News Review: Sale and Rent Back


The ticking time bomb of interest only mortgages


by Daniel Lowerson, partner, DFB Housing Solutions


It’s nearly 25 years since en- dowments and repayment vehicles for mortgages first started to appear on the ho- rizon and it’s been over 10-15 years since endowments went out of fashion. Since then borrowers have


been receiving Green, Am- ber and Red coded warnings about potential shortfalls to their policies. Annually providers need


to reiterate the warning to their policy holders that the


potential returns will not be achieved, warning policy holders that their policy will fall short of repaying their interest only mortgage and urging them to make other provisions to repay their debt. When the problem is 10 or


even five years in the future borrowers’ spending deci- sions will often be dictated by current demands, and more pressing bills which need to be paid this month or this year. When finances are really pushed how many people will cancel or cash in their policy? Even with the best of inten- tions how many people will set up a new repayment plan, or switch to a repayment mort-


SRB SOLUTIONS FOR LENDERS I am sure everyone reading this article receives daily emails announcing mortgage lending is up; gross mortgage lending is down; mortgage lending hits record highs; mortgage lending is the lowest for 20 years; house prices are going to crash; the economy is on the up and so on and so forth. Indeed it seems you can find any statistics to fit any agenda. Some statistics though hide a very human


story. Take the statistics regarding repossession. A year ago we were bombarded by statistics


saying one in four homes could be repossessed. Now we hear statistics saying the situation is much improved. What does remain a fact is that many


thousands of families, young and old, are facing repossession or are in various stages of arrears counselling and litigation with lenders across the board. I have written previously that the current


figures may look like an improvement but how many homeowners’ problems have merely been delayed for next year? It is not just the homeowners who have the problem too. It is a problem for banks as lenders have to get their money back. But the statistics, as grim as they are, don’t tell the personal stories of distress and isolation.


gage, when they are in a better situation? The number of people fac-


ing this ticking time bomb could run into hundreds of thousands. More recently mortgage


lenders didn’t even need proof of any repayment vehicle for an interest only mortgage and hundreds of thousands of loans were completed on this basis. Who will end up dealing


with this problem? You could argue it will be the lenders’ problem as it is the lenders who will have to try and get their money back. Will it be the homeown-


ers facing a demand for full payment? Faced with having


I have always been surprised that no banks or lenders have entered the SRB market as providers. SRB is a fantastic mechanism by which banks are able to convert toxic mortgage debt on the banks’ balance sheets into good assets that yield a return. If banks don’t wish to become providers themselves then they need to be discussing how a reputable experienced SRB firm could be embedded in their arrears handling process, making their clients aware that a potential solution exists to their situation. This can be achieved in a compliant manner


and I am sure in time will become under TCF. This would undoubtedly improve the repossession statistics, their own bottom line figures and their balance sheets. Asset management firms have talked about


their role in helping lenders meet their TCF requirements, we can even help after the point of repossession. DFB Housing Solutions has worked with both lenders and borrowers and we are prepared to make an offer to purchase the property, often at the same level that would be achieved through a forced sale or auction sale, and would then offer the previous occupant the opportunity to become a tenant. It will certainly make a real personal difference


to many families given a fresh start and a happier ending to a difficult chapter of their lives.


to sell their home at a time which may not suit for personal, financial or over- all market reasons it will be a tough call.


FSA CRACK DOWN ON ILLEGAL OPERATORS Today the internet is often the first place people turn to for advice, especially advice about a problem they don’t want to broadcast.


The feeling of being anonymous on the web makes people feel they can discuss all sorts of issues, including financial problems. A quick search on sale and rent back will reveal pages of potential solutions to these problems; lists of hundreds of companies will appear offering sale and rent back. Yet there are only a handful who are legally authorised to conduct sale and rent back business. I am glad to report that the FSA has started targeting these firms, indeed several sites have now been taken down. There is still a lot more that needs to be done and I hope the FSA continues its crackdown online, and through all other media channels used by illegal SRB firms. This is a significant problem and at least 30% of clients we speak to have had a quote from an unauthorised firm. I have just tried to search the web for a mortgage lender who is unauthorised; I have looked hard and can’t find one. Sale and rent back needs to be in the same situation.


MoRTGAGE InTRoducER SEPTEMBER 2010 15


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