Personal loan rates still increasing

According to a recent report rates on personal loans are still increasing, even though the base interest rate in the UK has plummeted to just 0.5 percent over recent months. The base rate is now at its lowest level in the history of the Bank of England, but personal loans rates have been continuing to rise, resulting in greater borrowing costs for consumers that need to take out finance.

Recent date was released that showed even those with a decent credit rating were often being charted over 12 percent on overage on their personal loans in terms of interest rates. However, when the base rate stood at ten times its current level back in October the average rate of interest charged on a personal loan was just over 10 percent for the same consumer group.

One industry official said: ‘Lenders are under more funding pressures now and they are reluctant to lend to all but those with top credit scores.’ He added: ‘The imminent loss of payment protection insurance sales will also hit lenders’ profits so they are looking to stretch their margins.’

Another went on to state: ‘This may all sound very negative, but there is no need to panic. Loan rates in general are not increasing as much as credit card rates and, unlike these variable rates, your loan rate will not rise as it is fixed for the length of your agreement. Other great deals on, for example, a £5,000 loan over three years include Sainsbury’s Finance (8.8%), Tesco Personal Finance (8.9%), Alliance & Leicester (8.9%) and Lombard Direct (9.4%), to name a few. You’re going to need an excellent credit file to get them - no missed credit card payments over the past six months - but they are nonetheless there for the taking.’

Loan insurance complaints rise

According to a recent report the level of complaints being submitted with regards to loan insurance cover has been rising, and eight hundred complaints each week have been pouring in from consumers with regards to this type of controversial cover. The data has come from the Financial Ombudsman Service.

The FOS has also said that the number of loan insurance related complaints that is now being upheld is unprecedented, but it is thought that the level of complaints will now subside as a result of sweeping reforms that will see the sale of single premium payment protection insurance being stopped from the end of May.

In many cases PPI has been sold to those that are not eligible to claim or did not even want to take out the cover, which can be quite costly. An official from the FOS said: “It is still the single biggest source of complaint, amounting to about a third of the total. We are upholding about 90% of the cases we deal with, and with one firm 100% of the cases.”

The FOS added: “We are upholding an unprecedented number of consumer complaints about PPI. We have reported our concerns about some firms who seem to be systemically and deliberately mis-handling complaints.”

Banks need to be forced to lend

Some industry officials have said that the government needs to step in and start forcing banks to lend money to consumers and businesses again, after revelations that lending levels are unlikely to improve in the near future. A recent report claimed that higher lending levels were unlikely in the imminent future, which means that the economy could continue to suffer.

According to the Council of Mortgage Lenders there was a drop of 8 percent in mortgage lending levels between December and January, which equated to over £12 billion. The CML said that activity within the mortgage sector may have improved slightly but was still very bleak compared to last year.

The CML said: “Mortgage lending activity continues to be very weak and while people are searching eagerly for some signs of recovery, it would be unrealistic to expect a meaningful revival in lending in coming months.” A mortgage broker added: “The January lending figures are a joke. Enough is enough. It is time for the government to get the gloves off and force the banks to lend.”

The government has been looking at various ways to try and increase lending by banks, and more recently has been looking at quantative easing to try and boost the economy and improve lending levels to consumers and businesses.

Loan site aims to match borrowers up with lenders

A loans site, Zopa.com, has recently reported that in the current climate where getting finance has become increasingly difficult, some consumers may find that they are able to access suitable loans more effectively by using the site, which is aimed at matching borrowers up with suitable lenders based on their circumstances and their needs.

An official from the company said that the site used a ’stringent vetting process, we don’t have a problem admitting that and don’t want anyone to be disappointed.’ Another official from the group said: ‘As the banks continue to fail their customers despite huge bail outs from the UK taxpayer, it is not surprising that record lending is taking place between the growing number of Zopa members.’

He went on to state: ‘Creditworthy borrowers shunned by the banks are able to access loans at much better rates. And now that banks have all but given up trying to address their liquidity problems by attracting savers, more and more people are discovering the fabulous returns they can earn on their savings by becoming a Zopa lender.’

According to Zopa officials it managed to arrange 150 percent more loans in the run up to Christmas last year than in the same period the year before, which it classes as impressive given the fact that credit conditions have been so tight and lenders have been so reluctant to hand out finance over the past year.

Lending increase but house prices still falling

Recently released figures have shown that whilst lending levels in December increased slightly, house prices have continued to fall. Officials reported that house prices dropped for a sixteenth month in a row for the month of January, with a further 1 percent drop in property values. Over the past twelve months house prices are said to have fallen by around 9.4 percent according to Hometrack, having already fallen for a number of months previously as well.

One economist from Global Insight commented on the increase in mortgage lending for the month of December, stating: ‘Mortgage approvals were still at exceptionally low levels by historical norms in December, so the best that can really be said is that activity may be stabilising at an extremely muted level. To be honest, mortgage approvals were so low in November that there had to be a rise in December.’

The change in activity with both borrowers and lenders has been put down to plummeting interest rates by some officials, with the base interest rate having fallen from 5 percent in October to just 1 percent. Whilst the base rate was not as low as it is now in December, it had fallen several times in as many months, and was at the lowest that it had been for some time.

Figures have also shown that there was a drop of around 23 percent in total mortgage lending last year by major High Street banks compared to the year before, with the major lenders advancing £170 billion over the course of the year.

Government assistance does not go far enough

Officials have recently stated that government assistance to try and ease the country’s failing banking system is not going far enough, despite the hundreds of billions that the government has ploughed into the financial sector by way of a rescue effort. Analysts have stated that even with the latest schemes to try and sort out the problems in the financial sector not enough is being done.

One economist said that the latest efforts that had been put into place by the government would simply result in the ‘nationalisation’ and the establishment of a ‘bad bank’. The concerns have arisen despite the fact that the government has announced further measures to try and assist the financial sector, including insuring toxic debts and lending out billions to large corporations.

One industry official said: ‘One of the keys in the resolution of many banking crises is removing bad apples from the barrel - extracting the toxic assets from the banking system. This looks like a feeble excuse for not doing a proper job and makes us worry that the amounts involved are too large for the government to finance.’

Another official said that the measures had come too late to stave off the recession that has now gripped the nation, stating: ‘These measures may still leave banks cautious. ‘Even if credit supply does improve significantly, it is too late to prevent a severe recession.’

Base rate could fall further

It has recently been revealed that the vote to cut interest rates to record lows following January’s Monetary Policy Committee meeting was a unanimous one, and this has sparked rumour that there is likely to be a further base rate cut at February’s meeting, which will push the base rate down even further.

At 1.5 percent the base rate is already at its lowest in the history of the Bank of England, which spans over three hundred years. Some officials are now predicting that the base rate will fall to just 1 percent in February. Since October the base rate has fallen by 3.5 percent, and a further cut in February would signify the fifth rate cut in a row.

The vote for interest rates to be cut again in January came as a result of the deepening recession and the economic downturn. There are now even rumours that the base interest rate could fall to 0.25 – 0.5 percent by the summer, and one economist said that there is every chance that at some point this year the base rate could fall to zero.

He also said that the minutes from the last Monetary Policy Committee meeting did nothing to indicate that the base rate would not be coming down again in February, stating: ‘They portray a generally very downbeat view of the UK economy.’

Lenders told to meet fairness deadline

UK lenders that deal with borrowers taking out home loans have been issued with a warning from the UK’s financial regulator with regards to how they treat customers that have arrears or may be facing repossession. The FSA has contacted lenders that deal with these loans, stating that they have a deadline by which they must prove that they act fairly towards these borrowers.

Lender have until 31st January to prove to regulators that they are acting fairly towards those in arrears and facing repossession, and they must reflect this in their written policies. In the meantime, lenders are being told to change and amend their policies to ensure that fairness is exercised to those in this situation.

One official from the FSA said: “Conditions in the mortgage market are difficult and it seems likely that these conditions will persist for sometime. In such a challenging operating environment it is particularly important for senior management to ensure the fair treatment of customers.”

A spokesperson from the Building Societies Association said: “With arrears forecast to increase over 2009, it is essential that all lenders ensure that their arrears and repossession policies treat customers fairly. Building societies want their borrowers to remain in their homes if they have repayment difficulties, and genuinely view repossession as a last resort.”

Gap between base rate and interest rate has increased

With the base rate having fallen dramatically over the past three months industry officials are now stating that the gap between interest rates on loans and the base interest rate has widened further, with high rates of interest being charged on personal loans compared to the low base rate that is now in play, which is just 2 percent.

Since October the base rate has fallen by 3 percent taking the base rate to its lowest in nearly six decades. At the same time, however, lenders have not been passing on rate cuts to consumers, and this is causing the gap between the two rates to widen.

One official said: “Loan costs are often overlooked in the frenzy of a base rate cut, when the focus is on the impact of any rate movement on mortgage payments and savings rates. What our calculations clearly show is that the cost of a personal loan is as apparently uncorrelated to base rate as mortgage rates are. The key difference though, is that mortgages are priced according to LIBOR rather than base rate - loan rates are not.”

He added: “Whilst personal loans are often seen as the ‘poor man’ of everyday financial products, there is always a spike of activity post-Christmas and into the New Year when consumers take their finances in hand, and turn over that new leaf. Invariably this involves consolidation of store cards, credit cards and overdrafts. However, loans are not the cheap form of borrowing they once were.

Consumers advised over action to take if rejected for finance

In the current financial climate an increasing number of consumers are finding themselves being turned down for finance, such as loans, credit cards, and mortgages, and at this time year, when many people are looking for ways to fund Christmas, the level of applications is higher than normal.

However, with the increase in the level of applications that are being turned down consumers are now being advised with regards to what action they should take once rejected for credit. Many tend to make another application to a different lender immediately but this is the wrong this to do.

Consumers that are turned down for finance are advised to make sure that they wait at least three months before they make another application for finances, as each rejection can result in a black mark against their credit, which can in turn make it harder to get finance in the future.

Prior to making any applications for finance consumers are also advised to check their credit report, as this will show them what their credit rating is like and will give then an indication of whether they are likely to be refused finance before making the application.

Obama's Loan Modification Plan: 7 Things You Need to Know

At the heart of the President Barack Obama's ambitious plan to rescue the housing market is the conviction that restructuring distressed mortgages will keep struggling borrowers in their homes and help insert a floor beneath plummeting property values. With $75 billion dedicated to reworking troubled loans, that's a big bet—especially considering that a top banking regulator said last December that almost 53 percent of loans modified in the first quarter of 2008 went bad again within six months. But supporters argue that mortgage modifications need to be properly engineered to work—and many early ones weren't. To that end, the Obama administration on Wednesday unveiled fresh details on its plan to restructure at-risk loans and help as many as four million home owners avoid foreclosure. Here are seven things you need to know about Obama's loan modification program.

1. Payments, not prices: The plan centers on the belief that struggling borrowers will stay in their homes—even as values decline sharply—as long as they can make their monthly payments. Although not everyone agrees with this, billionaire investor Warren Buffett endorsed the philosophy in his most recent letter to shareholders. "Commentary about the current housing crisis often ignores the crucial fact that most foreclosures do not occur because a house is worth less than its mortgage (so-called “upside-down” loans)," Buffett wrote. "Rather, foreclosures take place because borrowers can’t pay the monthly payment that they agreed to pay."

2. Thirty-one percent: To that end, the administration's plan requires participating loan servicers to reduce monthly payments to no more than 38 percent of the borrower's gross monthly income. The government would then chip in to bring payments down further, to no more than 31 percent of the borrower's monthly income. In lowering the payment, the servicer would first reduce the interest rate to as low as 2 percent. If that's not enough to hit the 31 percent threshold, they would then extend the terms of the loan to up to 40 years. If that's still not enough, the servicer would forebear loan principal at no interest. The plan does not, however, require servicers to reduce mortgage principal, which Richard Green, the director of the Lusk Center for Real Estate at USC, considers a shortcoming. "For underwater loans, if you don't write down the balance to be less than the value of the house, people still have an incentive to default," Green says. "Writing down the principal first instead of last—which is what [the Obama administration is] proposing—makes sense to me."

3. Cash incentives: To encourage participation, servicers will be paid $1,000 for each modification and will get an additional $1,000 payout each year for as many as three years, as long as the borrower continues making payments. Borrowers, meanwhile, can get up to $1,000 knocked off the principal of their loan each year for as many as five years if they make their payments on time. Neither party can receive the cash incentives until the modified loan payments have been made for at least three months.

4. Financial hardship: The Obama administration is pitching its plan as an effort to help responsible homeowners ensnared in the historic housing slump and painful recession—not speculators. As such, only owner-occupied, primary residences with outstanding principal balances of up to $729,750 are eligible. Occupancy status will be verified through documents, such as the borrower's credit report. In addition, the program is designed to target homeowners who are undergoing "serious hardships"—such as a loss of income—which have put them at risk of default. To participate, borrowers will have to sign an affidavit of financial hardship and verify their income with documents. "If we would have had such stringent verification over the last four or five years, we probably wouldn't be in as bad a position as we are in," says Richard Moody, the chief economist at Mission Residential. But while Moody has no objection to such verification, obtaining documents from so many homeowners could be an onerous effort. "It's going to be a very time-consuming process," he says. Only loans originated on or before Jan. 1, 2009, are eligible, and modified payments will remain in place for five years. Now that the administration's plan is out, lenders are free to begin modifying loans.

5. Net present value: To determine if a particular mortgage will be modified, the servicer will perform a so-called net present value test. The test compares the expected cash flow that the loan would generate if it is modified with the expected cash flow it would generate if it isn't. If the modified loan is expected to produce more cash flow for the mortgage holder, the servicer is to restructure the loan. Howard Glaser, a mortgage industry consultant and a U.S. Department of Housing and Urban Development official during the Clinton administration, called this component of the plan "clever," arguing that it would work to ensure broad participation. "When you apply the formula, the loans that are modified are the ones that are in the best economic interest of the investors to modify," Glaser says. "The federal subsidy for the payment on the modification…tips the scale toward modification as a better deal for the investor."

6. Second liens: The Obama plan also addresses the issue of second liens—such as home equity loans or home equity lines of credit—by offering incentives to extinguish them. But key details on this component of the plan remained unclear. "Distinguishing the second lien is really important," Green says. "[But] exactly how they are going to convince the second lien holder to do this is not clear to me at all."

7. Will it work? Moody argues that while the plan may reduce foreclosures for primary residences, it could lead to a spike in defaults for another group of homeowners. Although he supports the administration's efforts to focus the initiative on primary residences, Moody notes that "it could be the case that a lot of [real estate speculators] have been just hanging on waiting to see exactly what the details are of this [plan]," Moody says. Now that it's clear the Obama plan leaves speculators out, "we could actually see a spike in foreclosures or at least mortgage defaults among this group."

Glaser, meanwhile, worries that lenders may soon be overwhelmed by inquiries from homeowners looking to participate. "Starting today, millions of borrowers are going to start to call their lenders to see whether or not they are eligible," he said. "And I'm not sure that the financial services industry has the capacity to handle these inquiries."

Fha Loan Modification changes

Fha has released news that they have changed their loan modification and loss mitigation programs. These changes will apply to borrowers who are in serious delinquency. The changes will give homeowners additional latitude to help fix delinquent payments.


For FHA Loan modifications, banks and service companies are able to use the ten year treasury maturity to decipher the maximum interest rate. Many banks have also expressed to FHA that the foreclosure expenses are preventing many homeowners with FHA loans from qualifying for a modification. Several homeowners who can make the original mortgage payment are not able to pay the foreclosure fees after a notice of default has been issued. Because of this issue, they will now allow foreclosure expenses to be wrapped into a loan modification.

FDIC offers new loan terms to Indy Mac mortgages

The government recently took over Indy mac bank after a giant run on deposits. To prevent further losses, they are offering new loan terms to homeowners that are at the brink of foreclosure.

The FDIC will offer loan modifications that will include rate reductions, and extended loan terms for IndyMac homeowners. It is reported that 29,000 modifications will be offered in the next month.

The reported objective of the FDIC is to recover as much of as possible on loans that are considered to be foreclosure candidates. Many homeowners will benefit from the new terms, but the objective of the plan is to recover profits. The FDIC seeks to sell Indy Mac and it's assets.

IndyMac Federal claims that they will only offer new terms to borrowers where it will increase the value of current assets. It appears that Indy Mac will only offer the streamlined loan modifications to a small portion of homeowners. The offer will only be available for the first mortgage of the homeowners primary residence. Homeowners must also be able to afford the new loan terms in order to qualify for the offer.

The new loan interest rates will be based off of the current Freddie Mac averages for conforming loans. DTI ratios's to range in the area of 38% with PITI

If you have an Indy mac mortgage, and you do not receive a modification offer or you cannot afford the modified terms, contact us and we will work to negotiate a better modification for you.

Fed encourages principal reduction

The fact that many troubled borrowers have properties that are now worth less than the principal amounts ... suggests that lenders and servicers should give greater consideration to the use of principal reduction as one of the loan modification options in their tool kit," Kroszner told the U.S. House of Representatives Financial Services Committee.

He said home foreclosures in 2008 will top the 1.5 million of 2007 and noted that in January some 24 percent of subprime adjustable rate mortgages were behind on payments, double the fraction that were delinquent a year earlier.

Kroszner said that given the scale of the nation's housing woes, "it is in everyone's interest to develop prudent loan modification programs."

He said a U.S. Treasury-brokered plan for temporary freezes on adjustable-rate mortgages for some borrowers was one example but strongly suggested more aggressive measures were needed.

"In this environment, servicers and investors may well find principal reductions that restore some equity for at-risk homeowners to be an effective means of avoiding delinquency and foreclosure," Kroszner said.

He suggested that writedowns of loans could be "targeted" through means such as limiting them to people who had high debt payment-to-income levels so that they would be available only to those who genuinely needed them.

Banks are carefull about who they modify

Banks are reluctant to offer homeowners modifications, because they do not want everyone to try to modify. When our attorneys work with your bank, you have the highest chance of a successful modification. In this excerpt from By Susan Chandler at the Chicago Tribune reporter, this is discussed.

For months, mortgage lenders, banking groups and legislators have been urging struggling homeowners to reach out for assistance before they are in too deep. But in reality, many lenders are reluctant to modify loan terms unless a borrower has missed several payments.

"It's a Catch-22. Banks don't want to open the floodgates to anyone who wants to modify their mortgage," explains Jeremy Brandt, real estate investor and chief executive of 1-800-CashOffer. "I would never tell anybody to [stop making payments] to manipulate a bank, but the banks' attitude is, 'We're not going to negotiate until it's clear you can't make your house payment.' "

Growing problem

The size of the mortgage problem has reached staggering proportions.

Five thrift-related servicers with the largest mortgage portfolios were handling payments on outstanding balances of $2.3 trillion at the end of March, according to the Treasury Department's Office of Thrift Supervision.