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Fitch says fast-track mortgages are performing like prime loans

Fast-track mortgages are performing in line with income verified prime loans, according to Fitch Ratings.

Fitch’s findings come after the FSA proposed to ban all mortgages where income is not verified in its mortgage market review.

A study of more than 700,000 UK residential mortgage loans by Fitch Ratings has found that fast-track mortgages in the prime sector do not appear generically more risky than income-verified prime loans.

In fact, Fitch found that in most cases, fast-track loans are less likely to default than fully-income verified mortgages.

However, Fitch says that by contrast, self-certification mortgages in the non-conforming sector invariably turn out to be more risky than those originated with certified income.

Fitch European Residential Mortgage Backed Securities managing director Gregg Kohansky says: “Lenders typically apply stricter credit scoring criteria for fast-tracked mortgages than for fully verified loans so the results are not necessarily suprising.

“However, for Fitch to treat these loans on a par with one another in our ratings analysis for specific transactions, the agency will need to perform a detailed performance assessment showing this relationship holds.”

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. This is exactly the type of nonsense that led the rating agencies to give AAA rating to RMBS that turned out to be little better than junk.

    Anyone who has ever sold a mortgage knows that if a borrower fits ‘prime’ criteria then they get a prime product. Mortgages where the income does not need to be verified are open to abuse.

    I just don’t get why anyone takes ratings agencies seriously, other than they are a convenient way for banks to contract out due diligence – and we know where that got us.

  2. Obviously not looked at any GMAC “prime” loans or the loans they sold to other lenders – B& B, Dunfirmline, etc

  3. I thought all mortgages were ‘fast track’, no employer references taken because invariably they don’t respond…

    I give up, the FSA bods don’t listen to those at the coalface, they are puppets of HM Treasury.

    No wonder the banks fell between the ‘GAP’.

  4. Andrew Mallett 4th March 2010 at 4:57 pm

    Fast-track would not need to exist if lenders could find a way to better assess s/e income. Net Profit never equals Salary in reality. And that’s not because of anything dodgy, like cash-in-hand jobs, but just down to legitimate accounting methods.

    I khave a client who have set up a business 18 months ago where they are achieving earnings of over £7k per month, yet they have not got enough accounts to satisfy a lender such as Abbey for a £100k loan, and they are already with them!!!!

    Yet they employ 3 staff who can get more than £100k based on the paylips my client provides, which in turn is based on the profits he makes.

    If lenders want to treat all small business owners this way, then why not ask to see the accounts of the employer of any prospective employed applicant that works for a company with les than 5 staff. Then nobody will get a mortgage.

    Its a total farce.

    And those do-gooders who have never been sel-employed in their lives treat us like dodgy criminals who should have to put up with inferior deals.

    Wake up employed people – if it weren’t for business owners most of you would be unemployed. We should be rewarded not treated like shifty 2nd class citizens.

    Wake up lenders and wake up the FSA – start thinking of different ways to assess s’e income. Last 6 mnths bnk stats would be a good start for example – far better than Acounts that could be up to 18 mnths old.

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