Osborne's Statement on Barclays Fraud

I see that the Treasury state that George Osborne is to make a statement on the Barclays fraudulent manipulation of LIBOR:

"HM Treasury ‏@hmtreasury

The Chancellor will be making a statement to Parliament at around 1215 about the FSA investigation into bank borrowing rates, known as LIBOR"

You will observe that they have politely avoided using the word "fraud".

Whilst the avoidance of the word "fraud" may suit the sensibilities of those in Whitehall I suspect that, once people who owe Barclays money (eg mortgages, personal loans etc) wake up to the fact that the rates that they paid were based on the fraudulent manipulation of LIBOR, the word "fraud" will be liberally peppered across the myriad of class action suits that are bound to arise.

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Barclays Rigs Libor

Advice from Zerohedge to anyone with a Barclays variable rate mortgage between 2005 and now:

"Our advice to anyone who had an adjustable rate mortgage in the period between 2005 and today: sue the living feces out of Barclays, and all other banks who crawl out of the woodwork with purported settlements. 

Because due to their undisputed mark manipulation, it is absolutely safe to say that ARMs, which rely on Libor for interest rate formation, were grossly manipulated by the same idiot traders who left written evidence of their manipulation year after year. 

Now it is their turn to pay."

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FSA Behind The Curve Again

In a staggering display of ineptitude, the hopeless and hapless FSA have taken umbrage at banks allowing some of their struggling mortgage debtors to switch to interest only deals, extend their mortgage term, or permit payment holidays (aka debt restructuring).

Why is the FSA so worked up over this?

It seems that the FSA is worried that banks are using this restructuring to flatter their bad debt provisions.

Maybe so.

However, the FSA may care to actually engage its brain before castigating the banks.

- Mortgages are secured on property.

- The property market is fucked!

- Were banks to sit back and allow struggling debtors to default on the mortgages, the banks only resort would be to either write the debt off and/or repossess the home.

- A repossessed home in a failing market is unlikely to clear the debt, plus the family that the bank dispossess from their home would still have to find somewhere else to live. This is not good for the economy, the bank or the family.

Why does the FSA not see this?

It is a rare occasion that banks are actually seen to be doing the right thing. However, the FSA has its head up its arse and refuses to see the bigger picture.

As I have asked before, why is the FSA still in existence?

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Mortgage Malaise

The Bank of England reports that net mortgage lending (sans redemptions and repayments) was £8.15BN for 2010 (a fall from £11.33BN in 2009), the lowest level since records began in 1987.

The cause of this mortgaging malaise can be attributed to the fall in economic optimism, coupled with the reluctance of banks to lend on affordable terms.

Neither of the above two issues are to be resolved in the near future.

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House Price Gloom

Those who rather foolishly rely on the capital appreciation of property (ie house price rises) to provide them with a psychological feeling of being wealthy, are set to be rather disappointed this Christmas.

The Royal Institution of Chartered Surveyors (RICS) reports that house prices kept falling in November, as a result of the slow economy and lack of funding for first-time buyers.

The number of transactions is very low and the overall market subdued.

This moribund market is expecting to continue into 2011.

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Mortgage Lending Falls

The British Bankers' Association (BBA) report that new mortgage approvals fell in August to 31,767 during the month, a 16 month low.

Gross mortgage lending fell to £8.1BN, 7.6% lower than August 2009.

The BBA are of the view that lower demand for mortgages is the reason for the decline. That in itself may be the case. However, they may care to consider why demand is falling.

Could it be that the terms/conditions that the banks are attaching to mortgage offers are simply not attractive/viable for potential borrowers?

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14% Mortgage Rates? The Silly Season Continues

Further to my recent article about 8% interest rates being talked up by a story drought riven media, it seems that further "silliness" abounds; there is now talk about 14% mortgage rates within two years.

Darren Cook, of Moneyfacts, is quoted in The Telegraph (which should know better than to spread nonsense like this):

"It is unlikely that the banks will have fully repaired their balance sheets before 2012 and even more likely that some of the banks will have not repaid their debt to the taxpayer. If this warning of a Bank Rate at 8 per cent does materialize and banks retain large margins on lending, it will not be a surprise to see mortgage rates go up to 12 or 14 per cent.

I would hate to think what overdraft, credit cards and personal loan interest rates will look like at the same time."

Interest rates will not hit 8% in two years...PERIOD!

The economy is fucked, and will remain weak for some considerable period of time.

This is a scare story being whipped up by the media, who have nothing else to write about.

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Mortgage Drought Continues

The Council of Mortgage Lenders (CML) report that the total amount of money lent in new mortgages stood at £13.6BN in July.

This represents a fall of 3% when compared with July 2009.

The banks, despite returning to profit, have tightened their mortgage lending criteria.

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The Good, The Bad...

In a rather amusing display of "irony" the results for the two offshoots of Northern Rock (the once proud bank that, owing to its greed and stupidity, self imploded at the start of the financial crisis) have confounded expectations and their nicknames.

Northern Rock (Asset Management), the "bad bank", which houses the mortgage portfolio posted a first-half pre tax profit of £349.7M.

Meanwhile Northern Rock, the "good bank", which houses its savings accounts and undertakes new mortgage lending posted a £142.6M pre-tax loss.

How ironic!

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FSA Takes Aim At Reckless Mortgages

As the housing market looks set to fall again, the soon to be emasculated Financial Service Authority (FSA) is using its last moments on earth to take a pot shot at "reckless" mortgages.

The FSA has put forward proposals for new rules wrt mortgages, and is "adamant" that the new rules will include a ban on lending without proof of income.

It wants to ban self-certification mortgages.

The FSA wants to "go back to basics" of responsible lending.

The FSA claims that it wants to prevent people falling into debt as a result of overburdening their finances when buying property.

All very well, maybe, but was it not during the "watch" of the FSA that self certification mortgages took off?

Why this sudden change of heart?

Have the banks not already significantly tightened up their lending rules, as buisinesses and propsective house buyers can attest to?

Is this not really a case of the FSA trying to make themselves look useful in their dying days?

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No More Boom and Bust?

Those of you with long memories may recall some years ago the then Chancellor, Gordon Brown, boasting in parliament that there would be "no return to boom and bust".

However, politicians' promises are as fleeting as the early morning dew. Following on the from the worst recession in decades, the CIPS/Markit manufacturing purchasing managers' index (PMI) rose to 57.2 in March (from 56.5 in February). This is the highest level since October 1994.

Additionally, the Post Office is set to offer "super sized" mortgages to people with only a 10% deposit; thus hoping to end the loan drought that has held back the housing market.

However, those of you who fear a boom should take comfort in the fact that the TUC has promised months of industrial unrest. This will guarantee that any boom will be short lived, as the "brothers" seek to push the economy back into the economic doldrums.

In retrospect maybe Brown was right, there will be no return to boom and bust; we seem to be condemned to live in a permanent state of "bust".

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Mortgage Approvals Stall

Despite boast from the government that the budget's changes to stamp duty (for the next two years first-time buyers purchasing properties worth up to £250K will pay no stamp duty) will give the housing market and, by definition, the economy a much needed boost, reality does not match political spin.

Figures from the Bank of England show that mortgage approvals fell in February by just over 1,000 to 47,094, the third consecutive monthly fall.

This indicates that first time buyers are having trouble raising the loans necessary to buy their homes, it is unlikely that the stamp duty holiday will be enough to change that situation.

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House Price Rise

Halifax, a company with an interest in a buoyant property market, has stated that the annual rise in house prices to January in the UK has almost touched 10% (9.9% in fact).

The low supply of properties, coupled with demand from those with sufficient deposits, has brought about this rise. The question then arises as to whether the recovery is sustainable.

Answer?

No.

As more people are tempted to sell their properties, on the upswing of a rising property market prices, will fall as there are simply not enough people around with sufficient funds to buy them.

The property market during 2010 will in fact be flat, and the 10% rise be seen as a dead cat bounce.

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Skipton Changes The Rules

The Skipton Building Society has shown its true colours by announcing plans to raise its standard variable loan rate from 3.5% to 4.95% effective from 1 March.

Doubtless Skipton's 100,000 borrowers, who had up until now been guaranteed that the variable rate would not rise while Bank of England base rate stayed at 0.5%, will be crying "foul".

Skipton doesn't care, because it refers all such "wingers" to the small print in it loans' agreements.

What does the small print say?

The magic phrase (that can be used by any bank/lender to change to rules as they go along) "exceptional circumstances".

Skipton claim that they are suffering from competition, such as that provided by National Savings & Investments (NS&I).

A lousy excuse from a lousy industry.

The financial services industry in Britain truly stinks, and should be thoroughly disinfected. No one should trust any financial institution that they have dealings with.

This all but makes the Bank of England's base rate irrelevant.

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Credit Cards Funding Mortgage Payments?

The housing charity "Shelter" claims that over a million people have used a credit card to make a mortgage payment in the last 12 months.

Shelter go on to warn that people who have used credit cards to pay their mortgages risked losing their homes, as credit card companies have to recover their debts and are not subject to the same rules as mortgage lenders.

There are a number of anomalies in Shelter's analysis:

1 Credit cards cannot be used directly to pay mortgage companies. Credit card cheques could be used, or credit cards used on other purchases thereby freeing up cash to pay the mortgage.

2 Credit card companies have no charge over the property. They are unsecured, and as such would have to apply CCJ's and other debt recovery methods to recover their debt. The end result may be the loss of a home. However, the implication that the card companies have a charge over the home is alarmist.

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Virgin Enters Retail Banking

Virgin Money today acquired Church House Trust (a regional bank) for just over £12M, with a plan to inject a further £37M.

This acquisition offers Virgin the opportunity to expand into retail banking, enabling it to offer mortgages and deposit accounts.

It is expected that Virgin Money will change its name to Virgin Bank during 2010.

However, this is not the first time the Virgin have been involved in the mortgage business. Virgin once had a JV with the Royal Bank of Scotland (RBS), and offered the "Virgin One Account" mortgage. In due course RBS took 100% ownership of this.

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Financial Prisoners

Keith Morgan, head of wholly owned investments for UKFI, gave evidence to the Treasury Select Committee yesterday. He painted a bleak picture for those hapless 85% of Northern Rock borrowers trapped in the wreck of that once respected bank.

Seemingly they will become financial "prisoners" when they are assigned to Northern Rock's "bad" bank.

Some 476,000 mortgage borrowers (some of whom were foolish enough to borrow up to 125% of their property value) will be transferred to the "bad" bank (hereinafter called Northern Rock Assets Management), because they will be unable to remortgage elsewhere.

Approximately 10% of the loans are in arrears.

Gordon Brown, in rare display of decision making and speed, is rushing to return the "good" part of the bank to the private sector.

For why?

So that the Tories cannot claim credit for doing so, when they win the election next year.

Hardly a noble motivation!

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Eager To Repossess

The Financial Services Authority (FSA) has fined GMAC-RFC, a mortgage lender, £2.8M for mistreating customers who fell into arrears.

GMAC-RFC also has to repay £7.7M, plus interest, to 46,000 borrowers.

The FSA said that the company levied unfair charges on borrowers who fell into arrears with their repayments, and was too eager to repossess their customers' homes.

GMAC-RFC, having been fined, is quoted by the BBC:

"In hindsight, we fully accept that for certain fees our estimates of the costs were not proportionate to the additional administration actually required.

We will be writing to customers who incurred these specific charges when in arrears and will re credit the charges plus interest."

So that's alright then!

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FSA Talking Nonsense

Hector Sants, CEO of the FSA, seems to have been talking nonsense when it comes to self certification mortgages.

Ray Boulger of mortgage broker Charcols noted that Sants said on the BBC Today programme that, in the boom times, self cert mortgages were around half of those offered.

"This claim is complete nonsense and it is very worrying that the FSA is trying to set policy on the basis of such a serious misunderstanding.

It is true that about 50% of mortgages were 'income non-verified' - but only about 10% were self cert."

It seems that Sants is so concerned about trying to save the FSA from being shut down under a forthcoming Tory administration, that he is prepared to ignore the facts in order to garner a media soundbite.

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New Mortgage Rules

The FSA intends to firmly slam the door after the horse has bolted on "risky" lending, and is advocating new rules that will ban self-certified mortgages and impose rigorous new checks on homebuyers applying for mortgages.

Seemingly borrowers may even be asked how much they spend on booze and shoes (how does the FSA think that the banks can check up on that?).

Hector Sants, CEO of the Financial Services Authority (FSA), said that the FSA was going to "get rid of the irresponsible practices that put banks and consumers at risk".

All very well. However, the FSA has been in existence for well over a decade and these "irresponsible" practices have been well reported for many years.

Why, only now, do they seek to reform these practices?

The FSA will make banks and other lenders liable for loans that cannot be repaid.

The trouble is that the economy, during Brown's "no return to boom and bust" years, has been built up on lending made to eg self employed, those with risky credit ratings etc etc. To take lending practices back to the 70's will inevitably take the economy backwards as well.

Like it or not, the genie is out of the bottle and will be very difficult to put it back in without causing further damage to the economy.

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