Exact Mortgage Experts has claimed that as much as £30 billion has been wiped off the value of mortgage portfolios held by UK based financial institutions in run-off books.
The firm argues it is more efficient for banks with mortgages in run-off to shrink these assets proactively than to hold on to them for term. Newly originated mortgages can produce yields of 6% and above whereas 2007 mortgages yield considerably less, and as low as 2.5% in many cases.
Exact calculates, using yield analysis, that the value of these portfolios is less than 80% of their face value, representing a £30 billion value decline for these institutions – and by extension, the British taxpayer.
It explains that run-off books can be shrunk quickly and cost-effectively by giving borrowers a cash allowance to encourage them to refinance their mortgage elsewhere or with more advanced techniques that are being pioneered. Some Borrowers will still be unable to refinance even with a large discount and institutions should protect the value of these mortgages by using servicing techniques to stop them going into arrears.
Malcolm Larmouth, head of business development of Exact, said: “Everyone has had to dig deep in order to prop up the financial system. But keeping mortgages in run-off denies the taxpayer the chance of getting a return on their investment. If these organisations are split and sold off