Thursday, April 3, 2008

Co-op is the next domino to fall

Co-op Bank joins rush to pull best mortgages

Co-op pulls their two year fix as it appeared in the best buy table and became too popular

Posted by jonb @ 10:59 AM (1148 views)
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33 thoughts on “Co-op is the next domino to fall

  • this fiasco would be absolutely hilarious if it wasn’t so plain scary.

    mortgage lenders fighting amongst themselves not to provide mortgages!

    lending down 40% but they still can’t access the monopoly money.

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  • waitingfor hpc says:

    i love it, i love it , keep it going!!! I can not wait for the summer BBQ’s when I can be the smug pr**k who can say ‘ well bet you wish you did not have those 10 BTL’s now eh?’

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  • As the bloke from the coop said on the radio, part of the problem is that NR has withdrawn from the market and they were providing 20% of all mortgages. The internet has also had a part to play in letting people make applications at a click of a mouse. At the moment funding is more expensive but it is there…

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  • And if the funding is more expensive then house prices go which way ?

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  • It’s all a bit strange – why the lenders keep withdrawing from the market instead of simply making themselves uncompetitive?

    Can’t help feeling there are some confidential edicts coming out of the BOE or FSA that are having some unexpected consequences..

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  • UT – “It’s all a bit strange – why the lenders keep withdrawing from the market instead of simply making themselves uncompetitive?”

    Most lenders have electronic application systems which brokers use – it is possible to get a decision in principle followed by a full application through in about 15/20 mins – so the lenders need to withdraw the products on offer and currently tend to then replace the withdrawn product with a new one (generally priced higher)

    The problem they have at the moment is that they think they have an uncompetitive product only to find 2-3 days later that its actually in the best buys position – so where previously rates were competed down the reverse is now happening – I mentioned in a post last month that some people will be faced with double digit rates and I stand by that comment.

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  • I don’t buy any of these stories.

    The rush to pull mortgages is because the banks can’t raise finance. Nothing to do with “surging demand” whatsoever. Mortgage lending has fallen 40% – how does that equate to “surging demand”?

    ?

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  • This is the credit crunch doing what it does – we’re just not being told the truth.

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  • Its surging demand on a lender by lender basis. Last year there were some 15000 products available by some pretty minor lenders and now there are only 5000. So many products have been withdrawn that the few good ones left cant cope with the rush of applications…

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  • Paul, if the “whole truth” on this topic was put into the public domain you would (IMO) have a NR run situation at every major institution

    To expand on maddisons point mortgage lending can (IMO) fall in conjunction with increased demand – I spoke to a broker last week who had a guy wanting to buy 4 new units at approx £1m in total but no lender would would provide finance due to (a) higher LTV requirements (b) rental assement restriction – so there are plenty people out there wanting to buy but simply cant get the finance that was once so freely available

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  • mmmm I take your point Jack C but I tend to agree with Paul and UT. At first I thought it is just a ploy so that they can reintroduce a product, call it something else and make it more expensive – typical underhanded banking practice. But theses “mortgages being withdrawn” headlines are rather sensationalist, and this I would think is something the banks would be keen to avoid as lets face it their business is to lend.

    Banks must be keen to avoid driving the negative sentiment any further as they have a lot of highly leveraged loans on their books. There must a be a great deal of 100 – 95% LTV loans already in negative equity which means the banks are already out of pocket if they have to repossess. To state the obvious; the further house prices fall, the greater the shortfall for the banks if people start defaulting.

    So why would they take such seemingly irrational action?

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  • When I bought my first flat in 1996 there was something called mortgage indemnity insurance that I paid for! This was a condition of the loan. What this meant was if they repossessed my flat and the value was less than the mortgage then the insurance company would make up the difference. This sort of insurance is no longer talked about with the borrower but the lender I presume hedges against this risk to a certain extent now…. Any body know about this

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  • 9. maddison said… So your saying a 66% fall in products on offer but “only” a 40% fall in mortgages means that the 33% of products left on sale will have higher inquiries….fair point. However, the banks systems and staff should be able to cope with 15000 products unless the banks have prematurely rearranged their system and staffing resource to cope with just 5000 or so (this I don’t buy).

    It’s all good scarmongering spin for us lot though aye!

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  • planning4acrash says:

    You can limit interest rates on mortgages by pulling them instead of hiking rates, but the market won’t be bucked, the lenders who remain will have to hike rates to double figures by summer.

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  • sold 2 rent 1 says:

    I have a bad feeling about all of this.

    Remember May will be the most destructive part of this fifth night carnage from Calleman’s model.

    As I said to happyrenterz before he went off from 1 April – 1 August on his buddhist course, “It is no coincidence that you are choosing this time to go into a news blackout environment for 4 months”.

    By the autumn, we will all see the world in a completely different way.
    Hope you guys have gold, as the Elliott wave 5 super spike will be starting within 1-2 weeks.

    Martin Armstrong’s PI cycle suggests a total debt implosion will be delayed until 2011.
    This could mean it’s bailout time for the banks that run out of cash this summer.

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  • “So why would they take such seemingly irrational action?”

    If the housing market was not boom/bust the banks would make less money. They profit from house prices falling. In much ths same way as EAs only make money if stuff is shifting, banks make more money by lending huge amounts of money that then requires a bust to get the market moving again.

    For example, someone borrows 500,000 (100% LTV) only to have the house repo’d and sold for what it is actually worth (£250,000). The bank now collects money from the new purchaser (interest on 250k) as well as the outstanding amount from the original purchaser (on remaining 250k). So effectively, the house is worth 250k, it has been bought for 250k, and the owner pays a mortgage on 250k. The only effect of the boom and bust is that the bank also collects on a further 250k.

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  • mark wadsworth says:

    inbreda, that is brilliant!

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  • theboltonfury says:

    callemans mmodel has been widely criticised by just about everyone as being utter fantasy.

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  • @maddison (12) “When I bought my first flat in 1996 there was something called mortgage indemnity insurance …..”

    The majority of lenders scrapped MIGs (mortgage indeminity guarantee’s) because they were perceived to be unfair – ie the borrower paid for an insurance product that protected the lender and the provider of the MIG could then chase the borrower for the full amount claimed by the lender in the event of a default.

    Some lenders still operate the above but its generally now known as a HLC (Higher Lending Charge)

    IMO the lenders now have less security in the event of rising deafults than they did in the past ie early 90’s downturn

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  • japanese uncle says:

    How stupid it is to throw more than a million pounds salary to such a mediocre who just follow the herd and invested in the CDO!
    A school leaver could have done his job.

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  • the following was posted in Yahoo:::::::::::

    off topic a little, but we went to cheshire building society today to withdraw a large cheque to put money in another bank.

    The Cashier started talking to us, she said they are all in fear of losing their jobs as she said the society finances are not as good as they were because they don’t offer high rates on accounts and people are taking money out, like we did.

    If the balance is this fine then things look very bleak.

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  • titaniccaptain, did you notice there’s a new series of Property Ladder starting next week?
    How long before the property porn merchants start saying past performance is no guide to the future, values can go down as well as up, like investment houses etc do (are required to do?) when promoting their funds?

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  • Maddison and Jack

    Here is what the CML states – http://www.cml.org.uk/cml/consumers/guides/indemnity. I was under the impression this was still an issue, because insurers and reinsurers still (i think) have it as a class. Now having said , 2 things strike me:

    1. They dont have it – even if it is still around below certain LTVs you dont need it, or more accurately they dont make you buy it. IF you dont have it this means that their security is lessened so it would make sense for them to repossess at the earliest possible opportunity.

    2. if they do have it the terms of the policy is probably the same – i.e. loss mitigation.

    Found this:

    http://www.insurancejobsboard.com/jobs/59701/creditor-mortgage-indemnity-specialist.asp
    and
    http://www.angassecurities.com/cms_resources/10_October_Newsletter.pdf [takes a while to load]
    and this a bit heavier

    http://66.102.9.104/search?q=cache:SCjxwjI-w0YJ:www.actuaries.org.uk/files/pdf/library/proceedings/gen_ins/gic1993/0237-0287.pdf+mortgage+indemnity+reinsurance&hl=en&ct=clnk&cd=2&gl=uk

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  • techieman – lets look at the main lenders current policy (residential only)

    Abbey – up to 90% LTV = no HLC

    C&G = no HLC (from memory they were the first to scrap MIG/HLC’s)

    Halifax – up to 90% LTV = no HLC

    Nationwide = no HLC

    Based on the above a house price crash/correction leaves the lenders in a more vulnerable state than the late 80’s/early 90’s and this backs up your thoughts/findings.

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  • Sorry Halifax should read up to 90% LTV = no HLC

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  • I’ve lost the plot !!! Sorry Halifax should read up to 750% LTV = no HLC

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  • one last try before this computer goes in the river – Halifax should read up to 75% LTV = no HLC

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  • “If the housing market was not boom/bust the banks would make less money. They profit from house prices falling. In much ths same way as EAs only make money if stuff is shifting, banks make more money by lending huge amounts of money that then requires a bust to get the market moving again.

    For example, someone borrows 500,000 (100% LTV) only to have the house repo’d and sold for what it is actually worth (£250,000). The bank now collects money from the new purchaser (interest on 250k) as well as the outstanding amount from the original purchaser (on remaining 250k). So effectively, the house is worth 250k, it has been bought for 250k, and the owner pays a mortgage on 250k. The only effect of the boom and bust is that the bank also collects on a further 250k.”

    So if the house is repo’d, what makes you think the original purchaser will pay anything towards the outstanding amount of 250K. They have had there house repossessed, they don’t have any money and the bank will have to write off this loss. Simplistically, this is exactly what all the global bank losses have been about. People walking away from their homes in the US effectively leaving the bank with a ‘2x’ of bad debt and the bank only being able to retrieve ‘x’ of the debt (if they are lucky) by selling the property. The other ‘x’ goes on the banks books a loss.

    I know the repossession rules are different here in Blighty and I have heard recently of Banks chasing up bad debt losses from the prior crash, but they surely would prefer not to go through all the bother of chasing bad money. Better to have customers that are good for the loan. In the states, I believe you can just walk away from the whole deal.

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  • 5. Titaniccaptain said… they told me on the telly……………………they told me on the telly…………………….they told me on the telly……………………..they told me on the telly………………….they told me on the telly.

    try this for a laugh – Peter Finch on form

    http://www.youtube.com/watch?v=M4szU19bQVE

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  • 13. maddison said…
    When I bought my first flat in 1996 there was something called mortgage indemnity insurance that I paid for! This was a condition of the loan. What this meant was if they repossessed my flat and the value was less than the mortgage then the insurance company would make up the difference. This sort of insurance is no longer talked about with the borrower but the lender I presume hedges against this risk to a certain extent now…. Any body know about this

    Thursday, April 3, 2008 12:30PM

    Interesting point Maddison! The last I heard of this product actually attempting to be used was 2000 when I was working in a solicitors in the Thames Valley. They were chasing someone for their bad debt from 1994 after the 6 year limitation period and I pointed out that he had Mortgage Indemnity Insurance for 20%! The Mortgagee however would not exercise the policy and the unfortunate mortgagor had paid for a policy wholly written in the Mortgagee’s (optional) favour….

    It will be excellent when the the independent legal profession is dismantled and replaced by such as the FSA! I am really sure they will have the consumer at heart…

    Oh dear oh dear oh dear…..

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  • Jack – thanks. My feeling on this though is that they may very well have set up captives where they run the risk themselves and reinsure it in the credit reinsurance markets. For example see this and particularly page 9 http://www.ins.state.ny.us/exam_rpt/acecappt.pdf

    Yorksafe is yorkshire building societies captive. Now i realise this is oldish

    but also See: http://www.ybs.co.uk/your_society/about_ybs/execteam.jsp particularly

    Andrew Gosling joined the Society as Finance Director in 2001. Prior to that he was a partner in the professional services firm, Ernst & Young, where he was in charge of its financial services practice in the North of England and also led the firm’s Building Societies Group. Andrew is responsible for the Group’s Finance, Audit, Facilities, Legal and Secretarial functions.

    He is Chairman of Yorksafe Insurance Company Limited, the Society’s captive insurance subsidiary based in Guernsey, and Yorkshire Investment Services Limited. He is also a director of Yorkshire Guernsey Limited

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  • As a net saver I have been watching savings rates avidly of late. As I said last week Northern Rock have just dropped their rates on ‘Silver Saver’, ostensibly as deal to be less competetive and not benefit from their government backed position. I checked my Halifax Websaver last night and noticed they had sneaked this down to 4.65%. Index linked National Savings have just knocked 1% off in their latest issue to RPI + .35% (down from RPI + 1.35% tax free). This is all with no recent change in B of E base rates.

    What the heck is going on? Borrowing rates are shooting up whilst saving rates are crashing, all with no B of E input. Looks like they are desperate to refill their vaults and Joe Public is suffering again.

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  • p. doff – the 3 year Index-linking certs are now + 0.25% AER and the NS & I direct ISA has had the g’tee in relation to bank base rate cut

    Those of us who have been responsible throughout are now getting shafted and I have to say it hurts

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