We all though that it was big news in the UK when the Government stepped in to nationalise Northern Rock, effectively bailing it out and saving the lender from financial collapse, but that was a mere drop in the ocean compared to what has just happened in the US with two of its biggest homeowner loan companies.

The Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, which are better known to everybody as Fannie Mae and Freddie Mac, have been suffering huge losses since the beginning of the global credit crunch last year due to a massive number of defaults and repossessions in the US mortgage and homeowner loan markets and the US Government has been forced to pump billions of dollars into the struggling companies in order to stop them collapsing, nationalising both loan companies.

The action taken by the US government is believed to be the largest nationalisation ever undertaken. Between them, Fannie Mae and Freddie Mac have underwritten around half of the entire US mortgage loan market, holding somewhere in the region of £3 trillion worth of loans. To put this in some sort of perspective, their joint liabilities are approximately 25 times bigger than those of Northern Rock.

Henry Paulson of the US treasury said “Fannie Mae and Freddie Mac are so large and interwoven in our financial system that a great failure in either of them would create turmoil in financial markets here and around the globe.

This turmoil would directly and negatively impact household wealth, from family budgets, to home values, to savings for college and retirement. A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance. And a failure would be harmful to economic growth and job creation.”

The Financial Services Compensation Scheme (FSCS) is bracing itself for a run of complaints from consumers regarding the advice previously given to them by their homeowner loan adviser, according to Loretta Minghella, the chief executive of the compensation scheme service.

She said that there had been a sharp increase in the number of claims made by home owners against their adviser with particular regard to those who were sold a high loan to value ratio mortgage deal.

Ms Minghella announced that the number of complaints made to the FSCS had risen from seven over the course of the 2006 to 2007 financial year, to thirty five over the most recent year, which is an increase of 400 per cent.

Thirty five cases out of the total number of mortgage deals which are arranged every year is a ridiculously small percentage, but the FSCS has said that it is expecting to see a large increase in the number of claims being brought over the next couple of years, as borrowers reach the end of their current homeowner loan deal and start to think about re-mortgaging to a cheaper loan.

It is those borrowers who took out a high loan to value ratio mortgage, of 95 per cent or higher a couple of years ago, who will be likely to complain about the advice given to them, as many of them will be unable to find a suitable remortgage deal in the current economic climate, due to the majority of lenders withdrawing their high loan to value products and property values not increasing to raise the level of equity in a property.

Many borrowers will probably attempt to jump on the bandwagon of people complaining, once they find they are unable to obtain a new loan and start to struggle to keep up with their repayments, in tough economic times people will always look to blame somebody else for their problems!

In support for mortgage advisers generally, the FSCS said that since they had started covering mortgage advice in 2004, they had seen a surprisingly low number of complaints regarding bad advice from advisers and that they only received a total of 100 claims during the course of last year.

It seems that all those people who are currently finding it increasingly difficult to keep up with their mortgage and personal loan repayments each month are going to have to continue doing so for at least another month.

The news comes as the Bank of England’s Monetary Policy Committee (MPC) confirmed their decision to maintain the bank base rate of interest at 5 per cent in their monthly meeting, which was held earlier today (4th September). The rate has remained constant at 5 per cent since April this year, when the MPC reduced it by a quarter of a per cent from 5.25%.

Although it has been widely anticipated that the base rate would remain at 5 per cent, industry figures, particularly in the homeowner loan and housing sectors, have been applying pressure on the Bank of England to reduce interest rates, in order to try and re-vitalise the struggling housing market and create slightly more confidence for those individuals who may be thinking about applying for a mortgage, but are currently not willing to commit to, or may be unable to afford the repayments due to high interest rates, amongst other factors.

The main reason for interest rates to stay at the same level is due to the exceedingly high level of inflation we are currently experiencing in the UK.

The current rate of the Consumer Price Index (CPI) is 4.4 per cent, more than double the target figure of 2 per cent set by the Government and the governor of the Bank of England, Mervyn King, has predicted that this will continue to rise, reaching 5 per cent by the end of this year.

Any reduction in interest rates would be likely to have a negative effect on the inflation figure, pushing the rate even higher than those predicted and making the long term situation even worse.

We have all become painfully aware of the slow down in the UK economy over the recent months, which has largely been driven by the problems with the struggling housing and homeowner loan markets, along with high levels of inflation caused by big increases in the cost of basic items such as food and fuel.

Many individuals are cutting back on the luxuries in life and being careful what they spend as the short term future looks uncertain. For others the problems are even worse as they struggle to maintain the repayments on their mortgages, personal loans and credit cards.

Now there is a bleak outlook for the remainder of the year from the Organisation for Economic Co-operation and Development (OECD), who have predicted that the economy in the UK will enter a technical recession by the end of 2008. A technical recession is defined as two consecutive quarters of negative growth in the gross domestic profit (GDP).

According to the figures from the OECD, the economy only grew by 1.1 per cent during the first three months of the year and showed no signs of growth at all during the second three months. The predictions for the short term future are that the economy will shrink by around 0.3 per cent during the third quarter and fall by 0.4 per cent during the last three months of the year, thus creating a technical recession.

The OECD is still not sure of the full impact on the economy, but believes that inflationary pressures should start to ease slightly over the next few months, although it expects a further slow down in the markets. A spokesman for the OECD said “The eventual depth and extent of financial disruption is still uncertain, however with potential further losses on housing and construction finance.”

As the credit crunch continues to affect us all in the UK in one way or another, many individuals who may be requiring some form of personal loan or finance are finding it hard to be accepted for credit through the normal channels, such as their local high street bank.

As lending criteria continues to get tighter and lenders become far more stricter with regard to who they will grant a loan to, an individual who would have been accepted for a loan as little as twelve months ago could now be rejected if they were to apply for the same loan product today.

As a result of this, a growing number of potential borrowers are turning to doorstep lenders such as Provident Financial to provide the funding they require.

Although the interest rates charged by the Provident may be significantly higher than those of traditional lenders, they specialise in providing bad credit loans and credit cards to those borrowers in the sub-prime market and as such, new business is going very well indeed for the Provident who have just reported an increase of 34 per cent in new loans for the first six months of the year.

A spokesman for Provident said “We have continued to expand customer numbers in both the loan and credit card businesses and our responsible approach to lending means this growth is both sound and profitable. 

Whilst market conditions continue to be favourable, we have been responding to the pressure on household incomes from price inflation and a weak economy. Our decision to be increasingly cautious in our approach to granting new credit over the last twelve months has resulted in the group’s business delivering high quality customer and profit growth. The group’s strong funding position leaves it well placed to continue doing so through the second half of 2008.”