Former sub-prime lenders facing arrears time bomb
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Former sub-prime lenders have up to 30% of their book in arrears, sparking fears they are sitting on a ticking time bomb once interest rates rise.
Last week Fitch Ratings affirmed the servicer rating for 54 tranches of non-conforming loans originated by former lender Southern Pacific Mortgages Limited.
As of March 2011, the volume of loans in arrears by more than three months ranged between 24% and 29.5% for one tranche.
Although arrears levels have remained stable over the past year Fitch says this has been driven by low interest rates.
Moody’s says the industry average for non-conforming residential mortgage-backed securities being in arrears of 90 days or more is 17.3%.
Last week Moody’s downgraded eight out of a total of 11 tranches worth £363m of RMBS originated by GMAC-RFC. It noted that arrears of more than 90 days amounted to 23.9% of the book, increasing from 10% in September 2008. Around 9.4% of the portfolio is in arrears of more than 360 days.
Fitch recently upgraded the servicer rating of Acenden, formerly Capstone.
It services £5.3bn of RMBS transactions, including those of SPML and Preferred Mortgages. Around 18.6% of its non-conforming book is in arrears of 90 days or more.
Acenden did not want to comment.
Brian Pitt, managing director of Rockstead, says: “If interest rates rise to 0.5% it will be enough to act as a catalyst for repossession. It’s a ticking time bomb and I can’t see anything but bad news regarding arrears and repossessions.”
He says the sub-prime sector has been particularly badly hit partially because of bad underwriting decisions but also due to a drop in lending standards.
Not all sub-prime lenders are experiencing arrears increases.
GE Money Home Lending released its 2010 financial results last week which show it reduced arrears by 4% in 2010.
Loans of more than 90 days in arrears make up 11% of its book, down from 15% in December 2009.
The accounts also reveal it made a pre-tax profit of £214m, compared to £44.4m in 2009.
A spokesman for GEMHL says: “We have provided customers in financial difficulties with a range of tailored solutions.
“This, coupled with the low interest rate environment and range of forbearance measures offered by us and the government, has reduced arrears levels and helped more customers stay on track.”
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Readers' comments (10)
Lisa Williams | 18 Apr 2011 10:17 am
Where will all these people go once repossesssions start? They have no hope of getting mortgages elsewhere, the FSA has used a hammer to crack a walnut and destroyed the sale and rent back industry and with Govt cutbacks in LHA and a dire shortage of rental property a major housing crisis is on its way.
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Keith Butler | 18 Apr 2011 10:38 am
And all of this when interest rates have been close to zero for 2 years. It just shows how irresponsible the lending was and what an abject failure credit scoring has been.
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Avenue & Co Private Finance | 18 Apr 2011 10:53 am
I agree with Lisa,
Borrowers on sub prime deals are struggling to refinance, many more have lost jobs. In addition, the subprime lenders SVR's are higher than most lenders, and most lenders wont allow interest only above 75% LTV - an awful position to be in. Buy to Let is even worse with fewer lenders and tighter criteria, many lenders now requiring a minimum 25k income and 2 yrs accounts.
This most certainly will lead to forced sales in a market of oversupply, leading to price falls. Ultimately, the lenders and borrowers lose out.
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Anonymous | 18 Apr 2011 12:12 pm
Simple - it won't make a difference.........the FSA have made it impossible to repossess anyone now so it doesn't matter if interest rates go to 10%.
Absolutely ludicrous state of affairs.
Dont get me wrong I'm all for holding our hands and trying to help people but this business of borrowers having literally NO culpability and basically being allowed to remain in properties they could never and will never be able to afford has got to stop.
This next statement is absolutely categorically true of arrears customers (believe it or not) - the most you will EVER need to pay to your sub prime mortgage lender is 6 months payments in a year (and that would be a good year).
If you can make a payment and a payment proposal every other month you simply CANNOT be repossessed because the lender cannot evidence that 'all options have been explored'.......if you reject a proposal (even if it then falls through) you have not explored all options.
30/40 payments down is not an uncommon sight these days - and who's that helping? No-one.
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Anonymous | 18 Apr 2011 1:09 pm
Anonymous @ 12.12, what a load of tosh.
If a lender exhausts offering you all of their hardship tools, then they have shown that they have explored all options.
The problem is when the lender is still not up to speed when offering hardship tools.
That is why GE have managed to reduce their arrears. They proactively market customers who fit their restructure criteria and help them to an affordable solution. If they can't offer one of these, they offer help to vacate or mortgage rescue.
If the customer refuses all help, then repossessions can happen.
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Anonymous | 20 Apr 2011 4:17 pm
Interesting figures from GE.Perhaps the figures should be looked at on the basis of how much sub prime lending have they achieved in the past 2 years.The very significant profit increase cannot be due to collection policies alone surely.Have they reduced previously high reserves following a better than expected performance of the property market and reduced employee numbers.Having said that any help given to the struggling borrower is most welcome by all in the industry.
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Anonymous | 20 Apr 2011 5:12 pm
GE have been originating a very small number of loans and mortgages each month for around 2 years now and that is mainly out of choice. Significantly increasing their loans and mortgages book isn't in their operating plan.
Their performance has been because of a detailed and extensive back-book management strategy, heavy restructuring (approx 50% headcount reduction) and consolidation of offices.
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Anonymous | 22 Apr 2011 6:20 pm
Perhaps hoping to clean up book and sell on Can then invest in new more profitable opportunities.
Not so good. for the remaing employees possibly.
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Grey Haired Underwriter | 26 Apr 2011 1:52 pm
This is not surprising news but expected news. Sub-primers lent irresponsibly and are reaping the result of their silliness. Shame so many of these loans were securitised to other lenders (or that other lenders were stupid enough to buy them)
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Tired and Frustrated | 26 Apr 2011 4:56 pm
You have to wonder where this will all end. If the economic meltdown was due (in part) to sub-prime lenders handing out mortgages to anyone who asked. Most of those client I would imagine is now stuck on that lenders SVR with no chance of escape.
Rates increase (which they will) repossessions increase because the payments become unaffordable. No social housing, and only little LHA which won't meet the demands of the private landlord.
I think we are in for some very dark days/months/years to come.
Time to emigrate????
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