The Financial Services Authority is investigating the generous lending of forbearance loans by British banks to homeowners who are barely able to make repayments.
The investigation shows 63% of troubled loan holders have switched to an interest-only loan, being lured by the extension of the repayment deadline.
Studies further reveal that above 95% of those who want to transfer were troubled home owners; causing doubts whether they would be able to fully repay.
However, these kinds of loan forbearance do not fall under arrears.
The FSA spoke of requiring financial providers to “report accurately and transparently the impairment of their mortgage book.” and said they had not noticed this practice which has been on going since 2001.
Originally meant for the self-employed, banks freely give away these types of loans because of the market’s inability to pay – and the eventuality of repossession of their homes. These “extend and pretend” loans rose during the crisis in 2001, and were deceitfully used by borrowers who would acquire houses without risking their money.
Today, these “self-certified” loans are replaced by “fast-track” credits – no different from its predecessor – an easy risk for mortgage brokers, an easy target market and ultimate repossession.
While this may be a “hope” for desperate consumers, what they and the Bank’s shareholders do not see is a scheme to risk their money. Whereas many borrowers will eventually have to let go of their homes, shareholders, on the other hand, as well as lenders will be left bankrupt; knowing little of the potential risks their own system poses; which in turn, throws everything to the British government’s shoulders.
Many are now calling for a complete overhaul of the banking system in the wake of the recent banking scandals such the mis sold Payment Protection Insurance debacle
Related posts: