Friday, March 25, 2005

British Lending Standards Weakened

It has been said that the lending organizations in the US will give cash to anyone with a pulse. This report from TimesOnline reveals that a similar lowering of standards is occurring in the UK.

"Five years ago Halifax, the UK’s biggest mortgage lender, would grant an interest-only loan only after inspecting the policy documents of an endowment or other investment vehicle. Borrowers who were relying on rising house prices or an inheritance to pay off the loan would not have passed the application process. But Halifax changed its rules in 2000. Now the bank, in line with many other lenders, does not check any paperwork, but regularly reminds borrowers that it is their responsibility to set aside enough cash to repay their loan."

The article puts the source of the problem on this familiar trend. "Lenders say the increasingly competitive mortgage market has made it difficult to keep track of borrowers’ repayment vehicles as more homeowners move their loans between rival lenders to take advantage of the best deals." So where are the regulators?

5 Comments:

At 4:46 PM, Anonymous Anonymous said...

Thanks for the good work Ben! It is appreciated.

 
At 5:42 PM, Anonymous Tim said...

This real estate bubble is like the greatest Ponzi scheme in the history of the world ... I think the big banks and the central banks will do everything in their power to not allow the housing bubble to burst - including buying treasuries through Carribean Banking centers to divert attention from Asian central banks losing their appetite for more US government debt to keep mortgage rates low (http://www.gold-eagle.com/editorials_05/rkirby031905.html).

Look at the mess at Fannie Mae - they're on the hook for almost a trillion dollars in mortgages for property in this great country, and they don't know if they have to restate $10 billion in earnings or $13 billion, and oh, by the way, the last financial statement they issued was almost a year ago, and they don't know when they will be able to produce the next one.

What this means for people like your and me is that fiscal and monetary policy makers will err on the side of more inflation rather than the economic apocolypse also referred to as the bursting of the housing bubble - so, it's inflate or die, get ready for $4 gasoline.

Just like Nasdaq 2000, as long as everything keeps going up, no one asks any tough questions and the game goes on.

 
At 5:58 PM, Blogger Ben Jones said...

tim,
thanks for the link. it does appear they are using the offshore hedge funds to finance the government. and i am on the record for saying fannie bondholders will be made whole by the taxpayer; i think the stockholders at fnm will get hit.

the housing bubble is a mechanism to inflate and it has poured trillions into the economy. but think about this; could the fed have prevented the dotcom bust? i think it had to come down and if homes are in a bubble, they will come down too.

it is what comes after the bubble collapse that is the hard question. thanks for the comment tim!..ben

 
At 7:10 PM, Anonymous Tim said...

Well they say the Fed could have raised margin requirements when stocks started taking off in 1996, but they didn't - that was after the "irrational exhuberance" talk and before the "productivity miracle" talk. At the COMEX they have no such qualms about raising the margin requirement for silver traders when prices start getting a little out of hand.

I really don't think the Fed payed too much attention to the Nasdaq bubble - I don't know what the numbers are off the top of my head, but real estate is the big magilla - it's like the bond market, it is HUGE compared to the market cap of all Nasdaq stocks.

 
At 8:10 PM, Blogger Ben Jones said...

Tim,
Let me correct myself. I meant to say, could the Fed have prevented the dotcom crash after the bubble had formed. You are absolutely right that the Fed could have prevented the bubble in the first place.

I posted about the Fed minutes from December 1999 a while back. As you said, they brushed it off. As for the numbers on RE, I read somewhere that the total value of US homes totals over 14 trillion. Cheers!..Ben

 

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