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Realistbear

Financial Times: Lenders Are Tightening Lending Criteria

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http://www.ft.com/cms/s/75182be0-338d-11db...00779e2340.html

Surge in bad debts forces lenders to tighten criteria
Published: August 25 2006 18:22 | Last updated: August 25 2006 18:22
By Robert Budden and Lucy Warwick-Ching
Banks and loan companies have been tightening up their lending criteria for unsecured loans as they become concerned about rising bad debts and the growing numbers of Individual Voluntary Arrangements (IVAs) that allow consumers to walk away from debt.

What, no more sub-prime lending to prop up Gordon's Miracle Economy? :lol::lol::lol:

Edited by Realistbear

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Doubtless many of the rejected individuals will be happy to turn to MEW for a solution. Mortgage debt however earns 6% whereas credit card debt earns 15%. The 9% difference is the price of security. What good is this security however when house prices fall and loans start going into negative equity. Under these conditions mortgage debt becomes as risky as credit card debt but only earns the lender 6%. I am not in a hurry to buy any bank shares.

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[ ... ] when house prices fall and loans start going into negative equity [ ... ] mortgage debt becomes as risky as credit card debt but only earns the lender 6%. I am not in a hurry to buy any bank shares.

Apologies for the quote butchery, but this is an interesting tangent.

The average retail bank will not be left without a seat when the music stops; the mortgage lender parcels these - residential backed mortgage securities - within a given risk spread, (occasionally) re-insures the default risk, and then sells them on the open market to "a greater fool".

If you have a private pension fund or any kind of insurance policy - you probably already "own" a lot more of this debt than you'd think, or like; fund managers on the whole tend to be fairly representative (ie, no more clever than) the populations from whence they're drawn.

There are of course indirect risks to the retail bank in a rising interest rate and worsening credit risk environment; collatoralised lending volumes (hence, associated margin) dry up, and non-secured lending in general becomes as great an on-sheet liability as it has been a profit center in the previous half-cycle...

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Apologies for the quote butchery, but this is an interesting tangent.

The average retail bank will not be left without a seat when the music stops; the mortgage lender parcels these - residential backed mortgage securities - within a given risk spread, (occasionally) re-insures the default risk, and then sells them on the open market to "a greater fool".

If you have a private pension fund or any kind of insurance policy - you probably already "own" a lot more of this debt than you'd think, or like; fund managers on the whole tend to be fairly representative (ie, no more clever than) the populations from whence they're drawn.

There are of course indirect risks to the retail bank in a rising interest rate and worsening credit risk environment; collatoralised lending volumes (hence, associated margin) dry up, and non-secured lending in general becomes as great an on-sheet liability as it has been a profit center in the previous half-cycle...

Very interesting. Thanks.

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http://www.ft.com/cms/s/75182be0-338d-11db...00779e2340.html

Surge in bad debts forces lenders to tighten criteria
Published: August 25 2006 18:22 | Last updated: August 25 2006 18:22
By Robert Budden and Lucy Warwick-Ching
Banks and loan companies have been tightening up their lending criteria for unsecured loans as they become concerned about rising bad debts and the growing numbers of Individual Voluntary Arrangements (IVAs) that allow consumers to walk away from debt.

What, no more sub-prime lending to prop up Gordon's Miracle Economy? :lol::lol::lol:

Rumours of your demise were unfounded. Keep posting RB! :D

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Well done to the benevolant Dr.Bubb.

he rightly spotted this trend well over a year ago,and lo,it has come to pass.

The banks are now taking steps to"de-risk" themselves.....the extra 0.1% over the base rate is to protect themselves against muppets who have no financial savvy.

...it will be funny to watch this one unwind.What we have now is low-skill domestic wage DE-FLATION coupled with global INFLATION.When joe bloggs on the street realises he has to work harder,for longer,for less money......AND his food,fuel,mortgage,council tax,transport costs are rising he will be LIVID!!!!

after all he/she voted them in to look after THEIR interests....and they've been sold out!!!

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  • 301 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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