Towards securitization of home loans?

Thursday, January 16, the Governor of the Cream Bank Mr. Noeh Cas, revived the idea of securitization of home loans, in a letter of greetings to the attention of bankers. This announcement will not delight consumer associations, as it would automatically lead to an increase in borrowing rates. To understand why and how, let’s see what securitization consists of, and what are the means to delay its negative effects on the consumer.

What is securitization?

What is securitization?

Purchase of receivables

Purchase of receivables

Securitization is nothing more or less than a repurchase of receivables. In the context of home loans, the bank or the credit company that granted them may resell its claims to a financial company, which will buy them by raising private funds. The configuration is therefore close to factoring, namely that a company can resell its claims to a bank, in order to receive funds immediately.

The argument on the need for securitization of home loans

The argument on the need for securitization of home loans

When a bank lends property investors and first-time buyers, it therefore pays itself on the interest received. However, the loaned capital is then unavailable until it is fully repaid. The bank may have better investments to make. She would then be tempted to borrow from other banks, using the repayments of the home loans she granted, to repay this new loan which will be used to invest her.

This scheme has been used for a long time, it led to most of the stock market crashes and in particular to that of subprimes in 2008.

To prevent this kind of systemic crisis from happening again, the Basel agreements require that from 2019, banks’ capital represent 7% of their commitments in “hard capital”. Clearly, banks will no longer be able to borrow excessively to repay.

But this security will have a major drawback. Banks will also have less capital to lend to businesses, and therefore to start the economy. Hence the idea of ​​securitizing home loans, in order to give them capital.

The mechanism of securitization of home loans

The mechanism of securitization of home loans

Suppose that a bank needs capital for other investments. The bank determines the number of mortgages it could resell in order to obtain cash. Once this calculation has been made, it instructs a Mutual Receivable Fund to seek investors to buy back its mortgage loans.

The fund is aimed at other funds, attracted by the certainty of this investment. Payment defaults in the context of real estate loans are rare, because it is always possible to restructure the debt, due to the presence of real estate in mortgage.

The fund pays the bank with the proceeds from the sale of the bonds, and the bank thus has capital to invest. Individuals will not see the difference because their monthly payments will not move us, unless it is a variable rate, and again the variation will only be based on the benchmark index.

On the side of individuals, nothing changes except that the interest they pay will remunerate investors. Of course this is a largely simplified explanation, in reality the legal and financial mechanisms are much more complicated.

Securitization of home loans, borrower side

Securitization of home loans, borrower side

Probable rate hike

The process of securitization of real estate loans implies the intervention of a common loan fund and of investors. All these protagonists must be remunerated enough to provoke their intervention. This need to remunerate them means that the sum that will be remitted to the bank that securitized its property claims will be less than the capital that it would have recovered without securitization.

To understand this, let’s compare this principle with that of factoring. A business has a claim, but it needs the amount owed immediately. She therefore remits this claim to a bank, which buys it back for 90% of its price. The company will therefore collect 90% of the sums due, less costs, which represents a shortfall.

To anticipate this loss, it makes sense for the bank to take a certain margin of safety on the mortgage loan rates it grants. This logic is of course far from satisfying consumer associations, and borrowers themselves.

For example, the site of the Le Figaro newspaper announces on its site that, according to an analyst, French securitizations bring in up to 20 points less than Dutch securitizations. The reason: the low current mortgage loan rates.

Need to delay rate hikes

Need to delay rate hikes

The transfer of banking risks to the borrower is not up to date in France or in the European Union. Experts are already highlighting the fact that many factors are involved, and that it will be possible to delay the rise in rates. We are putting forward, for example, the implementation of good practices, in order to avoid banks taking advantage of the securitization of mortgage loans to exaggerate the rise in rates. The first precaution will be to limit the volume of securitization.

Up to 25% maximum volume

Up to 25% maximum volume

For the moment, specialists suggest that the securitization of mortgage loans should not concern more than 25% of the volume. Le Figaro cites figures from the Moody agency, which specifies that securitization operations represent only 4 billion USD in France. It is obvious that the inevitable rise in mortgage rates will be all the more marked as the volume of securitization is high.

Long debates in perspective

Long debates in perspective

At this point it is important to note that nothing has been done yet, and that a lot of ink will have flowed before the practice of securitization is widespread in France.

Because we know the impact of mortgage rates on the housing market. When rates go up, the purchasing power of first-time buyers and investors decreases. If this purchasing power decreases, it is not only the construction sector which suffers, but also the banking sector itself.

It will therefore take a great deal of caution so that securitization of home loans does not turn into a dog that bites its tail.

How the smartphone should become a credit card

The smartphone seems to have a great future ahead of it, and not just as a phone or for using the mobile Internet on the go, but can also serve as a replacement for a credit card. More and more people are choosing to regulate important things in life with their smartphone. So why not the payment process? Basically, the idea of ​​paying with a smartphone has been around for a long time. In the past few months, the well-known NFC technology has repeatedly made it to the top in the news about the smartphone, but has not yet been able to assert itself completely. The security of their own data – especially in the area of ​​payment – is still the top priority for users. The mobile payment systems fromIt should stay that way. Apple and Google should therefore score with high security and ease of use.

 

The idea behind this payment method is simple but effective

The idea behind this payment method is simple but effective

With a specially developed app, users should be able to simply hold their smartphone against a designated terminal. A number is now called up here. However, this number should not be the credit card number itself, but only a number that makes it possible to access the data. The amount the customer wants to pay is then noted on the credit card. Google has now presented the Android Pay at the developer conference and announced that it should be integrated into the new Android M operating system.As part of this adjustment, it is planned that the user can use the proven fingerprint system for Android Pay.So far, this is only the introduction of some innovations by Google.At Apple, the payment system via smartphone has so far only been used in the United States, but should gradually be used for Europe and other countries.

 

What are the advantages of using a smartphone as a credit card?

What are the advantages of using a smartphone as a credit card?

Basically, many technical innovations are initially viewed with skepticism and that’s a good thing. Technical devices are more likely to fail than a simple credit card that is handed over to the payment process and then taken back. If the credit card is lost, the user is responsible for it. Especially when storing payment data in the smartphone, however, a basis is created that may make possible misuse even easier. Various security features are intended to counteract this. It is therefore also worthwhile to take a look at the advantages that are shown by a payment system with a smartphone based on a credit card. So users of this system can do without having their own credit card with them at all times.

If you take good care of your cell phone, you no longer have to be afraid of losing your credit card yourself. Theft of the wallet is only half as bad if there are perhaps no more money cards in it. Backing up the data on the smartphone makes it difficult for fraudsters to use this data for themselves.

 

Take a look at the time savings that are shown when shopping

Take a look at the time savings that are shown when shopping

Long waiting in line is not infrequently connected with the cashier reading the credit card first and the customer then having to provide his signature. If the smartphone now becomes a credit card, it can change. So it is possible that free cash registers are developed or used more frequently. The customer reads in the goods themselves, simply holds the smartphone at the machine for payment and the payment process is completed within a few seconds. Counterfeiting of the signature when paying with stolen credit cards is also prevented in this way. The advantages make this future vision of payment quite interesting.

Credit despite return debit: not always excluded

Are you looking for a loan in your account despite a direct debit? A bank has already rejected your loan request because of the direct debit? We cannot give you high hopes. Especially when you need a loan quickly, it looks bleak in most cases. On the other hand, there are certain case groups in which chargebacks are not an obstacle to lending.

Read the conditions under which a loan is in principle possible despite a direct debit.

  • 1 Sufficient income as a prerequisite
  • 2 credits after chargeback – unauthorized debits
  • 3 Return debit due to carelessness
  • 4 Conclusion and requirements for a loan despite a direct debit
  • 5 Who grants credit despite a direct debit?
  • 6 Credit without credit check despite return debit

Sufficient income as a requirement

Sufficient income as a requirement

Before each loan, the bank checks the income and assets of its credit customers. Whether the income is sufficient for lending depends on the bank’s individual lending guidelines. Basically, the following applies: The net income must be above the garnishment-free limit so that a garnishment-free salary component can be assigned to the bank for security. The borrower must also be able to afford the monthly installment.

After deducting all living expenses, there must be an amount left to pay the monthly loan installment. Why are banks so suspicious when they use the bank statements they provide to identify direct debits? The reason is obvious. Return debits signal payment problems, if not over-indebtedness. The bank believes that the required economic capacity to service the loan is lacking.

Return debits are an indication of an excessive credit risk for credit institutions. By no means wrong. As a rule, there are no direct debits if the overdraft facility granted has not yet been exhausted. Banks carry out the direct debit. Problems only that lead to a direct debit are only if the disposition framework is exhausted or overdrawn or if the bank has not granted overdraft facilities. Both facts do not necessarily speak for the reliability of the applicant’s payment.

From the borrower’s point of view, return debits are also a warning signal if they indicate excessive debt. If liabilities can no longer be covered with current income, there is overindebtedness. In such cases, further borrowing is dangerous. Paying off loans with credit leads directly into the debt trap. So if you are in such a situation, a loan is the wrong way despite a direct debit. Rather, comprehensive advice with debt settlement is necessary. It is offered by debt advice centers, consumer advice centers and specialist lawyers.

Loans despite return debits should only be applied for if the return debit was unjustified or was caused by carelessness and not due to continued inefficiency.

Credit after post-debit – unauthorized debits

Credit after post-debit - unauthorized debits

Anyone who gives a power of attorney risks direct debits even though they are not authorized. There can be a number of reasons for unauthorized debits. Unauthorized direct debits due to criminal acts happen, but are rare. There are often disputes about the justification of the claim. The dispute can be pre-judicial or judicial. In such cases, the account holder will want to cancel the debit.

The technical term for this is “credits after chargeback”. Account movements that are connected with these processes may not be interpreted during the credit check at the expense of the borrower. If this does happen, a clarifying discussion with the lending bank is recommended. The bank will then no longer see any hurdles for lending. The situation is somewhat more complicated if the outstanding claim already appears as a negative feature at credit check and other credit agencies.

Disputed outstanding claims may not be entered. Registration is only permitted if the creditor has issued two reminders and announced a credit check entry in a letter of formal notice. In addition, the debtor must have accepted the claim or at least not disputed it. If you find that an open but contested claim has been entered in the creation file, the correction process must be started.

This requires not only a correction request from credit check, but also the participation of the person who arranged for credit check to be registered. This can also be a collection agency. Correction requests for outstanding receivables are not straightforward. If you discover unauthorized credit check entries in connection with a loan despite a direct debit, you should seek advice from a consumer advice center or from a specialist lawyer.

Return debit due to carelessness

Return debit due to carelessness

Return debits can occur due to unforeseen events or carelessness. The creditor, for example a telecommunications company, collects the monthly amount one to two days early. The employer transfers the salary late, perhaps because he himself is struggling with liquidity problems. An invoice was forgotten that only leads to a direct debit twice a year. Because of this, there was not enough cover on the account. A larger amount of money, for example from a securities transaction, is delayed. The account holder had expected to receive the payment earlier, so there is not enough money in the account to pay a certain invoice.

There are many such examples. In principle, such misfortunes can happen to anyone. They are explainable and should not actually lead to a loan refusal. However, there are two things the account holder needs to look out for. The payment must be made up immediately, unless there is a dispute about the legality of the claim. If this happens to you, contact the creditor immediately. Acknowledge the claim and promise immediate payment.

If you have already received two reminders that you have not responded to, you will also contact the creditor and make the payment. In this case, credit check could come into play if the creditor has already notified credit check outstanding claim. If the claim is not yet titled up to 2,000 dollars, you can have a credit check entry deleted by payment within six weeks. To do this, however, you need the participation of the creditor, which he is obliged to do.