I****** Mortgages

Prepare your tongue. Food time.

The last plane I caught was from Schiphol in about 1980. I resent the inference that I can't stretch up to the second tier fruit! I'm quite mobile for my vintage.

Anyway, moving swiftly back to the subject....

Just over 50% done now from "additional" lenders. 

I think that the key to this loan (and this of course is not investment advice) is to look at it like this :

1. The borrower are working with the first charge holder and the mortgage broker to put the financing in place. Every party knows this up front, so the affordability check by the first charge holder (which is a lot stricter than the Northern Rock days!) is being supplemented by additional checks by the second charge holder.

2. The borrower have a good team who know what they are doing. It's not just a checkbox exercise - they are starting in a smallish way so they don't want losses and they can afford to be selective.

3. Whilst yes this does increase the LTV, it is possible to become a bit over-focussed on the underlying asset sometimes. The most important thing on any asset-backed security is "can the cashflow needs be met" and 1 or 2 above are the most important considerations in this. Have the team got the experience to check the affordability for the underlying borrower? If they have got this right, then the LTV is secondary as a concern. 

4. The first charge holder also needs to be happy with the overall affordability of repayments before they will proceed.

The borrowers are certainly not sub-prime. They are prime, but just increasing their borrowing. 

I understand what you're saying, but can the SPV take one or even two hard defaults and still fully perform?

Now at about 84% done and very pleased with the mix of demand

Again, this isn't a recommendation to buy or sell however it is how I personally would look at it. 

First, this is a 3 year loan on new mortgages so you aren't looking at someone trying desperately to re-finance. Your front-end risk (ie. the first payments) is negligible to zero (barring fraud) because the borrowers have just been through credit checks and affordability testing by the two charge holders and the initial mortgage broker....and because most borrowers don't buy a house and then default in the first few months, no matter how dire things get. 

The affordability checks include full income assessment, disclosure of expenditure, interest rates up 3%, perfect credit history.

If you look at how this works, the pool of mortgages will grow continually so we continually have an injection of new mortgages going in. That has two impacts :

1. For the whole three years you are having "new" mortgages with low front-end risk diluting the overall risk profile of the pool
2. Any longer end risk is also being reduced because the pool becomes more diversified

Current CML (council of mortgage lenders) stats for all types of mortgages is 0.94% in arrears with <0.1% repossessions and most of these occur several years down the line, rather than in the first three years.

Your main risk then is that mortgage payments become unaffordable and so collateral has to be enforced, but as said before, borrowers are tested up to 3% over their current rate and that sort of increase seems unlikely to me in a 3 year window.


The risk profile on this is radically different from lending for the full term or to someone taking a second charge three years after they bought a house.

Hi investibod . We were approached by the borrower about something that meant that we felt that anyone with (a) an investment in the loan and (b) knowledge of that information may be at a material advantage. Two lenders fitted into that category (myself included). 

We will be sending a mail out to the users in the loan over the next twenty four hours (hopefully tonight!). We would appreciate it if the contents of the mail are not publicly shared at the moment as it is commercially sensitive. However, I will add that it is NOT a bad news e-mail. We will publicise it to all at an appropriate time.

I guess you meant Investboy ;-D