Thursday, May 6, 2010

Looks like these guys are trying to limit losses now before the storm really takes hold

Hedge fund offers mortgage borrowers golden goodbyes

City hedge fund Toscafund, which last year acquired a number of mortgage books, is offering to write off up to 20 per cent of mortgage holders’ borrowings if they remortgage with a new lender. The hedge fund uses a mortgage servicing company to administer its loans and borrowers who wish to remortgage away are being offered the opportunity to write off a large proportion of their debt if they refinance elsewhere.

Posted by jack c @ 10:07 AM (1696 views)
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21 thoughts on “Looks like these guys are trying to limit losses now before the storm really takes hold

  • Hey Jack

    Im not sure about this one. Its common knowledge that many firms buy such “assets” at a discount and then provide less of a discount to the asset holder to reduce the book. This is effectively what happens when you buy distressed loan books, whether the underlying thing that they are secured on is homes , cars, or even B2B debts. Surely the real question here is what did they pay (or more accurately what discount did they get).

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  • On a non-related issue: isnt time the LandReg graph was updated with the March figures?

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  • techieman – your point is very valid and I guess there is no real right or wrong answer on this as they wont disclose the original lenders involved (definitely wont disclose original discount) – similar situation also took place about a year or so ago with Advantage Home Loans and Edeus when it became apparent that funding was tightening dramatically – neither of these companies are still in business for purposes of lending – I wonder if we are about to embark upon credit crunch part 2?

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  • Jack re cc 2.

    I think you are the best “bellwether” of this as your ear is close to the ground. As you know my view was that we have been in a reflationary rally and that this is about to end…. badly. A double dip recession at best. The hung parliament is the nightmare scenario because on the one hand the tories will want to squeeze the debt and labour and Lib dems will want to carry on with the reflation, in the short term. But clearly these views are so diagramatically opposite that the danger is “nowt” gets done.

    Do i think the markets have finished the retracement now? yes i do. But of course it all depends on what happens with the event risk here (and also what happens to the S&Ps). I am major short the S&Ps now showing a substantial profit ( i applied the f*ck it rule and put my stop in at 1250 June and sold some more – quite scary at one stage i was looking down the barrel of about 6% of my net wealth) and am actually short the Dax and IBEX too. Those are showing big gains too. So “in short” [sorry!] i have left the ftse alone, although i did think it looked toppy around the 5800 and thought it might squeeze up a bit higher – i think i said up to 5900. Had i been short i think 5400 was a good place to actually take the money and run… until next week.

    Of course i will be taking (i actually already have taken some and reduced my exposure on the IBEX and DAX) some profits. I am looking for 1130-1150 downside for the S&Ps and then i will liquidated most of that and wait to see how the next upmove pans out.

    As i have always said the stockmarket will lead the more illiquid asset classes down in the next wave – which is one reason why i look at the stock market chart patterns.

    Will this move down be a dip buying opportunity? for example on the way up to your 6300 Ftse? Well we will have to wait and see how the retracement takes shape.

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  • mark wadsworth says:

    Techie beat me to it – what the crowd wants to now is what price the “hedge fund” paid for the mortgages in the first place. I can imagine that the selling banks will have imposed some confidentiality clause on the “hedge fund”, because if it became known that they were selling your £100,000 mortgage to somebody else for £75,000, people would be queuing up at banks asking for 25% to be lopped off the capital outstanding.

    The bitter irony being that the people who exaggerated their income most and who are deepest into nequity will get the biggest discounts, whereas honest Joe who paid a 25% deposit on a three-times-income mortgage is a good risk and won’t get a discount whatsoever.

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  • Hi Mark

    Thought you would be rather busy today :-)….

    “The bitter irony being that the people who exaggerated their income most and who are deepest into nequity will get the biggest discounts, whereas honest Joe who paid a 25% deposit on a three-times-income mortgage is a good risk and won’t get a discount whatsoever.”

    Yes but aint that always the way. This reminds me of the person that runs up huge bills on their credit cards to buy stuff for their house. They then default on the credit card and they show that they can (after their mortgage) pay 15 quid a month. Hell they could even sell the house with the stuff in it, buy a new one (sans mortgage) and still be paying the £15 a month. Eventually the credit card company says – ok lets sort this out and offer a 65% discount on the debt. Far fetched? If only!!! And then you get the bloke who pays off his credit card balance in full each month…. but we all know life is a bitch right!

    Jack http://www.housepricecrash.co.uk/newsblog/2010/04/blog-year-ir-down-trend-is-about-to-turn-28482.php yours at 2 mine at 8.

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  • 51ck-6-51x says:

    They probably got somewhere in the region of a 35-45% discount I imagine, but they may have got more if they took advantage of lenders in real trouble.

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  • techieman – thanks for the input – I share your view that the reflationary rally will end rather badly as Gordon & Co have really been delaying the inevitable.

    I did stick my neck out with a 6200-6300 target for FTSE100 recently – this looks well off the mark at the moment but we could get there if we wake up to a strong Conservative win on Friday morning (remember when Mrs T was ousted and Major wasnt given much of a chance) albeit this would IMO be a short burst rally.

    My view from the coalface (or shopfloor if you like) regarding lending is that it is tightening up again.

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  • Yes Jack i concur that the event risk is too great . It may well be a fantastic opportunity for very short term traders, but i think best left well alone. I cant really see it doing too much on the upside – couple of hundred points at best, but never say never!

    I think it will turn out to be a pretty damp squib myself….. I am going with the mainstream view – Tories + hung parliament. Anything else would really shake it up. The best the bulls could hope for is a Tory overall majority. Cant see that myself… but what is it ? A few hours is a long time in politics [yes i know the phrase is a week is a long time!].

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  • They bought the mortgages for about 60p on the pound. If they write off 20% of the value of the debt they hold, their margin is 20%, which is good business. The mortgage market does not remotely perturb them because they are about to start writing mortgages to new customers.

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  • They bought the mortgages for about 60p on the pound. If they write off 20% of the value of the debt they hold, their margin is 20%, which is good business. The mortgage market does not remotely perturb them because they are about to start offering mortgages to new customers. I think this has been fairly well publicised?

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  • hey Flash…

    Thanks for that, makes perfect sense now. Hope things are going well with you. How is the cycling going? Are you preparing to batten down the hatches?

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  • Hi techie: Thanks for asking. The cycling is going well. I’m off to the Pyrenees this month for a training camp.

    There’s a strange atmosphere at the moment. No one is particularly worried but no one is particularly optimistic either (about the markets). I’m keeping an eye on the NASDAQ because it’s gained about 3% more per year than the DOW, for the last few years and because of what it contains. If there is any action, I think it might start there

    How’s your back?

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  • What an unbelievable deal for the profligate borrowers! Not only did they probably get a lower interest rate than anyone could have dreamed of 10 years ago but then a 20% discount! Still there’s going to be a lot of possibly quite high risk people all needing to remortgage at once in this somewhat less lax environment….

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  • techieman says:

    Flash – sorry just liquidated some S&Ps @ 1116 [i put in a trailing stop oco’d with a – what i thought was cheeky 1116 – and the 1116s got filed!!]. God this is getting to look a bit scary…….

    “If there is any action, I think it might start there” – IF??”!?!?! . Anyway DJ now 600 points down! 700 – S&Ps down 110 god ……

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  • techieman says:

    Phew that was exciting – sorry Flash re the back – yes thats getting better id say 60% of normal rather than about 10% as it was. Thanks for the concern. I love mountain biking round the single tracks of the Pyrenees – hopefully next year!!!!

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  • Wow, yes that was exciting, I was short the dow and Eur/dol at the time.

    I didn’t know you were into mountain biking aswell techieman.

    I’m just getting back into it, best thing for my leg since I was ill last year.

    I’m hoping to do the South Downs (Winchester to Eastbourne) this summer.

    (And that bit of fun at 7.45is has just paid for my new mountain bike 😉

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  • Hi Flashman

    Is that road or mtb aswell ?

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  • techieman says:

    Hi str 2007

    Nice one!

    Flash has a road bike. I have a couple of SCOTTs. But ive not been on them since my slipped disk about 18months ago. Anyway – glad you didn’t get caned on the dow. Maybe that was the end of the bears picnic – the charts look very weird, but lets see what happens over the next few days. Personally i am still short most of my position, but i do feel sorry for some folks.

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  • Just bought a Gary Fisher HIFI carbon, I was supposed to be testing a Scott Sparky at the weekend, but there was a problem with it (someone had taken the brakes apparently) so I ended up with a Trek to test. Pretty good. But I fell for the looks of the Hifi and it was the last one so I had to make a quick decision.

    One of my customers rides a Scott Sparky and really rates them, wish I’d got to ride one.

    Not quite sure how to finish off today. I’ve closed my Dow position and just brought down my Eur/Dol stop, with another short at 1.2449 stop at 1.2501. A bit obvious that one i know, but I’m out most of tomorrow and can’t trade.

    I’d rather be in front of a screen with these ‘jitters’ going on.

    All the best. Hope you get out pedelling again soon.

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  • cheers str2007 . good luck to you too. Personally i think the USD move is mature (i said it a few days ago i think) and would be looking to liquidate most around here. GBP espcially out @ 1.47 – 48. I think we have had most of the move as yet (but i think we see more dollar strength after an interlude and retrace) – but of course i may be wrong, and i personally always keep a bit just in case i am.

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