Repossession - Speed Ensures Best Return

Adam Applegarth And Northern Rock
Adam Applegarth: News Of The World Allegation
Bradford & Bingley
Northern Rock
Northern Rock Trading Losses (£585m: 05.08.08)
Repossession

The rapid repossession tactic used by mortgage lenders on properties in default does suggest maximising the potential payback. Property values are in decline so the quicker a property is auctioned off the most capital (profit) likely to be 'made'. It is one thing for Caroline Flint (Housing Minister) to state that repossession "should" only be used by lenders as a last resort, but another to enforce such statements with "must". This is government just making noises again, but allowing profits to be maximised. It's always about not upsetting the (money-lending) wrong people. Making a healthy profit will always beat any moral argument.

Repossession in principle is a high earner. The capital is likely to be unchanged from that originally borrowed and interest (profit to the lender) will only have been paid back before defaulting. The repossession is a legal device to enable the lender to acquire the property from the borrower who is defaulting (on the repayment). While property values had been stable or increasing there was no economical reason to repossess as quickly as possible. Now that values are tumbling, it makes good cynical business sense to acquire and sell the property before it devalues too much. That someone is evicted onto the streets does not enter any decent business model. If a lender offers an unrealistic amount, then it does suggest a deliberate ploy to encourage over-extension and so promote a repossession and profit, profit, profit... culture.

• Should house prices rise then the financial pressure to immediately repossess is reduced. Property value goes up and so a future repossession will acquire that property at a raised value. It becomes a trade-off between acquiring a property immediately or allowing its 'value' to increase. Recovering any outlay by the acquisition of a property (less finance out and more potential finance in) provides the lender with a saleable item. Money to be made, so in principle the sooner the property is 'owned', the sooner 'new' money is to be 'made'. Lending money on a property that is 'worth' more means the lender has 'made' something for nothing.

Seizure of property has increased by 48% since the same period last year. This property can be auctioned off and another mortgage offered on the same property. It's a kind of evergreening strategy. The quicker the repossession, the greater the potential return and future interest (money making) opportunity on the back of debt by using the property to 'sell' another mortgage. It explains why mortgages are traded. Banks and other lenders can buy or sell existing mortgages. The interest is the stake in the 'game': the buy cheap and sell expensive principle and it's recursive. Recycling a property a second time or third time or fourth time... to achieve a second and a third then a fourth... bite of the same cherry. It illustrates the aggressive greed attitude behind the strategy.

Today some 28% of borrowers who are six months or more in arrears face repossession, yet four years ago this would have applied to only 10% who would lose their homes. The Financial Services Authority (FSA) had allegedly criticised some specialist lenders who have made loans to buy-to-let or less well-off sub-prime homebuyers. The Council of Mortgage Lenders (CML) reported steep increases in the numbers falling behind with their mortgages. Those in arrears by up to 3 months jumped by 20% up to 155,600 compared to 6 months ago. The number of homebuyers (mortgagees) in more serious trouble (3 to 6 months behind) rose also by 20% to 75,000 and 6 to 12 months behind reached 42,000 (a rise also of 20%).

• In the housing crash of the early Nineties, 0.36% of all mortgaged properties had been subject to repossession orders and the current 0.16% is just under one-half of this figure, but still the highest rate of repossessions for over a decade.

Actual repossession actions are expected to reach 45,000 and, if this figure turns out to be accurate, will be up from 26,200 last year. An increase of 72%. Buying on the property ladder still seems to be the reason for living even though it is fraught with dangers. Such has been the success of the psychological conditioning. And it goes on relentlessly. Build more, sell more, trap more. Controls could be introduced by government to protect from abuse, but there is nothing to be gained. For government.

Turn the screws, increase the FEAR and worry and maximise the potential for absolute Control Of The Masses.

In England, protection against profiteering house vendors has not been 'discouraged' by creating a verbal contract situation as in Scotland to prevent a sale termination at the most stressful 'last minute', especially when chains of sale are at risk.

Some vendors play this game

Penalties must be applied to stop this happening. But government refuses to act. The question is:

Why?

Housing charities stepped up the pressure on the government to intervene in the repossession disaster, describing the figures as shocking and urged ministers to act:

Repossession SHOULD only be used as a "last resort": Caroline Flint, Housing Minister

Reading from a script

The disaster is the perception of borrowers and is quite the opposite of the lenders' attitude. The real money seems to be made on extending bad loans then exploiting the misery caused. It all seems to be in the BIG business mind-set.