Monday, March 21, 2011

UK Currently Fails Most Tests

Review on Mortgage Underwriting and Origination Practices

"One of the biggest contributors to the problems experienced in the mortgage industry during the financial crisis was the inadequate or lack of verification of borrower’s income and financial information.... In the UK, around half of all mortgage applications in 2007 and 2008 were processed without income verification.", "Currently in the UK, future house price appreciation can beconsidered in the evaluation of the borrower’s ability to repay the mortgage loan." "Reasonable debt service coverage -According to the Joint Forum, one of the most fundamental components of prudent underwriting relies on the borrower’s income to service the debt, taking into account all debt commitments." The UK FSA will propose closing the barn door now that the horse has bolted.

Posted by ontheotherhand @ 05:28 PM (1915 views)
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2 thoughts on “UK Currently Fails Most Tests

  • Anyone with an ounce of common sense could easily anticipate what would happen if lax lending was allowed, hence you have Kensington as an example

    Almost 23% of Kensington’s book in arrears of six months or more

    Increased forbearance measures resulted in almost 23% of Kensington Mortgages’ portfolio being 180 days or more in arrears in 2010, up from 16% in 2009 and 9% in 2008.

    As of November 2010 almost 23% of its book was in arrears of six months or more, compared to the industry average of 1.24%.

    But the lender says its increased forbearance measures in 2010 caused the increase.

    The volume of loans in repossession has steadily declined over the same time period from 5% reported in 2008 to 2% at the end of 2010.

    A spokesman for Kensington, says: “The actual number of customers in arrears has fallen over the past 18 months, even throughout a difficult economic environment.

    “However, as the size of our book has diminished the proportion of customers in arrears has increased. But this is not representative of the true number.”

    In April 2010 Kensington was fined £1.2m by the Financial Services Authority and told to pay out £1.1m to customers in arrears who it treated unfairly.

    Meanwhile Fitch Ratings revealed last week that is has affirmed Kensington’s UK Residential Special Servicer rating at RSS2+. It says the lender has improved its systems and has a robust risk and management process in place, despite its increasing arrears.

    The ratings agency says Kensington continues to utilise arrears strategies and loss mitigation tactics that are consistent within the UK market as well as adheres to regulatory standards surrounding Treating Customers Fairly and the pre-action protocol.

    In reference to the percentage of its mortgage book in arrears of 180 days or more, Fitch says: “This figure, influenced by market and regulatory forces, is indicative of the longer timeframes from default to possession observed among other UK rated servicers across the market.”

    As of November 2010, Kensington was servicing 14 UK Residential Mortgage Backed Securities with an outstanding balance of £2.4bn including 27,699 loans, down from £3.08bn and 35,023 loans in 2008.

    The majority of Kensington’s portfolio is non-conforming with 75% of the portfolio classified as light adverse and unlimited adverse comprising the remaining 15%.


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  • charlie brooker says:

    IIRC, the Australian Govt threatened to check income figures stated in mortgage applications against tax records.

    A very neat idea – exaggerate your income in your mortgage application and expect an investigation from the tax man!

    I’m sure half of the HPC membership could even write the database to do this!

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