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I'd like to better understand the facts of forbearance. My sense is that forbearance (or lack of it) was a major factor in the 1989-95 crash but today there are far fewer repossessions. However, I can't find much in the way of solid evidence.

Can anyone point me towards any authoratative sources that addresses issues such as,

- How is forbearance measured, and is there any data of trends over time?

- Does the government exercise material influence over the forbearance policies of lenders and if so via what mechanism?

- Has the nature of forbearance changed and if so in what way?

Thanks

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I'd like to better understand the facts of forbearance. My sense is that forbearance (or lack of it) was a major factor in the 1989-95 crash but today there are far fewer repossessions. However, I can't find much in the way of solid evidence.

Can anyone point me towards any authoratative sources that addresses issues such as,

- How is forbearance measured, and is there any data of trends over time?

- Does the government exercise material influence over the forbearance policies of lenders and if so via what mechanism?

- Has the nature of forbearance changed and if so in what way?

Thanks

As for question two ,plenty of forbearance within their own bank which holds a significant number of deliquant mortgages http://www.thisismoney.co.uk/money/markets/article-2792536/zombie-bank-ukar-sells-2-7bn-worth-mortgages-jpmorgan-consortium.html

It makes me wonder how much influence they have concerning the other banks they have a bailout interest in,i also think FLS allowed for forbearance

Edited by long time lurking

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I know the LR publishes data on repossessions, but I can't answer any of your specific questions. Somebody recently posted that 14% of mortgages are currently in some kind of forebearance - if anybody knows the source of that statistic then it might answer the first question.

Edited by Digsby

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Forbearance is theft.

The Germans seem to think so when it comes Greek forebearance. And the debtor feels aggrieved at having to live within his means. So everybody thinks they are being shafted.

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I know the LR publishes data on repossessions, but I can't answer any of your specific questions. Somebody recently posted that 14% of mortgages are currently in some kind of forebearance - if anybody knows the source of that statistic then it might answer the first question.

I've got the stats for repossessions. In a nutshell,

-In the 60's and 70's less than 0.1% of mortgage holders were repossessed each year. As a rough average about 3-5,000 homes were repossessed each year.

-This started to slowly climb in the 80's and peaked during the 1989-95 crash at 0.77% in 1991 and 0.69% in 1992. In each of these two years about 70,000 homes were repossessed.

-In the early 2000's repossessions were back down to the level of the 60's and 70's in percentage terms, but because there were more mortgage holders this still represented about 8-10,000 homes being repossessed each year.

-it then quickly climbed back to 0.43% in 2009 when just under 50,000 homes were repossessed.

-Repossessions subsequently slowly subsided to 0.26% in 2013, which represented 28,900 homes repossessed.

But I'm trying to understand how forbearance fits together with repossessions?

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Forbearance is theft.

In my working life I sometimes encountered a trading partner who claimed they could no longer honour a contract. If investigation supported their claim then I might show forbearance by extending the terms, reducing the principal owed, or some other measure.

Was I thieving from myself?

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I'd like to better understand the facts of forbearance. My sense is that forbearance (or lack of it) was a major factor in the 1989-95 crash but today there are far fewer repossessions. However, I can't find much in the way of solid evidence.

Can anyone point me towards any authoratative sources that addresses issues such as,

- How is forbearance measured, and is there any data of trends over time?

- Does the government exercise material influence over the forbearance policies of lenders and if so via what mechanism?

- Has the nature of forbearance changed and if so in what way?

Thanks

I can only really help with point 2 as its slightly related to my field of work. You could argue the FCA is not the government but i think they will share ideas.

http://fshandbook.info/FS/html/FCA/MCOB/13

http://www.fca.org.uk/news/tr14-3-mortgage-lenders-arrears-management-and-forbearance

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In my working life I sometimes encountered a trading partner who claimed they could no longer honour a contract. If investigation supported their claim then I might show forbearance by extending the terms, reducing the principal owed, or some other measure.

Was I thieving from myself?

It depends on how you look at it.

If you had borrowed money to cover the unpaid debt and subsequently reneged on your debt, then yes, the forbearance would have resulted in theft.

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I can only really help with point 2 as its slightly related to my field of work. You could argue the FCA is not the government but i think they will share ideas.

http://fshandbook.info/FS/html/FCA/MCOB/13

http://www.fca.org.uk/news/tr14-3-mortgage-lenders-arrears-management-and-forbearance

Thanks for those links, I'll read them with interest.

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It depends on how you look at it.

If you had borrowed money to cover the unpaid debt and subsequently reneged on your debt, then yes, the forbearance would have resulted in theft.

forebearance is at the whim of the creditor.

Default is at the whim of the debtor.

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Though they are increasingly out of date the data-packs associated with the Mortgage Market Review consultation papers are a good place to start.

One of the striking factoids that I recall was the reward of some close reading was that the regulators found that the big lenders could not provide the regulator with a good analysis of the extent and manner of forbearance as the banks' systems essentially couldn't provide it.

Digging around in the notes on provisions in the lenders' annual reports you will find that the forbearance ship has sailed; the lenders disclose that they are no longer turning repayment mortgages into interest only mortgages or capitalising arrears - both tactics which were widespread in the immediate wake of the crisis.

The UKs weapon of choice is now apparently to use extremely low interest rates to enable us to live with the bizarre borrowing decisions made by a mixture of idiots and greedy idiots and financed by lenders of the "calibre" of RBS and HBoS. These two mechanisms- forbearance from 2008 to about 2012 and sustained ultra-low interest are the bedrock of the cessation of the correction of house prices back to a level consistent with lifetime incomes.

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Though they are increasingly out of date the data-packs associated with the Mortgage Market Review consultation papers are a good place to start.

One of the striking factoids that I recall was the reward of some close reading was that the regulators found that the big lenders could not provide the regulator with a good analysis of the extent and manner of forbearance as the banks' systems essentially couldn't provide it.

Digging around in the notes on provisions in the lenders' annual reports you will find that the forbearance ship has sailed; the lenders disclose that they are no longer turning repayment mortgages into interest only mortgages or capitalising arrears - both tactics which were widespread in the immediate wake of the crisis.

The UKs weapon of choice is now apparently to use extremely low interest rates to enable us to live with the bizarre borrowing decisions made by a mixture of idiots and greedy idiots and financed by lenders of the "calibre" of RBS and HBoS. These two mechanisms- forbearance from 2008 to about 2012 and sustained ultra-low interest are the bedrock of the cessation of the correction of house prices back to a level consistent with lifetime incomes.

Thank you for the link. You make some excellent points,

-"the big lenders could not provide the regulator with a good analysis of the extent and manner of forbearance", that would explain why the data is all over the place

-"the forbearance ship has sailed; the lenders disclose that they are no longer turning repayment mortgages into interest only mortgages or capitalising arrears", what I've seen elsewhere tends to support that view

-"borrowing decisions made by a mixture of idiots and greedy idiots and financed by lenders of the "calibre" of RBS and HBoS", I'm glad you underline that it takes two to tango, a stupid borrower needs a stupid lender in order to construct a stupid loan. It's a shame Germany doesn't recognise that truth in the case of Greece!

-"forbearance from 2008 to about 2012 and sustained ultra-low interest are the bedrock of the cessation of the correction of house prices back to a level consistent with lifetime incomes", I can see that. In some important ways the FCA guidelines that encourage forbearance are irrelevant with ultra low interest rates.

Like you I'm more and more convinced that interest rates are the fundamental reason preventing a crash. And therefore the question, "when will see a HPC?" can more practically be stated as "when will we see a significant increase in interest rates?".

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Like you I'm more and more convinced that interest rates are the fundamental reason preventing a crash. And therefore the question, "when will see a HPC?" can more practically be stated as "when will we see a significant increase in interest rates?".

Rates maybe prevented but worth considering why, if that's the case, do we have an alphabet soup of rental and ownership price-demand policy and subsidy props.

What would happen if they were removed along with the leverage - even if rates stayed constant.

Likewise what would happen if rates increased - and so did the props, or even just stayed constant.

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Rates maybe prevented but worth considering why, if that's the case, do we have an alphabet soup of rental and ownership price-demand policy and subsidy props.

What would happen if they were removed along with the leverage - even if rates stayed constant.

Likewise what would happen if rates increased - and so did the props, or even just stayed constant.

I take your point. My own view is that all the other props pale into insignificance besides ultra low interest rates. They're not nothing, but they're not that material when measured against the big bazookas of mortgage costs and availability. The one exception might be BTL, which probably isn't a government initiated policy in itself (unless you buy into a complex chain of second order effects beginning with "right to buy"), but none the less seems to constitute a material change to the property landscape.

However, to answer your question, if we saw base rates rise to say 5% while all other props remained static (even with the increased employment, pay, and inflation that might accompany a 5% base rate) I wouldn't be surprised by a 20% fall in house prices and repossessions running at over 40,000 per year.

I'm interested how you would answer you question?

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...I'm interested how you would answer you question?

I think the opposite in terms of relative impact, with causation the other way round. The price of a house/land is a function of available credit and leverage. Prices fell due to a credit crunch - not specifically because rates rose. Prices stopped falling due to credit input and forebearance - and perhaps because rates fell. Prices rose due to the alphabet soup and carefully worded expectations management - not specifically because rates fell more.

Affordability in today's terms means cashflow, so yes a lower rate means a higher price. But that doesn't make houses cheaper, just the cashflow. Longer-run debt servicing depends on growth and income, more credit or write-offs. Each new entrant has to do so from either a pure cashflow perspective (looking at a mortgage in rental terms) or with respect to the sensibilities of the principal risk arising from ever increasing demand destruction caused by ever higher prices - explaining the alphabet soup.

If the props were removed with constant rates prices would collapse far more than 20% because the affordability measure would move back from cashflow to price, which is why that's unlikely to happen out of choice.

If rates increased with props or constant I can't see why prices would fall, because the change would be a reflection of a new credit cycle supported by rising income. So £ value of a prop-supported 5% deposit could itself increase without reducing the requirement to 4%; this is why in its absence they keep adding new props (new leverage).

Point being that rates are a reflection of the situation not the impetus. By 'props' I'm not just referring to HTB, rental deposit loans etc. BTL is very significant when the eligibility and tax regime is even looser and skews price demand; and it's all about credit driven price demand, On top of all that there's an underlying environment of non-accidentally uneven land and rent income distribution and longer-run policy choices to subsidise (or not subsidise) particular related costs. e.g. paper linked here: http://www.voxeu.org/article/home-prices-1870

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Though they are increasingly out of date the data-packs associated with the Mortgage Market Review consultation papers are a good place to start.

One of the striking factoids that I recall was the reward of some close reading was that the regulators found that the big lenders could not provide the regulator with a good analysis of the extent and manner of forbearance as the banks' systems essentially couldn't provide it.

Digging around in the notes on provisions in the lenders' annual reports you will find that the forbearance ship has sailed; the lenders disclose that they are no longer turning repayment mortgages into interest only mortgages or capitalising arrears - both tactics which were widespread in the immediate wake of the crisis.

The UKs weapon of choice is now apparently to use extremely low interest rates to enable us to live with the bizarre borrowing decisions made by a mixture of idiots and greedy idiots and financed by lenders of the "calibre" of RBS and HBoS. These two mechanisms- forbearance from 2008 to about 2012 and sustained ultra-low interest are the bedrock of the cessation of the correction of house prices back to a level consistent with lifetime incomes.

Thank you for the link. You make some excellent points,

-"the big lenders could not provide the regulator with a good analysis of the extent and manner of forbearance", that would explain why the data is all over the place

-"the forbearance ship has sailed; the lenders disclose that they are no longer turning repayment mortgages into interest only mortgages or capitalising arrears", what I've seen elsewhere tends to support that view

-"borrowing decisions made by a mixture of idiots and greedy idiots and financed by lenders of the "calibre" of RBS and HBoS", I'm glad you underline that it takes two to tango, a stupid borrower needs a stupid lender in order to construct a stupid loan. It's a shame Germany doesn't recognise that truth in the case of Greece!

-"forbearance from 2008 to about 2012 and sustained ultra-low interest are the bedrock of the cessation of the correction of house prices back to a level consistent with lifetime incomes", I can see that. In some important ways the FCA guidelines that encourage forbearance are irrelevant with ultra low interest rates.

Like you I'm more and more convinced that interest rates are the fundamental reason preventing a crash. And therefore the question, "when will see a HPC?" can more practically be stated as "when will we see a significant increase in interest rates?".

There's nothing for bears in forbearance. Also it's all been part of the props, against chronic need for rebalancing and structural debt problems, causing secondary boom/bubbles. So is it closing back in for a real HPC?

Also, do you want some of this going into the future? https://www.gov.uk/mortgage-rescue-scheme

Guardian, 23 November 2013

...However, Bennett said with interest rate rises on the cards, the scheme would be missed. "Although repossessions have been coming in under forecast since the scheme's inception, and are almost half what they were in the 1990s, the ongoing need for the scheme will be felt more acutely once interest rates rise," she said. "We urge any borrower who believes they may miss payments to speak to their lender at the earliest opportunity, so that options can be evaluated and planned. For lenders, repossession is always the last option."

Then came the late realisation by the VI, that by stopping and propping against market forces, storing up more problems for the future.... causing whole other effects, mainly all being carried by younger non-owning working professionals (renting).

Friday, Nov 09, 2012

In the long term this policy was always going to be a disaster

Moneymarketing: FSA: 'Forbearance could leave thousands worse off'

FSA principal risk specialist Karen Wilshere says lenders may have left “hundreds of thousands” of borrowers in a worse position by providing forbearance when they have experienced money problems.Since the financial crisis, the Government and regulator have pushed banks to employ forbearance measures such as payment holidays, temporary reductions in monthly repayments, temporarily switching borrowers to interest-only mortgages or extending mortgage terms for struggling borrowers to increase their chances of remaining in their homes.

http://www.housepricecrash.co.uk/newsblog/2012/11/blog-in-the-long-term-this-policy-was-always-going-to-be-a-disaster-38235.php

Dec 19, 2014

The IMF has published a report:

Resolving Residential Mortgage Distress: Time to Modify

Summary: In housing crises, high mortgage debt can feed a vicious circle of falling housing prices and declining consumption and incomes, leading to higher mortgage defaults and deeper recessions. In such situations, resolution policies may need to be adapted to help contain negative feedback loops while minimizing overall loan losses and moral hazard. Drawing on recent experiences from Iceland, Ireland, Spain, and the United States, this paper discusses how economic trade-offs affecting mortgage resolution differ in crises. Depending on country circumstances, the economic benefits of temporary forbearance and loan modifications for struggling households could outweigh their costs.

http://www.askaboutmoney.com/threads/imf-forbearance-made-matters-worse.190925/

[Link to the paper, and some 'solid' HPC style thinking in replies on their thread.]

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There's nothing for bears in forbearance. Also it's all been part of the props, against chronic need for rebalancing and structural debt problems, causing secondary boom/bubbles. So is it closing back in for a real HPC?

Thank you for the links Venger, I'll read them over the weekend.

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