Who benefits and who suffers

11 11 2009

Category: Politics, Finance

“But the ones who suffer aren’t the ones who benefited”

That’s George Soros to the Chairman of  the Federal Reserve Alan Greenspan who had dismissed the impact of economic downturns (quoted in David Hare’s play ‘The Power of Yes’).

There’s no better metaphor for that, and the whole of the credit boom, than…the experience of David & Margaret Chandler from Ipswich.

They saw an advert in 2007 by a company called Blackwood who would arrange for them to sell their home, realising the equity, but allowing them to stay in the house as tenants. That was an attractive proposition for them as it meant they could remain in the bungalow they had spent £20,000 adapting for David who has to use a wheelchair.

They received £110,000 but a month later Blackwood still hadn’t told them who to pay the rent to. They were eventually told to pay Mr Mahmood. Then a couple of months later they were told to pay Mr Nadra instead. Not long after that the rent was returned. When they queried it they were told that their landlord had closed that account and could they pay into his business account instead. They did. Not long after that they opened a letter from a mortgage company addressed to their landlord which gave them 6 weeks to leave because the mortgage hadn’t been paid.

The money

Purchaser

Blackwood had acted as an agent for Mr Mahmood who had paid £110,000.

Second purchaser

Two months later Mr Mahmood sold it to Mr Nadra for £185,000. But he told the mortgage company he was living there; they had no idea it was actually the Chandlers who lived there.

It wasn’t just the house that was changing hands. The mortgage was too.

Mortgages

The £185,000 mortgage (no deposit) was taken out with Gmac. Two months later it was sold to the Bradford and Bingley as part of a package of more than a billion pounds worth of mortgages. Not long after that, the Bradford and Bingley had to be nationalised by the British government. The mortgage is held in the ‘Mortgage Express’ division which specialised in Buy to Let mortgages. I use the past tense because the division has been shut to new customers and has been desperately trying to get its customers to move their mortgages elsewhere.

So who has benefited and who has lost out in this credit boom morality tale?

Mr Mahmood     😀

Mr Mahmood certainly benefited; he bought a house at significantly less than market value, paying £110,000. The likelihood is that he bought it with a buy to let mortgage which meant he didn’t have to put any money up himself. He then sold it on a couple of months later for £185,000

Mr Nadra     😀

The BBC reports that Mr Nadra got a 100% mortgage on a property that he claimed to be living in which suggests he wasn’t paying the relevant market rate for a mortgage. He took the rent, but didn’t pay the mortgage. Meanwhile he’s jeopardised the Chandler’s home. Sounds like a benefit doesn’t it?

Blackwood Properties     😀

Blackwood took advantage of an unregulated area to marry sellers and purchasers, taking their fees as the middleman. Some regulation was introduced in this area in July 2009, more regulation is planned for 2010. Blackwood is no longer trading.

Gmac     😀

GMAC began life as the finanace arm of General Motors. In 2006 51% of the company was sold and the company was hived off from GM. GMAC has received $13.5 billion in bailout money from the US government. It stopped issuing mortgages in May 2008. In October 2009 it was fined £2.8 million and ordered to repay £7.7 million in unfair charges it had levied on its customer. In November 2009 it was announced it was the only institution receiving bail-outs that had failed to meet US Treasury capital requirements.

Mortgage Express (Bradford & Bingley)     😀

Mortgage Express was the arm of Bradford and Bingley that specialised in Buy to Let and Self Cert mortgages; aka sub-prime, aka junk, aka toxic. Lenders could borrow 100% of the value of the property on the basis of their own assertions that they could repay. It stopped offering mortgages in September 2008 and in 2009 has been aggressively running down its loan book, encouraging customers to transfer their mortgages. In 2007 it was named the biggest-buy-to-let lender in terms of new lending and outstanding balances by the Council of Mortgage Lenders. As they put it in a press release“this is a tremendous achievement”

The Chandlers     😦

They, of course, are Soros’s losers. Ordinary people trying to get on with their lives in an honest way. They sold their house for below market value to unregulated people and now they are being evicted.

Oh and of course…

The Taxpayer     😦

With Mortgage Express, the state has to bail out a company which boasted its achievements in cornering the sub-prime market:

We are left with ‘assets’ of overvalued property many of which may turn out to be virtually impossible to realise. More than 5% of customers are 3 months or more in arrears.

I say ‘we’ but of course all of this is being managed by the very people who got the country into this under-regulated mess in the first place. Both politically, and, administratively in the banks.

That’s the morality tale; I’ll explain why it’s such a good microcosm of the whole mess in future posts.

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