Banks - Bad Debts to assets conversion idea!

TTNYWWBM

Property loans are the real problem in Irish banks, for the sub 5m loans NAMA will not be dealing with, should they consider the following idea?

A bank hates to forclose a mortgage, selling off a property particularly in todays property market. Recouping the outstanding balance of the mortgage and then returning any excess to the mortgage holder or (indeed more likely in these days) taking a haircut on the original value of the mortgage, or chasing the original mortgage holder in vain!

Case study:
Say a 2 income family, 1 member loses their job, mortgage goes into arrears. Rather than forclosing, the bank could transfer a % of the property onto their books for example 80% or even 60% share of the property as an asset and then restructure the loan for the remainder of the mortgage at a lower repayment, but over the same or a shorter term. So then the 60-80% of property appreciates as we come out of recession, and of course the mortgage holder can seek a restructure to the remainder of the 100% of the property/mortgage again once the 2 incomes have been restored.

The property will appreciate in value post recession, so if the property is kept on the banks books. The original mortgage holder will have to take out a bigger mortgage for it in the future, but all at fair market value. Seems everyones a winner here, and the Punters' family keeps a roof over their heads.

It's like a self 'Namafication', keeping a badly performing mortgage is not good for the balance sheet, restructing and creating a smaller well performing loan and adding an asset is a lot more healthy for the banks!?!

This is the bones of the idea y'all, I'm sure you all will pick at them and please do! I look forward to your ideas on how to recover the banks!

soddy1979

I think the main problem is that economic expansion does not necessarily mean property price appreciation. If you look at some countries in Europe in the 90's they may have had pretty flat property prices or increasing and decreasing over time.

My own feeling is that housing may go back to the traditional price is where supply = demand and will therefore fluctuate (and we have oversupply here I believe). Either way, I don't think property will be seen as the "get rich quick en masse" scheme it previously was in Ireland.

Bearing these possibilities in mind I think you bring in too much of an element of risk to the banks to convert bad mortgages to assets.

TTNYWWBM

I see where you are coming from good point Soddy, My idea was a bit of 'better the divil you know than the divil you dont'. Also to stop banks taking peoples houses if at all possible too!