View more on these topics

Unforeseen dangers of weak criteria

I recently attended the Global ABS conference in Barcelona. This year, 4,000 people from all over the world descended on the city to discuss the European securitisation market.

As in previous years, the conference provid-ed an opportunity for lenders that rely on securitisations to meet investors, answer questions and brief them on future developments.

Why does this matter to brokers? The reason is that shifting trends and opinions in the securitisation market affect the products lenders can offer. Some of the largest providers of specialist loans in the UK rely on the Barcelona crowd to fund their production.

If investors take a vehement dislike to a product or a particular element of lending policy, the affected products will disappear from lenders’ ranges.

Predictably, a lot of the concerns this year relate to the problems seen in the US market. The fallout from the sub-prime correction is becoming increasingly political, with US regulators asking fundamental questions about the viability of certain products.

Basic elements of product design are under scrutiny. Regulators are questioning whether or not lenders should originate interest-only loans, whether teaser periods should be permitted and if they are, what level of payment shock should be allowed. The outcome of these discussions could alter the shape of lending in the US, with the worst case scenario ultimately leading to smaller sub-prime volumes in the country.

The UK is a different market to the US and the macroeconomic fundamentals are sufficient-ly different to make US-style problems unlikely here. But a few investors in Barcelona highlighted UK trends that are worrying them.

The most common issue raised was that competition in the UK has increased significantly. More lenders are fighting for a slice of a market pie that hasn’t grown much since last year. And if lenders find their volumes being squeezed, some will succumb to the temptation to weaken their criteria.

The US problems were triggered substantially by macroeconomic changes. But the scale of the impact those changes eventually had was driven by weak lending criteria across the sub-prime market. It is not sensible to lend 100% LTV first mortgages and 25% ‘piggy back’ second mortgages to borrowers who state their income and properties’ value over the phone.

I’m not suggesting that anyone in the UK is that cavalier. But lenders would do well to remember that the views of investors will drive product design, so any decision to relax lending criteria will have consequences beyond the intended growth in volume.


Nationwide ad sparks anger

A broker has slammed Nationwide for what he considers to be inaccurate advertising outside its branches.Brian Melling, senior mortgage consultant at mortgage2move, was in-censed when he saw posters and placards outside his local Nationwide branch in Derby proclaiming ‘Mortgage advice available here today’.Melling says: “Nationwide’s staff members will be obliged to provide an Initial Disclosure […]

It’s important to give brokers choice

Every couple of months, the debate over whether firms should be appointed representatives or directly authorised comes up. Interestingly, at these times views are usually expressed by those organisations that only offer one route or the other.

Brokers are worth every penny they get these days

I am writing in response to Paul Lewis’ comment piece in the June 11 issue of Mortgage Strategy. Lewis lacks understanding of what he is talking about when he tries to analyse the broker market. I can cover many of his points by saying that the Financial Services Au-thority has set the rules and guidelines […]

Barclays may be forced to scrap “Nazi” eagle logo

Barclays may be forced to scrap its 317 year-old eagle logo due to concerns from ABN Amro, its Dutch merger partner, that the design has Nazi connotations, press reports have claimed.The bank, which has already agreed to move its head office to Amsterdam if the £96bn deal goes ahead, is likely to adopt ABN’s stylised […]


News and expert analysis straight to your inbox

Sign up