We need a credible plan to repay debt
Posted on March 8th 2010
Vince Cable’s comments echo a presentation I have recently done which focused on the performance of 2007 securitised mortgage loans. The sample that we analysed was based on six RMBS issues originated across thirteen originators. The highlights were that serious arrears of 4+ months or more had significantly spiked in 2009 from about 6% to 15% but repossessions had stayed flat.
Government intervention was clearly playing a massive role in keeping people in their homes. The biggest loan modification in history has taken place in that BBR is at an unprecedented low, meaning that many people are only staying afloat due to incredibly low mortgage payments; on top of this lender forbearance is at an all time high.
Mr Cable is right when he says that the repossession crisis may have only been postponed and that if interest rates go up and unemployment goes up then repossessions will follow. However, that is actually just a statement of fact, even in the most bullish economy that statement holds true and I am sure that whatever government takes control in May, they too know this. The government will need to let the steam out of this problem slowly, waiting for unemployment to normalise before considering interest rate rises.
The fly in the ointment is if the government loses control of interest rates, for example if hyper-inflation kicks in or if the country loses its AAA rating. What is crucial is that the new government needs to quickly lay out plans that credibly deal with our national debt.
