David Lock

So a lot of dosh is being lent to NR on security of its assets of circa £100bn.

These assets primarily being properties on which they hold the deeds whilst the owners pay off their mortgages. Am I correct so far?

But if it goes **** up for NR surely they can't just sell off these properties if the mortgage holders are not in payment default? All things being equal (i.e. no major property slump) the mortgages will be paid off meaning the asset base diminishes over many years.

So are these real assets which can provide security for a loan as to a numptie like me I don't see how they could actually use the assets to get hold of cash if called on? Comments? dl

Simon 69

Each property is a golden goose. No buyer of NRs assets would want to cut them open: theyre banking on one gold egg each month for the next 25 years...

vindaloo

NR is ripe for a bank with some cash and a good savings book... If they've now got their house in order, I'd say someone like Barclays would be ideal.

Santander(BSCH)/Abbey would also be a reasonable bet.... though they've already got a large exposure to the UK home loans market, so maybe not...

Devildog

In plain english, the assets (aside from properties and other holdings) will primarily be the future income stream from the (secured and unsecured) loan repayments, not the properties themselves.

The net asset will be the income stream less the costs of funding that lend.

You can provide security over assets that are not physical assets, and if the lendng to Northern Rock had to be called up, then the lender(s) of those loans would, effectively and somewhat simplistically, be entiled to the income receipts from the loans and mortgages provided by NR until that debt, plus interest, was paid off.

David Lock

OK - thanks. I understand that. But the £100bn asset figure that is constantly quoted surely cannot represent the profit element in the income stream??

I just have a suspicion that people are just adding up the property portfolio and calling those "assets" when they can't be used as such - as in selling off for instant cash although I appreciate they provide a long term income from mortgage repayments. dl

Petem95

The government was wrong to bail-out NR. Its looking ever-more likely that Bradford & Bingley and A&L may go the same way as NR - so with the government bail them out too?

B&B look like the next to go down - clearly starting to really stuggle for cash;

Bradford & Bingley offloads loan book

Other smaller mortgage lenders like Paragon and Victora look like they've got very dark clouds over them too.

Leslie

Is it really right for the taxpayer to be forced to back a company which has failed due to its own policies on issuing unsafe mortgages up to an estimated £40 billion? The Chancellor now says that "he hopes that the money is safe"

I am no financial expert and would appreciate a simple explanation.

Les

what would scooby do

Devildog

David,

This is the most recent balance sheet which does indeed show gross assets of £100bn




Leslie,

There is nothing particularly "unsafe" about Northern Rock's mortgages - no more so than to any other lender. Northern Rocks problems have arisen in the way they obtain the funding for those mortgages as they do not have (as you can see form the attached) particularly large customer deposits.

Devildog

No, the £100bn will be the gross assets

(ie before any respective liabilities are taken into account)

David Lock

Thanks for that. d

ScoobyDoo555

So, I get what you're all saying, but a question has been raised in the office about an actual mortgage debt.....

A home-owner's mortgage will be "sold" off to somebody else, but who actually decides who the debt is sold onto, and shouldn't the home owner have some say?

The simplistic analogy is that off a workmate borrowing ten pounds of another work mate and agreeing to pay it back over the next month at £2.50 per week. The the lender leaves work to work elsewhere, or dies. To whom does the debtor continue paying the monies to? Or is the debt written off?

What about the mortgage issue where the new debt owner deals in unethical dealings (3rd world stuff or whatever) - an issue that you, the home owner holds very dear and it was on this ethics basis that the original business was conducted?

Is there a get out claus - ie do the home owners or debtors get let off the hook, as effectively, as the business has gone bust, the debt is written off?

Just hypothesising

Dan

CharlesW

"A home-owner's mortgage will be "sold" off to somebody else, but who actually decides who the debt is sold onto, and shouldn't the home owner have some say?"

You can always remortgage with another lender. This may involve some extra cost.

"What about the mortgage issue where the new debt owner deals in unethical dealings (3rd world stuff or whatever) - an issue that you, the home owner holds very dear and it was on this ethics basis that the original business was conducted?"

You can always remortgage with another lender. This may involve some extra cost.

"Is there a get out claus - ie do the home owners or debtors get let off the hook, as effectively, as the business has gone bust, the debt is written off?"

No.

davegtt

I wish

If that was the case nobody would buy NR out would they?

Devildog

not quite...lol...

The contract, the debt and the security would simply be assigned to the new lender - most loans/mortgages will have rights of assignation.

Business as usual for the borrower, aside firom a letterhead change on the correspondence.

ScoobyDoo555

OK, kinda guessed that anyway!!

What about the whole debt thing then - surely there's room for a grumble etc for the fact that the debt is being sold on without your consent?

Surely when you take out a mortgage, it's on the basis that the agreement is with a particular company?

or am I being too simplistic?

Dan

David Lock

Which, if I have read this correctly, includes £86bn lent to customers. This being money they can't get their hands on unless customers default on loan payments or unless there is a major property collapse which could mean a big write off a la USA? d

Devildog

I think the word is idealistic

When you sign the loan agreement, you will also be agreeing to any future assignation of the debt. Ok, it may be in the small print, but technically you already know it might happen and have agreed to it in advance.

Assignations of debts generally only require that the debtor (in this case the borrower) is notified - their consent is not required.

I say generally, because it would be possible to specifically exclude any rights to assign if the lender and borrower agreed.

Chris L

Technically speaking Northern Rock could demand that mortgages are repaid. What this would effectively mean is that you would need to re mortgage rather than sell your house. I would think that they would be sold before it gets to point though. If any member of the board of NR survives I would be very surprised (certainly don't deserve to).

David Lock

Well that's a key point. On what basis do you say that? The small print? I am NOT saying you are wrong btw

Make a great Daily Mail headline dl

Devildog

Yes, it includes the £86bn lent.

Its not a liquid asset, but it is repayable over the terms of the loans.

Devildog

If the terms of the loan were such (ie repayable on demand), then yes they could ask. Not sure domestic mortgages would necessarily have that clause Chris, otherwise reposessions would be significantly easier than they currently are, and default provisions would be unnecessary.

I suspect it would be unlikely that a Court would force a borrower who was not in default to remortgage or sell.

Haven't read any mortgage T&c's lately though

David Lock

So what happens if BoE want their money back (or the EU say it was illegal in the first place) in the short term? Are NR in a position to borrow £20bn - £30bn elsewhere on the market to do this? It seems the market blackballed them before so what has changed? I can see that someone would be interested in taking over the mortgage portfolio but wonder if there is enough profitabity left over to pay off a BoE IOU.

PS. Looks like Brown got out of his old job just in time ("sorry Darling!")

dl

Luminous

iTrader: (3)

When you take out a mortgage make sure you use an INDEPENDENT adviser. When you do so talk about the things you like, and don't like. Then they can take these into consideration.

There are indeed many mortgages on the market that cannot be assigned to another company. However, there are many that can.

Under law, as you have signed a contract between yourself and the current lender, should your mortgage be sold then the terms and conditions must not be materially different. Effectively that just means the name on the letterhead changes, typically you don't even need to change the direct debit details at your bank.

However there is the potential for a fight, as your new lender may make a "minor" change that you feel has a "major" impact. You'd probably win your case, but its the time and hassle involved fighting an issue which may arise.

Take advice when you next take a mortgage out. See how the price changes. If there is little or no difference then get a mortgage that cannot be assigned.

Devildog

If BoE want their money back, they will be screwed in the short term, as NR simply don't have the cash reserves to pay it. But BoE would have been aware of that, and won't be expecting the loans repaid any time soon.

Biggest worry is if NR falls over like BCCI or more recently Barings. Or if any sale excludes repayment of the loans - not uncommon for banks to agree to an element of debt write off to save a company if the alternative is failure and lower return.

NR weren't blackballed by the market - its just that the finaincial institutions that funded them previously are no longer in a position to do that because of the sub prime "meltdown" in the us.

Devildog

You think?

If your lender fails, then you may have no choice but to remortgage or sell.

I'd rather run with an assignation and then re mortgage on my terms, not those of an Administrator/Receiver/Liquidator.

Trout

iTrader: (1)

There seems to be a couple of areas of confusion here.

The 'asset' is NOT the future profit stream, the asset is the future revenue stream, or the liquidation of the mortgage book. If a profit can be made on either then all to the good of the owner of the asset.

The 'credit' backing the mortgage can be sold off to anyone you like - I am not aware of any mortgages that prevent this form of securitisation. This is quite different from assignation which is legal title of the individual debt. Pretty much all banks now securitise their credit lines (hence all the problems caused by the 'crunch').

The B&B loan book sell offs are because they are unprofitable and pretty much nothing to do with the crunch. They were not in residential property and represent a small proportion of the B&B business.

Devildog

Don't think any one said otherwise - other than my "net asset" comment, which in restrospect wasn't clear as the net asset is of course future income less costs of NR funding that loan, which equals the "profit" element.


In the context of this thread, securitisation as you have discussed is unlikely to be relevant though. In the context of a lender becoming formally insolvent you would need the assignation to provide for the transfer of the heritable securities - simply securitising the loan to a third party institution does not give that institution any legal rights over the borrower as they remain with, in this case, Northern Rock.

Ah yes, but lets not let the facts get in the way of a good bit of scaremongering

David Lock

Assuming that banks are still looking for mortgage business despite the general doom and gloom then why aren't we seeing adverts in the press from banks offering re-mortgages to worried NR mortgage holders?

You know the sort of thing "Worried about your NR mortgage - we will GUARANTEE to match your payments and will probably beat them." Playing on people's worries (even if they are meaninless) with a couple of clauses about subject to this and that and they take the easy business leaving NR with the dross.

Or it that sort of thing just not "done"

dl

Leslie

Thanks for the reply. I read in the media that many of the American mortgagees were a bit untrustworthy and why is it that the Company's value keep going down on the Stock Exchange?

Les