Mortgages: Lehman battens down the hatches
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BANKING

Mortgages: Lehman battens down the hatches

Lehman’s new loan modification programme reveals its pessimistic view of the UK housing market.

Lehman Brothers has announced a new loan modification programme for its European mortgage business, replicating similar measures that it had previously adopted in the US. It entails several alternative strategies that can be applied to borrowers in danger of defaulting. These include payment deferrals, maturity extensions, amendments to interest rate terms, capitalization of arrears and acceptance of a shortfall on sale. "We have many customers facing rate resets," says Adrian Mitri, director of servicing at Lehman Brothers. "This programme will enable us to work with customers with more options to avoid having to go through the repossession process and people leaving their homes."

Mitri says the programme is focused on the UK market, where many of the rate resets he refers to are due. Some 10,000 Lehman customers are facing resets in the next few months, and with present interest rates it will not be uncommon for customers paying £700 a month to face monthly payments of £1,000 ($3,900) or more once their rates reset. As the affordability of mortgages continues to be stretched (see chart), it is Lehman’s opinion that the state of the UK housing market will make things extremely hard for these customers.

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