Why don't lenders sell their mortgages to active banks and not vulture funds?

[Bronte]

We were talking about the portfolio they bought from Lloyds. It was a portfolio of non-performing mortgages which means that each of those mortgages were probably over 90 days in arrears when they bought them.

There's that word again, probably. Maybe they were only a month late.

Woulnd't a better solution have been for the bank, in the example given above of the loan of 200K on property of value of 100K and sold for 80K to the vulture fund selling it to an existing bank. With the owner now taking a mortgage of 80K (if the owner was able to repay that). Particularly if this property is a family home.

 

[Brendan Burgess]

It would have been much better if Bank of Scotland told its borrowers that they would do deals with them directly.

Some people in deep arrears and in deep negative equity would have been happy to sell their homes if BoS was prepared to write off the shortfall.

It would have taken some time to negotiate, but they would have got more.

It's likely that Tanager will do those deals now, and they will make a profit on them.

Brendan

 

[orka]

Woulnd't a better solution have been for the bank, in the example given above of the loan of 200K on property of value of 100K and sold for 80K to the vulture fund selling it to an existing bank. With the owner now taking a mortgage of 80K (if the owner was able to repay that). Particularly if this property is a family home.

I just don't see many currently distressed borrowers being able to access loans to repay a reduced mortgage. Who would lend to them? Cases of mortgages in arrears invariably have credit card debt, credit union debt, personal loans as well. Sure the borrower will be in a better position to pay off 80K than 200K but they are still a big risk to anyone lending them money - and the active banks really don't want any more of that on their books than they already have. I can only see individual deals where there is family cash available to completely clear the mortgage.

I think Brendan's deals are much more likely - vulture fund repossesses, sells for market value, makes decent profit, leaves person with no mortgage debt hanging over them. It's attractive for the vulture fund and it's a much cleaner break than mortgage holders are currently getting from banks. I really don't think the vulture funds would see themselves as long-term chasers of unsecured debt - they'll make a profit on the property and move on; the mortgage holder gets a clean slate and also moves on.