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"gold Standard" Mortgages

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Darling to push ‘gold standard’ mortgages

By Chris Giles in London

Published: March 4 2008 22:02 | Last updated: March 4 2008 22:02

All mortgages in Britain will be in effect graded and the least risky will be given an official seal of approval under plans designed to reopen the market for wholesale mortgage financing to be unveiled in next week’s Budget.

Alistair Darling, the chancellor, will publish plans that will see a “gold standard” kitemark for batches of mortgage-backed securities that comprise only those loans that meet higher standards of creditworthiness and quality thresholds.

Yet, banks have warned that the move could lead to the creation of a two-tier system, which while cutting costs for less risky loans drives up the costs for poorer, less creditworthy customers and those seeking mortgages with higher loan-to-value ratios.

The chancellor hopes that after a quick consultation with banks on the exact nature of mortgages that will qualify for the kitemark and how the scheme will be administered, he will be able to introduce it by the autumn.

If successful, the proposals could restart the market for mortgage securitisations – the selling of mortgages by lenders to long-term investors – which has been in effect shut since last summer because of fears that the batches of securities contain risky or subprime mortgages.

The Treasury hopes to regain interest in mortgage-backed securities from investors, which could provide much-needed wholesale finance, enabling the banks to remove the mortgage assets from their books and reduce the pressure on their capital.

Research by Morgan Stanley shows that the leading seven UK mortgage lenders have £206bn in outstanding securitised mortgages, some 28 per cent of mortgage assets, and would face “severe problems” if the market does not unfreeze soon.

Mr Darling said last month that a key issue now “is the continued tight credit conditions in the secondary mortgage markets. The easing and recovery of those markets is essential to stabilising the housing market”.

With mortgage approvals having dropped sharply in recent months and house prices falling for four months running, the Treasury is concerned about maintaining confidence in the housing market. Mr Darling has, however, rejected calls from mortgage lenders for a US-style government-backed agency to lend money to banks in return for mortgage collateral.

The Bank of England is facing pressure to announce on Wednesday whether it will roll over its three-month £10bn loan to banks against a wide range of collateral that matures on March 19.

Angela Knight, the chief executive of the British Bankers’ Association, on Tuesday said there was “merit in the proposal” because transparency and simplicity were something to be welcomed.

But she added there must be flexibility in the types of mortgages to be included in a gold standard securitisation because there was a “risk in stigmatising non-conforming mortgages”.

Is the government trying to underwrite the reputation of the rating agencies?

Monty

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It is a futile attempt to provide confidence in a fundamentally flawed financial system based on usury. They think your government is trusted and that their mark will bring certainty to the market. They are wrong, either they will he honest in their assessment of mortgages and it will then become clear to everyone how bad the situation truly is or they will lie and even worse things will happen.

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They are doing everything they can to prop up peoples interest in buying over priced houses. The government and the housing VI`s will soon have to accept that houses are cheap as chips and even chavs don`t need a mortgage to buy them, and nobody is that interested in hearing about houses anymore. It`s like pop stars of the 80`s, they seemed massive at the time, but now, people are like "who?" "what was all the fuss about?" (even 80`s "pop" music blows todays "music" scene out of touch, but you get the gist?)

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It is a futile attempt to provide confidence in a fundamentally flawed financial system based on usury. They think your government is trusted and that their mark will bring certainty to the market. They are wrong, either they will he honest in their assessment of mortgages and it will then become clear to everyone how bad the situation truly is or they will lie and even worse things will happen.

And that`s right, this governments mark of approval on anything says RUN, RUN HARD, RUN FOR THE EXITS, DON`T LOOK BACK.

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And that`s right, this governments mark of approval on anything says RUN, RUN HARD, RUN FOR THE EXITS, DON`T LOOK BACK.

Teddy Kennedy - Gold standard minicabs

Gary Glitter - Gold standard childminding

Harold Shipman - Gold standard medical care for the aged

Keep them coming.

p-o-p

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While we are cutting interest rates and sterling is devaluing they are not going to attract wealthy investors from the BRIC countries. If we want foreigners to invest in our country we will need to be raising interest rates. When investors measure their returns in Yuan, Real or Rupees they will be losing a fortune so even if they did get this going it would only be a small number of UK investors and would not nearly raise enough capital to prop up the housing market at prices anything like they are now.

Edited by FLASH_2007

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So long as it is does not involve tax payers money then I think the proposed solution will be a flop.

And given the goverments record, if it does involve taxpayers money it will be a flop :(

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FT Article

2 articles on 2 consecutive days. Is this a kite-flying exercise for a government "rating agency" for UK MBS?

The drums beat louder...................

Monty

How new mortgage grading system would work

By Chris Giles and Delphine Strauss

Published: March 6 2008 02:00 | Last updated: March 6 2008 02:00

Mortgages in Britain will, in effect, be graded, with the least risky given an official seal of approval, under plans designed to reopen the market for wholesale mortgage financing to be unveiled in next week's Budget. Chris Giles and Delphine Strauss explain .

What will the chancellor be proposing?

To create a kitemark for batches of mortgage-backed securities containing high quality, creditworthy loans, setting a transparent standard to ease investors' fears of inadvertently buying exposure to risky or subprime mortgages.

The aim is to unfreeze the market for mortgage securitisations, where lenders sell packages of mortgages to long-term investors, and so relieve severe funding problems that might otherwise prevent lenders extending credit to many borrowers.

How will the scheme operate?

The idea is to set clear, quantifiable criteria - based, for example, on loan-tovalue ratios, loan-to-income ratios, or a borrower's credit history - for mortgages where the default risk is considered minimal.

The Treasury will publish concrete proposals next week. The details will be finalised after consultation. One issue will be who administers the scheme. Investors may not trust an industry standard, but even an official seal of approval from the government or Financial Services Authority may not carry weight, as it would not involve any guarantee against a rise in defaults.

The crucial question will be how tightly to define high-quality credit. Lenders and politicians have an interest in classing as many borrowers as possible as creditworthy, but the scheme will succeed only if the wholesale markets view kitemarked mortgages as a cast-iron investment.

Who would the kitemark attract?

UK mortgage lenders who are short of finance would be interested as the kitemark might help reopen wholesale markets for mortgage assets. The hope is that stable investors, such as insurance companies and pension funds, would buy the assets as they would yield longterm stable returns.

The 2004 Miles Review on long-term mortgage financing suggested that an official kitemark might help attract European investors to covered bonds based on pools of mortgages. It would make the bonds compliant with an EU directive allowing funds to invest more in such products.

Will the scheme work?

The answer, says the banking and securitisation industry, is "perhaps". Industry sources say anything that might help improve transparency and boost investor confidence is a good idea.

The British Bankers' Association says the idea has merit, while the European Securitisation Forum (ESF) says restricting assets in a securitisation pool to those of high quality "certainly does, in principle, support investor confidence".

Rick Watson, head of the ESF, has two reservations. He says an official standard for low-risk mortgages might make non-conforming mortgages prohibitively expensive, ruining the market for poorer and higher-risk homebuyers.

The Council of Mortgage Lenders echoes this concern, saying anything that implied "driving a wedge between asset qualities" risked making investors more cautious about the overall quality of UK mortgages than the low level of defaults justified.

Perhaps more importantly, says Mr Watson, the scheme only addresses concerns over credit risk, whereas one of the main problems with securitisations at present is price volatility risk.

How serious is the risk of creating a two-tier system?

It depends how tightly the criteria are set, and how lenders' own perception of loans falling outside the definition changes.

If the scheme does boost investor confidence and lenders think that loans not covered by the kitemark are still a good credit risk, then greater access to wholesale market funding should enable them to offer credit to all clients on better terms than would otherwise have been the case.

The worst-case scenario would be if lenders remained short of funds and thought credit risks had increased, making them reluctant to cross-subsidise lending that did not meet the new standard.

Lenders are keen for the scheme to be flexible enough to relax criteria as investor confidence improves.

How does the scheme compare with those available in the US?

If the kitemarking proposals take effect, the risks of bundling up mortgages and selling them on will rest with the private sector. The state is merely helping to facilitate the market by setting a standard to aid transparency

In the US, government sponsored agencies, including Fannie Mae, Freddie Mac and the Federal Home Loan Banks, buy mortgages from lenders and bear the risk.

What does it mean for my mortgage?

The scheme will not affect existing mortgages, and borrowers should continue making payments as normal.

If it succeeds, it should benefit anyone taking out a new mortgage or remortgaging

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A harebrained scheme that will make ****** all difference - how very New Labour.

This still doesn't solve the problem that huge house prices and big rises in the cost of living are nailing people to the wall, reducing their ability to paying their mortgage. And prices are falling. The banks know this. The investors know this.

Subprime lending is over. Anyone who either doesn't measure up, or lied on their application, will still be exposed come remortgage or reset time, and no lender will touch them with a bargepole.

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FT Article

2 articles on 2 consecutive days. Is this a kite-flying exercise for a government "rating agency" for UK MBS?

The drums beat louder...................

Monty

How new mortgage grading system would work

By Chris Giles and Delphine Strauss

Published: March 6 2008 02:00 | Last updated: March 6 2008 02:00

Mortgages in Britain will, in effect, be graded, with the least risky given an official seal of approval, under plans designed to reopen the market for wholesale mortgage financing to be unveiled in next week's Budget. Chris Giles and Delphine Strauss explain .

What will the chancellor be proposing?

To create a kitemark for batches of mortgage-backed securities containing high quality, creditworthy loans, setting a transparent standard to ease investors' fears of inadvertently buying exposure to risky or subprime mortgages.

The aim is to unfreeze the market for mortgage securitisations, where lenders sell packages of mortgages to long-term investors, and so relieve severe funding problems that might otherwise prevent lenders extending credit to many borrowers.

How will the scheme operate?

The idea is to set clear, quantifiable criteria - based, for example, on loan-tovalue ratios, loan-to-income ratios, or a borrower's credit history - for mortgages where the default risk is considered minimal.

The Treasury will publish concrete proposals next week. The details will be finalised after consultation. One issue will be who administers the scheme. Investors may not trust an industry standard, but even an official seal of approval from the government or Financial Services Authority may not carry weight, as it would not involve any guarantee against a rise in defaults.

The crucial question will be how tightly to define high-quality credit. Lenders and politicians have an interest in classing as many borrowers as possible as creditworthy, but the scheme will succeed only if the wholesale markets view kitemarked mortgages as a cast-iron investment.

Who would the kitemark attract?

UK mortgage lenders who are short of finance would be interested as the kitemark might help reopen wholesale markets for mortgage assets. The hope is that stable investors, such as insurance companies and pension funds, would buy the assets as they would yield longterm stable returns.

The 2004 Miles Review on long-term mortgage financing suggested that an official kitemark might help attract European investors to covered bonds based on pools of mortgages. It would make the bonds compliant with an EU directive allowing funds to invest more in such products.

Will the scheme work?

The answer, says the banking and securitisation industry, is "perhaps". Industry sources say anything that might help improve transparency and boost investor confidence is a good idea.

The British Bankers' Association says the idea has merit, while the European Securitisation Forum (ESF) says restricting assets in a securitisation pool to those of high quality "certainly does, in principle, support investor confidence".

Rick Watson, head of the ESF, has two reservations. He says an official standard for low-risk mortgages might make non-conforming mortgages prohibitively expensive, ruining the market for poorer and higher-risk homebuyers.

The Council of Mortgage Lenders echoes this concern, saying anything that implied "driving a wedge between asset qualities" risked making investors more cautious about the overall quality of UK mortgages than the low level of defaults justified.

Perhaps more importantly, says Mr Watson, the scheme only addresses concerns over credit risk, whereas one of the main problems with securitisations at present is price volatility risk.

How serious is the risk of creating a two-tier system?

It depends how tightly the criteria are set, and how lenders' own perception of loans falling outside the definition changes.

If the scheme does boost investor confidence and lenders think that loans not covered by the kitemark are still a good credit risk, then greater access to wholesale market funding should enable them to offer credit to all clients on better terms than would otherwise have been the case.

The worst-case scenario would be if lenders remained short of funds and thought credit risks had increased, making them reluctant to cross-subsidise lending that did not meet the new standard.

Lenders are keen for the scheme to be flexible enough to relax criteria as investor confidence improves.

How does the scheme compare with those available in the US?

If the kitemarking proposals take effect, the risks of bundling up mortgages and selling them on will rest with the private sector. The state is merely helping to facilitate the market by setting a standard to aid transparency

In the US, government sponsored agencies, including Fannie Mae, Freddie Mac and the Federal Home Loan Banks, buy mortgages from lenders and bear the risk.

What does it mean for my mortgage?

The scheme will not affect existing mortgages, and borrowers should continue making payments as normal.

If it succeeds, it should benefit anyone taking out a new mortgage or remortgaging

Please. Pretty please.

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Just thought I'd do a bit of waffling on this post as the thought of it kept me awake last night?

How can the government decide what is an AAA (gold standard) loan?

My thoughts, although I'm sure they can use all sorts of mathematical jiggery pokery are these ...

1. They put their finger up their as* and say any loan that fits this criteria is "gold standard"

2. They go by the losses of the last crash, around 20% iirc and say any loan with 80% equity is "gold standard"

3. They go by current levels of worst case and give "gold standard" to loans with 50% equity (some properties have lost 50% on resale)

Unless they use option 3 or baffle the "buyer" with ******** then the "gold standard" ain't worth a bit of copper and I would presume that the incentive would be a huge flop. It would also, I believe, ensure that most lending institutions use the "gold standard" guidelines on their lending and raise the risk profile for loans outside the standard and thus the interest rates.

Surely this is just another ploy to keep the rich rich and the poor eating Tesco's value bread?

Just to add after reading Monty's update.

The only method that can be used to ensure this standard is one of LTV. Peoples wages change as does their credit rating. Again, this is just another tax on the poor, socialist government, my big fat ****!!!!!

Edited by REP013

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The Council of Mortgage Lenders echoes this concern, saying anything that implied "driving a wedge between asset qualities" risked making investors more cautious about the overall quality of UK mortgages than the low level of defaults justified.

This is nonsense. There is a difference in asset quality between a 3.5x income 75% LTV mortgage and a 125% LTV mortgage whether the CML like it or not. Saying there isn't doesn't make it so. The bulk of low-quality mortgages have not yet been stress tested and so to defend them on the grounds of an overall low level of default is rather naive in my opinion. Of course, the CML are just looking to make sure the govt. allow them to continue pushing as much crack as they like.

Still, we've come a long way from "there is no sub-prime in the UK". It could be that if the bar for the kitemark is set high enough this proposal could wipe out lax lending more quickly than the credit crunch will, and could be the trigger for a return to sensible house prices.

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Still, we've come a long way from "there is no sub-prime in the UK". It could be that if the bar for the kitemark is set high enough this proposal could wipe out lax lending more quickly than the credit crunch will, and could be the trigger for a return to sensible house prices.

I was trying to look back in the press recently to find instances of people saying that, but drew a blank. Annoying really, because I am certain I heard and read it more than once back in August last year. Just can't find a good smoking gun.....

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This is nonsense. There is a difference in asset quality between a 3.5x income 75% LTV mortgage and a 125% LTV mortgage whether the CML like it or not. Saying there isn't doesn't make it so. The bulk of low-quality mortgages have not yet been stress tested and so to defend them on the grounds of an overall low level of default is rather naive in my opinion. Of course, the CML are just looking to make sure the govt. allow them to continue pushing as much crack as they like.

Still, we've come a long way from "there is no sub-prime in the UK". It could be that if the bar for the kitemark is set high enough this proposal could wipe out lax lending more quickly than the credit crunch will, and could be the trigger for a return to sensible house prices.

Is it not just the case that the government are trying to make "everything will be worked out" noises so that sheeple will keep paying their mortgages? If banks continue to tighten lending, prices must drop, and people holding unpayable mortgages surely must start to default in big numbers? A piece on news 24 yesterday had some serious faced "expert" talking people through their options to avoid repossesion. Option 1. increase the term of your payment Option 2. go IO. He handed back to the link and she said, with a serious face, "some good advice there " It`s not even subtle any more, the VI`s are just saying, please whatever you do just keep making the payments.

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Is it not just the case that the government are trying to make "everything will be worked out" noises so that sheeple will keep paying their mortgages? If banks continue to tighten lending, prices must drop, and people holding unpayable mortgages surely must start to default in big numbers? A piece on news 24 yesterday had some serious faced "expert" talking people through their options to avoid repossesion. Option 1. increase the term of your payment Option 2. go IO. He handed back to the link and she said, with a serious face, "some good advice there " It`s not even subtle any more, the VI`s are just saying, please whatever you do just keep making the payments.

....and the options for those on IO already are?

p-o-p

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Seriously consider panicking.......................... and cutting your price.

Except you can't because the lender has said that they will not release the deeds unless the mortgage is redeemed in full!

p-o-p

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The thing that concerns me about this proposal is that aren't private rating agencies already doing this? And, if they are already doing this, then what's different? I suppose that what is different is that the government will be offering an implied warranty that gold standard mortgages really are gold standard, just as the US government offers an "implied" warranty that bonds offered by Fannie Mae and Freddie Mac are guaranteed by the US government, even though there is no law anywhere on the books in the US saying that those bonds are backed by the government. This opens up the UK government to all sorts of scams if any gold standard mortgages go bad. SRM Capital and their ilk would have no qualms about suing the government over shoddy mortgages, just as they tried to rip off tax payers through the Northern Rock fiasco.

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  • 293 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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