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Golden Goodbyes

This week Rooftop became the latest specialist lender to begin offering select borrowers huge discounts on their existing loan.

Known as ’golden goodbyes’, defunct lenders have been slashing outstanding mortgage balances in an attempt to help the best borrowers mortgage off their books and get hold of a new loan elsewhere with an active lender.

Money Marketing understands that the former Bear Stearns sub-prime lender is offering as much as 15 per cent discount to chosen clients who they deem able to mortgage elsewhere.

This is not a new practice – in 2008, Edeus was the first lender to offer clients a discount. In June 2009, GMAC-RFC helped 300 clients down to 80 per cent LTV, allowing them to find a new loan. Morgan Stanley Advantage also wiped thousands of pounds from some mortgages.

This may not be the last time borrowers see thousands wiped from their mortgage debt – I have been made aware of other specialist lenders working on plans to offer their borrowers golden goodbyes also.

But it is not just the defunct specialist lenders who are looking to cherry-pick the best borrowers – earlier this year both Chelsea Building Society and Mortgage Express wavered early redemption charges on some loans to encourage borrowers to mortgage elsewhere. Northern Rock also offered choice borrowers exclusive Cheltenham & Gloucester loans last year.

From the lucky borrower’s point of view these windfalls can be a dream come true. MortgageForce managing director Kevin Duffy says the golden goodbye is a fantastic opportunity for borrowers and for the mortgage market. He says: “The sooner we have more measures to help people off mortgage books the sooner we can free up the mortgage log-jam.”

But, of course, there are many more borrowers who have to look on, green with envy. London & Country technical manager Richard Morea says he feels for those who are too deep in arrears to be offered any sort of sweetener.

He says: “Many borrowers will be too far in negative equity to be allowed to leave – they would not be able to be placed anywhere”.

Morea says one L&C client was offered a £30,000 break by Rooftop this week with a 14 per cent discount, but says other borrowers should not get their hopes up: “I would have thought most lenders would have looked at this strategy in this environment, but I doubt the figures stack up in many cases.”

Those who are left make up the rump of the mortgage books, and experts say these are untradeable. Claytons Euro Risk strategy adviser Michael Bolton says that while Rooftop’s move is understandable in such a tough environment, he questions the business sense in selling off the best mortgages on a book. This criticism was aimed at the Government, which now owns the ‘rump’ of the Northern Rock book.

He says: “This is short-sighted – it costs the asset owner more to offer discounts than to manage the loan, and then when it comes to sell the mortgage book all that remains is the rump, which is impossible to sell.”

Regardless, it seems likely that there will be more lucky borrowers receiving windfalls in the near future as lenders desperately try and shrink their exposure to risky home loans. But is this the right move? It might help a few, but is there a better way of helping the many?


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. Downgrading loan books.
    Like Michael Bolton I also question the selling of the best performing loans in a mortgage loan book. These loans would be expected to continue to provide easily serviced and profitable cash flow into the foreseeable future if retained.
    Instead the lender is going for the short term benefit of taking the balance (less discount) now, presumably with the objective of reducing the overall funding requirements of their loan book.
    In doing this however the lender looses cash flow and future profits and downgrades the loan book, which I would have thought makes it potentially more expensive to fund.
    There must be a compelling medium term business case on this because, in the short term, funds that are available would look to be better employed in managing the rougher end of the loan book. In fact if management has actually given up on the really bad end of the book they could concentrate on the ‘medium adverse’ section where, in my experience, careful management can have a significant effect.

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