Sunday, February 25, 2007
Prepare for the failure of HBOS & similar
US Subprime worries just the tip of the iceberg
What happens when the loan goes bad? Mortgage companies make lots of money writing “iffy” loans as long as Wall Street can package and sell the securities (and risk) into the capital market. All looked well for the Titanic sailing ahead in the fog, until it was too late. Looks can be deceiving, too, in the subprime mortgage market because the mortgage companies are very thinly-capitalized and highly-levered. A few million dollars of capital can end up supporting reps and warranties on billions of mortgage loans.
Posted by lvmreader @ 04:54 PM (1576 views)
8 thoughts on “Prepare for the failure of HBOS & similar”
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Pond321 says:
That is a foolish headline. HBOS is not mortgage broker.
Ash4781 says:
What’s HBOS got do with the link ?
Eric Pebble says:
I have been posting about mortgage fraud for well over a year if now 2 years. What amazes me is how long it takes for the scams to be brought into light. The BBC Money Programme about mortgage fraud in the UK really was superb — and it was the tip of the tip of an iceberg…..
lvmreader says:
HBOS to offer new mortgage at 125% of value
By Sharlene Goff
Published: November 3 2006 22:10 | Last updated: November 3 2006 22:10
HBOS, the UK’s biggest lender, is to start offering mortgages that allow people to borrow more than the value of their property, in a move that will make such products more accessible.
The owner of Halifax building society and BM Solutions, the specialist mortgage lender, is likely to launch a product within days that could allow buyers to borrow up to about 125 per cent of the value of their home.
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The move coincides with accelerating demand for higher loans as cash-strapped first-time buyers go to extreme lengths to get a foot on the housing ladder.
Mortgage brokers have seen the take up of mortgages that provide more than 100 per cent of the property value rise by as much as 70 per cent this year.
Demand is being driven by graduates and young professionals who find they cannot save quickly enough for cash deposits and moving costs.
Some borrowers are also using the additional funds to pay down other debts such as personal loans and credit cards, as mortgage interest rates are typically cheaper.
The move by HBOS is seen as good news for borrowers as it is likely to bring down the current relatively high interest rates on these types of loans.
But brokers warn that borrowers will be plunged immediately into negative equity and could be trapped in their properties unless prices rise.
Ray Boulger, senior technical manager at broker John Charcol, said: “HBOS has the firepower to be quite aggressive in terms of pricing.”
The lender is likely to put significant pressure on Northern Rock, which currently has a monopoly in this market.
HBOS’s offering is expected to be similar to Northern Rock’s “Together” mortgage, which allows people to borrow up to 125 per cent of the property value.
Together is understood to bring in about £8bn of new business each year.
HBOS on Friday refused to comment.
The Baldman says:
HSBC is a subprime lender in the US and is in trouble. Wont be long before the problems spread to the UK. Ivm’s example looks like sub prime to myself a s the Loan to asset value is 125%
enuii says:
HSBC (Hong Kong Shanghai Bank has nothing to do with the Halifax Bank of Scotland) although I think there may be trouble in both camps as I read a report 3 or 4 weeks ago relating to the HSBC and Banco Santander which give me the impression that both of these companies were exposed to similar worries. Needless to say when I looked for the article again it had disappeared!
enuii says:
With regard to HBOS I was also surprised by the sudden exit of Benny Higgins their head of retail banking yesterday and as they say there is no smoke without a fire somewhere!
lvmreader says:
10 years on, we see how prescient this blog post was.
The excuses are very woolley.
Sep 19th 2017 – “The chairman, Matt Ridley, summed it up in the annual report, lauding “another excellent year” and said “our strategy of using growth, cost efficiency and credit quality to reward both shareholders and customers continues to run well.”
Toxic fuel
A few months later, Northern Rock’s empire was in ruins. The fuel it had used to grow so quickly turned out to be toxic.”