http://www.articletrader.com/ Articles at ArticleTrader en-us http://www.articletrader.com/finance/what-lies-beneath.html http://www.articletrader.com/finance/what-lies-beneath.html Mon, 23 Oct 2006 00:00:00 -0500
There has been significant growth in the number of lenders offering secured lending to people with credit problems, including those who have been bankrupt, have County Court Judgments logged against them, and for purposes such as debt consolidation. As consumer credit debt tops an eye-watering £1.2 trillion in the UK, it is no wonder that the major lenders in the UK and some significant players from abroad have been falling over themselves to get a slice of the growing sub-prime cake in the UK.

But for the IFA there is need for caution. The evolution of the UK sub-prime market needs to be examined and the implications for those who are active in it examined.
From an IFA’s perspective, get sub-prime business wrong and the consequences could be serious.

Several factors caused a growth in demand for sub-prime mortgages in the mid-1990s. These include: mainstream lenders automating credit-scoring procedures; more people with previous debt repayment problems; more marginal borrowers seeking loans for home-ownership and, in the late 1990s, soaring levels of borrowing for consolidation of debts as interest rates rose. Since the early 1990s, a range of factors has created circumstances in which both the demand for, and the supply of, sub-prime lending has flourished.

Following the 1990s recession, more people suffered some episode that had harmed their credit rating – whether from house repossession, falling into arrears with housing or utility payments, which were pursued more aggressively by privatised companies, having had a CCJ or being made bankrupt. Reflecting broader labour market changes, more people had flexible contracts or terms of employment and income that was variable or hard to confirm.
Mainstream lenders, which had suffered during the housing market recession, reacted by exercising extreme prudence in lending, particularly using mechanised and centralised credit-scoring mechanisms to select only low-risk borrowers.

Individualised

The UK sub-prime sector started to evolve from the mid-1990s with the entry of specialist lenders. These saw a niche for lenders building on a more individualised approach to underwriting and pricing the risks involved in lending to sub-prime borrowers. Luckily a buoyant property market has covered up any deficiencies in the risk pricing models. House prices have more than doubled in the past decade, so it is not advisable to heap too much praise on the sub-prime lending actuaries.

A greater proportion of borrowers in the sub-prime sector are in arrears than those in the mainstream sector, as might be expected, around 10 per cent to 15 per cent in 2004.
There is also evidence that sub-prime lenders move towards possession more quickly once arrears start to accumulate, on both first and, especially, second mortgages. Now there is a new raft of specialist sub-prime to sub-prime lenders which are mopping up the heavy adverse clients. Competition would on the face of it seem like good news for sub-prime clients and intermediaries active in this segment. This year there are expected to be six new entrants in the UK sub-prime mortgage market.

Deutsche Bank has already entered the fray, Oakwood Financial Services enters later this year, headed by the ubiquitous Michael Bolton, formerly of BM Solutions/HBoS. Others of note, include Mortgages Plc – which is backed by Merrill Lynch, and is making real inroads with its innovative products, keen pricing, technology and extensive teams of field sales support. GE Capital, GMAC, BM Solutions, Money Partners, Platform – the list goes on. These organisations want serious market share and that means sacrificing margin to get to the top of sourcing system best-buy tables.

When lenders compress margins, other things can suffer, such as commission payments. At the near-prime end of sub-prime there is now little difference between rates offered by high street lenders and commissions paid.

If there is a sustained price war, and the signs are it is under way, only those with big balance sheets will survive. That could mean the end for a number of small niche players. It is like the corner shop taking on Tesco – there will be casualties and collateral damage. A favoured niche sub-prime lender may not be around forever.

Clearly sub-prime lenders fill a market gap. They allow entry to owner-occupation for those who are able to repay, but fail high street criteria. They allegedly offer credit repair – to borrowers who, if they maintain repayments can re-enter the mainstream market. There is an important qualification to make here. Sub-prime lenders in the main will not proactively credit repair clients.

Assumptions

It would be nice to assume that a sub-prime client who has diligently suffered the ignominy of higher interest rates – would automatically get a rate reduction if he paid his sub-prime mortgage for two years without missing a beat. But that is not how it works. Sub-prime lenders securitise their lending portfolios and that means investors who buy these juicy mortgage-backed bonds expect a decent rate of return.

Proactively managing these cleansed clients to a better rate would put them at loggerheads with their investors, so it is the customer who misses out. Brokers and IFAs need to remain vigilant and pro-actively manage their cleansed clients back to prime rates with high street lenders or face the wrath of the FSA which is taking an ever closer look at this market segment.

Record levels of consumer debt mean that debt consolidation has become increasingly popular. Consolidating can allegedly provide a “fresh start” for a client whose borrowing has become unmanageable. Sub-prime borrowers are higher risk overall, and face higher interest rates and charges than mainstream borrowers. They also face higher charges.
There is evidence that sub-prime lenders are relatively quick to pursue repossession and impose relatively high charges to borrowers in arrears. Repossessions have doubled in number from last year. A worrying trend, and one which would gain real momentum if property prices headed southward.

This can lead to a downward spiral for borrowers, through repeated re-mortgaging from lenders at increasingly higher rates and worse terms due to increasingly poor credit records.

This is an area of significant importance to intermediaries – and one that could come back and bite the unwary.

The FSA’s initial review of sub-prime lending is no doubt the first of many more detailed investigations as it begins to understand the complexities of the market. In its initial review the FSA was concerned many firms could not demonstrate that they had gathered sufficient information in certain areas to demonstrate suitability of a sub-prime product.
All information gathered for the purpose of assessing suitability needs to be recorded. The FSA has sounded the warning bell, reminding brokers that they need to have regard for all relevant facts about a customer of which they should reasonably be aware when selling a sub-prime mortgage product – as well as those facts that a customer has disclosed himself.
It also added that firms must determine what is relevant when dealing with each customer, but in particular brokers must understand and document:

- the customer’s credit history, including an awareness of his debt position details;

- any existing mortgage arrangements and

- income and expenditure information to assess affordability.

To demonstrate suitability firms can use a factfind document to show that all requirements have been discussed and considered with the customer. Completing a checklist can demonstrate additional considerations have been reviewed with the customer.

Enforcement

It is only a matter of time before the FSA starts to enforce its treating customers fairly principles. Those in the sub-prime sector can pay significantly more for borrowing than those in the mainstream sector.

While this might initially appear to be unfair in that it is the more financially vulnerable who pay the most, the question is really whether such borrowers pay more than is warranted by the extra risk they present.

Money advisers, in particular, express concern that people may be tempted to borrow more than they can really afford. Spiralling levels of consumer debt back this up.
There is no doubt the FSA will start to monitor what is being done to proactively credit-repair a sub-prime client. Leave a cleansed client on higher sub-prime rates longer than is necessary at your own peril. The TCF principles are there for all to observe, and the FSA does have teeth.

The sub-prime market is set for a period of extended competition and consolidation. Factor in the ever- increasing presence of the FSA and its principle-based management – and it is clear that you cannot play at sub-prime lending. Unless a company has critical mass and sub-prime is a significant proportion of the business mix, it should tread carefully because there is no doubt that the FSA will claim scalps.


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John Smith writes articles on the mortgage, loan and property markets for www.blackandwhite.co.uk, who offer secured loans to all kinds of homeowners, even those with bad credit.

Source: http://www.articletrader.com ]]> http://www.articletrader.com/travel/hotel-hippos-top-ten-travel-tips.html http://www.articletrader.com/travel/hotel-hippos-top-ten-travel-tips.html Tue, 12 Sep 2006 00:00:00 -0500
1. Make sure you have a signed, valid passport and visas, if required.

Imagine, you're at the airport, you're about to check in, and you notice your passport has expired! Your holiday is over before it's even begun. Avoid this disappointment by ensuring your passport is up to date. In most cases you'll find that your passport must be valid for at least 6 months beyond your intended stay. If you don't have a passport, your current passport has expired or is close to expiration, we recommend applying for one now. In the UK it is recommended that you leave at least a month between applying for your passport and arranging travel - this time period may be longer in other countries. Also bear in mind that during summer months your passport office will be inundated with applications, and this may cause a backlog. Be sure to apply for your new passport in plenty of time if you wish to travel during this period.

Also consider the length and type of your trip. Many countries require that you hold a valid visa to work or take an extended stay, and you may find that you are breaking your host county's laws without one.

2. Read the Consular Information Sheets, public announcements or travel warnings for the areas you plan to visit.

Be sure to read up on the areas you plan to visit with these resources to help ensure your personal safety and make the most of your trip.

3. Familiarize yourself with local laws and customs of the countries to which you are travelling.

The last thing any of us want while enjoying our travels is to be seen as an obnoxious tourist. We all know the type, and it's not a good look. This can be easily avoided by finding out about the customs of the country you intend to visit - perhaps even learn a bit of the lingo. Some knowledge along these lines will surely be welcomed by the locals and will help you to enjoy your surroundings that little bit more. Also ensure you're aware of any differences in local law to your home country, as when you are abroad you are subject to the rules of your host country, and ignorance is rarely accepted as an excuse.

4. Make 2 copies of your passport identification page.

This will help if your passport is lost or stolen while you are away - usually a complete nightmare, but made so much easier just by following this little tip. Leave one copy at home with friends or family, and carry the other with you in a separate place to your passport. Do NOT carry it with your passport.

5. Leave contact details with friends and family so that you can be contacted in case of emergency.

Life at home doesn't stop while you're away, and you may need to be quickly contacted by friends or family should there be an emergency. Make sure they can do this by leaving your travel details (address & telephone number of your accommodation, email address & travel itinerary) with selected friends and family.

6. Do not leave your luggage unattended in public areas. Do not accept packages from strangers.

With all the security measures currently in place in public areas such as airports and train stations it is essential to ensure that you keep hold of your luggage at all times. If you're asked to hold an item for a stranger, politely decline.

7. Avoid being a target of crime. Avoid wearing conspicuous clothing and expensive jewellery, and carrying excessive amounts of money, credit cards or gadgets.

Travellers and tourists are obvious targets for foreign criminals - they usually stick out like a sore thumb and carry plenty of cash and gadgets such as digital cameras, camcorders & iPods. Reduce your chances of being a victim by dressing appropriately and only taking what you need - travellers cheques are much safer than cash, and if you wish to take any pictures or listen to music while you're out, keep your devices out of reach and out of site!

8. To avoid violating local laws, deal only with authorized agents when exchanging money or making sizable purchases.

The old adage is right - it something's too good to be true, it usually is. If you're offered an amazing exchange rate or investment opportunity from a stranger with no credentials, walk away. Even if they seem able to prove their identity or position, remain cautious, and trust your instincts - get out if you feel at all uneasy.

9. If you get into trouble, contact the nearest embassy for your country.

Your county's embassy is the place to turn if you find yourself a victim of crime or in trouble with the law. If you are a citizen of the EU and your country does not have an embassy, contact the nearest EU member embassy and request guidance from them. Many of them will provide some level of assistance in an emergency.

10. Above all, have fun!

With all the planning that is required for a successful holiday, it can be easy to get bogged down and forget to have fun and relax! With some simple preparation before you go, you can enjoy your holiday with minimum fuss while there. You deserve a break - make sure you get it!


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John Smith writes articles for HotelHippo.com, offering Cheap Hotels.

Source: http://www.articletrader.com ]]> http://www.articletrader.com/finance/time-to-put-an-end-to-the-payment-protection-insurance-witch-hunts.html http://www.articletrader.com/finance/time-to-put-an-end-to-the-payment-protection-insurance-witch-hunts.html Fri, 08 Sep 2006 00:00:00 -0500
Amid all the chest beating and promotion, some clarity is desperately needed. Without relevant PPI being offered to customers, there is an even greater risk of one of the fundamental objectives of the FSA not being met – and that is protecting consumer interests.

The PPI witch-hunt has also lumped together mortgage payment protection insurance and single premium ASU. These products are, of course, all very different. Most of the Office of Fair Trading’s concerns re- volved around the potential mis-selling of PPI related to consumer and revolving credit sales, not mortgages.

In November 2005, the FSA published a report detailing its findings about the sale of PPI. This was backed up with mystery shopping of various firms involved in the sale of PPI – that goes beyond mortgages to other companies that offer revolving lines of credit, store accounts and unsecured loans. It was much broader than the mortgage industry alone and, given the mortgage industry has been regulated by the FSA for some time now, it has taken a disproportionate amount of flak.

Experience

It does strike me as odd that people who have very limited experience in the mortgage market – and more specifically experience in the sub-prime mortgage market – have been pontificating about the so-called evils of single premium ASU.

The mortgage industry as a whole needs to assess the risks and benefits – yes, benefits – of single premium ASU with calm heads, because things have moved on.

Fact one. Sub-prime clients cancel their monthly ASU policies. Some major insurers have even withdrawn the product from sale because the persistency levels are so low. That is what sub-prime clients do. It is the same reason they cancel their life policies. That does not mean we should stop writing life business because we would be leaving customers and their families exposed.

There is a fundamental issue here. Why sell a client a monthly policy when he has a demonstrated history of not being able to meet his monthly commitments?
And guess what? Fact two: sub-prime clients will cancel their monthly ASU policy at the time when they need it the most. The potential ramifications for the IFA/mortgage broker are dire should he be unable to demonstrate that he offered his client the option of either monthly or single premium ASU and it has subsequently gone pear shaped for his client.

Some brokers detail the costs and benefits of ASU in the suitability letter and document in that letter if the client has chosen not to take it up. Some go even further. For clients who cancel their policies downstream, some brokers send a disclaimer ensuring they know what they are cancelling and detail the ramifications of having no cover.

It is cheaper to do that than risk the potential of attracting a lawsuit, and worse still drawing bad press to our business and brand.
There is no doubt that single premium ASU policies have come in for some major flak because of their poor flexibility and TCF unfriendliness.

Commission

Agreed and rightly so. One of the key issues at play here is the seemingly large commission payments made for single premium ASU.

Let us look at that issue in another context. What if a motor insurer offered a three-year product and guaranteed not to change price over the term with no inflationary creep? What if you got a further discount for paying that policy upfront as a lump sum? Of course, the selling broker would be paid his share of the total premium.

Single premium ASU is not really that different; it is just that a lot of commentators have got all bent out of shape about the commission payment and not the cover itself.

This problem has been further magnified by lots of people throwing their twopence into the ring when, to be frank, objectivity is needed and recognition of what has changed. There is a place for single premium ASU, but not as we used to know it.

What if the mortgage industry had a single premium ASU product that had the following features:

- provided no quibble pro-rata refunds if it was cancelled;
- where the premium was established using a risk matrix factoring in age and employment type – similar to the way life premiums are calculated;
- where you can sell the accident, sickness and unemployment components independently of one another based on the customers’ individual circumstances;
- a product where you can factor in the client’s own savings and existing employer protection policies to reduce the cost of the policy in line with risk;
- where you can defer the benefit payments by up to six months and be paid retrospectively in a lump sum;
- where you can change the policy mid-term, in other words the amount of cover can be increased or decreased or names on the policy can be changed without penalty; and
- where the true cost including capitalised interest of the single premium ASU is disclosed pre purchase – to comply with treating customer fairly and Insurance Code of Business 5 rules. Indeed, all the product limitations, pre-existing conditions and exclusions are disclosed pre-purchase.

What if this product existed and its makers had worked closely with selected players in the mortgage industry to ensure all regulatory requirements were met and exceeded?

Well, I hate to say it but that is the product that one broker has sold – and the intermediary has their FSA visits and, as with others, single premium ASU and its sale processes were heavily scrutinised. No problems. Perhaps some of the single premium ASU providers may wish to read the above product features just one more time.

Protected

Let us look at another angle. Surely lenders, particularly sub-prime lenders, have a duty of care to ensure that their clients needs are protected.
The stated objective of many in the mortgage industry is to ensure their sub-prime clients are “credit cleansed”.

So without any cover, they miss a mortgage payment or two or three and they are stuck with sub-prime rates for another year or two. All of a sudden that single premium ASU premium is not looking so expensive.

Things can and do go wrong, and it is our job as qualified professionals to ensure our clients’ needs are protected.

The Association of Mortgage Intermediaries has now responded to the FSA’s request to address its concerns about PPI and I am sure that will be the start of some more sanity in the discussions surrounding its sale.

Single premium ASU is not about preying on desperate clients. One broker has developed a process that is FSA and TCF compliant and sells products that are appropriate to individual needs.

There is no doubt that the adverse publicity surrounding PPI sales has eroded not only consumer confidence but the confidence of IFAs and mortgage brokers to sell insurance cover that few could argue against.

Most of all, it is important to note that the industry has responded and moved on. Some people need to move with it.

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John Smith writes articles for blackandwhite.co.uk loans and mortgages, offering Bad Credit Loans.

Source: http://www.articletrader.com ]]> http://www.articletrader.com/finance/mortgage/true-value-is-in-the-eye-of-the-beholder-property-valuation-advice.html http://www.articletrader.com/finance/mortgage/true-value-is-in-the-eye-of-the-beholder-property-valuation-advice.html Tue, 01 Aug 2006 00:00:00 -0500
Anyone who has been or is intending to remortgage in the foreseeable future will be aware that an independent valuation will need to be completed in most cases. In the current property market, this can be a harrowing and eye opening experience. It has become increasingly evident that property valuers have been taking a very lean view of the UK property market and this has significant implications for seller, purchasers, remortgagers and, most importantly, mortgage brokers and IFAs.

According to London-based data services company Hometrack, which delivers a good indication of a property's value, house prices fell for 18 consecutive months up to December last year, when the average house price in the UK climbed just 0.1 per cent.

For most areas, last year provided the poorest house price growth - if any - in more than a decade. There is no doubt that 18 months of average values falling, or at the very least the speed of growth falling dramatically, have diminished homeowner equity levels and dented consumer confidence. Hometrack's national average house price in December was measured at £160,900, down 1.6 per cent from £163,474 in December 2004.

Glut

From a seller's perspective, the messages are simple: supply outweighs demand and it is a buyer's market. In the first quarter of last year, the number of properties available soared by more than 30 per cent.

During last year, the length of time it took to sell a house grew by more than 20 per cent to eight weeks. In 2004, it took and average of 6.5 weeks from listing to confirmed sale. Importantly, the sale price as a percentage of asking price was down to 93.5 per cent last year, endorsing the point that buyers exercised significant bargaining leverage over sellers and negotiated large discounts.

In real terms, a seller who lists his property for sale at last year's national average of £160,900 will, on average, achieve an agreed sale price or £150,441 and have to wait on an agonising two months to seal the deal.

Even at this price it is a bridge too far for most first-time buyers looking to get their toe in the property market. But there is some light at the end of the tunnel. First time buyers accounted for 11 per cent of total buyers in the third quarter of last year, according to the National Association of Estate Agents. This was up from 7.7 per cent in August. Brokers should be mindful of the important market sector in their marketing plans, and a further interest rate cut in the first quarter of 2006 could really kick start the property market.

Remortgage

From a remortgage perspective, the implications are significant and a conservative valuation can conspire to make the professional mortgage broker or IFA look a bit silly.

Brokers and lenders witnessed and unprecedented level of down valuations last year - where the property valuation is significantly less than the customer's initial estimate. Most lenders require a valuation to be completed on remortgage applications, particularly where the loan-to-value ration is more than 70 per cent. The major issue facing mortgage brokers is taking a customer's estimate of their perceived property value on face value, as invariably it will be on the high side. This is where the fun begins.

Let us visit the sale process of a typical mortgage broker. You spend a good few hours completing a fact find, issuing an independent disclosure document and building the confidence of your client in your ability as a professionally-qualified, Certificate in Mortgage Advice and Practice-endorsed, FSA-registered adviser.

You tell your client that you have more than 4000 mortgage products to choose from and you will find him one that fits his need exactly. A key cornerstone of the selection is the LTV ratio and this is based on the customer's estimate of his property's value.

This estimate will be based on a few things: knowledge of other properties that have sold recently in his street or neighbourhood, the press and a large dose of gut feel.

Clearly many clients will have an over-inflated view of what their property is truly worth; it is an emotive issue and one that can really bite the adviser. Imagine then you have taken all the details required on the fact find, you have sourced a deal, it is tight on equity - but based on what you know and have been told, the deal fits.

The valuation rains on your parade as it comes in much lower than expected - lower than the customer's rose-tinted estimate, lower than the flowery estimate given by the local real estate agent.

Now meet the independent valuer. Independent valuers are a cautious lot, and the subject of much cursing and blaspheming.

From a mortgage broker perspective, however, remember one thing. As far as a customer is concerned, you sent that valuer to value their property, you are the focal point of their mortgage transaction - indeed you are the expert. So when the valuation comes back well below expectations it is you, the broker, that will be left to deal with the problem.

This can create several problems. First, the deal that you diligently sourced from your 4000 choices may no longer fit the lender profile. Second, you need to explain to the client that his net asset position is not as good as he had thought. Third, you will be left to resurrect a new deal without much credibility left.

Some may think it is possible to get a valuer to change his mind. This happens about as often as the moon is blue. In fact, it happens about as often as often as a valuer gives a higher valuation than a customer's estimate.

Remember a valuer will need to substantiate his figure with comparable - and recent - local sales, which is usually tough to argue with.

Even arranging finance for a new build can be fraught with danger. One such case recently saw a mortgage arranged for a new build. The customer had negotiated a discount from the builder's original asking price and, by definition, set a market price for the new property.

Imagine explaining to the customer that the deal he had got on his property was not as good as he thought because a licensed valuation down graded the new purchase by £15,000. This resulted in the deal not fitting the lender criteria and a distressed customer at loggerheads with the builder. The builder was happy to back out of the deal and sell the property to another customer, happy in the knowledge that the chances of the same valuer turning up were remote. The consequence was a very unhappy customer and a very traumatic process for all involved, including the mortgage broker.

So what do we do in these downward trend times? Hometrack estimates that property prices this year will rise just 1 per cent, citing affordability as the major barrier to entry for buyers. Halifax is a little more optimistic, predicting a 3 per cent rise. Either way, the head days of double digit growth of past years are gone. It really is a challenge as a professional mortgage broker to tread the tightrope between realistic property valuations and a disappointment.

POSITIVE

There are, however, positive signs on the horizon for the property market. First-time buyer activity has increased, usually a precursor for renewed vigour in the property market.

Estate agents have reported their first drops in available housing stock for nearly six months, another sign that activity is starting to move the right way.

Interest rates are stable, and the much vaunted interest rate cut to stimulate a slowing economy has not happened - yet. Inflation and unemployment levels will need to be kept in check to facilitate a cut in rates. All of these things may happen or continue to happen; they may not.

In the interim, mortgage brokers need to deal with the reality of a bear property market. At point of sale, be armed with the facts and be ready to re-adjust your customer's estimate of his property value. Check property websites before your sales call and get a feel for local area conditions and trends.

Not only will you be armed with the facts, you may just save yourself and your customer a lot of heartache. Additionally, it is not a bad idea to get to know your local valuers; you will find the same names keep coming up.

When push comes to shove and you need to explain the salient points of a valuation, or worse still a down valuation to a client, you had better know what you are talking about. Saving the deal could rest on it.

Finally, at point of sale, cover yourself. Explain to the client that you are basing your product recommendation on his estimate of property value and that it is subject to qualification from a licensed valuer.

Remember property values are an emotive topic - so know your area, do your homework and you will reap that rewards with much less hassle.

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John Smith writes useful, informative articles on the mortgage,loan and propety markets.

Source: http://www.articletrader.com ]]>