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BBC OnePanorama


Last Updated: Wednesday, 10 October 2007, 13:20 GMT 14:20 UK
Transcript - Sub-prime Suspect



Reporter: Declan Lawn

DATE: 08:10:07

JEREMY VINE: Good evening, I'm Jeremy Vine and this is Panorama. For years we've been encouraged to borrow vast sums against our homes, but now it's payback time.

WOMAN MORTGAGOR: They're not interested in listening to you, and all they want is that money.

VINE: Tonight we reveal the results of years of mortgage misselling.

FRANCES TOMLINSON: They've give us six weeks to get out.

VINE: And how sub prime lending could be a serious threat to house prices and the whole economy.

Reckless mortgage lending in the United States has caused a crisis that's jeopardised pension funds and house prices over their. Here, we're told, our mortgage industry is tightly regulated. Reassuring stuff. So America's perfect storm of bad debt couldn't happen here - or could it?

DECLAN LAWN: How does a nurse on 25,000 a year afford loans worth half a million. How can a couple on state benefits afford to buy their own home? The simple answer is they can't, like this couple, now facing repossession of their house. They're all customers of Britain's sub prime mortgage market, a corner of the economy that appears to be out of control. Not long ago lenders would have run a mile from a family like the Bradburys. David and Maureen are on benefits. They've got no other income, no jobs and no assets. They live in council house but two years ago a mortgage salesman turned up on their doorstep.


DAVID: It was in the evening, about 5 o'clock in the evening, somebody came, knocked on the door, said: "We represent 'Right to But'" he says "You know you can buy your house through Right to Buy now?" I said: "Yeah."

MAUREEN: The man did say it was that we would be paying the same amount as paying in rent, didn't he.

DAVID: Yeah, he did, yeah.

MAUREEN: He said we wouldn't be paying no more, just pay the amount we were paying to the council.

DAVID: So it sounded alright, you know.

LAWN: The salesman got them a mortgage with London Scottish Bank, the Bradburys bought into a dream but were sold a fantasy. The mortgage he'd got them is what's known in America as a NINJA mortgage - 'no income, no jobs or asset.' They're both in their late 50s and in poor health. They, along with their daughter, who is also on benefits, were given a 25 year mortgage at high interest rates.

DAVID: Instead of paying 391 a month, that's after we gets our ability, interest rates gone up - 595 a month. It's getting above a joke it is because it's keeping me awake at night. I do cry sometimes, you know, with it.

LAWN: When we met the Bradburys they were paying interest at a rate of over 10%.

DAVID: I'm at the mercy of the interest rate. So if it goes up again I'll struggle, I'll try and meet it, but after that, if it goes up again I can't, no way.

LAWN: Since we filmed with them, they're rate on their mortgage has gone up again, past 11%. They're relying on money from the rest of the family to keep the bailiffs from the door, for now.

MAUREEN: I used to like to go to bingo, that's had to stop, I can't afford that anymore. We used to go on Sunday, but every penny we get now, we're giving for this mortgage for this house.

LAWN: A decade ago the Bradburys would have found it impossible to get a mortgage, now they're the target market for what's known as sub prime lending. High interest lending to people with poor credit histories, and they're still being targeted.

MAUREEN: It's frightening...

DAVID: Frightening.

MAUREEN: It's really frightening.

DAVID: I mean I'm starting to get letters from other people now, you know...

MAUREEN: People ringing you up saying: "Do you want to re-mortgage your house and we can re-mortgage it? Pay London and Scottish off and you'll be paying less to us than what you owe to them." It's just one after another that's going on and on.

DAVID: One after another.

LAWN: Over the last 10 years here in Britain we've gorged on credit. Whether you're buying a plasma screen TV, a new car or just splashing out, a growing number of finance companies will loan for anything, and increasingly to anyone.

In the past, people like the Bradburys would have missed out on this orgy of spending, standing outside with their noses pressed up against the window. But now, thanks to the magical world of sub prime lending, people with brad credit history, no job, no savings, and hardly any income, can join in too. The trouble is, when things start to go wrong, it's the Bradburys of this world who are the first to feel the pain. But all home owners could suffer according to those who study the sub prime market.

Market analyst
Fundamentally though, US house price is relative to people's incomes, are much less extreme than in Britain, so I would say that Britain has a much more of a classic house price bubble than America. In my view the UK housing market is extremely vulnerable and it's been vulnerable for a long time.

LAWN: People like the Bradburys, stretched to breaking point, are now propping up a corner of the economy. Sub prime lending makes up about 8% of the overall mortgage market and anecdotally at least there seem to be problems with people's ability to cope. We've been speaking to a panel of debt advisers who say that some sub prime mortgage salesmen are exploiting the financially nave.

Citizens Advice Bureau
I dealt with a case where a gentleman went to see a broker for a mortgage of about 47,000 and the broker actually talked him into taking out a mortgage of about 170,000.

Citizens Advice Bureau
So that's over four times as much, isn't it. Again it comes back to the fact that these organisations are dealing with people who they know are not financially literate. They know that they can really get away with telling them anything because they're not actually going to sit down and read the small print and find out that actually what they're being told is a complete load of rubbish.

LAWN: One of the reasons the sub prime housing market collapsed in America was because too many people had been given loans they could never repay. The big question now is have similar amounts of misselling been going on here in the UK? The Tomlinsons from Burton on Trent have lived in their council house for 26 years. They brought up four children here.

FRANCES TOMLINSON: We used to rent it off the council. People used to come and say: "Why don't you buy it?"

LAWN: So they took out a sub prime mortgage to do just that.

Thought we'd try the option to buy, thought we were going to better ourselves but.. you know, fell into difficulty and ended up like we are.

LAWN: Now they've lost their home.

They've give us six weeks to get out, so it's just a lot of memories we're losing.

TONY: We've just had to leave. I mean the kids have grown up here, you know; we've had good neighbours, can't wish for any better neighbours.

LAWN: The Tomlinsons say that they too were told their repayments wouldn't be anymore than the council rent they were already paying.

FRANCES: They told us when we first took it out it won't be more than 400 a month to pay. As soon as we got the papers through, 3 months after it was 751. We was alright paying that for the first year and then this year we got a letter saying it had gone up to 900. 900!

LAWN: The 900 included arrears charges. As their debt spiralled Tony worked harder and harder to keep up.

FRANCES: He was working 7 days a week, 12 hours. He's been to the doctors three times because of the pains in his chest. All the doctor tells him is he's got to slow down but he can't... he can't slow down. He says: "If I slow down and cut down on the hours, where does the money come from to pay the bills?"

LAWN: In desperation the Tomlinsons then got a second sub prime loan from Black Horse loans, a subsidiary of Lloyds Bank. But that money was soon swallowed up by repayments.

TONY: Where it went I just can't understand. I just do not know. See it's been like that all the while, rob Peter to pay Paul, you know.

LAWN: Their local debt advisor can't understand how the initial sub prime mortgage was ever approved.

Citizens Advice Bureau
This mortgage was never affordable for them. I've actually done some figures using a financial statement and I've used the very best pay slip that Tony produced for this year, and even then his income comes to 313 a week and outgoings 346 a week. The figures just don't add up.

LAWN: The financial services authority who are the regulators of the British mortgage sector have a fundamental rule that any mortgage approved by a lender must be affordable. The Tomlinson's lender was Platform Home Loans, part of the Britannia Building Society. We asked them how they justified approving this loan. They say they carried out thorough checks including an affordability assessment.

An affordability assessment
The Bradburys mortgage came from London Scottish Bank. We also asked them why they approved that mortgage. Again they say it was properly approved and that they've now agreed a repayment plan.

.... agreed repayment plan...
Last month the Tomlinsons were forced to sell their house to stop it being repossessed. Forced sales and repossessions can result in weakness in the housing market because there's a bigger supply of houses, and across the country repossessions due to sub prime loans are on the up. At a repossession court in Sheffield we found growing anger against sub prime lenders.

WOMAN: You're just waiting for the next letter to come through the door. Constant threats all the time, you know. They're not wanting to listen to you, they're not interested in listening to you, and all they want.. you know, is that money.

MAN: These people aren't even giving you grace to pull yourself back on your feet. They're actually jumping on you while you're still down, that's what they're doing. They're making a fortune.

WOMAN 2: Everywhere you turn there are different charges for different things, and to be honest, most of what I owe is charges and not what I owe for the mortgage.

LAWN: So how many repossession hearings across the UK are down to sub prime lending? Well there are no official statistics, so we've done our own research. We wanted to know how many of the 7000 or so repossession hearings of the last three months involve banks and building societies who specialise in sub prime mortgages, or offer sub prime loans as part of their business. Remember, sub prime mortgages make up just 8% of the home mortgage market. But we found that banks and building societies who offer sub prime lending are involved in 70% of those repossessions. Of course, our figures aren't official, but they suggest the sub prime market could be out of control.

Council of Mortgage Lenders
I think 'out of control' suggests that they aren't regulated, suggests that they aren't trying to be responsible, suggests that they're lending money without regard to whether they'll get it back. None of those things are true.

LAWN: That is true in many, many cases that we've looked at. These things are happening and they appear to be happening on quite a widespread scale.

COOGAN: Every lender is under responsibility to check ability to pay and to make sure that the advisers that they're using are reputable.

LAWN: But how seriously are lenders taking that responsibility. We found that in some cases criminal fraud has become as simple as filling in a form. This woman doesn't want to be identified. Three years ago a mortgage salesman came to her door and made her a familiar sales pitch.

ANONYMOUS WOMAN: Oh I was happy to own my own house and not pay rent. And he made it out that I'd only be paying round about say.. not much more than I am on rent.

LAWN: So it looked like a good deal really at the time.

WOMAN: Oh yeah, a fantastic deal, but it didn't turn out that way.

LAWN: The salesman came from this company, Home & County Mortgages in Cheshire. They earn a commission by fixing up people who want mortgages with banks and building societies.

Tell me about the things that he asked you to do and asked you to say to get the mortgage.

WOMAN: He asked me to lie about what I work as, lie that I was self-employed, lie on how much I earned a year, and it was three, four times how much I earned a year.

LAWN: The salesman instructed her not to write on her mortgage application that she was a cook, but that she owned her own catering company.

Did you feel uneasy at any time about all this?

WOMAN: Yes, all the way through it.

LAWN: So why did you go ahead with it if you didn't feel right?

WOMAN: I thought it was just a little white lie.

LAWN: He even left her the script of what to say if the bank rang to check her details.

WOMAN: The man just asked me.... he didn't ask me, he told me how much I earned a year and I said yes.

LAWN: And this was the amount that you had agreed with this mortgage adviser?


LAWN: A well placed source has told Panorama this kind of fraud was commonplace at Home & County. Some employees there even made up fake job references for applicants using forged letterheads to fool lenders into believing their inflated salaries were true. Not everyone at Home & County was happy about what was going on.
"...this is mortgage fraud..."
We've obtained these internal emails which show that one manager recommended five times that the salesmen selling the fraudulent mortgages should be sacked.
"...dismiss him immediately."
But the company did nothing. In the end the manager approached the regulators of the mortgage sector, the Financial Services Authority. It's up to the FSA to crack down on misselling and fraud. But they didn't get round to visiting Home and County for four weeks, and it was another six months before the regulator launched a formal investigation.


During that time our source saw the top salesman, who sold our cook her mortgage, shredding documents. When the FSA finally investigated, many documents were missing. But even so, it discovered an estimated 40% of mortgages where the paperwork had survived should never have been approved. In 2005 the same year as this investigation, Home & Counties owner and managing director Mike Bowers paid himself one and a half million pounds. He didn't personally sell the mortgage in question but he was told about it later and took no action against the salesman. I wanted to ask Mike Bowers about how many fraudulent mortgages his company has been involved with. So I tried to meet him as he turned up for work.

Mr Bowers.... Mr Bowers... (Bowers reversing car beats a hasty retreat)

Well we haven't had a chance to put any questions whatsoever to Mike Bowers. I imagine he's not quite so reticent when he's selling mortgages. The FSA eventually found Home & County 50,000 - a slap on the wrist for a man who's made millions.

...all appropriate remedial steps...
Mr Bowers told us his company has taken all appropriate remedial steps to address cases where customer detriment has been identified.
...possible customer detriment...
[To read all the companies' responses in full visit our website at bbc.co.uk/panorama]
Nobody knows the extent of this kind of fraud in the British sub prime mortgage market, but when it happens the consequences are felt all along the chain. If the borrower can't repay, the bank or building society is left with a bad debt. Only the salesman profits.

What do you think should happen to the company who gave you this advice?

ANONYMOUS WOMAN: I don't think they should be selling mortgages personally because if I cook a meal for someone and it's not right, I shouldn't be a cook. So they shouldn't be able to fix people up with mortgages.

LAWN: The regulators of the British mortgage market are the financial services authority and we have a long list of questions that we'd like to put to them. For instance, why aren't the sanctions stricter for those who do break the rules? And, more importantly, just how widespread is misselling and fraud in the British sub prime mortgage market? The FSA though has declined to do an interview and doesn't seem to want to answer any of these questions. Instead the FSA emailed us saying they were aware of weaknesses in sub prime lending and were determined to clamp down on it. But a former FSA enforcement lawyer has told us this failure to regulate smaller mortgage advisers wasn't an oversight but a policy.

FSA Enforcement 2001-03
So the focus changed to very much looking at the very big companies, the banks and institutions, and less at the high street firms and the smaller businesses. It's pretty clear from most of the FSA's literature and from experience in the market that the FSA spends very little time in considering and regulating individual firms on the high street.

LAWN: This light touch regulation has led to some embarrassing lapses. The FSA has admitted to us that it even issued a licence to sell sub prime loans to a man who'd served jail time for fraud. It turns out the industry regulator doesn't do criminal record checks as a matter of course.

Thamesmead in London, the mortgage bad lands of Britain. Here it's not just a question of rogue advisers committing fraud, we've also found this light touch regulation of the sub prime market has led to large scale scams. In fact, it's turned this area of London into a crooks' paradise, and it's all down to the free and easy way sub prime mortgages are handed out.

Gallions Housing Association
You get a businessman, say Mr X, and he buys in bulk from the developer, a whole block maybe, and then he goes and finds bogus buyers and sells the properties on at a vastly inflated price.

LAWN: But are the buyers real people or are they fictitious people or...?

CLEAVER: Quite often they're fictitious people.

LAWN: So the man who has bought the entire apartment bought it fraudulently obtaining say 80 mortgages, getting the money and disappearing?

CLEAVER: Yeah, taking the money and disappearing, and taking the difference between what he has to pay to the developer and what he... and the very inflated price that he's put on those properties.

LAWN: We've been told that 30-40 percent of the blocks along this stretch of the Thames have been repossessed because of this type of fraud. It's a crime that simply couldn't happen if the banks and building societies were doing the proper checks.

CLEAVER: The lenders have to take their share of the blame for it. If people have been able to borrow way above the odds when they really are fictitious people and false identities, then lenders have to take the blame for that.

LAWN: This is Hill House. It was supposed to be a haven for young professionals, waterfront living in an up and coming area of London. Instead, it's desolate, the legacy of a widespread fraud. But not every resident of Hill House was a bogus buyer, a few are real people who unwittingly paid well over the odds to fraudsters for their property. Emmanuel Blango earns between 25 and 30,000 pounds a year as a psychiatric nurse. He went to see a broker who offered to set him up with a mortgage for a flat in Hill House despite his bad credit history.

A good view of the city from here.

Not much was explained to me. They said: "You don't need to have a good financial record, that's why we're giving you 100%, but as long as you're willing to pay up to like 1000 a month, that will be fine.

LAWN: His 1000 a month secured a mortgage of almost 300,000 from the Alliance and Leicester.

So you were given a mortgage of roughly ten times your salary.

BLANGO: Yeah, yeah.

LAWN: But that wasn't enough for Emmanuel's mortgage advisor. He urged Emmanuel to go for another mortgage and get into the buy to let market. Again he found him a sub prime.

So within a very short space of time, you have been given two mortgages...

BLANGO: Two mortgages, yeah.

LAWN: Worth almost half a million pounds.


LAWN: And your income was between 25 and 30 thousand pounds.


LAWN: His second mortgage was with Platform, owned by the Britannia Building Society. That flat is now being repossessed.

How are you coping financially at the moment?

BLANGO: It's hard. It's definitely hard. I wouldn't deny that it's hard.

LAWN: Both the Alliance and Leicester and Platform say they are investigating the mortgages they gave out on this block. The fraudsters involved in the scam have disappeared with the money. This kind of large scale fraud has the potential to cause chaos in the wider economy, loans aren't repaid, house prices are inflated, lenders are unwittingly exposed. It all leads in the end to instability.

What really strikes you about this place is just how quiet it all is. We've been told that 80 out of the 84 apartments in this block have been repossessed. These empty apartments are like tombstones of the sub prime mortgage market. And just over there, in the City, are the people who bundle all of this easy, bad debt up and sell it around the world for billions of pounds.

In the City mortgages are bought and sold just like any other commodity, so your mortgage may not remain with your original lender. Instead it can be rolled up and sold on. These vast packages of debt are traded round the world in a giant game of pass the parcel. As long as they're sold on before people default in large numbers there are huge profits to be made, but there's a flaw according to the analyst who predicted America's sub prime crash.

Market analyst
It's a function of the complexity of the instruments that nobody can value them, because basically these instruments have been dreamt up by boffins operating on economic models and databases which have no basis in ordinary reality.

LAWN: The lenders get their money as soon as they sell these debts on, so there's little incentive to vet customers' ability to pay.

WOOD: The fundamental drawback is that when the lender sells the loan, they have no real interest whether the loan is a good one or a bad one, i.e. whether the loan will be repaid down the road because they are being paid up front.

LAWN: The City makes billions from trading in mortgages, but it sits on a pyramid of trust. All sorts of investors from insurance companies to pension funds buy pieces of this debt. They do it because they trust that the regulators are doing their job. They trust that mortgage companies and banks are carrying out adequate checks, and that mortgage salesmen are honest, that house prices haven't been inflated along the way, that they know exactly how reliable the mortgages are at the bottom. But with each passing day this structure looks more and more fragile.

The official statistics for house repossessions are compiled by the council for mortgage lenders. This is how their figures for last year were reported by the BBC.

January 2007
The number of repossessions has been rising strongly for a few years now and figures out this morning show that last year there were 17,000 homes repossessed.

LAWN: In fact, these figures, although recorded in good faith by the BBC at the time, are wrong. They were actually over 22,700 house repossessions in 2006. It turns out the council for mortgage lenders has been getting its figures wrong for years. That's because it hasn't been including all sub prime repossessions in its statistics.

Until quite recently your own figures have been painting a much rosier picture than is actually the case, haven't they.

Council of Mortgage Lenders
Our repossession statistics were upgraded in August and restated. We did that when we realised that market intelligence was showing that we weren't giving enough weight, the sub prime market was bigger than we thought and the experience of possessions in that market was high so we raised our possessions figure to 14,000 in the first half of this year and that was something like 30% higher than at the same period last year.

LAWN: So the mortgage industry itself is admitting that the problem is far worse than they've led us to believe, an admission that's hardly likely to inspire confidence in the whole sub prime house of cards.

WOODS: The sub prime thing is looking dodgy even before the markets turn down, so you know it's going to be a total mess if there's any real serious downturn.

LAWN: The foundation of an elaborate financial structure rests on real people, many of them working as hard as they can to pay off mortgages they regret ever taking out. If they stop paying in large numbers, everything else will fall apart.

The Tomlinsons have found a new house in Burton on Trent, but it's hardly a new beginning.

Citizens Advice Bureau
This isn't the end of their problems because there appears to be a shortfall after sale of around 10,000, possibly even more. We still haven't got full figures yet. Unfortunately they will be pursued for this money, even after they've moved.

LAWN: Around the world traders buy and sell debt like the Tomlinsons and gamble that most people will keep making the repayments. What they can't know and what threatens the whole economy is just how many people don't have a hope. Now the Tomlinsons bad debt is a problem for all of us.

FRANCES TOMLINSON: I think people are saying it's your own fault, you took it out and you should suffer, you knew what you were doing - but we didn't. We didn't have it explained properly to us.

VINE: Declan Lawn reporting there on what they call NINJA mortgages in the States - no income, no job or assets. There are more than a million sub prime borrowers here in Britain and they are keeping their fingers crossed that interest rates don't go up any time soon. Meanwhile, if you think you've been a victim of misselling, do contact us via our website.

Next week, is America ready for a black president? As his fundraising tour hits London, we'll be asking if Barack Obama can make it to the White House. At bbc.co.uk/5live you can listen again to the report they've produced working with Panorama into the credit crunch and the effect its had on you. _________ www.bbc.co.uk/panorama

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