RECKLESS AND RUTHLESS: Files show how aggressive lenders peddled mortgages borrowers couldn’t afford and pursued them when they failed to meet payments
By Richard Dyson of the Daily Mail – This is Money
5 March 2011
Aggressive mortgage lending to high-risk borrowers by a British subsidiary of defunct US investment bank Lehman Brothers at the height of the property boom has been fully revealed for the first time in files obtained by Financial Mail.
These relate to almost 10,000 mortgages advanced in 2006 by Southern Pacific Mortgage Loans. The loans were quickly sold to investors.
This process, on a global scale, triggered Lehman’s collapse in September 2008 and was central to the banking crisis.
Investors were persuaded to buy mortgages because they would, supposedly, earn a regular income from the interest paid by borrowers, as well as have security over the property.
Even before the crisis, SPML raised eyebrows for its lax lending. But the scale of recklessness is made public here for the first time.
Our analysis of SPML’s 2006 lending has found that three out of five mortgages were ‘liar loans’ – offered on a ‘self-certified’ basis where borrowers were not required to prove their income. A third of the mortgages were interest-only, where capital does not have to be repaid until the end of the mortgage term.
One in five borrowers had court judgments against them for uncleared debt elsewhere, averaging £4,400, at the time the mortgages were lent. Mainstream lenders will not advance mortgages to someone with a court judgment who has not paid off the debt.
Two in five of the loans were for 80% of the property’s value or more, with some mortgages equating to as much as 95%. Compare this, for example, with a conservative lender such as Nationwide Building Society, whose average outstanding loan is for less than half the value of the property it is secured against.
The data also gives a shocking, if unsurprising, picture of how quickly SPML’s borrowers fell into difficulty.
By March 2009, of SPML’s mortgages originally lent in 2006 and still in force, 40% were three months or more in arrears. Almost 10% were over 12 months in arrears.
Silent: Acenden’s Amany Attia
Scores of mortgages had been in arrears for more than 24 months, indicating that some borrowers fell behind as soon as the money was lent. Citizens Advice describes this lending as ‘set up to fail’ – with lenders cynically advancing money in the knowledge that borrowers couldn’t afford the repayments.
Interest rates on remaining SPML mortgages dating from 2006 now average 7.09%, but some unlucky borrowers are paying more than 16%. Two in five borrowers pay 10% or higher.
The files also reveal how relentlessly SPML borrowers have been pursued through the courts, frequently losing their homes. Of borrowers-whose 2006 mortgages remain in force, almost 40% have had some form of litigation brought against them by the business that administers SPML’s remaining loans.
This business is called Acenden, but is better known – and reviled by borrowers – as Capstone, a name it ditched last year in a bid to reinvent itself. Capstone was owned by Lehman until the bank’s collapse.
Today, Acenden is profitable and managed, and part-owned, by former Lehman bankers who spearheaded the original lending. This includes Acenden chief executive Amany Attia, who came to Britain in 2001 to introduce Lehman’s discredited US mortgage lending processes in this country. She declined to comment.
The data that Financial Mail has analysed relates to just one tranche of SPML’s lending, but is representative of the billions of pounds lent by SPML and equivalent businesses. Acenden refuses to publish the numbers of repossessions it has secured relating to the mortgages it administers.
However, it is estimated by Citizens Advice, for instance, that such lenders seek ten times the number of repossessions sought by mainstream lenders, even though their share of the total mortgage market is about one twentieth.
Forgery victim’s five-year ordeal
Fight to save home: Read below how Colin Parker and partner Susan face repossession strife
This couple face having their home repossessed, even though the mortgage secured against it was applied for by a fraudster. The case again highlights the role played by Capstone (now called Acenden), which oversees mortgages lent years ago by offshoots of failed US bank Lehman Brothers.
It also illustrates the recklessness with which some lenders were agreeing loans in the boom years of 2005 and 2006 and the huge distress still being suffered as a result.
Colin Parker, 47, a building company director, fell victim to mortgage fraud in 2006 when his signature was forged to borrow £75,000 in his name, against the home where he still lives with his partner, Susan Datson, and their five children.
The lender was Southern Pacific, notorious for its lax checks and easy lending. Its loans are today administered by Acenden. Colin and Susan, 34, have spent much of the past five years fighting off attempts to repossess the £575,000 property in rural Lincolnshire.
It has been acknowledged in court that Colin did not sign for the mortgage or benefit from the money. But because he mistakenly paid a couple of the monthly repayments in 2006 when threatened with repossession, he can legally be seen to have ‘ratified’ the loan. On this basis, they may lose their house. When Financial Mail first contacted Acenden, it said: ‘Our direct involvement in the affair ceased in September 2007.’
This came as news to Colin and Susan.
The solicitor acting against them – the Manchester office of national law firm Cobbetts LLP – told them it was acting on behalf of Southern Pacific.
But what is Southern Pacific? It was simply a brand, now defunct, whose remaining loans are managed by Acenden. Documents obtained by Financial Mail indicate a payment in respect of the mortgage was made in 2008. The payment, it seems, was made by insurer London & European, which underwrote some of Lehman’s lending.
Could L&E be behind the drive to possess the home? In the shadowy world of high-risk, US-style lending, where mortgages are traded among investors, it seems impossible to discover. L&E made profits of just £548,000 last year.
Chief executive Christopher Taylor and underwriting manager Harsit Nakarja both failed to reply to our questions.
Financial Mail’s emails and phone calls to Michael Shaw, Cobbetts managing partner, and two other Manchester based partners also went unanswered.
MORE FROM BOZ
scathingly points out that ALL banks/mortgage lenders are out to ‘make money’ and not to help people buy their homes –
“You are not naive enough to think that it is done to help people buy a home…… every single bank WITHOUT EXCEPTION sold mortgages to make money. ……They don’t do it for the fun of it, or because they are kind and caring” says this deep thinking and intelligent intellectual.
Therefore nobody should complain they have been ripped off and possibly repossessed and have had their whole lives made a complete and utter misery by these predatory sub-prime loan sharks.
These nasty loan sharks have caused millions of homes to be repossessed in America & the UK, caused rampant unemployment for many millions more and also caused a World Wide economic collapse.
Those lenders are liars, thieves and totally dishonest and immoral and ALL of them, and the banks that set them up and owned them, should be made fully accountable for the damage they have caused every single person whose lives have been affected. That would be the entire population of the UK for starters as we are all paying a very heavy price for what these evil people did.
But, so far, they have got away with it and governments have been too timid and too much in the pockets of the wicked bankers to do anything but bleat weakly like a bunch of sick sheep.
Meanwhile bankers like Bob Diamond and Heston and all the rest pocket obscenely large bonuses they absolutely do not deserve under ANY circumstances whatever.
It is ridiculous !
It used to be that the building societies were set up as mutual aid organisations specifically just to help their members buy houses. Profit was not the motive for mortgage lending and any earnings were used to improve the organisation and any surplus re-distributed amongst members.
But then the greedy banks decided to take over mortgage lending for home buyers and proceeded to manipulate property prices upwards from about four times average salary to more than double that at about nine time average salary.
So home buying became vastly more expensive for everyone as huge profits now lined the bank’s pockets.
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