Toll Brothers Insurance Company Inc
Two new schemes from luxury home builders aimed at bolstering the market have just been announced, one in the UK and one in the USA. Toll brothers, one of the largest luxury home builders in the US, announced their “mortgage protection plan,” this week. According to their press release:
“The Mortgage Protection Plan is provided at no cost to Toll Brothers’ home buyers who sign an Agreement of Sale on or after February 20, 2009 and who finance their new home through TBI Mortgage® Company. It covers up to $2,500 in monthly mortgage payments for 6 months if the new homeowner suffers a covered job loss within the first two years after closing on their new Toll Brothers home.”
There are quite a few limitations to the plan, and full details are avaiable here – Toll Brothers.
Buy a home with no money
Across the pond, in the UK, Barratt homes are offering a “government backed shared equity scheme,” which involves a no deposit purchase instead of any cash down. Details here – Barratt homes no deposit mortgage.
Far be it for me to criticize any of the current crop of schemes, but I would have thought there is a conflict of interests here that are not going to be easily reconciled in the future. Do you really want your house builder to be the same company that lends you the money to buy at an inflated price? When the time comes for the insurance company to avoid paying out any money, who actually owns the property? Will ownership revert back to the builder in case of default? Or when you wish to move house, if 30% of the property is still owned by the builder, who is the primary owner? Very confusing, and to my mind, dangerously easy for buyers to be taken advantage of. Lets see some realistic prices and rational lending practices rather than hastily-concocted programs to re-inflate the bubble.
The situation does seem to be rather confused at the moment with conflicting statements coming out of the governments. Panic is the word that comes to mind. Gordon “no more boom and bust” Brown seems intent on driving the British economy over a cliff. On the one hand, he is calling for more conservative lending practices, yet on the other hand is desperately pleading for the banks to start writing mortgages again.
The latest in the British banking bailout saga involves Northern Rock. Northern Rock was nationalized with an infusion of cash and government guarantees last year, and instructions to slim down their lending, repay the money as fast as possible and create a solid bank. That has now gone out of the window in favor of another vast injection of cash. Another £14 billion has been pumped into the bank, they no longer have to worry about repaying the original injection of cash and have been instructed to “get out there and write some mortgages.”
At the same time, they are being instructed not to issue any more 100% mortgages. Mr Brown has decided that 90% is a rational lending practice now. Despite the fact that British property prices are almost certainly going to fall more than 10% in 2009, with affordability levels nowhere near sensible levels yet.
On top of that, Northern Rock have told the British public that they are not really interested in paying sensible amounts of money to their executive staff, and have announced plans to continue paying bonuses. These bonuses were due in 2008, and of course, if the bank had been allowed to fail, which it should have, there would be no bonuses paid. Still, when you have access to government funds, you can apparently behave as you wish.
Royal Bank of Scotland, which also needed vast amounts of bailout money have said the same thing and fully intend to continue paying bonuses to their executive staff.
Both these companies are using the excuse that these bonuses are needed to retain high quality staff. Seeing as they both managed to lose as much money last year as they made in the previous ten years, one has to wonder how stupid they think we are. Just exactly how good are the staff they they wish to retain? And pressure is being bought to bear all over the world to prevent this bonus culture from continuing, so this argument does not hold water.
