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Trading Lessons

Abbey Squeezes Mortgage Payers Whilst Losing Billions to Wallstreet Fraud

Housing-Market / UK Housing Dec 14, 2008 - 09:55 AM GMT

By: Nadeem_Walayat

Housing-Market Best Financial Markets Analysis ArticleAfter the British government literally handed over a blank cheque to Britain's biggest banks on the basis of promises to provide liquidity to British home owners and business, more evidence emerged that this is not happening as the Abbey's practice of sending out letters that calls on ultra small print that seeks to financially crucify home owners that during Britain's house price crash of 2007 to 2008 have increasingly fallen into negative equity.


The Abbey letter states that mortgage credit is limited to 90% of home values, therefore falling house prices have triggered this clause for thousands of mortgage holders where Abbey reserves the right to call on the short-fall in equity to be made up by lump sum payments.

In response to the letters, Labour MP Nick Ainger, a member of the Treasury Select Committee called on Abbey to withdraw the "outrageous" clause. To which Abbey responded that they have not invoked the clause but maintain the right to do so at a later date and urge home owners in negative equity to make over payments so as to bring the loan to valuations back to below 90%. The growing expectation is that many mortgage banks have written such clauses into their mortgage contracts and will call on homeowners for over payments to reduce the LTV's.

On a related note the UK housing market forecast is due for an imminent update, subscribe to our always free newsletter to get the scheduled analysis in your inbox on the day of publication.

The government's incompetent response to the credit crisis and the looming 2010 election deadline is literally bankrupting the country. To date additional liabilities of £600 billion have been declared to keep alive the bankrupt banks. Add possibly £500 billion of deficit spending over the three years and a further £600 billion of future tax payers liabilities to the banks as Britain is fast heading towards Iceland style bankruptcy as I first warned of over 2 months ago as a possibility as the liabilities explode as the below graph illustrates from the recent article - Bankrupt Britain Trending Towards Hyper-Inflation?

The immediate consequences of Gordon Browns attempts to win the next election at ANY cost is the crash in the British pound of 25% to 30% as the below graphs illustrate.

£ / $

£ / Euro

The Labour government, Treasury, Bank of England and FSA regulator are attempting to take the easy route out of the crisis, the one that involves the least amount of thought and innovation, and that route is to "print money" its way out of the credit crisis by slashing interest rates towards zero, and printing as many £trillions as are necessary to keep the bankrupt zombie banks ticking over.

The real innovation would involve realising that the banks are bankrupt and the only answer is to utilise existing state apparatus such as National Savings to create a super state run bank that would seek to provide credit and liquidity to the British economy, rather than flushing an estimated £1.2 trillion down the credit crisis plug hole, at most the creation of a state run banking system would cost the country over several years approximately £200 billion and therefore far more cost effective, whilst at the same time the bankrupt banks could be allowed to go bust in an orderly manner and their profitable arms sold onto the stronger banks that have not gambled away their capital base's by making over leveraged bets on the over the counter derivatives market.

Meanwhile the Abbeys owners, Santandar have possibly lost more than $3 billion dollars to what looks set to be the biggest fraud in history estimated to run to more than $50 billion. The Ponzi scheme (pyramid scam) fraud allegedly perpetrated by investment manager Bernard Madoff, which has put many of the worlds wealthiest investors into a state of panic encouraging a string of panic withdrawals from hedge funds that have been struggling to raise cash to meet existing redemptions, which brings the hedge fund industries ultimate demise one step closer as investors lose confidence in the integrity of the business practices and fund valuations, therefore expect some negative fallout on stock markets early next week as investors rush to the relative safety of cash and government bonds.

Madoff Ponzi

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-08 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 150 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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Comments

George
02 Mar 09, 18:36
Abbey mortgages

That is outrageous that Abbey is even threatening to recall loans. Every mortgage lender should try to help their customers. In any case who can possibly benefit from recalling the loan? If borrowers are unable to find a mortgage someplace else, Abbey will have to reposses, but then what? There is a great chance that they will not recover full mortgage amount. As long as customers are paying monthly mortgage payments, they should be happy.


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