Law firms are not generally known for innovation, particularly in property transaction. The financial crisis and thus increased pressure arising from this has stimulated some law firms to innovate and differentiate themselves from their competition.
A platform designed by TLT Solicitors is a good example, this platform cuts the replication of individual documents on block housing transactions and enables the client to efficiently track the progress of cases. Property Developers can potentially save 60% in legal fees by using the firms sales process online.
Addelshaw Goddard has found a business solution to disputes involving bankers, valuation firms and intermediaries. Addelshaw has offered clients a conditional fee arrangement for cases. The service is called Regain and helps lender-clients recover value lost in the falling property market. The firm finds new opportunities to force professional valuers to make up the difference.
23 October 2010
25 September 2010
05 September 2010
Changing Goal Posts – Bradford & Bingley sues solicitors over same-day remortgage deals.
Bradford and Bingley – parent company to Mortgage Express who were UK’s largest buy to let lender is looking to pursue negligence claims against law firms over advice received on same day remortgage buy to let deals using the concept of a closed bridge. For the full news article that was published by FT please see:
http://www.ft.com/cms/s/2/d2a0f9fa-ac7d-11df-8582-00144feabdc0.html
The practice of a close bridging loan being used to build a portfolio is common and was widely promoted pre-credit crunch by property related professionals including solicitors, mortgage brokers and other finance professionals. Bradford and Bingley is now alleging that legal firms involved in this activity breached anti-fraud guidelines and legislation as per the Council of Mortgage Lenders Handbook. If you speak to with anyone involved in the buy to let property industry at the time, they will tell you that despite the claim now that the lenders were not aware of this practice, this is hard to believe as this was one of the main topics discussed by all in the industry at the time and lenders made adjustments to their lending criteria based on minimum ownership period which at a stroke stopped the same day remortgage practice. Mortgage Express were promoting their products to the broker community on the basis that they did not operate on a minimum period.
For those of you who could do with some background information; a number of innovative property entrepreneurs created the concept of the Below Market Value (BMV) / No Money Down (NMD) deals as well as coining phrases such as motivated sellers. These property entrepreneurs worked out that the if you could persuade somebody – to sell a property cheaply enough, you could buy it for effectively no money down and even take money out from the deal. The concept used to finance this below market value deals was a closed bridging loan. This allowed the purchaser to effectively use the property’s own equity as the deposit. This created the boom and suddenly property investment became a viable option for all and sundry!
A number of people set about buying property at an unsustainable pace, with one or more purchases per week not being uncommon. The real problem was that these new property investors were taking as much money as possible out of the deal where the rental income was not supporting the mortgage interest, effectively creating a pyramid where the only way to support the deal was by doing more deals.
The reality of the situation was that a motivated seller becomes so, because he is threatened with repossession. Cue the BMV investor who wants to buy their home from them at a substantial discount and allow them to stay in it in return for a rent lower than their mortgage had been. Considering the alternative for the homeowner is repossession and then sale by the original lender at an even lower price, with the lender then pursuing the homeowner with the loss incurred by the lender. Therefore the BMV investor has done the motivated seller a favour. The lenders’ indirectly benefit by this system as well, as they have not needed to repossess and have earned fees from continuing to sell their mortgage products as well and thus creating an all-round win/win situation.
In theory this is fine but what has happened since it that the people who were buying as BMV investors where often financially naive themselves and there was no contingency plan to their business and unfortunately sizeable losses have been made by individuals and subsequently the lenders themselves.
The lenders now are denying all knowledge of all such practices and the law suits will be of interest to many and definitely this is a story that I will be following.
http://www.ft.com/cms/s/2/d2a0f9fa-ac7d-11df-8582-00144feabdc0.html
The practice of a close bridging loan being used to build a portfolio is common and was widely promoted pre-credit crunch by property related professionals including solicitors, mortgage brokers and other finance professionals. Bradford and Bingley is now alleging that legal firms involved in this activity breached anti-fraud guidelines and legislation as per the Council of Mortgage Lenders Handbook. If you speak to with anyone involved in the buy to let property industry at the time, they will tell you that despite the claim now that the lenders were not aware of this practice, this is hard to believe as this was one of the main topics discussed by all in the industry at the time and lenders made adjustments to their lending criteria based on minimum ownership period which at a stroke stopped the same day remortgage practice. Mortgage Express were promoting their products to the broker community on the basis that they did not operate on a minimum period.
For those of you who could do with some background information; a number of innovative property entrepreneurs created the concept of the Below Market Value (BMV) / No Money Down (NMD) deals as well as coining phrases such as motivated sellers. These property entrepreneurs worked out that the if you could persuade somebody – to sell a property cheaply enough, you could buy it for effectively no money down and even take money out from the deal. The concept used to finance this below market value deals was a closed bridging loan. This allowed the purchaser to effectively use the property’s own equity as the deposit. This created the boom and suddenly property investment became a viable option for all and sundry!
A number of people set about buying property at an unsustainable pace, with one or more purchases per week not being uncommon. The real problem was that these new property investors were taking as much money as possible out of the deal where the rental income was not supporting the mortgage interest, effectively creating a pyramid where the only way to support the deal was by doing more deals.
The reality of the situation was that a motivated seller becomes so, because he is threatened with repossession. Cue the BMV investor who wants to buy their home from them at a substantial discount and allow them to stay in it in return for a rent lower than their mortgage had been. Considering the alternative for the homeowner is repossession and then sale by the original lender at an even lower price, with the lender then pursuing the homeowner with the loss incurred by the lender. Therefore the BMV investor has done the motivated seller a favour. The lenders’ indirectly benefit by this system as well, as they have not needed to repossess and have earned fees from continuing to sell their mortgage products as well and thus creating an all-round win/win situation.
In theory this is fine but what has happened since it that the people who were buying as BMV investors where often financially naive themselves and there was no contingency plan to their business and unfortunately sizeable losses have been made by individuals and subsequently the lenders themselves.
The lenders now are denying all knowledge of all such practices and the law suits will be of interest to many and definitely this is a story that I will be following.
10 April 2010
Another view - How Wall Street Lied to Its Computers
An article originally written in September 2008 - I've just come across this and thought at least it offers a different perspective on the events of the past few years.
Please see link below :
http://bits.blogs.nytimes.com/2008/09/18/how-wall-streets-quants-lied-to-their-computers/
How Wall Street Lied to Its Computers
So where were the quants?
That's what has been running through my head as I watch some of the oldest and seemingly best-run firms on Wall Street implode because of what turned out to be really bad bets on mortgage securities.
Before I started covering the Internet in 1997, I spent 13 years covering trading and finance. I covered my share of trading disasters from junk bonds, mortgage securities and the financial blank canvas known as derivatives. And I got to know bunch of quantitative analysts ("quants"): mathematicians, computer scientists and economists who were working on Wall Street to develop the art and science of risk management.
They were developing systems that would comb through all of a firm's positions, analyze everything that might go wrong and estimate how much it might lose on a really bad day.
We've had some bad days lately, and it turns out Bear Stearns, Lehman Brothers and maybe some others bet far too much. Their quants didn't save them.
I called some old timers in the risk-management world to see what went wrong.
I fully expected them to tell me that the problem was that the alarms were blaring and red lights were flashing on the risk machines and greedy Wall Street bosses ignored the warnings to keep the profits flowing.
Ultimately, the people who ran the firms must take responsibility, but it wasn't quite that simple.
In fact, most Wall Street computer models radically underestimated the risk of the complex mortgage securities, they said. That is partly because the level of financial distress is "the equivalent of the 100-year flood," in the words of Leslie Rahl, the president of Capital Market Risk Advisors, a consulting firm.
But she and others say there is more to it: The people who ran the financial firms chose to program their risk-management systems with overly optimistic assumptions and to feed them oversimplified data. This kept them from sounding the alarm early enough.
Top bankers couldn't simply ignore the computer models, because after the last round of big financial losses, regulators now require them to monitor their risk positions. Indeed, if the models say a firm's risk has increased, the firm must either reduce its bets or set aside more capital as a cushion in case things go wrong.
In other words, the computer is supposed to monitor the temperature of the party and drain the punch bowl as things get hot. And just as drunken revelers may want to put the thermostat in the freezer, Wall Street executives had lots of incentives to make sure their risk systems didn't see much risk.
"There was a willful designing of the systems to measure the risks in a certain way that would not necessarily pick up all the right risks," said Gregg Berman, the co-head of the risk-management group at RiskMetrics, a software company spun out of JPMorgan. "They wanted to keep their capital base as stable as possible so that the limits they imposed on their trading desks and portfolio managers would be stable."
One way they did this, Mr. Berman said, was to make sure the computer models looked at several years of trading history instead of just the last few months. The most important models calculate a measure known as Value at Risk — the amount of money you might lose in the worst plausible situation. They try to figure out what that worst case is by looking at how volatile markets have been in the past.
But since the markets were placid for several years (as mortgage bankers busily lent money to anyone with a pulse), the computers were slow to say that risk had increased as defaults started to rise.
It was like a weather forecaster in Houston last weekend talking about the onset of Hurricane Ike by giving the average wind speed for the previous month.
But many on Wall Street did even worse, as Mr. Berman describes it. They continued to trade very complex securities concocted by their most creative bankers even though their risk management systems weren't able to understand the details of what they owned.
A lot of deals were nonstandard in many ways, "so you really had to go through the entire prospectus and read every single line to pick up all the nuances," Mr. Berman said. "And that slows down the process when mortgage yields looked very attractive."
So some trading desks took the most arcane security, made of slices of mortgages, and entered it into the computer if it were a simple bond with a set interest rate and duration. This seemed only like a tiny bit of corner-cutting because the credit-rating agencies declared that some of these securities were triple-A. (20/20 hindsight: not!) But once the mortgage market started to deteriorate, the computers were not able to identify all the parts of the portfolio that might be hurt.
Lying to your risk-management computer is like lying to your doctor. You just aren't going to get the help you really need.
All this is not to say that the models would have gotten things right if only they were fed the most accurate information. Ms. Rahl said that it was now clear that the computers needed to assume extra risk in owning a newfangled security that had never been seen before.
"New products, by definition, carry more risk," she said. The models should penalize investments that are complex, hard to understand and infrequently traded, she said. They didn't.
"One of the things that has caused great pain is complex products," Ms. Rahl said.
That made me think back to some of the great trading debacles of the last century, such as the collapse of Askin Capital Management, a hedge fund that fell apart because of complex mortgage security investments gone bad. Wasn't the moral of those stories that you shouldn't put your money (or your client's money) in something you didn't understand? Furthermore, even if you are convinced you do understand it, you're not going to be able to sell it when you need the money if no one else does.
"In some ways there is nothing new," said Ms. Rahl, who helped investigate what went wrong at Askin. "The big deals are front-page news, then they go into the recesses of people's memories."
And, ultimately, the most important risk-management systems are the ones that have gray hair. "It's not just the Ph.D.'s who must run risk management," Ms. Rahl said. "It is the people who know the markets and have lifelong perspective." And at too many firms it is those people who failed to make sure the quants really did their jobs.
connect with me http://www.safaraz.co.uk
Please see link below :
http://bits.blogs.nytimes.com/2008/09/18/how-wall-streets-quants-lied-to-their-computers/
How Wall Street Lied to Its Computers
So where were the quants?
That's what has been running through my head as I watch some of the oldest and seemingly best-run firms on Wall Street implode because of what turned out to be really bad bets on mortgage securities.
Before I started covering the Internet in 1997, I spent 13 years covering trading and finance. I covered my share of trading disasters from junk bonds, mortgage securities and the financial blank canvas known as derivatives. And I got to know bunch of quantitative analysts ("quants"): mathematicians, computer scientists and economists who were working on Wall Street to develop the art and science of risk management.
They were developing systems that would comb through all of a firm's positions, analyze everything that might go wrong and estimate how much it might lose on a really bad day.
We've had some bad days lately, and it turns out Bear Stearns, Lehman Brothers and maybe some others bet far too much. Their quants didn't save them.
I called some old timers in the risk-management world to see what went wrong.
I fully expected them to tell me that the problem was that the alarms were blaring and red lights were flashing on the risk machines and greedy Wall Street bosses ignored the warnings to keep the profits flowing.
Ultimately, the people who ran the firms must take responsibility, but it wasn't quite that simple.
In fact, most Wall Street computer models radically underestimated the risk of the complex mortgage securities, they said. That is partly because the level of financial distress is "the equivalent of the 100-year flood," in the words of Leslie Rahl, the president of Capital Market Risk Advisors, a consulting firm.
But she and others say there is more to it: The people who ran the financial firms chose to program their risk-management systems with overly optimistic assumptions and to feed them oversimplified data. This kept them from sounding the alarm early enough.
Top bankers couldn't simply ignore the computer models, because after the last round of big financial losses, regulators now require them to monitor their risk positions. Indeed, if the models say a firm's risk has increased, the firm must either reduce its bets or set aside more capital as a cushion in case things go wrong.
In other words, the computer is supposed to monitor the temperature of the party and drain the punch bowl as things get hot. And just as drunken revelers may want to put the thermostat in the freezer, Wall Street executives had lots of incentives to make sure their risk systems didn't see much risk.
"There was a willful designing of the systems to measure the risks in a certain way that would not necessarily pick up all the right risks," said Gregg Berman, the co-head of the risk-management group at RiskMetrics, a software company spun out of JPMorgan. "They wanted to keep their capital base as stable as possible so that the limits they imposed on their trading desks and portfolio managers would be stable."
One way they did this, Mr. Berman said, was to make sure the computer models looked at several years of trading history instead of just the last few months. The most important models calculate a measure known as Value at Risk — the amount of money you might lose in the worst plausible situation. They try to figure out what that worst case is by looking at how volatile markets have been in the past.
But since the markets were placid for several years (as mortgage bankers busily lent money to anyone with a pulse), the computers were slow to say that risk had increased as defaults started to rise.
It was like a weather forecaster in Houston last weekend talking about the onset of Hurricane Ike by giving the average wind speed for the previous month.
But many on Wall Street did even worse, as Mr. Berman describes it. They continued to trade very complex securities concocted by their most creative bankers even though their risk management systems weren't able to understand the details of what they owned.
A lot of deals were nonstandard in many ways, "so you really had to go through the entire prospectus and read every single line to pick up all the nuances," Mr. Berman said. "And that slows down the process when mortgage yields looked very attractive."
So some trading desks took the most arcane security, made of slices of mortgages, and entered it into the computer if it were a simple bond with a set interest rate and duration. This seemed only like a tiny bit of corner-cutting because the credit-rating agencies declared that some of these securities were triple-A. (20/20 hindsight: not!) But once the mortgage market started to deteriorate, the computers were not able to identify all the parts of the portfolio that might be hurt.
Lying to your risk-management computer is like lying to your doctor. You just aren't going to get the help you really need.
All this is not to say that the models would have gotten things right if only they were fed the most accurate information. Ms. Rahl said that it was now clear that the computers needed to assume extra risk in owning a newfangled security that had never been seen before.
"New products, by definition, carry more risk," she said. The models should penalize investments that are complex, hard to understand and infrequently traded, she said. They didn't.
"One of the things that has caused great pain is complex products," Ms. Rahl said.
That made me think back to some of the great trading debacles of the last century, such as the collapse of Askin Capital Management, a hedge fund that fell apart because of complex mortgage security investments gone bad. Wasn't the moral of those stories that you shouldn't put your money (or your client's money) in something you didn't understand? Furthermore, even if you are convinced you do understand it, you're not going to be able to sell it when you need the money if no one else does.
"In some ways there is nothing new," said Ms. Rahl, who helped investigate what went wrong at Askin. "The big deals are front-page news, then they go into the recesses of people's memories."
And, ultimately, the most important risk-management systems are the ones that have gray hair. "It's not just the Ph.D.'s who must run risk management," Ms. Rahl said. "It is the people who know the markets and have lifelong perspective." And at too many firms it is those people who failed to make sure the quants really did their jobs.
connect with me http://www.safaraz.co.uk
02 April 2010
Continued Optimism for Buy-to-let Investors: An Update
The depressive state of the economy for the few years has wiped out the ‘get rich quick’ investors, who plunged into buy-to-let expecting overnight returns. The experienced and the more cautious among us, who took a longer-term view, have survived the worst of the recession and are beginning to feel more optimistic about the future.
There are a number groups representing agents and landlords that have reported an increase in demand for rental accommodation with demand outstripping supply in certain parts of the country, rents have also said to be improved and this may be due to the effect of the Local Housing Allowance. Having spoken with a number of property investors as well as property and finance professionals at various events over the last month or so, many are indicating that they are still feeling discouraged by the lack of credit they are still of the opinion the buy-to-let mortgage market is expanding modestly again.
It seems that even though the press are getting all excited again regarding property prices a full recovery may be some way off however the long-term prospects for the market remain strong and investors with money in the bank are taking advantage of reduced property prices and low interest rates to expand their portfolios.
There are a number groups representing agents and landlords that have reported an increase in demand for rental accommodation with demand outstripping supply in certain parts of the country, rents have also said to be improved and this may be due to the effect of the Local Housing Allowance. Having spoken with a number of property investors as well as property and finance professionals at various events over the last month or so, many are indicating that they are still feeling discouraged by the lack of credit they are still of the opinion the buy-to-let mortgage market is expanding modestly again.
It seems that even though the press are getting all excited again regarding property prices a full recovery may be some way off however the long-term prospects for the market remain strong and investors with money in the bank are taking advantage of reduced property prices and low interest rates to expand their portfolios.
10 January 2010
Best Wishes for 2010
2009 has mixed year - many businesses have failed, some have relaunched again immediately under various initiatives including pre-pack administration deals and we will see more of these to come in 2010. There also been a significant increase in new start ups and many individuals who have been redudant in 2009 have taken the opportunity of starting a business.
I am looking forward to this year and would expect most people to be more optimistic but still take a more business like approach to their lives and careers back up planning and risk awareness.
I have over the festive and holiday peiod been busy browsing and just reading and searching what information for new start-ups is available. I have come across a number of sites that are useful and worth bookmarking and are listed below:
http://www.cobwebinfo.com/
Cobweb publishes a unique range of information packages to help you start and grow a business.
http://www.scavenger.net/
Part of Cobweb publishing, Scavenger has over 800 reports and guides to help research a business idea or market, write a business plan, and start up a small business. This is a pay as you go site.
http://www.bestforbusiness.com
This is a free portal to thousands of links and many fact sheets covering all apects of business.
Wish you all well for this year.
I am looking forward to this year and would expect most people to be more optimistic but still take a more business like approach to their lives and careers back up planning and risk awareness.
I have over the festive and holiday peiod been busy browsing and just reading and searching what information for new start-ups is available. I have come across a number of sites that are useful and worth bookmarking and are listed below:
http://www.cobwebinfo.com/
Cobweb publishes a unique range of information packages to help you start and grow a business.
http://www.scavenger.net/
Part of Cobweb publishing, Scavenger has over 800 reports and guides to help research a business idea or market, write a business plan, and start up a small business. This is a pay as you go site.
http://www.bestforbusiness.com
This is a free portal to thousands of links and many fact sheets covering all apects of business.
Wish you all well for this year.
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