Talk about deleveraging taken to the extreme. Banks in the UK are paying borrowers to take their business elsewhere.
Daily Mail: Struggling mortgage firms are so desperate to offload borrowers that they are offering to write off a sizeable chunk of customers’ home loans if they move to a rival bank.
In some cases, tens of thousands of pounds are being paid off to give customers a better chance of finding an alternative lender willing to take them on.
The offer is being made by some of Britain’s biggest mortgage firms who are willing to take a hit of as much as £25,000 to get the loans off their balance sheets to see them through the credit crunch.
Now, the only hope this has of working is (obviously) if another bank agrees to take over said mortgage. And so the banks offering this deal are only targeting them to homeowners who are fully up to date on their mortgages. Otherwise offloading them would be impossible. But if they’re willing to pay that much, it means that despite their being up-to-date, they must fit the profile of a borrower almost certain to default.
So the question is: What does the original bank know about the borrower that the new, receiving bank wouldn’t know? Or is it just a matter of assymetrical information. Might the latter bank not realise they’re helping to refi a lemon? We’d love to find out how this works in practice.