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BFCSA investigates fraud involving lenders, spruikers and financial planners worldwide.  Full Doc, Low Doc, No Doc loans, Lines of Credit and Buffer loans appear to be normal profit making financial products, however, these loans are set to implode within seven years.  For the past two decades, Ms Brailey, President of BFCSA (Inc), has been a tireless campaigner, championing the cause of older and low income people around the Globe who have fallen victim to banking and finance scams.  She has found that people of all ages are being targeted by Bankers offering faulty lending products. BFCSA warn that anyone who has signed up for one of these financial products, is in grave danger of losing their home.

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BFCSA: Faisal Islam is on the money re Bankster Fraud affecting Property Markets & Housing! UK same Mortgage Fraud Dilemma as Australia: "The DEFAULT Line"

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From my home town of Bristol.   Faisal Islam has written a tell all book on the WORLD banking industry and bad Government decisions geared to leave people homeless. 

"THE DEFAULT LINE"

"No," he gently chided. "The most dangerous financial product in the world, is the mortgage." 

Yes indeed:  A MUST Read  article for everyone that has a mortgage - and particularly a fraudulent one - which is most of our readers.

Home ownership: how the property dream turned into a nightmare

In this exclusive extract from his book, The Default Line, the economics editor for Channel 4 News traces the origins of the housing bubble and argues that we're condemning a whole generation to paying absurd prices for what is a basic human need – and it doesn't have to be this way

To watch an exclusive video interview with Faisal Islam click here Duration 8 mins 44 sec

 

Northern Rock
The rush on Northern Rock in Kingston upon Thames, 15 September 2007. Photograph: Cate Gillon/Getty Images

What is the most dangerous, toxic financial asset in the world?" This was the question put to me by the chief executive of a leading European bank. Anxious to display my superior knowledge of the darkest corners of the shadow banking system, I replied: "Credit-default swaps on super-senior tranches of asset-backed, security-collateralised debt obligations." I thought I had come up with a pretty pithy answer.

  1. The Default Line: Why the Global Economy is in Such a Mess
  2. by Faisal Islam
  1. Tell us what you think:Star-rate and review this book

"No," he gently chided me. "The most dangerous financial product in the world," he paused a moment for effect, "is the mortgage."

The mortgage: from the Old French words mort and gage. Disputed translation: "death contract".

In the middle of the credit-crunch crisis of 2008 I met Esther Spick, then a 34-year-old single mum with two kids living in a maisonette in Surrey. It was the first home she'd owned, bought with an entirely inappropriate mortgage in 2005. She had been living on a council estate in Kingston, Surrey, working day and night to get a deposit to get a mortgage for her £235,000 maisonette. It had been sold – or mis-sold – to her during the boom by Northern Rock, and now the mortgage payments had rocketed by £500 per month. Faced with this, but determined to keep the keys to her home, she had been forced to hand her children over to their grandparents. She'd had to give up her local job and find higher-paid employment further afield. The result? Four hours' commuting per day.

"I don't want to have my home repossessed or for Northern Rock to say I haven't been making my payments," she told me. "I will do whatever I have to do, even if it means I have to get out and get a second job. I will definitely make these payments."

At that point, however, she was in negative equity – not surprising, given that she had been lent more than 100% of the value of her home. And her new mortgage was eating up two-thirds of her new take-home pay. "They lent me too much. It was a time when everything was wonderful. There was a great big property boom, the prices went through the roof. You were encouraged to go out and buy."

Now she had boxed up her children's teddy bears after a charging order arrived in the post. She had fallen behind on just three payments on the unsecured part of the loan. Northern Rock had taken her to court in Newcastle, 300 miles from her home.

A "death contract" indeed, and there was much to behold in its making.

In the decade from 1997 to 2007 house prices trebled. More than that, the home evolved into a multifaceted financial instrument, on top of its traditional role as an indicator of social prestige. Every stage of the house chain is still riven with conflicts of interest, poor data, and ultimately a tendency to fuel inflation.

Housing is the only basic human need for which rapid price rises are met with celebration rather than protest. The house trap stretches from the estate agents mediating house-selling, to the provision of mortgages to buyers, the supply of mortgage finance to the banks and building societies, the construction of house-price indices, the skewing of finance away from owner-occupiers towards landlords, the supply and construction. Homes were always castles, not just in England, but also across Europe and the US. But during the madness they evolved into cash machines, surrogate pensions, principal pensions, and even livelihoods. And in many places, this is still the case.

Let's go back to the foundations of what might be called the bubble machine. Rising house prices, to some degree, reflected underlying supply and demand in a competitive market. Greater increases in demand than in supply, and the prices went up, as in Britain. Large increases in supply over demand, as in the US, Spain and Ireland after the crisis, and prices go down. Simple enough.

Except, of course, this simple model is entirely misleading. The housing market is not really a market for houses. The housing market is driven principally by the availability of finance, mainly mortgage debt, but sometimes bonuses, inheritances, or hot money from abroad – London in particular has become the preferred residence of the world's wealthiest people, from Russian oligarchs to Arab oil sheikhs.

There are 27m dwellings in the UK. The short-term supply is basically fixed. The number of new homes built each year has not topped 150,000 since the crisis – that's less than 0.5% of the total stock. The amount of homes traded is around 900,000 per year, about 3% of the total stock. House prices set by the transaction of that 3% of homes determine property values, the solvency of banks, and the statistic that the UK property stock is worth £6 trillion.

The first thing to notice is that this is a highly illiquid market. Only a small proportion of the housing stock is actually being traded, or ever will be traded. On top of all this, transactions in the housing market are costly. Estate agents' fees in the UK can typically reach 3%, and as high as 6% in the US, with stamp duty on top of that. These are the crucial features of a housing market: thin trading and high transaction costs. It is a recipe for dysfunction, distortion and inefficiency.

Imagine the entire UK stock of property was called Ladder Street, with 50 houses on either side of the road. Despite demand for two extra houses every year over the next decade or so, it in fact takes two years to build just one extra house. The result? Some of the extra demand will be met by converting houses into flats. But most of the demand will not be met at all. A house will be sold on Ladder Street only every four months. One house will remain empty. The end result is a long queue of people who will buy anything, old or new, good or bad, for sale on Ladder Street.

Now consider the price. In a market such as this, the buyer with the largest wallet wins the house and sets the price. At one time that would have been the buyer with the highest single salary, and who had saved the largest deposit. House prices would therefore rise roughly in line or slightly ahead of the rise in incomes. But imagine if the entire queue of prospective house purchasers is flooded with mortgage credit. At this point, the house price is set by the greatest optimist. Ladder Street's housing market has become a market, not for homes, but for mortgage credit. It is the availability and terms of credit that have come to determine property prices. Every sluice gate was unlocked, then left ajar, and eventually flung open to accommodate the tidal surge of credit.

Take, for example, the length of mortgage repayment, beyond a typical 25 years. Between 1993 and 2000 the average mortgage period remained exactly 22 years. Around 60% of mortgages were for 25 years, and, typically, less than 2% of mortgages were for periods longer than 25 years. By 2006, nearly a quarter of all mortgages are for longer than 25 years. Around a fifth are now for 30 years or more, meaning an average first-time buyer will still be repaying home loans into their 60s. 

'If only we could afford a place of our own," says one dainty green extraterrestrial to another in the cartoon advertisement as they sit in a pink car parked in Lovers' Lane. "You can," exclaims the advert, "with a Together Mortgage." The Together Mortgage was launched by Northern Rock in 1999. In effect, it required of borrowers a negative deposit. Customers were able to borrow 125% of the value of a home: 95% as a secured mortgage, and 30% as an unsecured loan. This was the type of loan taken out by Esther Spick.

The Together Mortgage was part of what Adam Applegarth, former chief executive of Northern Rock, called his "virtuous circle strategy". This essentially turned what had been a solid northern English building society into a giant hedge fund, laser-guiding global flows of hot money into some of the most sensitive suburbs of Britain's property market. Although launched in 1999, it really took off as Northern Rock went into overdrive at the peak of the boom, doubling its lending every three years. Single borrowers were also offered multiples of as much as five times their annual salary to help keep pace with those borrowing off dual incomes. Competitors such as Abbey National and HBOS (Halifax Bank of Scotland) scrambled to get in on the game, also offering "five times" deals and zero deposits. "Credit has been democratised in this country. And that is a good thing," crowed one HBOS banker at the top of the market, less than three years before the bank collapsed.

Here is the lesson for those who claim that Britain's financial issues will be solved through the wonder of competition. 

READ MORE at the Guardian link:  http://www.theguardian.com/books/2013/aug/18/default-line-extract-faisal-islam-housing

This is an edited extract from The Default Line: The Inside Story of People, Banks and Entire Nations on the Edge by Faisal Islam

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