Sub Prime Mortgages & Repossessions - How it Really Works

[Guest TaffR]

A. The Subprime Mortgage Business

Subprime lending consists of three principal businesses: loan origination, loan sales (or

securitization), and loan servicing. Each presents its own challenges to the restructuring of

subprime lenders.

 

1. Loan Origination

 

Subprime lenders, acting as originators, originate mortgage loans through both wholesale

and retail channels. Wholesale channels involve the originator acting as lender for loans

originated by independent mortgage brokers. Retail channels involve the originator providing

direct loans to individual borrowers through branch offices and networks of affiliated mortgage brokers.

 

Originating mortgage loans, whether through wholesale or retail operations, requires

huge sums of capital. In the industry, originators satisfy these capital requirements in two ways.

First, they look to financial institutions for the temporary capital necessary to originate mortgage

loans. Second, they sell originated mortgage loans into the secondary market to liquidate the

value of those loans.

a. Warehouse Lines

Temporary funding for origination is generally obtained through revolving loan

relationships with financial institutions, commonly referred to as “warehouse” arrangements. In

some cases, warehouse arrangements take the form of credit facilities that are basically secured

revolving credit facilities in which the lender advances funds secured by an interest in the loans

originated with those funds.

b. Repurchase Agreements

Another common arrangement through which originators obtain temporary funding for

origination are “repurchase” arrangements. Repurchase arrangements, generally governed by a

document referred to as a Master Repurchase Agreement, provide for originators to enter into

transactions, from time to time, in which the originator agrees to transfer mortgage loans to a

financial institution against the transfer of funds by the buyer. These funds are used, in part, to

originate mortgage loans.

In repurchase arrangements, the financial institution is obligated to transfer the mortgage

loans back to the originator against the transfer of funds by the originator at a specified time in

the future. While these relationships have many characteristics of warehouse lines, and are at

times discussed in terms suggesting they are also secured loans, in fact these repurchase

arrangements are documented as buy-sell arrangements, which has important implications for

how the loans originated through repurchase arrangements are treated in reorganizations,

workouts and bankruptcies.

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c. Margin Calls

As a condition to most warehouse lines and repurchase agreements, the lenders or

repurchase participants have the right to periodically mark to market the value of the loans

funded by the warehouse line or repurchase facility. To the extent warehouse lenders or

repurchase participants identify a deficiency in the value of the mortgage loans on the facility,

the warehouse lenders or repurchase participants may issue a margin call and demand additional

funds be posted by the originator to augment the value of the property on the facility.

Originators typically post cash to meet such margin call requests.

2. Securitizations and Loan Sales

The second mechanism for raising capital is selling originated mortgage loans into the

secondary market through securitizations.

a. Securitizations

Originators in the subprime mortgage industry expect that most of the loans they

originate will be securitized, i.e., the mortgage loans will be transferred to special purpose

vehicles and the equity of those special purpose vehicles will be sold to diverse investors in the

public markets. In some cases, the originators securitize the loans themselves, and in other

cases, the originators sell the mortgage loans to third party buyers, known as Loan Purchasers,

who then securitize the loans. In either event, the end result is that most of loans originated by

subprime mortgage lenders are held in such securitized arrangements.

b. Loan Sales

Generally, within 90 days following the origination of a mortgage loans, and prior to

securitization, originators sell most contemporaneously originated loans to financial institutions.

In some cases, the originators are unable to sell the originated mortgage loans promptly, and are

forced to retain the mortgage loans. Such retained loans are known in the industry as “scratch

and dent” loans.

In the case of mortgage loans originated under a line of credit, the mortgage loan would

be sold and the lender repaid. In the case of mortgage loans originated under a repurchase

arrangement, the mortgage loans would be repurchased by the originator and then sold. The

terms of these sales of mortgage loans were generally governed by agreements with the Loan

Purchasers called, creatively, Loan Purchase Agreements.

c. Repurchase Obligations Under Loan Purchase Agreements

In connection with sales to Loan Purchasers and securitizations, subprime mortgage

lenders make certain representations and warranties relating to the quality of the mortgage loans

sold. These representations and warranties include representations and warranties that the

mortgage borrowers under the mortgage loans will make the initial payments under the mortgage

loans. Failure by the mortgage borrowers to make such initial payments is referred to as an

“Early Payment Default” or “EPD”.

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If EPD provisions are breached due to early defaults by mortgage borrowers, as was the

case with many of the subprime mortgage loans originated and sold by the now-bankrupt

originators, the Loan Purchase Agreements required the originators to repurchase loans subject

to such Early Payment Defaults. The originators repurchased many of these EPD mortgage

loans as required by these Loan Purchase Agreements, which loans became owned by the

originator. The originators were unable to satisfy other EPD obligations, giving rise to

unsecured claims against the originators in favor of the Loan Purchasers.

3. Servicing

In addition to origination and mortgage loan sales, subprime mortgage lenders perform a

servicing function, which included the collection, consolidation and remittance of monthly

principal, interest and impound payments for taxes and insurance on mortgaged properties. Most

all subprime lenders service the mortgage loans held on their warehouse lines and repurchase

facilities on an interim basis, from the origination date to approximately 90 days after the sale to

third party loan purchasers.

In addition to interim servicing, some subprime lenders continue to service loans they

originated once the loans are sold or securitized. In either case, the subprime mortgage lenders

are compensated for their servicing function.

http://www.abanet.org/buslaw/newsletter/0063/materials/pp1a.pdf

Edited May 15, 2008 by TaffR

[Guest TaffR]

Subprime lenders, acting as originators, originate mortgage loans through both wholesale

and retail channels. Wholesale channels involve the originator acting as lender for loans

originated by independent mortgage brokers. Retail channels involve the originator providing

direct loans to individual borrowers through branch offices and networks of affiliated mortgage brokers.

 

Securitisation is a major frontier of global FinancialCapital. Firms and other market entities are constantly looking for more and more ways to raise finance. Investors are looking for more and more investment opportunities. In short, there is an unceasing drive to open up new FinancialMarkets. This means - making more things tradeable, or able to be represented by 'securities'. Securitisation is just that - turning formerly untradeable assets, flows, promises, into securities.

In general the new securities are called 'AssetBackedSecurities'. Conventional bonds are IOU's issued by states, corporates, banks. When investors buy such bonds they are making an assessment of the issuer's ability to repay. They will need to consider the issuer's likely future business prospects, commitments, cashflows, etc., or less tangible properties such as the investor's good name and reputation. Behind these the issuer may have some assets or collateral that ultimately secures the bonds - in the last resort, is the issuer goes bust and defaults, bond holders may have first call on carving up its property and assets.

 

Asset backed securities are also bonds, but (the general idea is that) they are backed not by the issuer as a whole, but by particular assets. For example, a corporate may have some strong and some weak business lines. As a whole, the corporate has a low credit rating based on an assessment of all its business lines and assets. But it may have one strong business line or set of assets. If you can issue a bond that is backed just by these high-grade assets, then it will have a higher credit rating than the business as a whole.

 

There is an increasingly vast array of securitisation models and techniques. Basic to all of them is the creation of a new kind of financial entity - usually called a 'special purpose vehicle' (SPV). In general, the idea is that lenders don't want to expose themselves to all of the borrower's activities - they want to pick and choose.

 

The SPV plays the key role of separating off the assets that are to be securitised from the other activities.

 

The most basic way to do this is though what is called a 'true sale' securitisation. The borrower transfers ('sells') the assets to be securitised to the SPV.

 

(Note though that the SPV is just a paper entity, probably registered in Jersey or the Cayman Islands. It doesn't actually do anything with these assets - the borrower carries on its business as before, 'using' the assets as normal.) The role of the SPV is then purely to act as a bond issuer: it issues bonds, which are ultimately backed by the assets that have been transferred to it. The SPV passes the money it gets from selling the bonds back to the borrower.

 

This model then basically introduces a new kind of intermediary agent into the market.

 

This can make terminology more confusing, but essentially you could think of:

 

Borrower = eg. corporate, state, bank etc.

 

Issuer = SPV

Lender = bond buyer

 

What do we mean here when we talk about an 'asset'? An asset is just anything (the borrower owns) that has value - that can be converted to money, or used to bring in money. It may be something tangible - like property or machinery. But more often we are talking about promises or obligations again. In fact, most commonly, the assets are loans.

 

For example: in securitisation, one major 'asset class' is the mortgage. This is so big, particularly in the US, that 'MortgageBackedSecurities?' (MBS) are often considered as wholely separate to asset backed securities (ABS). In MBS, the assets transferred to the SPV are not physical properties, but the debts (mortgages) of property-owners held by banks. In the US (I think), in fact most residential mortages are securitised - sold on to SPVs - in this way. CMBS (commercial MBS) is less widespread and more complicated, but also big. In MBS:

 

Borrower = bank or mortgage-lender, transfers mortgages to SPV.

 

SPV = owns transferred mortgages. Sells MBS bonds. Passes money raised back to borrower.

Lender = buys MBS bonds.

Some important securitisation asset types are:

Mortgage Backed Securities? - both residential (RMBS) and commercial (CMBS). CMBS is becoming big in the public sector eg. social housing, government property portfolios such as hospitals, prisons, military bases outsourced on a 'SaleAndLeaseback?' basis.

CollateralisedLoanObligations? (CLOs) - non-mortgage loans made by banks, usually to corporates.

Swathes of consumer bank loans: credit card repayments, car loans

ProjectFinance? - securitisation increasingly used by states or corporates to fund big projects, eg. infrastructure schemes.

ExoticSecuritisations? - eg. IntellectualProperty deals - DavidBowie? securitised rights to some of his album sales.

FutureFlows? - these are securitisations not of 'existing assets' (such as outstanding mortgages or other loans) but of anticipated future income. This is particuarly big in 'DevelopingCountries?' where local banks securitise TradeReceivables? and HardCurrency? income flows.

WholeBusinessSecuritisations - an interesting hybrid between securitisation and more standard corporate bonds.

 

Synthetic Securitisations

As opposed to 'pure sale' securitisations.

 

Here the SPV does not actually own the assets. It acts as an intermediary in a derivatives contract (see DerivativesMarkets?).

Synthetic securitisations are becoming increasingly common - partly because banks have less need to transfer assets under the new BaselTwo? banking regime. (See history below). In a synthetic CLO, for example:

 

'Protection buyer' = bank. Bank wants to transfer away risk on some of its loans. To do this it makes a CreditDerivative? contract called a Credit Default Swap (CDS) with the SPV. It agrees to make fixed payments to the SPV in return for a promise: if a specified 'credit event' occurs (eg. a proportion of loans in a given pool of loans default), the SPV will make it a large given payment to bail it out.

 

Issuer = SPV. The SPV issues a type of bond called a 'credit linked note' (CLN). Like any other note, investors pay the par value and receive coupons and eventual repayment of the par value. The SPV holds onto the initial proceeds of the bond sale and the regular payments in from the bank. It pays out the coupons. Eg - suppose the regular payments in from the bank cover the coupons out. Then there is a reserve held in the SPV from the initial sale of the bonds. If the credit event doesn't happen, eventually the investors get this back on maturity. But if the credit event does occur, the SPV uses this sum to pay the bank.

 

Protection seller' = investors. They take the coupon payments (and principal repayments). In return, they take on the risk: if the credit event occurs, they will lose their principal. This risk is priced into the coupon payments.

 

The bank does not (in general) sell all the risk on a pool of loans. What usually happens is it retains the 'first loss risk' - it will take the losses from the first however many millions of dollars of defaults. It then securitises tranches of risk:

 

eg.

defaults totalling $0 to $20 million - bank retains (first loss risk)

$20 to $40 million - B rated bond holders (tranche c) - coupon: euribor + 300 bps

$40 to $60 million - BBB rated bond holders (tranche b)- coupon: euribor + 160 bps [/font]

$60 to $80 million - AAA rated bond holders (tranche a) - coupon: euribor + 40 bps

As in a more standard bond, the lower tranches are 'subordinated' to senior tranches. It may be that senior tranches are repaid but junior ones are not.

 

History of securitisation

 

Securitisation, with MBS leading the way, was pioneered by (US) banks in the 1980's. The reason is this: fundamentally banks' assets just are all the loans they make (to corporates, individuals, governments, homeowners etc.) To make money they want to lend as much as possible. But they have limits. They act as intermediaries, borrowing money which they then lend on. But they need to hold a certain amount in reserve against all their lending (this is their capital) in case borrowers default and they don't have enough coming back to repay their creditors.

 

To ensure the banking system doesn't collapse, governments (or government appointed regulators) tell banks how much capital they have to hold against their assets. This is called 'regulatory capital'. But banks think they know better - in general banks always believe they need to hold less capital than the regulator tells them. Securitisation was originally motivated to a large extent by banks trying to get around regulatory capital constraints ('regulatroy capital arbitrage'). When they transferred their assets to SPVs, these assets were 'taken off balance sheet' - and they no longer had to hold regulatory capital against them. (This has got a lot more complex recently with a new international banking regulation system called BaselTwo? coming in - I will come to that later.)

 

Securitisation thus allowed banks to lend out lots more money than before. Basically, they lend out lots through mortgages, then borrow it back through securitisation. Each time getting their cut off the mortgage-borrowers, but effectively passing the risk on to the ABS/MBS bond holders. If the mortgages default, it is the income going in to the SPV that suffers, and thus the payments (coupons and principal repayments) to the MBS holders.

 

With BaselTwoII regulatory capital arbitrage is becoming less important. However, the techniques that have been developed are found to be useful in new ranges of situations. Because they don't sell assets into the SPV, SyntheticSecuritisations? generally involve less legal and administrative costs, and so with regulatory capital concerns disappearing synthetics become more prevalent. The two main motivations for securitisation are then: funding, i.e., using securitisation to create new and cheaper ways to borrow; risk transfer, banks in particular can use synthetic deals to get rid of the risk on their loans.

 

Though they may no longer have to manage 'regulatory capital' so closely, the focus shifts to 'economic capital' - what their own risk models tell them they need to hod against assets. Securitisation is thus an important part of the dynamics and counter-dyanamics of 'DisIntermedition?' in the financial markets and the changing role of banks.

Edited May 15, 2008 by TaffR

[Guest TaffR]

now that the subprime market is deteriating and at a very fast pace....many 'brokers' who relied heavily on promoting this market are suffereing too if not going bust.

 

we need some whistleblowers...brokers, intermediatatories all knew more than they shared and profited from this (you and I).

 

The BBC asked if I knew any and I do....I am talking to 'some' in and ex HML and others in other entities....

 

Some should complain very heavily to their brokers for this mess.

Edited May 15, 2008 by TaffR

[Guest TaffR]

now that the subprime market is deteriating and at a very fast pace....many 'brokers' who relied heavily on promoting this market are suffereing too if not going bust.

 

we need some whistleblowers...brokers, intermediatatories all knew more than they shared and profited from this (you and I).

 

The BBC asked if I knew any and I do....I am talking to 'some' in and ex HML and others in other entities....

 

Some should complain very heavily to their brokers for this mess.

Edited May 15, 2008 by TaffR

[Guest TaffR]

From:TAFFR

Sent: 15 May 2008 18:36

To: Catherine_Grannum@shelter.org.uk

Cc:

Subject: Subprime - The Credit Crunch and The real story

 

Dear Catherine,

 

I hope you are well. It has been some time since we last talked and of course I do not expect you to remember. It was in 2005 and 2006. I have made some recommendations below in consideration of today’s economic crisis. I make no apologies for the length of this email and ask for your indulgence and patients in the knowledge of my continued and serious attempts to improve others lives and evolve this forward to a more balanced, open and visible subprime sector that can be respected but more importantly and essential to stop these absurd, wholly unnecessary, destructive & escalating repossessions.

 

When we first talked I was at the start of a long road looking into this spurred on only by the new incredible findings each day and since this time and as previously discussed with you, I had grave concerns in regard to the set up of the subprime market and how these deceitful practices have been to their own ruin to some extent. We further discussed the high rise and escalation of repossessions through these periods and how the FSA allowed these structures to operate.

 

Very few people listened then but now everyone is standing back and blaming each other, from Gordon Brown, the FSA, CML and worst of all the subprime lenders themselves blaming their own customer base (the adverse) for the economic crisis we are witnessing today and the worst is yet to come.

 

Shelter, like other charities are being inundated today and I am sure you are busier than ever before. CAB too, with the CEO recently remarking on this topic only to be accused of scaremongering and sensationalising the situation by the Chief Executive of the CML and others.

 

I warned back then this was a short lived economic strategy by the Government and after investigating the sector, I found (via the Freedom of Information Act Act) what the FSA agreed to allow potential borrowers to know and what they should not tell them and as a direct result of this the new market thrived, commercial opportunism grew and vast profits made on the backs of the vulnerable and those they professed to be in business to help improve/repair their credit and move forward into home ownership.

 

Nothing about this sector has shown it accomplishes any of this but to the contrary, totally balances, at every single stage in favour of the ‘lender’ resulting in discriminatory practices that are shrouded in deceit, adopting stealth practices to lure, attract, profit upon and dump at the first sign of any problem and indeed, they have practices implemented that entice borrowers to advise of problems so that they can act swiftly in protection of the portfolio value.

 

The devil is always in the detail and once the jigsaw is pieced together and understood from a commercial viewpoint from the ‘cradle to grave’ the real gravity and extent of the long term damage it incurs can be observed.

 

Repossessions were escalating in this relatively new market since early 2000. Shelter, CAB and others, in my mind have been extraordinary lazy in their pursuance of attaining an appreciation and understanding of this growing market with new entrants increasing by the day, to get on this cash cow bandwagon. Many, if not most in the legal profession and those outside the financial industry do not understand the diverse nature of this new secondary market thrust upon the UK public, as being on par with traditional mortgage lending, but could not be more different in so many ways.

 

When did it become acceptable to portray to potential borrowers of being a traditional mortgage company only to find that they were ‘originators’ or packagers’ (terminology not heard outside the industry)?

 

When did it become acceptable that obscure clauses could be used without definition or reason for the above to sell or transfer your mortgage?

 

When was ok to create Special Purpose Vehicles (SPV’s) and authorise these as ‘lenders’ as if to provide confidence to the general public and potential borrowers of the same status of high street banks and building societies?

 

When was it ok to authorise the originators, packagers and SPV’s as ‘lenders’ when in actual fact they do not ‘lend’ other than too each other?

 

When was it ok for these SPV operations to pretend to be mortgage companies when indeed they are financial instruments and transactional entities only?

 

When was it okay to allow these to set up and ‘administrate’ only these now securitised mortgages without employing the basic requirement of an FSA Authorised Mortgage Advisor to cater at the minimum for those who just may have very short term issues?

 

When was it approved by the FSA and CML that these entities do not have to follow the guidance rules of treating their borrowers with fairness and sympathy during critical times in their mortgage life?

 

At what point in following the CML advice that borrowers should inform their lenders as quickly as possible of any changes in circumstances does this benefit the borrower in any way?

 

There is so many more questions to be asked and after 4 years of research into this market I am now able to see every single element that is designed only for the profit and greed.

 

Did someone forget to tell to the public of this newly created 2nd, 3rd and 4th tier mortgage market that with sometimes gullibility borrowers entered into and deprived of real choice and options by the sheer lack of being denied essential information and denied them the options that would make a real difference in their lives. H M Treasury advised me that securitisation is not the problem and that the MBS market helps the economy, well we can now see that is very true today but however, it is the incredible deceitful practices in which this market has to operate to succeed that is to blame. Without any inference of being rude, they have treated the general public like pawns in their profitable games and at worst, mugged them into a false sense of security towards their dream of home ownership.

 

Shelter will now see the true cost of this while the fat cats run back to Cayman other Off shore Islands with the bonuses they have really earned. IT has been very difficult few years for them hiding behind closed doors, deceiving borrowers and taking their homes and destroying lives and relationships. I make no exaggeration or apologies for really reemphasising again the true cost of this market has had on the UK and society as a whole.

 

The H M Treasury, Gordon Brown and The Labour Government are the author of this mess and not the adverse borrowers, as by the way, I now have admissions direct from this sector of this.

 

The Prime Minister spins that he is doing everything he is can to help those people stave off repossessions. He further ‘spins’ that he has had meetings with the major banks with subsequent conclusions that they will not pass down the interest rate cuts despite the injection of £500b or so into the system. What they do not tell the public it is the LIBOR rates that the subprime borrow against and as the banks are making great losses and write downs today they are not in a position to commence interbank lending anyway and as such the ‘parrot is dead’… for now.

 

One sided and struck in a stranglehold mortgage with high increases in outlay!

 

The Government today can help. They must pass immediate legislation to allow these people, mostly duped into this market with higher expectations of being treated like normal mortgage holders in traditional style markets to get out of their stranglehold mortgages by omitting now the early redemption fees.

 

The courts must now be told immediately that the subprime lenders do not have the ability or the facilities (or willingness) due to the nature and uniqueness of their mortgage, in that it is now locked following securitisation in a larger portfolio, without hope of reversing, to provide any assistance and as such this becomes discriminatory in reality and unfair wholly. It makes a mockery of informing your lender of possible issues where they can only provide a lip service to these guiding rules whilst simultaneously starting immediate litigation action from just one month’s missed payment without the decency to be set up to listen to the borrower. The whole process is set up to duped.

 

These mortgages must now be unlocked and independent mortgage advise and help should be provided to these borrowers before any rubber stamping of repossessions ensue. Today.

 

Had they been told or had they been informed of the real and true scenario of their mortgage being locked and will be with an outsourced debt collection agency only for the next 6+ years and that their equity will also be locked then I am convinced that this market would not and could not thrive. As did the consultation group comprising of these subprime entities, in the formation of the FSA fully knew and demanded that information be withheld from the general public.

 

My evidence is complete in regard to this market and I have attached a report that the general public should not see.

 

When did become acceptable to treat people only as a commodity with systems and practices set up that only ‘psychologist studying human behaviour could conjure up?

 

In this report you will see for the first time many admissions of how this market thinks, how it operates and its aggressive and very proactive repossession actions and their true aims of course, that only now due to the media coverage they will start to think of ways that these mortgage contracts can be modified in the future but again, when reading this correctly actually plays more lip services to the rules and will not benefit the borrower what the last moment has found him/herself with these debt collector only type operations with high expectations of being treated with dignity and respect.

 

Not all borrowers in this market are the lowest of the low. Most are decent people who have slipped up and not unlike those in the prime market. The subprime lenders extended their remits to the self employed and other with teaser rates and the prime market tightened up their underwriting to push more people into this market so that they could be purchased by the back door attaining a better return and higher margins that they would achieve in the sales of their own very competitive products deriving lower margins.

 

1. Considering the reality and the facts of this market from cradle to grave, I firmly believe now that all borrowers going through repossessions today from within this market should be and deserved to be provided with independent advice on their mortgage and an opportunity to leave mortgage without further damage or penalty and allow people choice and option again on their lives.

 

2. As a second step this should be extended to all these in this market and release them from the stronghold they have really been and proved to have duped into.

 

3. If this means that the Government or other investment/insurance entity cover the losses then this is far better than dumping these people on the street with no hope of recovering.

 

4. The third step today is to set up a new consultation group of experts to further determine how the subprime could succeed but this time ensuring that there is a real voice on behalf of the borrower. For certain it cannot go back to the status quo.

 

Thank you for your time and please do contact me again if you feel I can be of any future assistance.

 

For your information I am copying this email to the BBC and ITN and other groups that I presently in consultation with.

 

I live and work in London mainly with a home in XXXX and I would welcome a meeting to discuss further ways this situation today can be helped and if only one aspect I say makes a real difference then it will be worth the chat.

 

With kind regards,

Edited May 15, 2008 by TaffR

[Guest TaffR]

holding back pertinent information is as bad as lying about it if this was predertimined as being the result of winning a contract.

 

Please, how many people would take out a mortgage if they knew the whole scenario of where the mortgage will end up and how dealt with?

 

Highly dependant on a natural outcome in their favour.

 

Surley there must be some legal presedence to this...sharp practice?

 

In my mind they are no better than loan sharks an it is the same type of thinking as is when you contact your 'lender' Grrr!! they portray the same attitudes of a debt collector and certainly not one of a mortgage provider of the traditional understanding and expectation....!

Edited May 15, 2008 by TaffR

[Guest TaffR]

CAB....

 

“What I did was to go to a high street lender - that was the initial plan.

But we were rejected from the main high street lenders; because of a

little bit of previous. So then it was a case of looking elsewhere. We

looked through the local press, and I saw this company and I got in

contact with them and, of course, they said ‘sure no problem, we can

sort your problems out for you’.”

Client N

‘When you speak to [high street lender], they say, ‘we won’t help you

because you’re high risk, but we’ll give you to another company that

takes on higher-risk applicants’, and then you end up in trouble. But

they’re part owners of these companies. You’re asking them for advice

– where do you go, what do you do?”

Client E

[Guest TaffR]

CAB...

 

“Well, my solicitor chose [a mortgage lender] he said they were a good

company, so I used them because he advised me to. I just signed

when the solicitor asked me to sign.”

Client M

“I took their word because it was their recommendation. I trusted them;

I went in with my eyes closed.”

Client Q

[Guest TaffR]

CAB...

2.7 Of course, relying on advice from lenders and intermediaries is not

necessarily a bad thing, if the advice is good. However CAB evidence

suggests that this reliance becomes a problem if borrowers cannot judge how

well that advice really meets their needs and circumstances. Poor advice may

only become apparent much later as borrowers reflect upon what went wrong:

“What they said was, ‘Out of all the packages, these people are the

best suited for you.’ They were the only people at the time we were

getting any response from, so I went with them. What I believe is that I

was put into that position through my own naivety as much as anything

else. If I knew then what I know now, I wouldn’t have ventured into it at

all.”

Client N

[Guest TaffR]

The FSA rules flow from a series of high-level principles that the firms must

have regard to in the way they conduct their business. Perhaps most relevant

for arrears management is principle six which requires firms to ‘pay due regard

to the interests of their customers and treat them fairly’. This suggests that firms

should balance their own interests against the interests of their customers by

exercising forbearance when dealing with borrowers in arrears.

[Guest TaffR]

Now tell me considering that these are SPV's and do not employ mortgage advisors and have shown and admitted they cannot help or assist...how they comply with this and is this a defence in court?

 

Chapter 13 of the FSA’s MCOB rules that

provides a series of procedural and substantive safeguards on the conduct of

lenders. Rule 13.3.1 (2) requires firms to ‘put in place and operate in

accordance with a written policy and procedures’ to ensure that they comply

with the duty to treat customers in arrears fairly. Guidance flowing from this

requires lenders to:

• make reasonable efforts to come to agreement with the borrower as to

how and over what period arrears might be repaid

• liaise with a third party advice agency if the customer makes

arrangements for this

• not unreasonably refuse a request from the customer to change the due

payment date or method of payment

• repossess the property only when all other reasonable attempts to resolve

the position have failed.33

[Guest TaffR]

A CAB in Cleveland saw a couple after one of them became ill and as a

consequence lost their job. They went to sign on for Jobseekers

Allowance but there were some delays. During this time they missed two

monthly payments on their mortgage. When payments resumed, they

paid £150 extra towards the arrears that had built up. The client had, on

the CAB’s advice, attempted to negotiate a payment plan within weeks of

missing the first payment. However after numerous letters and telephone

calls, the lender refused to negotiate any payment plan whatsoever and

insisted that the full arrears were paid forthwith and went ahead and

issued possession proceedings. There was equity in the property and the

couple had a previously good payment history.

[Guest TaffR]

“What seems to be occurring is that sub-prime lenders are using

possession action as the first resort, despite FSA regulation saying the

opposite. When borrowers are trying to make repayment arrangements,

they can’t get through to anyone in a position to make decisions on their

offer.”

A

[Guest TaffR]

A CAB in north east Wales reported that they were unable to contact a

sub-prime lender to discuss repayment of mortgage arrears. The CAB

reported that when they phoned the company by telephone, they were

held in a queue which was never answered and automatically terminated

after a set time. This included the direct contact lines, operator assisted

contact line and all available contact numbers. When eventually an

answer service was reached, no action was taken on the message. This

made it extremely difficult to discuss any details with the lender and

avoid possession proceedings for their client.

[Guest TaffR]

FSA guidance also tells firms that in trying to find alternatives to taking

possession of the property they may wish to make any of a number of specified

changes to the mortgage contract if the customer agrees to this.37 This includes

extending the term of the mortgage, changing a repayment mortgage to interest

only, deferring payments or capitalising outstanding arrears. These practices

will be familiar to money advisers who worked through the 1990s mortgage

possession crisis as forbearance tools that may assist borrowers through

periods of acute payment difficulty, though perhaps at a greater long term cost.

As such, these options need serious consideration and explanation in light of

the borrower’s present and future circumstances. For these reasons the

guidance makes clear that lenders should seek the borrowers’ agreement to

such a change. But CAB evidence suggests that when borrowers ask lenders to

consider these options, they are often dismissed out of hand:

[Guest TaffR]

I just dont know how to start a topic or whatever it is called....I honestly want to bring some education and through this help to others...cherry pick what is suitable...please believe I am not a crusader or anything different to anyone else but there is a lot of jigsaws to be pieced together to see the bigger picture and I know and have already demonstrated there are ways to stop this nonesense and put people back on track to succeed or fail on their own merits and not others.

 

I will stop posting if prefferred as I am not here to upset anyone.

[Guest TaffR]

Earlier on we noted how a disproportionate number of the loans in arrears in the

CAB client survey were from what could be broadly described as sub-prime

lenders. This is perhaps not surprising as people with impaired credit records

and people on low incomes are likely to be more vulnerable to arrears

problems. However the evidence presented above suggests that this finding

might not be solely the result of the borrower’s risk, but also because the

practices of the lender seem to play an important part in the outcome of

mortgage and secure loan arrears problems. It is CAB experience that subprime

lenders are, on the whole less likely to help borrowers and more likely to

take more aggressive recovery action.

 

 

OR UNABLE AND CANNOT HELP BORROWERS....CAB ARE STILL NOT THERE AND IT IS MAY 2008

[Guest TaffR]

here are 2 main reasons why subprime will stop litigation.....reputation maybe?

 

A CAB in south London reported that a man who had given up work in

order to care for his terminally ill wife and seriously ill son sought advice

about mortgage arrears with a sub-prime lender. The family were totally

dependent upon benefit and could not afford the full mortgage payments.

The mortgage lender issued possession proceedings but withdrew when

provided with medical evidence and agreed to suspend litigation

indefinitely. The action of the mortgage lender made it possible for the

client to remain in the family home and care for his wife and son without

the added pressure of court action for possession and ultimately eviction.

3.36 Indeed one of the CAB clients we interviewed for this report who had problems

with multiple debts including a mortgage, a secured loan and unsecured credit

told us that it was the second change secured lender that was:

“Probably the best ones out of the lot because they said, ‘Can you send

us proof that you’ve got cancer?’ So I sent them proof and they said,

‘We’ll give you a couple of months’, so they didn’t hassle me as much as

the rest did.”

 

DISGRACEFUL!! THAT CAB HAS YET TO PICK UP ON THE FUNDEMENTAL REASON OF WHY SUBPRIME CANNOT HELP OR MANAGE ARREARS.

[Guest TaffR]

“One of the big problems we have is that the agents have no discretion.

Even when they phone the lender with the offer we have worked out,

the lender won’t accept it. The judges hate that.”

A Nottinghamshire CAB

 

[Guest TaffR]

BBC NEWS | Business | Broker closed for sub-prime loans

 

.....All three firms are now going back though their books to see if any customers have actually suffered any financial loss.

[Guest TaffR]

The brokers are NOT the bad guys but do play a part as do the borrowers. Brokers/mortgage Advisers play an integral and essential part in the purchasing of a home.

 

It is neither [either] the fact that borrowers taking out a mortgage 'expect' to miss payments in the future. Throughout the last 4 years I have seldom come across anyone who were planning to deliberatly to miss payments. The same in the prime market.

 

There are now new products on the market (just like in any industy) which did not exist before and businesses have to choose whether to resell these products or not and in most, if the new product fits in with their product profile, improve business opportunities, could improve their reputation, increase/expand their product offerings etc etc then this is how the world goes around.

 

When choosing the next product they must make a decision whether they should/should not offer as part of their product profile and sometimes by NOT taking on these products and providing the choice to the consumer could actually harm the business and of course due diligence should be caried on the suppliers and the supply chain as a whole, again, just like in any business.

 

Here is where it goes wrong (for me anyway).

 

Broker to consumer - yes I can get a sub prime loan for you (not that the phrase is well known or used by the public). You have been accepted by e.g. Victoria Mortgages, Kensignton Mortgage etc. Great names that sound prestigous and respectful.

 

Delighted the borrower accepts and stops shopping around.

 

What the broker does not tell them....

 

They like you as you have loads of spare dosh in your property.

 

Victoria Mortgages are just a 'packager' or 'originator' and not a mortgage company as you perceive and think it is

 

They borrow money to support the loan and repay it on the quick sale with profit

 

Your mortgage loan will form part of and be 'bundled' together with others in a portfolio

 

Your mortgage is being 'securitised'

 

Within a few weeks or so they will then sell your mortgage to an investor who at this time I cannot tell you who it is (although it most instances it is known)

 

In the contract there is a little known clause that allows them to sell or transfer your mortgage at anytime to anyone etc and if you question this before signing then the offer will (may) be withdrawn and your at the stage now where you are desperate to get the loan so don't question this.

 

The investor will create a Special Purpose Vehicle (SPV) which will resemble 'another' mortgage company but in fact it is only a financial instrument to manage the income from your mortgage and pass to the investor.

 

The SPV (by law) cannot employ people.

 

The SPV, pretending to be mortgage 'lender' outsource the 'servicing' or 'administration' of your mortgage account to a 'servicer' who by the way has been involved since your mortgage application started and part of the underwriting team (automated underwriting).

 

Your mortgage will be an admistration only type loan.

 

This means it is 'just' a debt

 

Now you will only find this out if you fall ill, become unemployed or any other change in circumstances where you 'may' experience a problem in repaying your mortgage at anytime during the 25 year term that this SPV will not be able to help you in anyway.

 

They do not employ mortgage advisors as this would be a waste of moeny as your mortgage has now been securitised and locked for any further or future modification.

 

Unlike traditional lenders there is no one there to listen to you or are really concerned in your problems

 

You will be advised by CML/FSA etc to inform your lender of any problems as qucikly as possible but this is only to alert and prepare them of possible litigation which they will start from Day1 of the missed payment.

 

Missed payments are bad as this devalues the portfolio so please do call them.

 

They are unable and cannot assist in anway but will frustrate the hell out of you at the worst possible time in your life by not listening but you now know why so dont be too surprised

 

Unlike others in society you are not able to have a problem in your life now or you will lose your home, even after many years of excellent payments being made if you do not repay the total every month and the total of the arrears immediatly

 

The SPV do not have the accounting systems in place to manage arrears

 

Your equity (the dosh) is what they are really after which will more than pay for the legal costs in repsosessing your home

 

There is very litle defence in court and judges normally rubber stamp these things anyway

 

The SPV earns its profits through the high interest rates, early ressetlement fees as well as on the sale of your mortgage

 

As a broker I get paid very early in this process so I am alright and the packager (who we inferred was a mortgage company) earns thier profit a few weeks later on the sale of your mortgage.

 

We now relinquish all responsibility for you at this stage

 

I could really go on...

 

Now....when assessing your options and the risks involved... would you prefer to take this mortgage or for example stay in rental or live with your family a little longer while you fix your credit and then get a better deal where you will be assured of being looked after, in a more acceptable way in line with FSA/CML guidance rules?

 

Now, if anyone tells me that brokers do not know this then I will eat Wales acre by acre!!

 

This is only successful by being based on what to tell borrowers and what not too. What borrowers are led to believe and works on their natutral perceptions of the mortgage market. I for one would have run a million miles away from this has I been told the whole truth.

 

There are many to blame but it starts with the Government, FSA and then throughout the whole process and placing these products on the market in the manner in which they have.

 

These products are not fit for purpose in any market. Securitisation as a financial instrument for credit cards on car loans do not have the same effects on the borrower as it does in the MBS market.

 

Many brokers decided not to touch these products many did and 'mostly' due to the high commissions rates involved.

 

I firmly believe that if they sell to the adverse then they need more levels of protection and not less. Social responsibility.

 

The relationship is totally balanced in favour of the lender from cradle to grave.

 

There is no evidence that this market has achieved its original aims of assisting those with poor credit back into the mainstream markets but quite the contrary.

 

Someone 'forgot' to tell the consumer about the realities of the 'new' mortgage tiers and denied them real choice and risk assessment that has resulted in taking away any future personal control of their own financial affairs. These morgages place a stranglehold on borowers for a very long time by the way they have structured.

 

TOO MANY SUPRISES THAT YOU DO NOT GET IN THE PRIME MARKETS

 

P.S. In the document I uploaded they admit that arrear levels in the sub prime have remained steady so the adverse are not to blame but, even in the prime market people will have unexpected circumstances in their life and during the term of the mortgage so why do the subprime borrowers have less protection than they and only lip service paid to FSA/CML rules to get away with it?

 

Look at this document and pay specific attention to the timeframes involevd in making calls and sending letters to borrowers. No where here is there is any mention of 'attmepts to make arrangements, lack of any return calls from the borrower etc etc... It admits that only now are they talking about the ability of modifying these contracts but at the same time you will observe their suggestions are again paying a lip service and designed to protect them and has no real benefits to the borrower.

 

The mortgage contract is 'locked' so why has the CAB or Shelter or media not picked up on this?

 

Taff R

 

 

 

 

 

Demand and supply is of course high in this market

Edited May 16, 2008 by TaffR

[Guest TaffR]

Everything you want to know about the subprime mortage market, it's lenders and how in reality it is different to the traditional mortgage market.

 

What they do not want you to know...

 

Join the debate

[Guest TaffR]

"Talk to lenders and keep records, do not offer more than you can afford"

 

Now there is my point.....

 

why do you think borrowers should talk to their lender when they have a change of circumstances and a possible problem?

 

I notice that no one is responding to this question and would welcome anyone in the industry to discuss...

 

In the subprime market what are the benefits in informing your 'lender' Grrr! as early as possible of (1) that there 'may' be a payment problem (2) that I have a change a circumstances which may effect my repayments (3) I know I missed my last/first payment and need to talk to you about this?

 

Therefore, the borrower, by following CML/FSA general mortgage and debt advice will expect what type of reaction?

 

What do the subprime 'lenders' Grrr! think of this advice to borrowers?

 

How do these type of 'lenders' Grrr! regard the norgen case?

Edited May 16, 2008 by TaffR

[Guest TaffR]

Why does the FSA authorise SPV's as 'lenders' and what do they think the consumer will understand by this when these SPV's advertise this on their company communications?

[Guest TaffR]

If borrowers were made aware very early on at the time of signing the contract that their mortage was (in the industry only terminology) an 'administration' only type mortgage then why would they be surprised of the reaction they get when they call their 'lender' Grrr! to inform them of a problem?

 

Perceptions and Expectations? The real cause of all disputes, arguments and even wars!!!!