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Contagious Ready-to-lend Mindset Spins Tales Of Woe

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Guest wrongmove

Contagious ready-to-lend mindset spins tales of woe

"All eyes are on US subprime. Not surprisingly, given its causal role in the financial mayhem of the past two months.

In retrospect, some lending practices by American banks were foolish in the extreme. But have their counterparts in the UK been quite as conservative as we have been led to believe?

In the US, problematic lending only came to light because house prices started to fall.

In a rising market most homeowners fight to keep paying their mortgages. Why bother if the property is losing value by the month?

If house prices fall in the UK it will be interesting to see what happens to legions of over-leveraged, over-optimistic property buyers.

Subprime in the UK now accounts for 8 per cent of the total mortgage market. That is worrying enough. But are there other subprime mortgages out there, masquerading as prime?

Lenders are suddenly rushing to tighten up their lending criteria in the wake of the debt crunch. It is possible that they are too late.

Here are a handful of personal anecdotes to illustrate the lack of controls in the mortgage lending market, in ascending order of extremity. All the names have been changed to protect identities.

1] Jason is an old friend who works as a gardener. He obtained his self-certified mortgage last year by presenting proof of income from the summertime when he comfortably earns £1,500 to £2,000 a month. His lender is unaware of his winter income; about £600 if he is lucky. When his two-year fixed-rate deal ends, he is facing a 30 per cent jump in mortgage costs.

2] John, another friend, is a self-employed IT consultant. He and his girlfriend Tina last year borrowed three times their combined salary to buy their first house. The mortgage broker was aware that Tina was pregnant. He happily ignored the box asking if the couple were aware of any reason why they might not earn the same income in the future. Their floating mortgage has already risen five times.

3] Gary, a taxi driver, and his wife Nicole were encouraged to build a buy-to-let portfolio after joining a property investment club. The couple remortgaged their house and borrowed another £9,000 on credit cards to put down as deposits on new-build flats. The developer gave them a cash "discount" on their purchases that enabled them to get a 90 per cent loan to value instead of the usual 85 per cent. The couple thought that the rents on the two flats in Docklands would cover their mortgage when the properties are completed later this year. That now looks unlikely.

4] Douglas earns less than £30,000 a year. But he successfully borrowed £3m from a bank to buy 17 properties. The "deposits" on each building were paid by the company that sold the homes. He did not bother to look at the properties before buying them. But he soon found out that most of his new purchases were in a decrepit state................"

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Guest DissipatedYouthIsValuable

[5] Bruno. Earns about £5 a year. STR'd piss stained Margate flat in 2004 for £12000. Spent all the equity on wigs and lingerie.

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Contagious ready-to-lend mindset spins tales of woe

Here are a handful of personal anecdotes to illustrate the lack of controls in the mortgage lending market ... All the names have been changed to protect identities.

There's a lot of it about. Here are some from the world of EA. Not all the names have been changed.

In about 1995 I was working for Townends EA. It was made quite clear to me that one of the perks of working there was that they would give me a reference falsifying my income, and not to worry as the in-house FA would make sure it went through. Thing was, they would encourage everyone to do this, not just EAs. If they fancy sueing me, I would refer them to the BBC report which catches that FA doing that very thing.

In 1999 I went to work for Buckell and Ballard. They were a bit more professional, but I recall making a stink about the "Vendor Paid Deposit" schemes that some other agents started offering about that time. I was told quite clearly to shut up, because "we have some of those deals in our chains".

In 2002 I was working for a third EA, and almost bought a house through them. The in house FA encouraged me to take a Self Cert, with the intention of lying about my income. I have not named this company as they have now stopped using self cert in this way, and they are probably the best of a bad lot overall.

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There's a lot of it about. Here are some from the world of EA. Not all the names have been changed.

In about 1995 I was working for Townends EA. It was made quite clear to me that one of the perks of working there was that they would give me a reference falsifying my income, and not to worry as the in-house FA would make sure it went through. Thing was, they would encourage everyone to do this, not just EAs. If they fancy sueing me, I would refer them to the BBC report which catches that FA doing that very thing.

In 1999 I went to work for Buckell and Ballard. They were a bit more professional, but I recall making a stink about the "Vendor Paid Deposit" schemes that some other agents started offering about that time. I was told quite clearly to shut up, because "we have some of those deals in our chains".

In 2002 I was working for a third EA, and almost bought a house through them. The in house FA encouraged me to take a Self Cert, with the intention of lying about my income. I have not named this company as they have now stopped using self cert in this way, and they are probably the best of a bad lot overall.

...you are part of the problem by doing nothing about it ....and obviously part of the reason regulation was brought in .....the joke is that many of these intermediaries and lenders complained about the fact that they were becoming over regulated....the farce is the regulators have not really sniffed out these 'bandits' and until they do so they themselves are contributing to the problem as they do not appear to have a clue as to what to do..... :o:o:o

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There's a lot of it about. Here are some from the world of EA. Not all the names have been changed.

In about 1995 I was working for Townends EA. It was made quite clear to me that one of the perks of working there was that they would give me a reference falsifying my income, and not to worry as the in-house FA would make sure it went through. Thing was, they would encourage everyone to do this, not just EAs. If they fancy sueing me, I would refer them to the BBC report which catches that FA doing that very thing.

In 1999 I went to work for Buckell and Ballard. They were a bit more professional, but I recall making a stink about the "Vendor Paid Deposit" schemes that some other agents started offering about that time. I was told quite clearly to shut up, because "we have some of those deals in our chains".

In 2002 I was working for a third EA, and almost bought a house through them. The in house FA encouraged me to take a Self Cert, with the intention of lying about my income. I have not named this company as they have now stopped using self cert in this way, and they are probably the best of a bad lot overall.

Ok, then maybe you can tell us perhaps what percentage of buyers may have been exagerating their financial position in order to buy a property? and of these same buyers who were taking out fixed term or interest only loans which would have to be renegotiated after a couple of years? This would tell us in an annacdotal fashion the quantities of people who when remortgaging (because they have too) will now have to come up with proof of income next time around. The way I see it is that if only a small percentage of people cant roll over thier mortgages, say 10%ish then maybe we have real grounds for a real crash. Perhaps this is one reason that the banks want a quick bail out, then they can refinance these loans without getting lumbered with a portfolio of property that they cant sell on for their money back.

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...you are part of the problem by doing nothing about it ....and obviously part of the reason regulation was brought in .....the joke is that many of these intermediaries and lenders complained about the fact that they were becoming over regulated....the farce is the regulators have not really sniffed out these 'bandits' and until they do so they themselves are contributing to the problem as they do not appear to have a clue as to what to do..... :o:o:o

I am not part of the problem, as I resigned. Other than that, I agree with everything you say.

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Guest Shedfish

in no particular order..

US: No-doc, Neg-am, Teasers, Flippers, alt-a

UK: Self-cert, 100% plus LTV, SVR, Interest only, BTL

just calling things a different name doesn't make them disappear. only 8%? i doubt it

by the looks of recent reports, not even the Blairs are 'prime'.

-------

...on the subject of mindset, why is the default setting on RightMove sort by highest price? i mean... why would you?

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Ok, then maybe you can tell us perhaps what percentage of buyers may have been exagerating their financial position in order to buy a property? and of these same buyers who were taking out fixed term or interest only loans which would have to be renegotiated after a couple of years? This would tell us in an annacdotal fashion the quantities of people who when remortgaging (because they have too) will now have to come up with proof of income next time around. The way I see it is that if only a small percentage of people cant roll over thier mortgages, say 10%ish then maybe we have real grounds for a real crash ...

I am not, and never have been an FA, so I can't say for certain. However, from what I saw as an EA I would guess that around 10% of Mortgages are Self Cert. This is higher than the FSA estimate of about 6%. Neither figure includes other products where the lender does not ask for proof of income. There are plenty of these, from the obvious ones such as "Fast Track", a favourite of our friends Northern Rock, to the "target buster", where an FA has a contact at a lender who makes sure the checks are not done on an otherwise prime loan, in order to make sure they do thir target / make their bonus for that quarter. This is not that hard, as many of the lenders don't do the checks themselves anyway as it costs money. While we are on the subject, try googling "Replacement P60" and see how many responces you get. As to the number of people who describe commission as "guaranteed", or overtime as "regular"...

In total, my best guess is that in excess of 30% of borrowers overstate their position, with about 15 - 20% being fraudulant. As to how many are on a short term fix, that would be the vast majority. In excess of 75%.

I should say I have not been an EA for over two years, so these estimates are also out of date.

EDIT: (I was an EA, not FA!)

Edited by Timm

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I am not, and never have been an FA, so I can't say for certain. However, from what I saw as an EA I would guess that around 10% of Mortgages are Self Cert. This is higher than the FSA estimate of about 6%. Neither figure includes other products where the lender does not ask for proof of income. There are plenty of these, from the obvious ones such as "Fast Track", a favourite of our friends Northern Rock, to the "target buster", where an FA has a contact at a lender who makes sure the checks are not done on an otherwise prime loan, in order to make sure they do thir target / make their bonus for that quarter. This is not that hard, as many of the lenders don't do the checks themselves anyway as it costs money. While we are on the subject, try googling "Replacement P60" and see how many responces you get. As to the number of people who describe commission as "guaranteed", or overtime as "regular"...

In total, my best guess is that in excess of 30% of borrowers overstate their position, with about 15 - 20% being fraudulant. As to how many are on a short term fix, that would be the vast majority. In excess of 75%.

I should say I have not been an EA for over two years, so these estimates are also out of date.

EDIT: (I was an EA, not FA!)

And what % of the market needs to go tits up for prices to fall? 5%?

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I nearly took a Fast-Track mortgage from Abbey.

One thing to note is that I was *very* agressively sold a 2 year fix. I kept asking about 5 year fixes, but the salesman kept ignoring me and pushing th e 2 year. This was back in June.

So more than just NR are pushing these self-certs which don't appear in the figures.

I know a local EA, he tells me that 'loads' of people have taken on 'huge mortgages'. Reasonably 4 bed detached houses went from £375k in 2004 to £650k today. Bigger mortgages are how this has happened. I don't know personally anyone who has doubled their salary over that time frame.

There are a lot of stretched people out there.

Edited by 2MeterBear

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