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Nationalised banks should be forced to offer sub-prime

A law firm wants to see the nationalised banks provide sub-prime mortgages, and says if necessary the government should force state-backed lenders to offer sub-prime deals.

Moore Blatch argues that using nationalised banks to offer sub-prime mortgages would give these borrowers access to the property market which they wouldn’t have otherwise.

The firm says that the number of those who would be classed as sub-prime is nearing one million. Based on data from the Council of Mortgage Lenders and the Bank of England it says that more than 50,000 consumers would have fallen into the sub-prime category in the first three months of the year, given the 16,000 bankruptcy petitions and almost 36,000 insolvencies that occurred in Q1.

Moore Blatch believes that many borrowers are being classed as sub-prime through factors out of their control, such as redundancy or loss of earnings.

The firm has also called for universal regulation to applied to credit providers and mortgage lenders, to avoid cases where applicants are turned down on an LTV basis only for the same applicants to get credit from inappropriate credit card or loan providers.

Paul Walshe, partner and head of lender services at Moore Blatch, says: “Unless the sub-prime market returns we will create a housing underclass, many of whom ended up there through inappropriate lending by credit providers who took no account of the possibility of future personal or broader economic conditions.”

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  • Paul 21st May 2010 at 9:48 am

    Anon 8.23 – Where does a case cross from ‘Complex Prime’ to ‘Sub Prime’? The FSA definition of sub prime is vague at best, and any case which will not be considered for a prime lender is surely by definition sub prime? You are correct in saying it is a specialist market as is any lending which will fall away from prime. There are many issues surrounding the sector, one of the major ones being the perception of sub prime. If you were to utter the words in public the reaction would be one of horror with visions of the world ending. There needs to be some understanding of what it is. It is so easy to be rejected by a prime lender now meaning there will be thousands of people who believe they can walk into a high street bank and arrange a mortgage who will walk out shocked when being told they have failed credit score. The very people who would happily say sub prime should be banned would themselves have fallen into the tainted category. Attitudes would change at that point. Specialist lenders understand the market and more importantly understand the risks. If the risks are priced for and cases underwritten by skilled underwriters then there should be a much reduced risk to the lenders. Now that we have had the sub prime market exposed there will never be lenders out there cutting each other’s throat’s with rate and criteria in order to achieve volume. Any specialist lending will in future be done on the basis that it is specialist therefore needs specialist rates. If a lender grabs the bull by the horns and goes for the market the returns would be unbelievable, and the risk reduced greatly from the lessons we have learnt. The definition of a good risk is fully dependant upon the attitude and views of the lender. One may say squeaky clean 90% is good, whilst another may say 50% adverse credit at twice the rate is their particular view of good. Its all down to appetite for risk and reward.

  • donald duck 20th May 2010 at 10:18 pm

    your all crazy, we need any any back lend to anyone and charge 3.69% and pay brokes 2% that works for me

  • Neal Roberts 20th May 2010 at 8:23 pm

    Why plunge straight into the sub-prime market when there is a huge market of “complex Prime” business not being catered for? By “Complex Prime” I refer to all cases that are good lending, blighted by a lack of understanding the difference between actual risk and perceived risk. This is a specialist market where each case is considered on its own merits by an underwriter – and not decided by a computer or a credit scoring system.
    If the nationalized banks concentrated on this sector – and appointed the right calibre of underwriter – then we really could get the market moving again.
    Sadly, there are few lenders who really understand this part of the market and have the ability to structure individual solutions.

  • Paul 20th May 2010 at 2:24 pm

    John – Nobody is advocating a return to the sub prime lending of old but the simple fact is we need to have some element of specialist lending. To go from the adverse of old to nothing has not helped in any way shape or form. Peopel who were not sub prime prior to the recession have been dragged in to the category now and are at the mercy of current lenders. Sensible adverse lending which is calculated and priced for the risk will not cause problems like we have seen. As for the taxpayer funding it all, there will be a profit to be made by the state in all of this. Assets were bought at low levels which have already risen substantially and will continue to do so. Once investors return to the RMBS market, with an appetite for the higher risk/reward then we will see the end of government support and the processes can begin to function again.

  • John 20th May 2010 at 1:59 pm

    So Moore Blatch would like me as a taxpayer to not only stump up the cash to save these idiot banks, but now to put that cash at risk by lending again to those who by definition are risky prospects and may not be able to pay me back!

    We’re not creating a housing underclass, it already exists thanks to the loony bankers that lent money to high risk clients and pumped up the housing market to unaffordable levels.

    Yes the housing market needs correction, but the problem is structural and not to be fixed by dispensing the sickness as a medicine.

  • Mike Fitzgerald 20th May 2010 at 10:35 am

    I agree that there should be some consideration given to the idea that sub prime borrowers should have access to some form of mortgage finance.

    However there are also many people in the Uk who have had to change careers due to the recession and because thay may now be self employed they cannot get a mortgage due to the fact that they may not have one years accounts

    i really do think that some help should be given to self cert lending again.Over the years we have arranged many self cert loans and the vast majority of these loans are stil being paid on time.I think the problems started to happen when lenders mixed self cert with Sub prime.after all it was the sub prime market that helped to cause the world wide collapse.

    Hopefully once this new Goverment are bedded in they wil stert to take a sensible look at mortaages and debate with the people who know how to proceeed in opening up the mortgage market
    Mike Fitzgerald
    The EMBA Financial Group

  • Paul 20th May 2010 at 9:06 am

    Who mentioned any financial adviser? there are plenty of people involved in the industry who do not offer advice.

  • Tony Bullock 19th May 2010 at 5:23 pm

    Well said Donald. And well done for putting your name to yor comments, unlike all these other anonymous comments.

    However, I would like to add that if a financial adviser cannot insure himself against a downturn, and during a boom can’t even manage to save a few pennies of his “£60k” annual income for a rainy day, what good is his advice to the man in the street? I say the industry’s better off without these incompetents and good riddance to them.

  • Donald Fraser 19th May 2010 at 4:28 pm

    Anonymous. I don’t recall seeing any mortgage industry job adverts over the years that came with (presume you mean loan for) car, cards, loans etc’. Those are personal choices and debts that would have been insurable against redundancy and consequent loss of income. i.e. the subject of my original comment which I stand by.

  • Paul 19th May 2010 at 4:08 pm

    Although this article seems controversial at first, the theory of it makes sense. As mentioned previously there is still a massive issue with liquidity and until the securitisation market begins to function again the situation will remain pretty much as it is. However lets look from a different angle. The banks being suggested were never actually advertising themselves as sub prime lenders. Yes they allowed levels of adverse through but never actually priced for the risk meaning a squeaky clean client paid the same rate as somebody with a CCJ and/or default. This in itself was not necessarily a big issue, but when the banks bought mortgage books they were often buying heavy sub prime on which they would never have lent themselves. Now that the sub prime mortgage market has ground to a halt there is a massive market waiting to be tapped with nobody expecting a return to the old ways. This means sub prime will be priced as such, with a risk based pricing scale. No longer will a sub prime deal be broken up and sold on with AAA as investors are wise. This would allow a lender to make sensible decisions with sensible returns. Somebody will make a fortune if they dare to do it, why not the state owned banks. Transparency is the key to it all. We can call sub prime whatever we like, but at the end of the day ‘If it barks like a dog, it is as a dog’ The public may well be sceptical but if it is done right there will be no more risk than any other mortgage but with the potential for far higher returns. If the government would back it up with an underwritten MIG scheme then we could see the housing market on the up, with the knock on effects to the economy as a whole blatantly obvious.

  • Ian Camp 19th May 2010 at 4:00 pm

    What goes around in ideas comes around. – sub prime really started after the recesiion of the early 90’s when erudite bankers considered a large proportion of he population was being disadvantaged. So new lenders came into the market place to satisfy the need – all at slightly hiigher rates than prime. Securitisations then took off and the major players to combat volume pressures also came into the market knowing theycould offload these loans from their balance sheets – euphoria took over and the regulator (I nearly said useless) went into a deep sleep and then the world fell in.
    Well Moore Blatch if you think I will allow my investments, savings and pension funds to be put at risk by the banks again you are seriously mistaken – you do your firm no justice as if this is the extent of your judgment then I suggest no one ever uses your services again.
    Of course, if you wish from your partners funds, to finance yourselves sub prime mortages I am sure the customers will beat a path to your door but do not come to me when the loans go belly up.

  • Paul 19th May 2010 at 3:48 pm

    Donald that is a lame view of the situation. I know of people in the mortgage industry who went from earning 60k to no job for 12 months and now earn 20k. Which insurance do you know of that would pik up the tab for the car, cards, loans, etc that went with the job? Covering mortgage and essentials I agree but not everything is insurable, regardless of cost

  • Donald Fraser 19th May 2010 at 3:32 pm

    “Moore Blatch believes that many borrowers are being classed as sub-prime through factors out of their control, such as redundancy or loss of earnings.”

    A pity these people didn’t have the foresight to take out appropriate insurance. Bet it was ‘too expensive’.

  • Andrew Jones 19th May 2010 at 3:28 pm

    There is a very sinple solution to all of this, if the markets/banks used the policy of paying higher savings rates and then relent the money at a reasonable rate and at a reasonable risk. Securitisation would return, building homes would return, lending would return pensioners would have more disposable income and the economy as a whole will increase.

  • Andrew Jones 19th May 2010 at 3:27 pm

    There is a very sinple solution to all of this, if the markets/banks used the policy of paying higher savings rates and then relent the money at a reasonable rate and at a reasonable risk. Securitisation would return, building homes would return, lending would return pensioners would have more disposable income and the economy as a whole will increase.

  • Donald Walton 19th May 2010 at 3:23 pm

    What a profoundly ignorant idea. Let’s force the banks to do what got them into trouble in the first place. And while we’re at it, how ’bout forcing them to lend 125% of the property value too?

    Idiots. When will people learn that some folks just shouldn’t be given credit?

    When liquidity returns to the market, private-sector players with an appetite to play in the dirt will re-start sub-prime lending. In the meantime, clean up the balance sheets of state-owned banks, and sell them back to the private sector at a profit.

  • peter 19th May 2010 at 2:59 pm

    I agree with the need to fix the liquidity problem. However, I also agree with what moore Blatch is saying. There a many people within our own industry that have suffered financially some of whom would now be classed as sub prime, meaning it’s no longer an issue that affects a group of borrowers that possibly should not have been encouraged into home ownership. With responsible lending including prudent underwriting I see know reason why our nationalised banks could not fulfil that role.

  • Paul 19th May 2010 at 11:58 am

    Sub prime lending will return in some shape or form as soon as the money markets allow. Without securitisation there will be very little lending in the sector. Sub prime borrowers will become the underclass, with almost all lenders seeing them as untouchables. This creates a situation whereby their current lender, through no fault of their own hold the clients as prisoners in effect. The government need to focus on opening up the money markes rather than directly lend to sub prime. The appetite is undoubtedly there with many lenders rumoured to be keen to rejoin the market but being prevented from doing so due to funding issues. There is no way the government owned banks could offer sub prime deals, the public outcry would be enormous, with the potential for another Northern Rock style run on any bank who entertained the idea. The new so called government need to fix the liquidity problem, and fast before we will see any kind of sub prime industry re emerge