Mortgage arrears by marital status

The truth about the causes of the financial crisis is leaking out
slowly. There is still some way to go.

The government said initially:

1. The crisis arose because of sub-prime lending in the US

2. Northern Rock's loan book was fine, but its dependence on
wholesale borrowing was at fault

Subsequently, it has emerged Northern Rock's Together mortgage [1]
was by no means the only bad lending occurring, so that the first
part of [2] was simply not correct.

Speaking at this year’s Council of Mortgage Lender’s annual
conference in London on Tuesday 2nd December, Vince Cable said,
“the admission came after a dinner two years ago from the chief
executive of one of the banks which is now part-nationalised.”

He said: “I had dinner with a chief executive of one of the now
recently part-nationalised banks and we argued for an hour about
his lending practices. Finally he accepted his bank’s lending was
foolish and dangerous, but he would have been sacked by his board
if he didn’t lend these mortgages.”

Cable told delegates that mortgage lenders were not the only ones
to blame for the current financial turmoil.

He said: “It is easy to point fingers, but the political class are
just as responsible for the situation. It has pursued irrational
owner-occupier aspirations with ridiculous religious fervour and
now the dream has burst very painfully.”

What we need to know is in what respect was the lending of the
banks 'foolish and dangerous'?

If the CEO of a large bank was aware of it two years ago, who else
knew?

On Wednesday 26th November 2008, in a debate in the House of Lords,
Lord Myners [Parliamentary Secretary, HM Treasury] said,
"foreclosures are higher in Northern Rock than in other mortgage
lenders because its lending was more irresponsible. It is as simple
as that."

Lord Turner, the new FSA Chairman, had previously told the Treasury
Committee of the House of Commons on Monday 3rd November 2008 that,
"looking at the average figures at that time, whether it was loan
to value ratios or whether it was the arrears' experience then
being experienced, you would not necessarily have seen Northern
Rock as an outlier in terms of quality of mortgages."

This seems to be the opposite of what Lord Myners is now saying.

Lord Myners is the first member of the government to admit that
there was an inherent weakness in the Northern Rock loan book,
though the description 'irresponsible' does not explain what the
weakness was.

The Council of Mortgage Lenders Housing Finance Issue [November
2005 "Trends in mortgage borrowers' repayment difficulties"]
explains, 'Married households tend to have the lowest incidence of
repayment difficulties, whereas divorce and separation tend to
increase mortgage repayment problems.'

Earlier research has suggested, 'You're more likely to get into
serious debt because your relationship fails than by
overspending........ A survey by Alliance & Leicester [in 2006]
show[ed] that people who are divorced or separated owe twice as
much as married people. A typical couple owes £5,200 on loans and
credit cards between them - an average
£2,600 apiece - while divorcees owe £5,000 each and the separated
£6,300......... A [firm of] insolvency practitioners ..... found
that 30 per cent of people with debt problems blamed divorce or
relationship breakdown."

The financial crisis, both here in the UK and in the US, may well
have been triggered by excessive lending to cohabiting couples
whose relationships are significantly less stable than those of
married couples. The easy credit was a contributory factor, but
'irresponsible' lending which was 'foolish and dangerous' to the
increasing number of couples with unstable relationships was
probably the prime cause.

What is becoming clearer is that the crisis is not just a 'sub
prime' problem emanating from the US – as the government claimed at
first - nor is it caused in the UK simply by over dependence by
Northern Rock on the wholesale money market, nor is primarily the
result of the creation of sophisticated but unstable financial
instruments which have increased the availability of credit.

Since the taxpayer owns Northern Rock and the Bradford and Bingley,
and now has a majority holding in RBS, surely it is only reasonable
that these banks should reveal the marital status of those in
arrears with their mortgage payments?

If we are going to understand the real nature of the crisis, the
full facts should be published, not just a misleading subset of
them.

Dear Sir or Madam,

Please pass this on to the person who conducts Freedom of
Information reviews.

I am writing to request an internal review of Bank of England's
handling of my FOI request 'Mortgage arrears by marital status'.

A full history of my FOI request and all correspondence is
available on the Internet at this address:
http://www.whatdotheyknow.com/request/mo...

Yours sincerely,

Nick Gulliford

Dear Mr Allen

Thank you for getting back to me.

The report of the BBC's Business editor, Robert Peston [3/2/2009]
includes:

"The Bank of England has provided this £185bn in the form of
Treasury Bills - which are short-dated government bonds that can
easily be turned into cash. And in return it has received £287bn of
collateral from the banks, in the form of loans made by those
banks."

If the Bank of England now has these loans can it not itself
ascertain the marital status of those to whom the loans were
granted and the marital status of those now in arrears?

The whistleblower, Paul Moore, the former head of Group Regulatory
Risk at HBOS who submitted evidence to the House of Commons
Treasury Committee's hearing into the banking crisis, wrote:

"2.6 In my view, as an experienced risk and compliance
practitioner, the problem in finding the real cause of the banking
crisis is being made more complex than it needs to be.

2.7 I believe that we are missing the wood for the trees and that
the key solutions to prevent such an event happening again are
simpler than we think.....

2.8 But let’s start with the cause and this fairly obvious
proposition: even non-bankers with no “credit risk management”
expertise, if asked (and I have asked a few myself), would have
known that there must have been a very high risk if you lend money
to people who have no jobs, no provable income and no assets. If
you lend that money to buy an asset which is worth the same or even
less than the amount of the loan and secure that loan on the value
of that asset purchased and, then, assume that asset will always to
rise in value, you must be pretty much close to delusional? You
simply don’t need to be an economic rocket scientist or
mathematical financial risk management specialist to know this. You
just need common sense. So why didn’t the experts know? Or did they
but they carried on anyway because they were paid to do so or too
frightened to speak up?

2.9 What my personal experience of being on the inside as a risk
and compliance manager has shown me is that, whatever the very
specific, final and direct causes of the financial crisis, I
strongly believe that the real underlying cause of all the problems
was simply this - a total failure of all key aspects of governance.
In my view and from my personal experience at HBOS, all the other
specific failures stem from this one primary cause."

What we still don't know is the marital status of these 'people who
have no jobs, no provable income and no assets.'

My guess is the majority were cohabiting couples.

I think it is crucial to understanding the problem for this
information to be in the public domain.

I am asking, since you have £287bn of collateral from the banks,
that you provide it.

Yours sincerely,

Nick Gulliford