Wednesday, Jun 28, 2006

Mortgage lending to risky customers with low credit records is a priority area of concern

FT: Fears over surge in high risk mortgages

The Financial Services Authority which has responsibility for regulating home loans is concerned that scoring techniques for this type of loan are robust but have not been tested through a downturn.

Posted by denzil @ 09:20 AM (529 views)
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5 Comments

1. Surfgatinho said...

I really don't understand the business model behind the sub-prime market. Maybe if bankrrupcy wasn't an option it would make sense but the potential for defaulting must be huge, even if the intrest rates are super high.
Once the media get hold of a few stories about people going bancrupt and saying it wasn't so bad this could wipe out these lenders

Wednesday, June 28, 2006 10:45AM Report Comment
 

2. bidin'matime said...

Good post, Denzil. It underlines the fact that people who shouldnt be borrowing are borrowing. Or the other way round people who shouldnt be lending are lending

This is where much of the extra money is coming from the fuel the price bubble, but theres the double whammy the sub-prime borrowers are also the people least competent to make big investment decisions and its they who are buying into the market at these silly prices!

Clearly, those who ought to know better are the ones at fault and, on this matter, it is the lenders.

Wednesday, June 28, 2006 01:22PM Report Comment
 

3. talking rot said...

It does beg the question "When will the Lenders stop lending?" At one point does a Bank / Building Society decide its bad debt is such that it should protect its margins by increasing charges and tightening lending criteria? Any clues anyone?

Wednesday, June 28, 2006 08:07PM Report Comment
 

4. denzil said...

TR Said:
>> "When will the Lenders stop lending?"

Over the last few years banks have been making record profits mainly due to business related lending and the cost of bad loans is relatively small. I can say with the greatest confidence in the world that debt will become an even bigger issue over the next few years but I believe the squeeze will come well before that. It will probably unfold by one or two lenders severely tightening lending criteria and the rest like sheep will follow. I think there is some evidence of that starting to appear already but it's too little too late in my opinion. So when will "the lenders stop lending"? Who knows! It's difficult to tell how quickly this will unravel but I think we will see a domino effect. I couple of IR rises totalling little more .50% should spook the lenders and tighten their criteria.

Wednesday, June 28, 2006 09:04PM Report Comment
 

5. talking rot said...

Denzil

Thanks

TR

Wednesday, June 28, 2006 09:51PM Report Comment
 

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