Northern Rock Repossessions

The Council of Mortgage Lenders (CML) recently released details of the number of repossessions for the first half of this year, standing at 24,100*. Whilst encouraging, the CML still predicts 65,000 UK home repossessions throughout 2009, and this is supposed to be good news because it is a reduction from the previous forecast of 75,000. The biggest repossessors amongst all of that is the nationalised banks like Bradford and Bingley, Northern Rock**. Remarkably lenders, owned by the tax payer, find it acceptable to evict people from their homes and offload the cost onto, guess who, the taxpayer.

Repossession is a deeply unpleasant business. It starts with increasingly demanding letters and phone calls from the lender, then visits, court cases and finally bailiffs. Families facing repossession have to often make last minute alternative arrangements and these often involve their local council, further increasing the burden on society, whilst the lender reconciles a balance sheet - a balance tipped very much in their favour, bearing in mind the mechanics of modern money lending. Behind the numbers and statistics there are real life human tragedies, often overlooked in these times of obsession with performance, recovery and key indicators. The potential cost to those borrowers should not only be calculated in numbers. The stress of dealing with money problems, the perceived social stigma of being repossessed and the effect all this has on relationships and families is incalculable.

Repossession is also an expensive exercise for the lender seeking possession. The whole process costs tens of thousands of pounds in fees and administration, to which the loss in value of the property must be added. Vacant and often damaged homes sold at auction rarely fetch more than 50% of their nominal value. Again, factor in the cost to the taxpayer and society and you begin to wonder...

So why do we do it? Surely the clever bankers who can come up with securitization, derivatives and hedges can come up with an alternative to repossession? Apparently not! Apparently a clear signal has to be sent to borrowers unable to keep up payments, whatever their circumstances.

Of course, there are alternatives. It is just that they appear not to be working. The Governments Mortgage Rescue Scheme had helped six, yes that is a total of 6 borrowers in England to the end of May this year. Lenders do have solutions to offer borrowers an opportunity to avoid repossession, but these offer little real flexibility in helping solve the problem. Other solutions exist such as Sale and Rent Back (SRB), a very good solution for some, but open to abuse until coming under regulation by the Financial Services Authority (FSA) in July this year. The courts responsible for issuing the possession orders have also played a large part in reducing the numbers of repossessions taking place this year, but the question remains - are they simply putting off the inevitable as unemployment and mortgage arrears continue to rise?

But a new start-up business based on authentic and ethical principles and originating more from the world of property than the world of finance might just have the answer. Stratum Social Value Partners have a plan which generates profits by keeping people in their homes and their persuasive story has already brought them significant funding and interest from lenders keen to sell their portfolios of distressed mortgages.

Jason Scott, architect of the project explains. "It just seems crazy that nationalised banks can transfer the cost of rehousing people, who have been made redundant as a result of the banking crisis, and are in danger of loosing their homes, partly because of the banks poor lending decisions, to the taxpayer. Not only is this expensive for everyone - the banks, the taxpayer and the individuals involved, it is also highly socially destructive."

"Our intention is to keep people in their homes wherever possible and our mission is to 'Rehabilitate borrowers, not repossess homes'. We will engage with borrowers to gain a better understanding of their position so that we can help to rebuild their financial security or offer a number of other solutions to those who can't afford or no longer want a mortgage. We believe that this is not only more socially acceptable, but more profitable than evicting people from their homes."

So confident are they that the Stratum Social Value Fund is about to be launched. Scott continues 'This is a retail Collective Investment Scheme which we will make accessible to as many investors as possible. Investment of this type are seen as the exclusive domain of the Hedge and Private Equity Funds, often known as 'Vulture Funds', we do not see ourselves as carrion feeders!'

It is not an easy project to challenge the accepted practices of an industry, but Stratum Social Value Partners seem to be onto something.

* As published by the CML, 14th August 2009.

** Figures for repossessions by Northern Rock to 30th June 2009 stood at 2,522.