New Beginning plans to buy mortgages

While we know that the Indo isn’t very good at sums, it still depresses me that they don’t even try.

I too am not very good at sums, but I will give it a go!

Supposing these 2bn in bonds cost 100mn to set up, so 1.9bn is available for loans.

Supposing the return on equity is 1% a year (pretty miserable).
Supposing the coupon on the bonds is 4% for a 7 year term (not too high for what is essentially junk bonds?).
Supposing costs are 0.5% a year.

So total cost of the 2bn annually is 2bn1.5% + 1.9bn4% = 106 mn a year.

Now the mortgages… 1.9bn/25,000=mortgages of 76k
To get 106mn a year, you need to raise 4,240 from each mortgage annually or 5.58%

Then at the end of the 7 years, the borrower has to pay back 80k plus wind-up costs, say 82k…

The banks can easily offer interest only at lower than that, for a higher lump of the mortgage and have some prospect of payback.

So, my suspicion is that this is a scam (perhaps 1,900 borrowers with million pound mortgages, perhaps designed to turn 25k mortgage holders into 25k leaseholders (a far less secure position)?) or a pyramid scheme that has no intention of paying back.

Comments? Anyone got any idea what 7-year junk bonds are trading at?