10 ms·

Is the BBC writing more clickbait headlines than ever? continue reading to find out more! Ignoring the headline. This seems to be mostly beneficial to the lend

Is the BBC writing more clickbait headlines than ever? continue reading to find out more! Ignoring the headline. This seems to be mostly beneficial to the lenders more than anyone else. The risk of a non-payments and financial issues is much higher and repossessions will be higher. > Even if four people's names are on a mortgage, if one or more stop paying, the mortgage lender has the right to demand full repayments from whoever they can reach, he explains. You only have to consider divorce rates to see the maligned incentives. Can someone more knowledgeable than me on the subject of mortgages explain if repossession is more valuable to the lender than someone paying off their debt? Intuitively it feels like repossession is worth more on a long enough time scale but would be interested in insights from someone else.

ses1984 8y ago
I feel like the time scales don't matter as much as the aggregate repossessions. If the aggregate is high, it's worse for lenders. Reposessing a home is not good for the lender if they can't sell it on the open market for a price close to the previous price. If repossessions go up, demand drops, and the market collapses.
- have_faith 8y ago
  Good point. Is this percentage a known number or is there a name for the threshold in the lingo? Like a number they would actually want repossessions to be maintained at as it maintains gaining property while the market is effected as little as possible?
- pmorici 8y ago
  Don't they only need to sell it for the amount of outstanding debt? That is in part why standard loans require 20% down
  - isostatic 8y ago
    Plus the costs of selling it (typically reposessed houses have all sorts of issues, from damage to eviction costs to disgruntled ex-tennents) They'll likely sell at an auction for cash too. With two houses otherwise identical, one being sold normally, one as a reposession, you'd go for the normal one. How much less would you pay for a repossession which runs a risk of the previous owners coming back to haunt you?
rahimnathwani 8y ago
"explain if repossession is more valuable to the lender than someone paying off their debt?" No, it's not more valuable. When a property is repossessed by a lender, it is sold (often at auction) by the lender. The proceeds (minus costs for admin, auction fees, legal costs) will be put towards the debt. If there is money left over, then it goes to the borrower. So, in the best case, the lender gets their money back (and loses the chance to earn interest for the remainder of the mortgage term). In the worst case, they get back less than they were owed.
- have_faith 8y ago
  > When a property is repossessed by a lender, it is sold (often at auction) by the lender Is this just what they do as it makes financial sense to them, or is there some law or similar prompting them to do it? I was wondering if holding on to strategic property would be beneficial. But if they are immediately selling all property that is repossessed then it doesn't sound as ominous as I imagined and actually sounds like the most beneficial thing that could be done, for the market and potential buyers.
  - eropple 8y ago
    The bank's core competencies don't lie in real estate investment (of the direct kind) nor in stuff like property management. As far as I'm aware there's no law demanding they turn around and sell, but it makes a lot of sense to.
    - mikefivedeuce 8y ago
      Not a law but regulatory capital requirements on speculative real estate make it uneconomical for the banks to hold the properties.
    - cestith 8y ago
      Banks are interested primarily in liquid assets. There's not much less liquid than real estate.
  - VLM 8y ago
subpixel 8y ago
“The risk of a non-payments and financial issues is much higher and repossessions will be higher.” Increased risk does not benefit the lender. Lenders do not want real estate, or the work it takes to get it. They want regular payments.
- have_faith 8y ago
  In hindsight (classic) this makes sense. I guess I was imagining a scenario where the house debt is already mostly paid off but not fully, the house is repossessed and the lender has the debt mostly already paid and now owns the property. I don't own any property and so I'm trying to build a mental model of all the moving parts.
  - cortesoft 8y ago
    If the house is worth a lot more than the debt, you don’t see many foreclosures. An owner could simply sell their house and keep the profit, or take out a HELOC. Foreclosures are much more common when the debt level is high and/or the house is under water.
    - mikefivedeuce 8y ago
      It's also dependent on the jurisdiction. In some cases the lender doesn't actually have a right to proceeds in excess of their loan amount (plus interest, penalties and fees).
      - verelo 8y ago
        One other thing to consider is brand reputation. Most lenders, big bank lenders at least, don’t want their brand being the one that took a family home away. Often before things get real bad they will offer to break the term and let you refinance somewhere else.
        wbl 8y ago
        In the US 30 fixed have no prepayment penalty.
chollida1 8y ago
Well start here for deliquency rates in the US. https://fred.stlouisfed.org/series/DRSFRMACBS https://fred.stlouisfed.org/series/DRSFRMACBS A rate of 2-4% is about average for the US, I'm told most lenders model default rates of up to 8%, though given 2008 I'm guessing 10% will be seen in some forecasts from now on. As a side note, the above site fred.stlousfed.org has some of the best clean data that you can find for free for modelling purposes And lenders always want to be repaid as there is no incentive for them to repossess a house as its auctioned off and the owner get any excess return above what they own.
whttheuuu 8y ago
Huh? Google "jointly and severally liable".
entity345 8y ago
> Even if four people's names are on a mortgage, if one or more stop paying, the mortgage lender has the right to demand full repayments from whoever they can reach, he explains. This is called "joint and several liability" and is the legal position for many agreements when a party is made of several people (at least in the UK). For example, people sharing a flat/house as renters will have the same liability unless they have separate tenancies. This is extremely common but surprisingly many people have no clue about it and think that they are fine paying "their share" of the rent.
- tomatocracy 8y ago
  Part of the reason for this is that the lender really needs everyone whose name is on the title deeds to sign the mortgage deed and also wants to ensure that none of them are able to claim an equitable interest to prevent a foreclosure. A simple joint mortgage is a relatively quick way and reliable way to ensure this. The risk if they don't look after their security properly is that the lender ends up owning (say) a 1/3rd joint share in a property which they are not permitted to sell without permission from the other 2 owners and on which they are not entitled to any rent and can't evict the defaulting borrower. There are cases where this has been the result of a defective mortgage arrangement. Understandably, that's not something lenders really want to risk. It is possible for property to be owned with only one name on the deeds and one name signing the mortgage deed by establishing a trust. If you want the lender to consider multiple incomes on that basis then you'd need guarantors and you then run into the problem that this probably needs specialist human legal input so it is suddenly not a mass market product. It's also worth noting that under joint and several liability, the tenants would usually have the right to then sue one another for the relevant shares if the lender went after one of them for the whole amount.
arethuza 8y ago
I'd imagine "joint and several liability" would be used - I found (to my horror) that this is pretty common in UK rental agreements as I guarantee the tenancies of my son at university.
anonymousJim12 8y ago
One scenario like this played out after the mortgage crisis in 2008. Many banks now owned homes where the mortgage amount was greater than the market value, ie underwater. There was a ton of bank owned inventory for a long time because a) They are banks, not real estate companies with all of the expertise in marketing and transacting single family homes in bulk b) the market for homes significantly shrunk in the years after 2008. In hot markets sure, maybe a bank might see a default and repossession as a good thing, but I doubt they are optimizing for those scenarios.
- wavefunction 8y ago
  Everybody would have been better served by allowing the defaulting owners to remain in the homes under some sort of managed process until they could start making mortgage payments. Or restructuring the mortgages. Instead as you point out these banks were suddenly residential real-estate owners with no existing property-management capabilities and many of these already underwater properties lost further value due to neglect.
- vonmoltke 8y ago
  A foreclosure is never a good thing for whomever holds the loan.
growlist 8y ago
> Is the BBC writing more clickbait headlines than ever? continue reading to find out more! I notice this more and more, along with promotion of clearly trivial stories to the front page - is a banal and contrived tweetstorm about Trump/race/trans/gender/tax issues justifiably worth elevating above a story like Venezuela, or rampant knife crime, or any number of other inconvenient yet important stories about which the BBC chooses to avert its eyes? I believe that much of what is motivating their current direction seems to be desperate fear of becoming irrelevant in a changing media landscape (an existential threat given that with falling engagement the license fee would eventually become untenable), hence their degeneration into a crumby buzzfeed simulacra. Another reliable institution subverted and going down the tubes, hey ho.
dazc 8y ago
IIRC, after the last financial crisis UK banks took possession of a lot of homes but sold these fairly quickly at below market rate in order to get the cash. As others have said, banks don't want to be holding on to property any longer than they have to.
ihuman 8y ago
How is this a clickbait headline? It's not a bait and switch; the article is about the headline's subject. Its just an attractive headline, which is half the point of the headline.
- have_faith 8y ago
  They ask a question that they know has no reasonable chance of being up for debate. It's fine to discuss the phenomenon of people buying houses together, but there's nothing in the article that points to it being on the cards as being the 'future of housing'. It's intellectually dishonest.
VLM 8y ago
Financial industry makes money off transactions and commissions. The idea of hyper-unstable living seems to be if you live by yourself or with a spouse you'll make a mortgage transaction every 20 years on average, but if you try to live in a giant commune like a 90s era sitcom, it'll financially collapse every 2 years and ya gotta live somewhere so you'll be entering into new transactions the bank can middleman every two years rather than every twenty years. They probably will make less money off each transaction, maybe lose some of the time, but if you increase transaction volume by 10, as long as their profit drops less than 90% its a net gain for them on average. Also interest is profit to the financial institution, they'll make far more money off ten two year mortgages than one twenty year mortgage. With a side dish of the bank eating all the equity in interest in fees meaning the participants will be much poorer after twenty years meaning the bank can extract ever more middleman profits off the victims. The nightmare scenario for a financial institution is someone getting a mortgage, paying it off early, and not getting another mortgage.
- ovi256 8y ago
  The average ownership duration seems to be in the 10 to 12 year in the US, shorter for apartments, but yeah, your point still stands. https://eliresidential.com/blog/2018/6/12/what-is-the-average-length-of-home-ownership https://eliresidential.com/blog/2018/6/12/what-is-the-averag... http://nahbclassic.org/generic.aspx?genericContentID=194717 http://nahbclassic.org/generic.aspx?genericContentID=194717
- clairity 8y ago
  I’m not sure i can be that cynical, but you’re right that lenders prefer higher monetary velocity (in the form of transaction volume here), all other things being equal.
  - fbonetti 8y ago
    They don't. I don't know where your getting this idea from. The tiny origination fee that lenders charge is nothing to compared the amount of interest earned over the life of the loan. A lender would much rather have steady income over 30 years than constantly having to seek out new deals.
benj111 8y ago
Is I understand it, if a house is repossessed in the UK, the lender only gets to keep the balance owed, not the full price. While that may include plenty of fees etc, theres limited upside.
- tomatocracy 8y ago
  Whilst that's true, there are some potentially sketchy practices which it theoretically permits (in reality if the lender is regulated it's unlikely they'd risk them these days but in the small business lending sector you can find examples by googling "RBS GRG West Register"). This classic example is lenders forcing an auction into which they know the only likely bidder is a related company of the lender.
thinkcontext 8y ago
The space can be rented out to tenants to make the payments. Of course, their should be good contracts in place amongst the parties to make sure this can happen smoothly.

ses1984 8y ago

I feel like the time scales don't matter as much as the aggregate repossessions. If the aggregate is high, it's worse for lenders. Reposessing a home is not good for the lender if they can't sell it on the open market for a price close to the previous price. If repossessions go up, demand drops, and the market collapses.

have_faith 8y ago
Good point. Is this percentage a known number or is there a name for the threshold in the lingo? Like a number they would actually want repossessions to be maintained at as it maintains gaining property while the market is effected as little as possible?
pmorici 8y ago
Don't they only need to sell it for the amount of outstanding debt? That is in part why standard loans require 20% down
- isostatic 8y ago
  Plus the costs of selling it (typically reposessed houses have all sorts of issues, from damage to eviction costs to disgruntled ex-tennents) They'll likely sell at an auction for cash too. With two houses otherwise identical, one being sold normally, one as a reposession, you'd go for the normal one. How much less would you pay for a repossession which runs a risk of the previous owners coming back to haunt you?

rahimnathwani 8y ago

"explain if repossession is more valuable to the lender than someone paying off their debt?" No, it's not more valuable. When a property is repossessed by a lender, it is sold (often at auction) by the lender. The proceeds (minus costs for admin, auction fees, legal costs) will be put towards the debt. If there is money left over, then it goes to the borrower. So, in the best case, the lender gets their money back (and loses the chance to earn interest for the remainder of the mortgage term). In the worst case, they get back less than they were owed.

have_faith 8y ago
> When a property is repossessed by a lender, it is sold (often at auction) by the lender Is this just what they do as it makes financial sense to them, or is there some law or similar prompting them to do it? I was wondering if holding on to strategic property would be beneficial. But if they are immediately selling all property that is repossessed then it doesn't sound as ominous as I imagined and actually sounds like the most beneficial thing that could be done, for the market and potential buyers.
- eropple 8y ago
  The bank's core competencies don't lie in real estate investment (of the direct kind) nor in stuff like property management. As far as I'm aware there's no law demanding they turn around and sell, but it makes a lot of sense to.
  - mikefivedeuce 8y ago
    Not a law but regulatory capital requirements on speculative real estate make it uneconomical for the banks to hold the properties.
  - cestith 8y ago
    Banks are interested primarily in liquid assets. There's not much less liquid than real estate.
- VLM 8y ago

subpixel 8y ago

“The risk of a non-payments and financial issues is much higher and repossessions will be higher.” Increased risk does not benefit the lender. Lenders do not want real estate, or the work it takes to get it. They want regular payments.

have_faith 8y ago
In hindsight (classic) this makes sense. I guess I was imagining a scenario where the house debt is already mostly paid off but not fully, the house is repossessed and the lender has the debt mostly already paid and now owns the property. I don't own any property and so I'm trying to build a mental model of all the moving parts.
- cortesoft 8y ago
  If the house is worth a lot more than the debt, you don’t see many foreclosures. An owner could simply sell their house and keep the profit, or take out a HELOC. Foreclosures are much more common when the debt level is high and/or the house is under water.
  - mikefivedeuce 8y ago
    It's also dependent on the jurisdiction. In some cases the lender doesn't actually have a right to proceeds in excess of their loan amount (plus interest, penalties and fees).
    - verelo 8y ago
      One other thing to consider is brand reputation. Most lenders, big bank lenders at least, don’t want their brand being the one that took a family home away. Often before things get real bad they will offer to break the term and let you refinance somewhere else.
      - wbl 8y ago
        In the US 30 fixed have no prepayment penalty.

chollida1 8y ago

Well start here for deliquency rates in the US. https://fred.stlouisfed.org/series/DRSFRMACBS https://fred.stlouisfed.org/series/DRSFRMACBS A rate of 2-4% is about average for the US, I'm told most lenders model default rates of up to 8%, though given 2008 I'm guessing 10% will be seen in some forecasts from now on. As a side note, the above site fred.stlousfed.org has some of the best clean data that you can find for free for modelling purposes And lenders always want to be repaid as there is no incentive for them to repossess a house as its auctioned off and the owner get any excess return above what they own.

whttheuuu 8y ago

Huh? Google "jointly and severally liable".

entity345 8y ago

> Even if four people's names are on a mortgage, if one or more stop paying, the mortgage lender has the right to demand full repayments from whoever they can reach, he explains. This is called "joint and several liability" and is the legal position for many agreements when a party is made of several people (at least in the UK). For example, people sharing a flat/house as renters will have the same liability unless they have separate tenancies. This is extremely common but surprisingly many people have no clue about it and think that they are fine paying "their share" of the rent.

tomatocracy 8y ago
Part of the reason for this is that the lender really needs everyone whose name is on the title deeds to sign the mortgage deed and also wants to ensure that none of them are able to claim an equitable interest to prevent a foreclosure. A simple joint mortgage is a relatively quick way and reliable way to ensure this. The risk if they don't look after their security properly is that the lender ends up owning (say) a 1/3rd joint share in a property which they are not permitted to sell without permission from the other 2 owners and on which they are not entitled to any rent and can't evict the defaulting borrower. There are cases where this has been the result of a defective mortgage arrangement. Understandably, that's not something lenders really want to risk. It is possible for property to be owned with only one name on the deeds and one name signing the mortgage deed by establishing a trust. If you want the lender to consider multiple incomes on that basis then you'd need guarantors and you then run into the problem that this probably needs specialist human legal input so it is suddenly not a mass market product. It's also worth noting that under joint and several liability, the tenants would usually have the right to then sue one another for the relevant shares if the lender went after one of them for the whole amount.

arethuza 8y ago

I'd imagine "joint and several liability" would be used - I found (to my horror) that this is pretty common in UK rental agreements as I guarantee the tenancies of my son at university.

anonymousJim12 8y ago

One scenario like this played out after the mortgage crisis in 2008. Many banks now owned homes where the mortgage amount was greater than the market value, ie underwater. There was a ton of bank owned inventory for a long time because a) They are banks, not real estate companies with all of the expertise in marketing and transacting single family homes in bulk b) the market for homes significantly shrunk in the years after 2008. In hot markets sure, maybe a bank might see a default and repossession as a good thing, but I doubt they are optimizing for those scenarios.

wavefunction 8y ago
Everybody would have been better served by allowing the defaulting owners to remain in the homes under some sort of managed process until they could start making mortgage payments. Or restructuring the mortgages. Instead as you point out these banks were suddenly residential real-estate owners with no existing property-management capabilities and many of these already underwater properties lost further value due to neglect.
vonmoltke 8y ago
A foreclosure is never a good thing for whomever holds the loan.

growlist 8y ago

> Is the BBC writing more clickbait headlines than ever? continue reading to find out more! I notice this more and more, along with promotion of clearly trivial stories to the front page - is a banal and contrived tweetstorm about Trump/race/trans/gender/tax issues justifiably worth elevating above a story like Venezuela, or rampant knife crime, or any number of other inconvenient yet important stories about which the BBC chooses to avert its eyes? I believe that much of what is motivating their current direction seems to be desperate fear of becoming irrelevant in a changing media landscape (an existential threat given that with falling engagement the license fee would eventually become untenable), hence their degeneration into a crumby buzzfeed simulacra. Another reliable institution subverted and going down the tubes, hey ho.

dazc 8y ago

IIRC, after the last financial crisis UK banks took possession of a lot of homes but sold these fairly quickly at below market rate in order to get the cash. As others have said, banks don't want to be holding on to property any longer than they have to.

ihuman 8y ago

How is this a clickbait headline? It's not a bait and switch; the article is about the headline's subject. Its just an attractive headline, which is half the point of the headline.

have_faith 8y ago
They ask a question that they know has no reasonable chance of being up for debate. It's fine to discuss the phenomenon of people buying houses together, but there's nothing in the article that points to it being on the cards as being the 'future of housing'. It's intellectually dishonest.

VLM 8y ago

Financial industry makes money off transactions and commissions. The idea of hyper-unstable living seems to be if you live by yourself or with a spouse you'll make a mortgage transaction every 20 years on average, but if you try to live in a giant commune like a 90s era sitcom, it'll financially collapse every 2 years and ya gotta live somewhere so you'll be entering into new transactions the bank can middleman every two years rather than every twenty years. They probably will make less money off each transaction, maybe lose some of the time, but if you increase transaction volume by 10, as long as their profit drops less than 90% its a net gain for them on average. Also interest is profit to the financial institution, they'll make far more money off ten two year mortgages than one twenty year mortgage. With a side dish of the bank eating all the equity in interest in fees meaning the participants will be much poorer after twenty years meaning the bank can extract ever more middleman profits off the victims. The nightmare scenario for a financial institution is someone getting a mortgage, paying it off early, and not getting another mortgage.

ovi256 8y ago
The average ownership duration seems to be in the 10 to 12 year in the US, shorter for apartments, but yeah, your point still stands. https://eliresidential.com/blog/2018/6/12/what-is-the-average-length-of-home-ownership https://eliresidential.com/blog/2018/6/12/what-is-the-averag... http://nahbclassic.org/generic.aspx?genericContentID=194717 http://nahbclassic.org/generic.aspx?genericContentID=194717
clairity 8y ago
I’m not sure i can be that cynical, but you’re right that lenders prefer higher monetary velocity (in the form of transaction volume here), all other things being equal.
- fbonetti 8y ago
  They don't. I don't know where your getting this idea from. The tiny origination fee that lenders charge is nothing to compared the amount of interest earned over the life of the loan. A lender would much rather have steady income over 30 years than constantly having to seek out new deals.

benj111 8y ago

Is I understand it, if a house is repossessed in the UK, the lender only gets to keep the balance owed, not the full price. While that may include plenty of fees etc, theres limited upside.

tomatocracy 8y ago
Whilst that's true, there are some potentially sketchy practices which it theoretically permits (in reality if the lender is regulated it's unlikely they'd risk them these days but in the small business lending sector you can find examples by googling "RBS GRG West Register"). This classic example is lenders forcing an auction into which they know the only likely bidder is a related company of the lender.

thinkcontext 8y ago

The space can be rented out to tenants to make the payments. Of course, their should be good contracts in place amongst the parties to make sure this can happen smoothly.