Check out this article on Friday in
The Guardian about Housing Associations and Councils which have been ripped off by the Banks over the toxic LOBO loans they were mis-sold. I have an obvious interest and concern in both organisations.
This is a national disgrace but since there are time limits on possible legal action we all need to act quickly. Sticking your head in the sand and doing nothing is not an option.
Councils and Housing Associations need to join up together to sue the banks and advisors.
"
What looked like an attractive deal has been catastrophic for many
social landlords and local authorities - and it’s the people at the
bottom who suffer...
For many councils and housing associations, the wolf is at the door. In Spanish and Portuguese,
lobo
is one word for the fearsome canine. It’s fitting then, that the latest
instrument of predatory capitalism to attract attention – lender option
borrower option agreements – are called lobo loans for short.
The loans, typically long-term from 40 to 70 years, were taken up by
as many as 63% of local authorities in the UK, as a way of funding
services post-recession. For housing associations, many considered lobo
loans the only funding option given the shrinking of grants: the less
stable associations had committed to
development contracts, but were starved of cash
.
But there’s a catch: there’s always a catch. The terms may have
looked attractive, but for a reason. Many local authorities took a
gamble when taking out lobo loans: if base interest rates rose (and most
people assumed they would), they’d get a good deal. But they didn’t
rise, and many local authorities didn’t get a good deal.
And, as the name suggests, the loan terms aren’t set in stone: the
lender’s option could be to hike fixed rates at predetermined dates
where they are permitted to alter the loan facility. The borrower’s
option is to accept that rate, or repay the loan.
In 2009, 30 housing associations took out lobos after the financial
industry took to selling them to local authorities and social landlords
on an industrial scale. Borrowers thought that they were insuring themselves
against possible high interest rates, but the derivatives built into the
loans meant that the costs were linked to market performance, so
borrowers actually pay more when rates fall.
Now, the likelihood of housing associations building more, while
saddled with so much debt, is looking unlikely and local authorities
have essentially shot themselves in the foot.
Newham council,
the Financial Times reports,
took out 27 loans at a face value of £563m. The latest fair value of
the loans now puts them at £959m, with interest rates in excess of 7% on
some loans.
The Evening Standard reports
Thames Valley Housing in London has had to renegotiate the terms of its
loans, and many borrowers are facing renegotiation or the prospect of
paying high break fees, all of which essentially pour council taxpayers’
and tenants’ cash down the plughole.
What looked like an attractive deal has been catastrophic for many
social landlords and local authorities - and at a time when councils are
facing cuts at a level not seen for a generation, and housing
associations are struggling to build homes and are being battered by
cuts.
The loans should never have been sold: they are extremely complex financial instruments, and
pricing them is far beyond the capabilities
of housing associations and local authorities. But also, the use of
derivatives by local authorities is potentially unlawful, and has been
since the
1989 Hammersmith and Fulham swaps case. Council leaders and MPs have
written to Andrew Tyrie, chair of the Treasury select committee calling for an investigation into potential mis-selling.
Treasury guidance stipulates that “
public sector organisations may borrow from private sector
sources only if the transaction delivers better value for money for the
Exchequer as a whole.” It’s difficult to see how the lobo loans scandal
has done anything more than impoverish housing associations and local
authorities, while once again lining the pockets of certain large banks.
The most dispiriting point is this: the financial industry has
learned nothing from the crash. For a brief period when the global
economy melted down in 2008, many people genuinely believed the industry
would be forced to change.
Unregulated, it was left to package up toxic bonds and brag about
excess. Surely, governments would impose regulation, and a cowed banking
sector would follow suit and rein in the excesses that had caused banks
to blow up? Neither happened. So, yet again, we find ourselves facing a
financial crisis, this time in local authority and housing finance, and
rather than see a resolution, we’ll just see the people at the bottom
suffer".
Today the Government has announced that it will change the law to make it compulsory for Social Housing Managers to hold formal qualifications in a similar way to social workers and teachers. The reasons given were "both Grenfell and the death of Awaab Ishak showed the "devastating consequences of residents inexcusably being let down by poor performing landlords who consistently failed to listen to them"
