other recent anecdotals we have heard.

You say your dad hasn't seen a huge uptick recently, and in the grand scheme of things the recent blip in lending figures are still miniscule, but does he have any insight into the general sentiment at the lending companies and the outlook going forward. Are they still braced for further house price deflation?

To be frank, I don't think they get involved in those sorts of discussions, but even if they did I think there wouldn't be much to say. I think people often overestimate how far-sighted the lenders are. Mostly they're just hoping that things will improve much like other suckers. Perhaps there's a bunch of "real players" one of the levels of the layer cake above the one my old man operates in, but I don't know about that. Reading between the lines I don't think they see much hope in the short-medium term though.

My dad was a bull in 2007, exhorting me to buy as I had a family on the way. He gives me props now but still encourages me to buy - at auction, mind.

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Your dad was in the mortgage business for 20 years - and he was a bull in 2007 :o

Are his opinions on matters today to be taken seriously ?

No offence to your dad !!

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To be frank, I don't think they get involved in those sorts of discussions, but even if they did I think there wouldn't be much to say. I think people often overestimate how far-sighted the lenders are. Mostly they're just hoping that things will improve much like other suckers. Perhaps there's a bunch of "real players" one of the levels of the layer cake above the one my old man operates in, but I don't know about that. Reading between the lines I don't think they see much hope in the short-medium term though.

My dad was a bull in 2007, exhorting me to buy as I had a family on the way. He gives me props now but still encourages me to buy - at auction, mind.

Fair enough.. thanks for the insight :)

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To be frank, I don't think they get involved in those sorts of discussions, but even if they did I think there wouldn't be much to say. I think people often overestimate how far-sighted the lenders are. Mostly they're just hoping that things will improve much like other suckers. Perhaps there's a bunch of "real players" one of the levels of the layer cake above the one my old man operates in, but I don't know about that. Reading between the lines I don't think they see much hope in the short-medium term though.

My dad was a bull in 2007, exhorting me to buy as I had a family on the way. He gives me props now but still encourages me to buy - at auction, mind.

Yep, zombie loans is the way it's going. I was speaking to a guy in bank asset finance the other week and I very much got the impression that they just deal with each months payments/arrears as it comes with little or no strategy for mitigating losses. ie get a load of vehicles back, send them to auction (although some banks have opened their own dealers for disposals :lol: ). Going off-topic but, he did admit they are very sneaky in taking vehicles back when payments are missed. They get DCAs to try and trick customers into voluntarily handing vehicles back (which they do not have to do) and then try to grab any equity in the vehicle as it does not have to be returned to the customer. They also often get private plates worth thousands, which again they pocket. They lead people to believe as well that they can't sell the vehicle without clearing the finance, but don't let on you can offload to a dealer.

Anyway, back to topic, it's a shame we don't have the laws here they do in some US states. Over there bank foreclosed properties have to be kept looking tidy or the bank is penalised/fined by the state. This then forces them to firesale or in some cases, I think, even demolish.

As I was saying on another thread, very much, hear no evil see no evil is the prevailing attitude of banks to delinquent loans. Of course, with the recovery underway all those accounts in arrears will bring themselves up-to-date on their own. :lol:

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Your dad was in the mortgage business for 20 years - and he was a bull in 2007 :o

Are his opinions on matters today to be taken seriously ?

No offence to your dad !!

His opinions on the future direction are not taken seriously by me. But on what's happening now, he's always right.

He's no different to the vast majority of people in the industry.

Like I say, from what I've seen people vastly over-estimate how much people in the business think or understand long term pressures on mortgage lending. They're thinking month-to-month or day-by-day.

Being right long-term rarely gets you promoted in any industry.

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His opinions on the future direction are not taken seriously by me. But on what's happening now, he's always right.

He's no different to the vast majority of people in the industry.

Like I say, from what I've seen people vastly over-estimate how much people in the business think or understand long term pressures on mortgage lending. They're thinking month-to-month or day-by-day.

Being right long-term rarely gets you promoted in any industry.

and how else could a middle manager think?

they are told by the computer how much they have to lend and at what rates.

they tell the nuts and bolts to process the apps, they reject a ton and approve the rest.

whats to plan? they are on a treadmill like most of us.

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His opinions on the future direction are not taken seriously by me. But on what's happening now, he's always right.

He's no different to the vast majority of people in the industry.

Like I say, from what I've seen people vastly over-estimate how much people in the business think or understand long term pressures on mortgage lending. They're thinking month-to-month or day-by-day.

Being right long-term rarely gets you promoted in any industry.

I was going to make the same point. Someone in the industry may not be a sage about its long term future direction, but they should be able to say what the here and now is like with a high degree of accuracy.

Edited by mikelivingstone

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and how else could a middle manager think?

they are told by the computer how much they have to lend and at what rates.

they tell the nuts and bolts to process the apps, they reject a ton and approve the rest.

whats to plan? they are on a treadmill like most of us.

Loo you are such a realistic cynic and have rare insight :lol:

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and how else could a middle manager think?

they are told by the computer how much they have to lend and at what rates.

they tell the nuts and bolts to process the apps, they reject a ton and approve the rest.

whats to plan? they are on a treadmill like most of us.

If you think outside the box you will go no where, whilst all of those who stick to the plan get promoted irrespective if what's happening is in the long term interest.

Could the banks not be chasing arrears to prevent repossession which means they would have to sell the property.

The banks don't think long term but surely they must have the intelligence to realise thousands of repossessed properties on the market could depress prices further.

I agree that banks should be made to keep the property in a respectable manner.

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If you think outside the box you will go no where, whilst all of those who stick to the plan get promoted irrespective if what's happening is in the long term interest.

Could the banks not be chasing arrears to prevent repossession which means they would have to sell the property.

The banks don't think long term but surely they must have the intelligence to realise thousands of repossessed properties on the market could depress prices further.

I agree that banks should be made to keep the property in a respectable manner.

thinking outside the box: hmm, lets profit from the arrears, I know, we wont charge the customer ANYTHING for his loan.. we dont need to, we just INCREASE THE LOAN every month. We can charge A: interest, B: fees for admin C: fees for letters D: fees for fees. with the bonus that we increase our asset base and profits......triples all round!

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thinking outside the box: hmm, lets profit from the arrears, I know, we wont charge the customer ANYTHING for his loan.. we dont need to, we just INCREASE THE LOAN every month. We can charge A: interest, B: fees for admin C: fees for letters D: fees for fees. with the bonus that we increase our asset base and profits......triples all round!

Isn't this what they created in the US where you don't even pay the interest on your loan if just gets added to the principle borrowed?

We are about to find out how well that idea turned out.

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Isn't this what they created in the US where you don't even pay the interest on your loan if just gets added to the principle borrowed?

We are about to find out how well that idea turned out.

damn, I could have been a real banker.

I think they got the idea from goodfellas.

buy a place by threatening the owner.

use the places' credit to buy stuff, sell on BMV and keep the cash. frack the creditors.

when the heat is on, light a match.

AIG picks up the bill.

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The banks don't think long term but surely they must have the intelligence to realise thousands of repossessed properties on the market could depress prices further.

Depending on what index do you trust ;)

I.e. this would show up in LR database but not in LR HP index which excludes repos.

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a few high-ups at various lending departments have said that they are not chasing arrears, simply adding the arrears onto the size of the loan

The effect of this is to transfer equity from borrower to lender.

As SNACR alludes there will be an internal stressor encouraging this in the near term (the internal desire within the lender to stave off claims against bad loss provision until the last possible moment - these claims act to decapitalise the lender, reducing its ability to write new business).

Unfortunately the geometry of the pyramid is such that the next bid in the market for said distressed asset will be lower, regardless (a borrower's ability to bid is determined by income and by equity; and the market is such that broadly speaking equity is or has already been vapourised, and incomes are being crushed).

So the truth will out in the end - even if it is not the lender who suffers (we now know that lenders will be recapitalised by the state no matter what the cost - we also know that the same cannot be said for borrowers or investors beyond PIMCO).

But the path toward historical norms (specifically, with respect to productive yields) will be lumpy.

Edited by ParticleMan

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His opinions on the future direction are not taken seriously by me. But on what's happening now, he's always right.

He's no different to the vast majority of people in the industry.

Like I say, from what I've seen people vastly over-estimate how much people in the business think or understand long term pressures on mortgage lending. They're thinking month-to-month or day-by-day.

Being right long-term rarely gets you promoted in any industry.

Very true.

Many people in companies, even in very high positions, don't have a clue what is going on. They talk to the right people. Go to the right meetings. Wear the right suit. Talk the right way. Many of them are far from the sharpest tools in the box. How a mortgage product will affect thir company in 10 years is not even within their thought process. If it will make their wee programme status GREEN instead of RED - they will go for it.

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thinking outside the box: hmm, lets profit from the arrears, I know, we wont charge the customer ANYTHING for his loan.. we dont need to, we just INCREASE THE LOAN every month. We can charge A: interest, B: fees for admin C: fees for letters D: fees for fees. with the bonus that we increase our asset base and profits......triples all round!

This is an interesting point

The political pressure must also play a major role

If this is happening widescale then in affect people are still doing mortgage equity withdrawls without getting any money and whilst their homes are lossing value, taking equity out of a falling asset.

The banks are treading water because their balance sheet will still be OK whilst the value of the asset is still greater.

But this is just putting off the inevitable.

How many homes are in negative equity? I would guess around 8%

How many in 6 months time? 18% more?, even if house prices only drop around the likely 10%, as there must be so many with less than 60% equity.

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Just want to reiterate that there's apparently nothing new in these tactics; it happened in previous HP crashes as well.

One poster mentioned that the US tried adding arrears to the loan. Isn't it a bit different there wrt "handing the keys back"? The banks can come after you for the debt here, even after you're gone...

As I put it to my dad: "So the bank sends you a letter saying: 'You work for us now'"? He laughed and agreed.

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