Bank bail-out could saddle taxpayers with billions of defaulting mortgage debt, warn

[Legal Beagles]

Taxpayers could be left saddled with billions of pounds worth of defaulting mortgages under government plans to stem the slump in the property market.

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[argentarius]

Re: Bank bail-out could saddle taxpayers with billions of defaulting mortgage debt, w

I don't understand how feedburner has generated that precis, which doesn't reflect what's in the article at all and which is also complete tosh.

Unless the Mail edited the article after someone else pointed out that it was talking rubbish.

The Government's liquidity scheme requires lenders to put up a lot more value of mortgages than the money they borrow. Effectively it's like getting an 80% mortgage. But the mortgages themselves are also probably between 50% and 80% LTV on average for each lender, so overall the government is getting about twice the security it "needs".

There is no risk to the government from defaults. As soon as a mortgage defaults, the lender has to replace it with a "good" one and take the bad one back onto its own balance sheet - i.e. fund it itself.

This is why I keep pointing out that the Special Liquidity Scheme isn't the bargain (or therefore, the taxpayer rescue or "bail out") that people think, and which is why it's not helping lenders to lend money any more cheaply. In other words, it's a bit of a waste of time.