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You Can Bet The House That We Will All Pay For Liar Loans

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You can bet the house that we will all pay for liar loans

Published on 15 Jul 2010

iainmacwhirter.jpgYou've heard of locking the stable door when the horse has bolted.

Well, the Financial Services Authority has gone one better and promised to do its job properly only after it has been closed down. Yesterday, the boss of Britain's financial watchdog, Lord Turner, grandly announced the FSA was going to put an end to "liar loans", 125% "suicide" mortgages and other scams from the great housing bubble. Bit late, your lordship. Last month, Chancellor George Osborne announced that the FSA is to be scrapped and financial regulation returned to the Bank of England.

Perhaps if the FSA had done its job six or seven years ago, we wouldn't be in the state we are in now. Ah, but that's just being wise after the event, isn't it?" It's easy to criticise with 20/20 hindsight. Wrong. As readers of this column will be aware, perhaps painfully so, I have been banging on about irresponsible mortgage lending for most of the past decade. In 2004, I warned that house prices were an unsustainable bubble. In 2005, I fulminated against the irrespon­sibility of lending five or six times over income. In 2006, I railed against Northern Rock's "Together" mortgages where the bank loaned first-time buyers 25% more than the value of their property, thus placing them in negative equity even before they got the keys. After Northern Rock collapsed in 2007, to demonstrate what was happening, I applied for and was offered a £200,000 mortgage after telling the broker I had a disposable income of only £18,000. Sheer madness.

Now, I'm not a financial regulator, nor am I a banker or a Treasury official. If I could see that these practices were ruinous, why couldn't the people paid to regulate the mortgage industry? I am genuinely mystified because these are intelligent people we're talking about who really understand housing finance, as their latest report confirms. So why didn't they do their job? Or were they all watching internet porn like those employees of the American financial regulator, the Securities and Exchange Commission exposed in April?

The social cost of this regulatory failure is no joke. In research published this week, the FSA reveals that no fewer than 46% of households in Britain (more in Scotland) either have no money left or face a significant shortfall once they've met their mortgage repayments and living costs. That's half the population. Living on the edge, surviving day to day, racking up debts on credit cards, in constant fear of financial collapse. And there's more. The FSA paper – read it and weep – reveals that half of new mortgages since the 2007 crash have been taken out without the customer having to verify their income. Yes, through the entire financial crisis, mortgage companies have continued to hand out liar loans to half of all mortgage purchasers. This is financial irresponsibility on an epic scale. Surely it's illegal to connive with customers in the falsification of mortgage applications. What on earth has the FSA been doing for the past three years?

It's not as if anyone was in any doubt that self-certification mortgages were dangerous to financial health. They were our version of the American sub-prime mortgages that sparked the initial collapse of trust in banks in 2008. The overselling of mortgages here and in America led directly to the credit crunch as banks realised that the securities, or bonds, sold on the basis of these dodgy mortgages were of questionable value. Since all the banks held hundreds of billions of these Collateralised Debt Obligations, they stopped lending to each other. The government eventually stepped in and effectively bought up all the dud mortgages – and much else – through the Asset Protection Scheme. Liar loans don't come cheap. The governor of the Bank of England, Mervyn King, said that the bailout of the financial system required £1 trillion of public money.

Still, you might wonder about the dog that didn't bark following the bursting of the great mortgage bubble. If so many homeowners have been sitting in houses they can't afford, why hasn't there been a housing price crash? Very good question. House prices actually rose last year. The reason lies in the hidden bailout of property owners. First of all, bank interest rates have been slashed to their lowest level in 300 years, 0.5%, and kept there. This has handed a windfall to all mortgage holders and especially owners of jumbo mortgages who save about £900 a month on a £500,000 mortgage. Tens of thousands of people with smaller mortgages are hanging on in homes they could not afford at normal rates of interest.

The government also introduced various schemes to prevent banks repossessing homes, such as the Homeowner Mortgage Support Scheme. The state basically will pay the interest on your mortgage or let you take a two-year "holiday". Well, why should the banks be the only ones to get a bailout? This has kept repossessions low. But the downside of these humane policies is that they create large numbers of "zombie households" who face a reckoning down the line when the schemes are wound up and interest rates return to normal.

There is also our old friend moral hazard. First-time buyers, in despair because they can't afford a house, are effectively subsidising house prices through their taxes. The only ones who can afford to buy are those who are given tens of thousands by their parents. This is not a sound and healthy market. If the FSA was

being responsible, it should advise those considering taking on a mortgage right now to think very carefully indeed. Every mortgage sold in these extraordinary circumstances should carry a health warning: interest rates will go up.

Of course, the real problem is the lack of housing, both private and rented – an epic market failure which MPs did nothing to correct. Not surprising, since so many MPs were making a fortune out of speculating on the London property market. Gordon Brown didn't care because house price inflation delivered votes from people who saw the paper value of their houses going up and up. But the cost was the deepest recession since 1946.

We will all be paying the price of Gordon Brown's house price bubble for decades to come. Let's hope the Bank of England does better than the FSA at bursting the next one.

http://www.heraldsco...loans-1.1041383

Edited by Dan1

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All good except -

Quote:

".. the FSA reveals that no fewer than 46% of households in Britain (more in Scotland) either have no money left or face a significant shortfall once they've met their mortgage repayments and living costs."

I think he has misquoted the FSA there. Wasn't it borrowers on self-cert mortgages that were struggling? I doubt very much that 46% of ALL borrowers are under water.

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Forget the FSA, they cannot be blamed for the debt situation. The blame lies squarely with one man and the criminals that worked with him to create a cash cow that was milked royally and continues to this day through bonuses and skimming..

Brown and the Banksters.

Lite touch + criminal minds = debt disaster for millions.

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Forget the FSA, they cannot be blamed for the debt situation. The blame lies squarely with one man and the criminals that worked with him to create a cash cow that was milked royally and continues to this day through bonuses and skimming..

Brown and the Banksters.

Lite touch + criminal minds = debt disaster for millions.

Hate the Man. Hate the Party. Didnt have much of an opinion on them either way ten years ago.

I guess its good that these articles are becoming more mainstream.

But most of the commentators dont accurately portray the acute bitterness of us renters, who have been forced to waste tens upon tens of thousands in rent over a decade. Unable to get a foothold in life. Working for nothing. No capital.

And now having our 'hard earned' stolen, to pay for other peoples houses, whilst keeping us in debt slavery.

Because of liars, thieves, and Labour.

Edited by Dan1

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Hate the Man. Hate the Party. Didnt have much of an opinion on them either way ten years ago.

I guess its good that these articles are becoming more mainstream.

But most of the commentators dont accurately portray the acute bitterness of us renters, who have been forced to waste tens upon tens of thousands in rent over a decade. Unable to get a foothold in life. Working for nothing. No capital.

And now having our 'hard earned' stolen, to pay for other peoples houses, whilst keeping us in debt slavery.

Because of liars, thieves, and Labour.

There is a lot to be said by sticking with what the majority are doing.

Because in a democracy, the government will tend to make rules to suit the majority of people, not the minorities.

Thus, the powers that be know that if interest rates went back up sharply, thousands, possibly millions, would stand to lose their homes, hence the low rates and support for homeowners.

Unless you enjoy feeling bitter and twisted, the way to win is to watch for these trends and follow them.

Being "morally right" whilst watching your savings earn nothing and whilst living in someone else's house, paying their mortgage for them, is a poor subsitute.

This is similar to the much grumbled about "boomers" - because their generation is a population bulge, they and therefore their needs, have always been dealt with, because no government could afford to p1ss off such a large sector of its population.

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There is a lot to be said by sticking with what the majority are doing.

Because in a democracy, the government will tend to make rules to suit the majority of people, not the minorities.

Thus, the powers that be know that if interest rates went back up sharply, thousands, possibly millions, would stand to lose their homes, hence the low rates and support for homeowners.

Unless you enjoy feeling bitter and twisted, the way to win is to watch for these trends and follow them.

Being "morally right" whilst watching your savings earn nothing and whilst living in someone else's house, paying their mortgage for them, is a poor subsitute.

This is similar to the much grumbled about "boomers" - because their generation is a population bulge, they and therefore their needs, have always been dealt with, because no government could afford to p1ss off such a large sector of its population.

Sadly I'm beginning to think you're right you describe my situation exactly.

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it depends on whether you consider the spectacularly cheap rental prices of the past 5 years have been handy or not

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There is a lot to be said by sticking with what the majority are doing.

Because in a democracy, the government will tend to make rules to suit the majority of people, not the minorities.

Thus, the powers that be know that if interest rates went back up sharply, thousands, possibly millions, would stand to lose their homes, hence the low rates and support for homeowners.

Unless you enjoy feeling bitter and twisted, the way to win is to watch for these trends and follow them.

Being "morally right" whilst watching your savings earn nothing and whilst living in someone else's house, paying their mortgage for them, is a poor subsitute.

This is similar to the much grumbled about "boomers" - because their generation is a population bulge, they and therefore their needs, have always been dealt with, because no government could afford to p1ss off such a large sector of its population.

Im not so sure about your majority/minority argument.

The percentage of homeowners, who have a mortgage that is within their means to pay. And the percentage of homeowners, who own houses outright. [Which is well over half of the homeowning population in the UK] And each new generation of young people, who enter the work-place every year, looking to get on the ladder, surely constitutes a larger number of 'voters', than the people who would be underwater, if Interest rates were to rise for instance, or even if there were to be a 50% crash. Which would only take prices back to their 2001/2002 levels.

The percentage who would suffer would only be the percentage of homeowners who have got onto the ladder in the last 8 years.

[No offence but it sounds like the kind of bullsh1t argument an Estate Agent would use. As the vast majority of homeowners, who own outright, *who have not exchanged their house for a pension*, would actually be better off, if their house lost a lot of its value. They would pay less tax on the exchange, when they sold their house and bought another]

Surely it would be in the new coalition governments best long term interests, to engineer, say a 50% crash, within a couple of years, so that responsible homeowners and the majority of borrowers, who borrowed before 2001/2002 would realise a crash has not really affected them in a negative fashion. Then by 2015, the next election, the coalition government would not be in a position of being hated and blamed by people who own outright, or pre-boom borrowers, [which constitutes well over half the population of UK homeowners?]

And that older generation of homeowners, who have children who are struggling would actually be thankful to the coalition gov?

I fail to see what you mean by 'follow' the trends? If you mean get on the ladder, obviously it is beyond the means of the average wage earner.

[unless you are suggesting that someone who earns £18k per year, should borrow over ten times their salary, to buy a £200k house? As mentioned in the above article]

Morally right? I dont see any difference between the forger who prints money in his basement, or the government, if it has the same effect, to devalue the pound in your pocket.

I see no difference, between the thief who walks into your house, with a weapon, and steals your money. Or the government, who steal your money. Under threat of imprisonment.

The government has a moral responsibility, to achieve a fair balance. Which hopefully the coalition, will put right, [although it looks like it will happen later rather than sooner.]

Unless the Bond market hammers them. Which I hope happens.

As far as the Scumbag Labour party are concerned. If there is any justice in the UK, then their last stint out of office will appear like a short weekend break, when compared to the next stretch in opposition.

Edited by Dan1

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Didn't that paper have a vendetta against this site?

Dont you need to update your signature, from £920bn in debt, to £5 Trillion in debt?

http://www.dailysquib.co.uk/?c=117&a=2368

http://web.orange.co.uk/article/news/a_lot_worse_uk_mired_in_5_trillion_of_debt' rel="external nofollow">

Edited by Dan1

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The banksters HAD to lend to the sub prime market, they had no other choice. That was all they had left

to keep their ponzi scheme going.

that is so true

when working at a major building soc 5-10 years ago - internal memo went round saying there was no profit in mainstream mortgage lending so they were chasing sub-prime for profits instead; the wise move might have been to quietly withdraw, but lending is all a lot of them knew how to do

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Hate the Man. Hate the Party. Didnt have much of an opinion on them either way ten years ago.

I guess its good that these articles are becoming more mainstream.

But most of the commentators dont accurately portray the acute bitterness of us renters, who have been forced to waste tens upon tens of thousands in rent over a decade. Unable to get a foothold in life. Working for nothing. No capital.

And now having our 'hard earned' stolen, to pay for other peoples houses, whilst keeping us in debt slavery.

Because of liars, thieves, and Labour.

This is how feel...like my future has been stolen from me by these greedy (unts and they are still getting away with it.

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As has already been pointed out the fact is that whilst NuLabour spoke of an end to boom and bust they were in fact doing the opposite behind their backs.

It’s not just Brown, Blair and Prescott, a lot of all party MPs were in on it. Surely it’s time for action to be taken so that in future politicians know that crime against the population will be punished, our civil rights have to be honoured.

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All good except -

Quote:

".. the FSA reveals that no fewer than 46% of households in Britain (more in Scotland) either have no money left or face a significant shortfall once they've met their mortgage repayments and living costs."

I think he has misquoted the FSA there. Wasn't it borrowers on self-cert mortgages that were struggling? I doubt very much that 46% of ALL borrowers are under water.

It's wrong, but the original wasn't referring to self-cert but rather recent mortgage-takers, according to the recently posted Wail article:

Research carried out by the FSA looking at 9,000 people who took out a mortgage between 2005 and 2008 found that 46% of households either did not have any money left or faced a shortfall after meeting their mortgage payments and living expenses.

Two thirds of borrowers also had other debts, such as credit cards or loans, as well as their mortgage.

Read more: http://www.dailymail.co.uk/money/article-1294276/FSA-New-rules-mortgage-affordability.html#ixzz0twqYPyKV

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Forget the FSA, they cannot be blamed for the debt situation. The blame lies squarely with one man and the criminals that worked with him to create a cash cow that was milked royally and continues to this day through bonuses and skimming..

Brown and the Banksters.

Lite touch + criminal minds = debt disaster for millions.

Agree we should blame the game but at this stage players were not forced to take a mortgage 10 times their salary.. Of course Brown encouraged people without sense to be in debt, but c'mon they should seriously catch they haven't the money to afford a mortgage and their life style.. It's like the moron on munset who said she was crying coz she was secretly poor..who's fault? mine? nah the idiot wanted to impress friends with her life style, and not even be able to understand she canno't afford it..However all these morons encouraged this crazy house price..it's like to say, if nobody voted for piggy Brown, our economy will be better.. True :) Unfortunately, players were talking non sense, selfish and enjoying spending more that they should, it's just maths 1 +1=2 and not 20! yes Brown was responsible and should spend the rest of his life in jail, coz I am not sure people realise seriously the consequence of his miserable spendings..but people followed him during all this time coz they wanted to continue to live the secretly poor style :)

Edited by Menie

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Hurrah! It is about time.

And NOW IS THE TIME, for the long knives to come out,

and start carving up those fools who deserve to be held accountable for this mess.

The rallying cry should be:

"NO PRISIONERS !"

Video:

If you had balls you would go and post that on mumsnet ;)

The feeling I get is that the coalition want prices to stagnate, it is the most politically acceptable outcome for them but it is about as realistic to think they can achieve that as I can get a herd of stampeding buffalo to perform ballet.

I expect they will start frigging with the land reg data very soon to 'smooth out' the 'turbulence', they have frigged with everything other index known to man...

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Good article but I don't think this is true:

Of course, the real problem is the lack of housing, both private and rented – an epic market failure which MPs did nothing to correct

There's oodles of housing, just not the kind that typical families want to live in or can afford. The typical new-build project was about credit-fuelled speculation, rather than any intention to satisfy genuine demand. All of which adds massive malinvestment to our other woes.

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All good except -

Quote:

".. the FSA reveals that no fewer than 46% of households in Britain (more in Scotland) either have no money left or face a significant shortfall once they've met their mortgage repayments and living costs."

I think he has misquoted the FSA there. Wasn't it borrowers on self-cert mortgages that were struggling? I doubt very much that 46% of ALL borrowers are under water.

According to moneyweek's interpretation of the FSA report, the stat refers to all households holdinga mortgage between 2005-8

http://www.moneyweek.com/investments/property/british-house-prices-are-heading-for-a-double-dip-02807.aspx

Edited by Caveat Mortgagor

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  • 261 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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