RBS defers repossessions

[The Moan Ranger]

The taxpayer owned bank, RBS, has stated it will not repossess a property where people are as far as six months in arrears.

http://news.bbc.co.uk/1/hi/business/7757840.stm

I'm not convinced this is a great idea. As you all know, I spent a long time working for a mortgage company and one of the first things I learnt was that customers will jump on any given bandwagon that appears to offer a way out of their plight.

In 1992, it was dodgy companies charging thousands of pounds saying they could arrange for the lender to claim the difference between the debt due and the outstanding balance through the Mortgage Insurance Guarantee (MIG) policy many lenders insisted on for higher loan-to-value (LTV) properties. This led to a flood of customers sending their keys back with a standard letter advising the lender they should claim for any sums due through their MIG policies. These customers had a rude awakening as not only had they paid sometimes thousands in fees to these dodgy companies (who were fairly quickly outlawed), but the policy cover did not extend to this and the customers ended up being pursued for the debt anyway. Bankruptcy was rife.

RBS have now given the green light to customers basically electing to take a six month holiday should they wish. Whilst there will undoubtedly be cases where this is helpful, there will be a greater proportion where customers simply take the piss. RBS will then find themselves with a big book of delinquent loans and repossession will have to happen - at a time when the debt has grown and, in the current housing climate, property prices will have dropped further, pushing LTVs well above 100%. Customers will then find themselves homeless and still being chased for a debt. Bankruptcy will become rife again. And let's not forget, this is tax payers money RBS are playing with in a most profligate way.

HBOS may have to follow suit as they also took tax-payers money.

Arrears recovery procedures have come a long way since 1992 (we used to send customers Christmas cards basically saying forget buying presents, make sure your mortgage is paid  ) and are a lot fairer now but the simple fact is that many people (potentially me included) will find themselves - possibly through no fault of their own - unable to pay. In these cases an earlier repossession is the lesser of two evils, especially for the customer.

You would simply not believe the number of houses we repossessed where there was a brand new car in the driveway and all the latest electrical gadgetry in the house - far too many people with mortgages have a skewed sense of where their primary fiscal obligations lie.

It is incumbent on lenders as a whole to find a better solution than repossession - "rent-back" schemes, partnerships with Housing Associations etc. must surely be better in the long run, but both the lenders and Government are dragging their heels over the introduction over them.

I'll have a bet that the more sensible lenders out there (such as Nationwide) will not make such a guarantee; after all, they had no need for the government bail-out and they should not feel obliged to alter their business model, which has proved to be robust.

P.S. I see RBS are also planning to give back overdraft fees if it loses the current test case.
http://news.bbc.co.uk/1/hi/business/7759054.stm

It seems most odd that now they have been given £billions of our money, they are in an awful hurry to give it all back, before they know it they will be back at square one - begging for more money to stay afloat.

 

[Snoopy]

Let them sink I say. 

That should scupper Labour's chances in Scotland and without the Scots MPs they would never have got in to power in the first place.

[Grumpmeister]

From a business point of view it costs the bank more to reposess the home that it would to give the customers 6 months grace, in which time they may be able to do something with their finances allowing them to make payments in one form or another again.

[Snoopy]

No ~ once repossessed the house can be sold ~ if the price obtained does not cover the debt then they go after the person they evicted for the balance. If that is not forthcoming the debtor is made bankrupt and the debt written off against taxes on future profits. You don't honestly think they are going to lose do you?

[The Moan Ranger]

From a business point of view it costs the bank more to reposess the home that it would to give the customers 6 months grace, in which time they may be able to do something with their finances allowing them to make payments in one form or another again.

The important word highlighted. With unemployment rising the way it is, the "mays" will be in the minority.

All costs incurred with regards to repossession are added to the debt recoverable from the customer. Average repo cost for us were £2,500. Six months average mortgage payments £3,600.

[The Moan Ranger]

No ~ once repossessed the house can be sold ~ if the price obtained does not cover the debt then they go after the person they evicted for the balance. If that is not forthcoming the debtor is made bankrupt and the debt written off against taxes on future profits. You don't honestly think they are going to lose do you?

Oh we did lose money back then - it wasn't uncommon to accept only 20p in the £1 owed in full and final settlement. Thus the longer you left it, the more you were writing-off.

[Snoopy]

No ~ once repossessed the house can be sold ~ if the price obtained does not cover the debt then they go after the person they evicted for the balance. If that is not forthcoming the debtor is made bankrupt and the debt written off against taxes on future profits. You don't honestly think they are going to lose do you?

Oh we did lose money back then - it wasn't uncommon to accept only 20p in the £1 owed in full and final settlement. Thus the longer you left it, the more you were writing-off.

Yes I know about the receiver settling debts against available assets but the remaining bad debt is still a write off against tax in future years ~ which I see the Chancellor has extended the period on in his recent PBS ~ how convenient. 

[Grumpmeister]

From a business point of view it costs the bank more to reposess the home that it would to give the customers 6 months grace, in which time they may be able to do something with their finances allowing them to make payments in one form or another again.

The important word highlighted. With unemployment rising the way it is, the "mays" will be in the minority.

All costs incurred with regards to repossession are added to the debt recoverable from the customer. Average repo cost for us were £2,500. Six months average mortgage payments £3,600.

True, but then you have to take into account the rapidly decreasing value of the properties you then hold and factor in the costs of trying to sell them and the maintenance costs in the meantime.

[Snoopy]

From a business point of view it costs the bank more to reposess the home that it would to give the customers 6 months grace, in which time they may be able to do something with their finances allowing them to make payments in one form or another again.

The important word highlighted. With unemployment rising the way it is, the "mays" will be in the minority.

All costs incurred with regards to repossession are added to the debt recoverable from the customer. Average repo cost for us were £2,500. Six months average mortgage payments £3,600.

True, but then you have to take into account the rapidly decreasing value of the properties you then hold and factor in the costs of trying to sell them and the maintenance costs in the meantime.

All tax deductable against future profits

[The Moan Ranger]

From a business point of view it costs the bank more to reposess the home that it would to give the customers 6 months grace, in which time they may be able to do something with their finances allowing them to make payments in one form or another again.

The important word highlighted. With unemployment rising the way it is, the "mays" will be in the minority.

All costs incurred with regards to repossession are added to the debt recoverable from the customer. Average repo cost for us were £2,500. Six months average mortgage payments £3,600.

True, but then you have to take into account the rapidly decreasing value of the properties you then hold and factor in the costs of trying to sell them and the maintenance costs in the meantime.

Most of the bigger lenders have contracts in place with property maintenance/estate agents who do all that for them - generally the same panel that do the valuations at the New Business stage. The cost to the lender is negligable and recoverable later. And, as Snoopy says, any loss can be offset later.

Delaying repossession merely increases the end debt to the customer.