Jill Insley: If you thought the banks had learnt their lesson, think again

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Jill Insley: It seems incredible that, given everything that has happened in the past few weeks, lenders have still not learnt their lesson

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[calamity jane]

Re: Jill Insley: If you thought the banks had learnt their lesson, think again

If you thought the banks had learnt their lesson, think again

• 
• • Jill Insley
  • The Observer,
  • Sunday October 19 2008
  • Article history
  
  

You might think that having been brought to the brink of collapse by defaulting borrowers, those banks that are still lending would be a bit more careful about their decisions. But last week I heard of three cases that should make your hair stand on end.
In one, the lender didn't bother to ask for pay slips verifying the salary of a borrower who was seeking to increase his mortgage because he couldn't afford his bills. In the other two cases, the lenders involved still seemed willing to lend extraordinary amounts of money compared with the incomes of the borrowers: more than £500,000 on a joint income of £100,000 in one case, and more than £1m on a combined salary of £130,000 in the second. The monthly mortgage payments for this would have taken 99 per cent of the couple's income.
I can't name any of these lenders, because the borrowers are still trying to get deals sorted out, but they are high-street names; you may even have your mortgage with them.
It seems incredible that, given everything that has happened in the past few weeks, lenders have still not learnt their lesson.
The government need not have requested that in return for the bail-out package banks start lending at 2007 levels again - some of them have never stopped. As Henry Ejdelbaum of ASC Finance for Business asked last week, why would we want to go back to 2007 levels anyway? That's what got us into this mess in the first place.
A second condition of the bail-out package was that the banks help borrowers who are falling behind with their mortgage payments. As the package was worth £37bn, it's not unreasonable to expect that the government might have spent a few minutes thinking what exactly it would like the banks to do in return.
Ensure the borrower gets sensible financial advice? Tick. Stop charging interest to give them a chance to get back on their feet? Tick. Hold off taking them to court? Tick, tick.
But no, when my colleague rang both the Treasury and the Council of Mortgage Lenders last week, neither institution had a clue as to what the banks should do in return for us bailing them out.
So much for making the banks accountable.