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Banks Selling Back Debt


dr ray
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There was a posting on here a while back about someone who was approached by their lender offering to sell back their loan at a fraction of the outstanding amount.

I can't remember the exact figures but I think they were willing to write down a £20k loan for £5k

Has anyone any experience of this as a colleague (in BTL) is wanting to do this.

Any one know what companies are doing this?

Does this get classified as a debt default by the rating agencies?

Some might wonder why the companies would do this but I presume some want to change their risk profile and others want to increase reserves because with the magic of fractional reserve banking the money they get in can be loaned out 10 times over or more.

Any personal experiences please?

Edited by dr ray
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There was a posting on here a while back about someone who was approached by their lender offering to sell back their loan at a fraction of the outstanding amount.

I can't remember the exact figures but I think they were willing to write down a £20k loan for £5k

Has anyone any experience of this as a colleague (in BTL) is wanting to do this.

Any one know what companies are doing this?

Does this get classified as a debt default by the rating agencies?

Some might wonder why the companies would do this but I presume some want to change their risk profile and others want to increase reserves because with the magic of fractional reserve banking the money they get in can be loaned out 10 times over or more.

Any personal experiences please?

No. But it would be cool if they did.

I have a mortgage with Abbey, can't see them doing that anytime soon.

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why would a bank do this in the first instance?

There is no reason.

Firstly some banks would rather get some money back now than end up the proud owner of a BTL empire in Leeds or Birmingham on which they are going to lose at least half of what they lent anyway.

Secondly they can currently lend to businesses at 15% so if it costs them say 75K to cancel a 100K loan at say 5% they can then lend 10X 25K at 15% to businesses rather than BTL investors (because of fractional reserve banking - figures rounded for simplicity)

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There was a posting on here a while back about someone who was approached by their lender offering to sell back their loan at a fraction of the outstanding amount.

I can't remember the exact figures but I think they were willing to write down a £20k loan for £5k

Has anyone any experience of this as a colleague (in BTL) is wanting to do this.

Any one know what companies are doing this?

Does this get classified as a debt default by the rating agencies?

Some might wonder why the companies would do this but I presume some want to change their risk profile and others want to increase reserves because with the magic of fractional reserve banking the money they get in can be loaned out 10 times over or more.

Any personal experiences please?

I think I saw a posting from 'crown' , (maybe a client had an offer from a mortgage co?) will have a look.

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why would a bank do this in the first instance?

There is no reason.

Banks rank loans in terms of the chances of full repayment and then provide the difference, so if they loaned you £100 and now think that there is a 90% chance of getting it back they will provide £10. If there is already a provision against a proportion of the loan then most banks at the moment would rather see the cash now than risk having to provide more later as the chances of recovery diminish.

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Firstly some banks would rather get some money back now than end up the proud owner of a BTL empire in Leeds or Birmingham on which they are going to lose at least half of what they lent anyway.

Secondly they can currently lend to businesses at 15% so if it costs them say 75K to cancel a 100K loan at say 5% they can then lend 10X 25K at 15% to businesses rather than BTL investors (because of fractional reserve banking - figures rounded for simplicity)

This infers they suspect the loan is going to default.

In other words, there has to be a reason.

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Banks rank loans in terms of the chances of full repayment and then provide the difference, so if they loaned you £100 and now think that there is a 90% chance of getting it back they will provide £10. If there is already a provision against a proportion of the loan then most banks at the moment would rather see the cash now than risk having to provide more later as the chances of recovery diminish.

Again, they would have to suspect default.

its not something they would do in the FIRST instance.

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Again, they would have to suspect default.

its not something they would do in the FIRST instance.

Actually they do - as soon as a loan is made they put it in the lowest likelihood of default band and provide against it. They used to provide about 1%, but I would think it is higher now, which is the unmentioned reason why you won't see interest rate drops being passed on in full.

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why would a bank do this in the first instance?

There is no reason.

If the bank has already written down the value of a loan say of 10,000 to 5,000 in it's accounts last year (because it thought the loan was at risk of default), then if it receives 6,000 next week it can write back a profit of 1,000 and re lend the 6,000 to someone of a higher credit rating. Instead, it could wait for the 5,000 to be repaid and possibly it may have to write off more of the value in future years.

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This infers they suspect the loan is going to default.

In other words, there has to be a reason.

Bloo Loo.

The banks have no reserves. Without reserves they can't lend. If they can't lend they have no income (except what they get from taxpayer).

£10 to a bank means they can lend out £100 or more because of fractional reserve banking. That £100 will generate £15 interest at the moment

Someone on here yesterday saying that Abbey were quibbling about letting him have monthly interest- they are that desperate for cash.

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As I understand it lenders sell loans in default to other companies. They sell them for less than the amount outstanding but they get some value from the debt. The organisation that buys it then collects from the debtor. Often they are less scrupulous in the tactics they employ to collect. If they are unsuccessful they sell it on to another, probably less scrupulous, debt collector.

All that is happening here is that the original lender is cutting out the middlemen.

Can anyone confirm my understanding and give some idea of the amount they pay in the pound for the debts?

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If a block of loans has been sold at a deep discount to a financial buyer, that buyer will have a motive to negotiate. That is probably what you have seen. That is very different from a bank that has a performing mortgage on its books.

Banks hold about £8 in capital against every £100 of loans (and about £4 on mortgages). Taking major haircuts on a reasonable number of these will quickly wipe them out.

There is a massive moral hazard to a bank letting borrowers off the hook. If it does it for one, the pressure mounts - and there isn't that much room on capital.

In the example above with £900 still outstanding, it sounds like the balance had been much higher, and probably quite a lot of the balance was rolled up charges, so the write-off versus original capital lent was quite small. The loan would have been unsecured, not secured, so the lenders can write off more because they charge much more, so have more income against which to charge losses.

If a BTL goes to the bank to negotiate, he might quickly find he is a marked man, the bank might take a close look and find cause to take action against him, reasoning he may have other properties, better to get after him first while they have a heads up he's a poor quality borrower.

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Bloo Loo.

The banks have no reserves. Without reserves they can't lend. If they can't lend they have no income (except what they get from taxpayer).

£10 to a bank means they can lend out £100 or more because of fractional reserve banking. That £100 will generate £15 interest at the moment

Someone on here yesterday saying that Abbey were quibbling about letting him have monthly interest- they are that desperate for cash.

The banks have plenty of reserves, theyve borrowed billions from the BoE against impaired assets.

What is missing is a vehicle to shove the risk of the loan off balance sheet and into the financial maelstrom.

They now need to lend and charge for that lending responsibly, not for us, but for themselves and their banking licence.

I fail to see how a loan, being paid off, would be called in early for no reason. Unless, the bank itself feared default.

It would also appear that by some measure, bank credit is still rising.

Now lets say Oakwood Homeloans, for example, bought a pile of GMAC loans at a discount. GMAC. famous for subprime, probably offloaded some crap onto Oakwood. Oakwood, seeing how bad they are, maybe want to get rid, and see offering a discount to the borrower to settle early as a good deal.

Of course, if the borrower requested to settle early, unless it was an IO loan, he would also expect a discount. how much depends if rule of 78 applies to the deal.

But there will always be a reason. Just ringing up out of the blue would normally end up with a "not interested" response.

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