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A quarter of sub-prime borrowers unable to remortgage

A quarter of sub-prime borrowers are unable to refinance their mortgages, according to Moody’s.

Moody’s latest Credit Insight report says residential mortgage backed securities transacted between 2006 and 07 contain the highest number of mortgage prisoners because older transactions benefited from house price increases, which lowered the level of indexed LTVs.

It is warning that transactions with a larger share of mortgage prisoners will have high losses.

Moody’s classes a mortgage prisoner as a borrower who is either behind on their payments and has an LTV ratio exceeding 85% or pays their mortgage on time but has an interest-only loan with an LTV ratio exceeding 100%.

However, it says the bulk of interest-only loans are not due for refinancing until 2025 and the majority of non-conforming borrowers enjoy low margins compared to current lending margins.

And there is currently no pattern of high arrears among mortgage prisoners in existing transactions because of low interest rates.

Lyudmila Udot, an analyst at Moody’s, says: “The majority of non-conforming mortgages are not based on SVRs, which can be reset by a lender experiencing funding difficulties, as happened recently with a number of high street banks.

“Around 80% of non-conforming mortgages track the sterling LIBOR, the remaining 20%, the Bank of England base rate.”



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  • franklyn 15th June 2012 at 9:13 pm

    subprime mortgage should be banded lender takeing advantage of the public
    the f s a doing not a thing about it

  • Justin Fordham 15th June 2012 at 2:02 pm

    indeed the lending could be deemed to be riskier, but I’m not talking consolidating all debts into the mortgage. On the contrary I’m saying offer these client a stable environment (i.e. a fixed rate mortgage on their existing mortgage) to allow them to continue repaying their debts. The client I work with have taken ownership of their debts / debt problems and have sought professional advice to help clear them. They are trying to pay them off, all be it on a revised repayment plan. The point I’m making is whilst interest rates are low.. they will be fine. Once interest rates increase and their mortgage payments increase, these people who are on variable rates will start defaulting! Start offering medium/long term fixed rate deals to these client sooner rather than later to retain the stability in their budget so they can continue to focus on paying off their debts. Stability in these client budgets is key and is a Win-Win for both the client and the banks!

  • Jeff 15th June 2012 at 12:00 pm

    Anonymous | 14 Jun 2012 9:33 am

    Very few people didn’t know what they were doing when taking out a mortgage even if they now claim they didn’t….

    Justin Fordham | 14 Jun 2012 2:36 pm

    Surely you can’t blame someone for not wanting to lend to someone (or take ownership of a current debt) who is in the middle of discounting old debts / struggling to pay off outstanding debts.

  • Justin Fordham 14th June 2012 at 2:36 pm

    A quarter of sub-prime borrowers are unable to refinance their mortgages, according to Moody? 95 of subprime borrowers. I specialize in helping client with financial problems and its almost impossible to find a lender who will help someone who is in a debt repayment plan or IVA. if rates start rising, these people who are on variable rates will start defaulting! and it’s a lose-lose for the banks! they need to look into this and start offering fixed rate deals to these client sooner than later to retain the stability in their budget so they can continue to focus on paying off their debts!

  • Anon 14th June 2012 at 9:33 am

    Why are FSA focusing on PPI mis-selling when there is a wider problem regarding mortgage mis-selling, which is far more important ?

    Is it one of the following reasons
    a) Its too hard and FSA still dont understand mortgages
    b) The amount involved is too great and it would hit the lenders too hard (after all they final say)

    Time for FSA to focus on what is really important, maybe the change of the middle initial will help.

  • Iain 13th June 2012 at 3:14 pm

    Not just Sub-prime…I have been a prisoner to my ‘Together’ mortgage for 4 years now

  • peter stimson 13th June 2012 at 2:07 pm

    Wow, this is up there with such surprises as “leaves fall off the trees in winter”and “pressing the middle pedal of my car helps me slow down when approaching busy junctions”

    Take a look at the CPRs (pre-payment rates) of some of the deals – most are now sub 5% per year – they aren’t hanging around because they love being with Kensington et al – they have got nowhere to go

    MOST e.g. 85+% of sub-prime mortgage holders are prisoners, through a combination of self-cert (up to 75% of some transactions were sub-prime and self-cert), bad credit, insuffieicnt income and lack of equity. Even not withstanding these issues, lets face it, if a mainstream lender sees the likes of SPML or MPLC as your current lender, they are going to look for a way to turmn you down

    Makes you wonder where it all went wrong when you read infomative articles like this from the ratings agencies…