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C M L Call Summit To Discuss Proliferation Of I O Mortgages

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http://www.fool.co.uk/news/foolseyeview/20...m?ref=foolwatch

The Deadliest Home Loan!

By Cliff D'Arcy

July 6, 2006

I see that the Council of Mortgage Lenders (CML, a trade association which represents almost all UK mortgage lenders) has arranged a seminar on interest-only mortgages in November.
I suspect that some CML members are becoming
increasingly nervous about the rising number of homebuyers who are taking out interest-only mortgages.
These are home loans where your monthly payments consist purely of interest, unlike repayment mortgages, where each month that goes by sees a little more chipped off your debt.

Anyone who has been keeping up with the market knows that IO mortages are being seen as the reason why the US market is in big trouble. The CML are obviously starting to fill their shoes :o

This market is going DOWN. And its going down HARD. It is blindingly obvious to me. What amazes me is that there are any property bulls left.

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Oh, it's from Cliff I STR'd and it didn't work D'Arcy...

:rolleyes:

Don’t you mean cliff “I str’ed a bit early – and have been a bit frustrated for a while, but now I feel midy fine thanks” D’Arcy.

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Anyone who has been keeping up with the market knows that IO mortages are being seen as the reason why the US market is in big trouble. The CML are obviously starting to fill their shoes

Actually I think the thing being seen as the reason for the recent trouble in US real estate is not IO, but short term discount rates resetting upwards at the end of discount periods.

http://globaleconomicanalysis.blogspot.com...sures-rise.html

Edited by The Colour

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My guess is they are not scared, but are discussing ways to convince more people to take out IO mortgages.

Absolutely. Not does the lender take lots of money off you, they get to keep the house as well (if you have no way of paying the principal). :o

The lender is not going to make a loss, if the mortgage runs its full term. If it goes belly after only a couple of years on a falling market... Well that could be a different story...

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Actually many of the practices of US mortgage lenders are considered usury in many European countries. ("Many" does though exclude the UK...) Balloon mortages are a nice one: reduced interest payments until the last few years, when we'll help ourselves to your house too, thanks very much.

i

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Using words like "scared" is inappropriate on these issues. What they are probably concerned about is not being on the wrong end of a Nu-Lab sponsored hammering from the FSA for having the gall to give punters products that they want and having to compensate people a la endowments (despite being hammered in the past by the Govt for not making finance/loans/bank accounts et al as available to the masses (and in particularly, lower income/dodgy credits). They can't win.

Anyway, the switched on lenders have already tightened their IO policies to head this off - witness the Nationwide policy now in their terms and condtions:

"If you want the certainty of repaying your mortgage at the end of the mortgage term then the repayment mortgage is the only suitable product for you. If you are willing to take a risk your mortgage will not be repaid then an interest-only mortgage may be appropriate. If you decide that you are prepared to accept this risk we will only give you an interest-only mortgage if:

you have a suitable repayment vehicle, such as an ISA or endowment policy

you are prepared to sell your house at the end of the mortgage term to repay the debt. If this is the case you will need to have at least £150,000 equity in your existing property and we will only lend you 66% of the property value

you intend to sell a second property to repay the loan. The equity in the second property must be at least 120% of the new mortgage amount it is intended to cover

Please note that in none of these circumstances is there a guarantee the mortgage will be repaid at the end of the term. If there are insufficient funds from these repayment methods you will have to find an alternative means of repaying the shortfall "

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Anyway, the switched on lenders have already tightened their IO policies to head this off - witness the Nationwide policy now in their terms and condtions:

And? All it says is that you need to take out an ISA, it doesn't say you need to keep putting money into it.

That's hardly what I'd call 'tight policies' myself.

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Maybe they're discussing disallowing the IO to last full term, rather revert to repayment status after a prescribed time.

This would still allow the genuine 'want to get on the ladder' to purchase & dissuade those seeking 'houses always rise in price' risky investments.

That would be noble.

Also, if you default on IO mortgage & the house sells for less than the debt, are you still liable for the difference? or has this deterrent now been shelved. If not , they are probably on a winner to promote IO as they are going to find it difficult to lose out, maybe the anticipation of this has caused the drop in savings interest rates.

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Bad lending practices has generated quite a lot of fee income for lawyers in the US. It is probably the case that the lenders are being lined up for legal action over here as soon as the negative equity starts to take its toll. Irresponsible lending and fiduciary duty go together so there will not be any need to adust the current law to allow causes of action to sucseed.

I must say I have no sympahty for the lenders as some of their practices deserve the punishment of the full extent of the law. The government need also to accept responsibility for the failure of the FSA to do its job. I suppose this will be part of the price we all pay for the Miracle Economy of HPI and MEW. The boom was one big joy riding spending binge. The bust is going to be very painful for a lot of people.

It had to all end in tears one day and that day has come. :o

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Bad lending practices has generated quite a lot of fee income for lawyers in the US. It is probably the case that the lenders are being lined up for legal action over here as soon as the negative equity starts to take its toll. Irresponsible lending and fiduciary duty go together so there will not be any need to adust the current law to allow causes of action to sucseed.

I must say I have no sympahty for the lenders as some of their practices deserve the punishment of the full extent of the law. The government need also to accept responsibility for the failure of the FSA to do its job. I suppose this will be part of the price we all pay for the Miracle Economy of HPI and MEW. The boom was one big joy riding spending binge. The bust is going to be very painful for a lot of people.

It had to all end in tears one day and that day has come. :o

Can they really sue lenders?

If this is the case, wouldn't it be possible for inebriated violent offenders to sue the manufacturers/sellers of alcohol claiming that it was their fault they got drunk & committed vile acts.

The means of abuse is available for every product purchased, there has to be accountability at some point.

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  • 341 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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