Negative Equity (again!)

Here is a proposal put out by Iain Nash and Karl Deeter for people in negative equity.

My understanding is that it allows people to complete their contractual obligations to their mortgage originator, save money and restart their property decisions when things settle out for them.

The model will also work with the banks taking a hit on the mortgage principal.

What do you all think?

Head The Wall

They make some good points alright, as long as there is no disincentive for people to be going on the dole so they don't have to pay the NEL back. It could possibly encourage the Black Market more than is already happening.

And it's not a bailout which will keep most people happy. Surely the banks should have offered this initiative themselves though, it's not rocket science.

My own solution although I don't know how plausible it would be is to get the banks to temporarily renegotiate the Mortgages to a payment that the owner can currently afford. (This will involve extending the life of the mortgage temporarily). The amount of the payments can then be re evaluated every 2 years say and if the owners position changes they can up the payments they are making. Over time as the economy prospers (hopefully) and the market rises at a reasonable rate the negative equity in the house should start to balance out.

I know this won't work in all situations as it wouldn't let people move house so it would be geared for people that want to stay in their house.

We have to come up ideas as it seems the Banks are just happy to sit on their asses and collect no mortgage payments from a lot of people. Don't they see where this is going to end up

Scarab80

Another scheme by vested interests in the residential property sector to get the government to borrow to stimulate the property sector, it doesn't matter how many bells and whistles you add to a scheme it still comes down to more debt to get people buying houses. I reckon the last thing a person in negative equity wants is to add to their mountain of debt.

There are two ways to get out of negative equity,

1. A genuine increase in the demand for houses due to an increase in immigration or first time buyers fueled by real economic activity

2. Keep paying down your mortgage

Guy:Incognito

Why does anything need to be done because people are in negative equity? Being in negative equity hasnt got anythign to do with not being able to pay your mortgage.

It doesnt affect you unless your trying to sell, so just dont try sell your house.

Einhard

Stekelly wrote: »

Why does anything need to be done because people are in negative equity? Being in negative equity hasnt got anythign to do with not being able to pay your mortgage.

It doesnt affect you unless your trying to sell, so just dont try sell your house.

These are good points. The only people negative equity should affect are those who have lost their jobs or otherwise unable to meet their mortgage repayments, and are not able to recoup thr value of the initial investment should they be forced to sell. A lot of other people though, are just p*issed that the new neighbours paid half the price for the same house.

I believe the point of the model is to help those people who have to sell their house and clear their debts now because of unemployment, change of job etc.

silverharp

if commercial entities want to lend on a commercial basis to these people, good luck to them, otherwise there should not be any type of government help here. The humane solution may just be letting the people default so that they can get on with their lives and their former properties going to people who can afford them.
The housing market is still a Zombie market because prices arent being allowed to correct properly. I'd personally buy 2 or 3 investment properties in the morning if I thought there was any value there but I cant see any yet.

Head The Wall

Scarab80 wrote: »

I reckon the last thing a person in negative equity wants is to add to their mountain of debt.

There are two ways to get out of negative equity,

1. A genuine increase in the demand for houses due to an increase in immigration or first time buyers fueled by real economic activity

2. Keep paying down your mortgage

This scenario doesn't get rid of their debt, but it does let them sell the house so they are able to reduce their outgoings and move for work purposes if needs be. It looks to be a step in the right direction

ei.sdraob

Deleted User wrote: »

I believe the point of the model is to help those people who have to sell their house and clear their debts now because of unemployment, change of job etc.

I invest in horses/hedgefunds/stocks/companies,

i loose my job, investments go sour

where is my bailout?




unemployed people already get assistance

to eat, be clothed and have rent paid for

cson

Some good points made here.

If you consider your house as a stock for a second; you invested in this stock at the height of the market and now its worth a fraction of what you bought at. You can either sit it out and hope that the value recovers or else bail now and learn from the loss. The latter is not an option for a lot of people as they borrowed to fund this investment.

As has been mentioned; negative equity only really impacts upon a asset if you decide to sell it. We're a gambling nation by and large so to those who are in negative equity and looking for a bailout; you backed the wrong horse, you lost your money and the bookie ain't [and shouldn't] gonna give it back to you.

ei.sdraob

cson wrote: »

Some good points made here.

If you consider your house as a stock for a second; you invested in this stock at the height of the market and now its worth a fraction of what you bought at. You can either sit it out and hope that the value recovers or else bail now and learn from the loss. The latter is not an option for a lot of people as they borrowed to fund this investment.

As has been mentioned; negative equity only really impacts upon a asset if you decide to sell it. We're a gambling nation by and large so to those who are in negative equity and looking for a bailout; you backed the wrong horse, you lost your money and the bookie ain't [and shouldn't] gonna give it back to you.

not only that but the bookie "government" is broke

and the money has long left the country

to make matters worse you and your children are deep in debt to keep the racecourse "country" going


people really need to get it into their thick sculls that any money spend by government is money that will be taken from them (and their children) directly or/and indirectly

now that we own the banks (sigh) we inherit their problems and PAY for them

OMD

ei.sdraob wrote: »

I invest in horses/hedgefunds/stocks/companies,

i loose my job, investments go sour

where is my bailout?

Depends where your investments are. If you put your savings in an Irish bank then you got your bailout through the government guarantee. If the markets were allowed to behave normally, then the banks would have gone bust and most of your savings would have gone with them. Instead the government gave you a bailout.

Similar if you had invested in bank shares (or an investment fund that included bank shares). That money would have been lost completely rather than simply reduced. A semi bailout to investors

Taxipete29

ei.sdraob wrote: »

unemployed people already get assistance

to eat, be clothed and have rent paid for

None of which the Govt will ever get back.

Banned Account

Just a question here, why are we, as a nation, so hung up on the notion that people have some inherent right to keep their home? If you bought a luxury car at the height of things because you could afford it, you would be expected to get rid if you could no longer afford to run it. You would get no sympathy if you did not realise enough to clear the car loan.

If you bought or built a large house, and can no longer service the large mortgage, why should the situation be any different?

Not taking sides here by the way, just wondering why we feel a certain way about houses as opposed to other assets?

Spudmonkey

OMD wrote: »

Depends where your investments are. If you put your savings in an Irish bank then you got your bailout through the government guarantee. If the markets were allowed to behave normally, then the banks would have gone bust and most of your savings would have gone with them. Instead the government gave you a bailout.

Similar if you had invested in bank shares (or an investment fund that included bank shares). That money would have been lost completely rather than simply reduced. A semi bailout to investors

There is a significant difference between savings and shares. People put money in savings accounts expecting them to be secure. They are not a gamble. Bank shares are however!!

OMD

Spudmonkey wrote: »

There is a significant difference between savings and shares. People do not put money in savings accounts expecting them to fall as well as rise. They are not a gamble. Bank shares are however!!

Either way both groups got a bailout. You may think they deserve a bailout but it is still a bailout.

Inquitus

One of the issues I have with negative equity is the fact we have no mortgages over here that allow people to move negative equity from one house to the next. As that article says, we have 200k homeowners in Negative Equity, and more will be soon as the market continues its fall.

This means there are 200k homeowners currently locked out of the housing market, this further stifles demand and in turn fuels the downward spiral of houseprices.

I have friends who are in about 80k Negative Equity, but both have good jobs and would like to move house, the only way they can do so is to save the 80k as fast as possible, save a deposit on top of that then try to move to a larger house....this is despite the fact that they are clearly very well able to pay a much larger mortgage than the one they are currently paying down, even using the revised borrowing guidelines banks are now enforcing.

Jaysoose

ei.sdraob wrote: »

not only that but the bookie "government" is broke

and the money has long left the country

to make matters worse you and your children are deep in debt to keep the racecourse "country" going


people really need to get it into their thick sculls that any money spend by government is money that will be taken from them (and their children) directly or/and indirectly

now that we own the banks (sigh) we inherit their problems and PAY for them

Change the record for gods sake.

Spudmonkey

OMD wrote: »

Either way both groups got a bailout. You may think they deserve a bailout but it is still a bailout.

Under the mattress so in future eh??

average_runner

Who cares about negative equity, no one put a gun to your head to buy a house, but sorry you made a bad investment now pay for it.

Its call life

Jaysoose

average_runner wrote: »

Who cares about negative equity, no one put a gun to your head to buy a house, but sorry you made a bad investment now pay for it.

Its call life

What an insightful argument you put forward thanks for your input.

gurramok

OMD wrote: »

If you put your savings in an Irish bank then you got your bailout through the government guarantee.

I put my savings into a foreign run bank, i did not get any bailout.

Your logic is ludicrous comparing prudent people who have been prudent and those who borrowed heavily. The latter deserve no bailout.

cson

OMD wrote: »

Either way both groups got a bailout. You may think they deserve a bailout but it is still a bailout.

Those who invested in bank shares certainly didn't. A man formerly one of the richest in the country is broke because of it. Rightly so in my opinion; its gambling at the end of the day. You can dress it up all you want as investing but in the cold light it's glorified gambling, and broadly the same as the guy putting money on Aidan O'Briens in the 4.40 in York.

Jaysoose

cson wrote: »

Those who invested in bank shares certainly didn't. A man formerly one of the richest in the country is broke because of it. Rightly so in my opinion; its gambling at the end of the day. You can dress it up all you want as investing but in the cold light it's glorified gambling, and broadly the same as the guy putting money on Aidan O'Briens in the 4.40 in York.

This is so wrong, how the fck can you compare somebody making a major life decision to backing a horse?

Pathetic.

cson

Jaysoose wrote: »

This is so wrong, how the fck can you compare somebody making a major life decision to backing a horse?

Pathetic.

Investing in shares is gambling.

Same core fundamentals to it as a guy backing a horse.

Banned Account

cson wrote: »

Those who invested in bank shares certainly didn't. A man formerly one of the richest in the country is broke because of it. Rightly so in my opinion; its gambling at the end of the day. You can dress it up all you want as investing but in the cold light it's glorified gambling, and broadly the same as the guy putting money on Aidan O'Briens in the 4.40 in York.

The flaw in your argument here is that the horse does not have a legal duty to act in the best interests of its punters.

Jaysoose

cson wrote: »

Investing in shares is gambling.

Same core fundamentals to it as a guy backing a horse.

Believe what you want.

cson

Fitzcaraldo wrote: »

The flaw in your argument here is that the horse does not have a legal duty to act in the best interests of its punters.

It does to be quite honest. Rules of racing decree that you must be trying. Of course it's at the discretion of those who govern racing to decide upon that and it would appear that there are parallels between the HRI Stewards and the present government in that respect.

Edit: None of which has to do with negative equity. Bank shares were mentioned as being bailed out; I said they weren't and nor should they be as no one should be given their money back on a gamble. That idea is possibly worth a separate thread but is not the purpose of this one, thus I'll leave it at this post.

OMD

gurramok wrote: »

I put my savings into a foreign run bank, i did not get any bailout.

Your logic is ludicrous comparing prudent people who have been prudent and those who borrowed heavily. The latter deserve no bailout.

It is still a bailout. Had the market been allowed to act normally the banks would have gone bust. That is a fact. Had they gone bust those with savings would have lost their money. The government put in place a guarantee to stop people loosing their money. That is a bailout. I can't see how you can argue otherwise. You may feel it is fair to give this bailout, and I have no argument with that, but it does not change the fact that many people who have savings in Irish Banks received a bailout.

By the way you assume people who save are prudent but people who borrow are not.

Taxipete29

I dont see how this is a bailout. The people still pay back the money they owe, just to a different creditor. They have still lost money on the deal.

If people think that having 200k people locked out of the property market for the foreseeable future is good for the long term prospects of the country they are very much mistaken.

The proposal is not saying this is the main solution. Its not saying that should be the first option considered. Its about putting forth an idea that may help the housing market, may help people move home or may help people reduce their debt burden by selling their property and paying back the money they have lost over a period of time.

This is all about trying to get the economy back on track. This is not the Govt overpaying for loans( NAMA). This is not a handout with nothing in return.

This is not about helping those who wanted to own 2 and 3 houses and build a portfolio of rental properties. This is about helping people who wanted to buy a house, to live in and maybe raise a family.

Some people here just want to say I told you so over and over. Its not about whats best for the country or the economy or its people. Its about them on their moral high horse saying" but I was prudent". Well good for you. You will still be ahead of those who bought foolishly, but your preachy attitude of let them suffer is not about teaching people a lesson as much as it is about you wanting to be the billy big balls who didnt get into debt and wants to lord it over those who did.

gurramok

OMD wrote: »

It is still a bailout. Had the market been allowed to act normally the banks would have gone bust. That is a fact. Had they gone bust those with savings would have lost their money. The government put in place a guarantee to stop people loosing their money. That is a bailout. I can't see how you can argue otherwise. You may feel it is fair to give this bailout, and I have no argument with that, but it does not change the fact that many people who have savings in Irish Banks received a bailout.

By the way you assume people who save are prudent but people who borrow are not.

And whats this point of view got to do with the topic?

seamus

Fitzcaraldo wrote: »

Not taking sides here by the way, just wondering why we feel a certain way about houses as opposed to other assets?

Because a house is a home and quite rightly the roof over a person's head occupies a special place in law.

The proposal is not to do with bailing anyone out.

There are a few fundamental things to consider when looking at someone in trouble financially, with a mortgage to service and who are in negative equity. Yes, you can say the person gambled and lost, now deal with it, but that solves nothing. Because the person is actually prevented from dealing with it, effectively.

In normal circumstances (such as the car), you would tell them to sell the car and throw the money against their car loan. Bingo-bango, dead easy. However, you cannot do this with a house. You cannot sell a property until all debts outstanding on that property have been cleared.
So if you're in negative equity and looking to sell, you will need to have a cash lump sum to cover the shortfall, before you can transfer the property to someone else.
Someone in financial difficulty will not have that lump sum. So they can't afford to pay their mortgage, and they can't afford to get out of it. The bank will not give them a large term loan to cover the shortfall in equity because;
a. They don't have the income to service a €50k+ debt over ten years
b. They have no collateral to secure it against

So at present, the only option available to the bank is to begin proceedings against the individual to take possession of the house. This is expensive for the bank and the individual and it consumes inordinate amounts of court time. At the end of it, the bank comes out with a big solicitor's bill and only part of the money they're owed.

So in the current system, nobody really wins. There's no reasonable route through which someone can repay their "gambling" losses.

The proposal above is about providing a means of release for the above individuals without bailing them out or crippling them financially.

It's basically a scheme whereby someone sells their house, and a long-term Government loan makes up the shortfall in equity, so that the loan can be cleared on the house. This gives the person the freedom to move - presumably to a place where there are jobs available, and so forth.

I see very little problems in this. Overall, the government loan will make money because it will charge interest. The banks recover the debt without having to resort to write downs on their loan books (which would require more of our money to fix), and ultimately the individuals themselves who got themselves into debt will remain responsible for getting themselves out of debt. With a NEL against your credit record, most of these people will have difficulty (rightly so) obtaining a new mortgage for many years.

I think most of us have considered this kind of scheme as the best option for a while, but it's the first time I've seen it properly considered and written down, with facts and figures.

It's win-win all the way I think.

OMD

gurramok wrote: »

And whats this point of view got to do with the topic?

It was in response to someone saying they didn't get a bailout on their investments and therefore someone with a mortgage (by implication) should not get a bailout. I am simply pointing out that most savers already got a bailout.

Spudmonkey

This is really going off topic...

OMD wrote: »

It is still a bailout. Had the market been allowed to act normally the banks would have gone bust. That is a fact. Had they gone bust those with savings would have lost their money. The government put in place a guarantee to stop people loosing their money. That is a bailout. I can't see how you can argue otherwise.

Bailout I would define as covering bad loans, bank guarantee which I would consider different is stopping a run on banks. If this were to happen we'd be so far up the creek. Besides the money for that guarantee wasn't even given to the banks, it was as descibed.. a guarantee. If there was a run on Irish banks, the government would most likely not be able to refund everyone.

OMD wrote: »

You may feel it is fair to give this bailout, and I have no argument with that, but it does not change the fact that many people who have savings in Irish Banks received a bailout.

If not to say its unfair, what is the point of your argument?

OMD wrote: »

By the way you assume people who save are prudent but people who borrow are not.

For the most part yes. Have you a case where it may not be?

MortgageBroker

Stekelly wrote: »

Why does anything need to be done because people are in negative equity? Being in negative equity hasnt got anythign to do with not being able to pay your mortgage. It doesnt affect you unless your trying to sell, so just dont try sell your house.

Scarab80 wrote: »

Another scheme by vested interests in the residential property sector to get the government to borrow to stimulate the property sector, it doesn't matter how many bells and whistles you add to a scheme it still comes down to more debt to get people buying houses. I reckon the last thing a person in negative equity wants is to add to their mountain of debt.

read the report, it is for people who are in arrears: the idea being that instead of letting the situation get worse you sell for what ever you can obtain on the open market and then carry out the difference as a loan which is at a cheap rate.

You can't get away from your liability if you do this because it is underwritten by your tax credits (if you stay on the dole for life or leave the country you can but you could do that anyway).

I wouldnt even consider short sales a bailout coz they arent!

Banned Account

seamus wrote: »

Because a house is a home and quite rightly the roof over a person's head occupies a special place in law.

The proposal is not to do with bailing anyone out.

There are a few fundamental things to consider when looking at someone in trouble financially, with a mortgage to service and who are in negative equity. Yes, you can say the person gambled and lost, now deal with it, but that solves nothing. Because the person is actually prevented from dealing with it, effectively.

In normal circumstances (such as the car), you would tell them to sell the car and throw the money against their car loan. Bingo-bango, dead easy. However, you cannot do this with a house. You cannot sell a property until all debts outstanding on that property have been cleared.
So if you're in negative equity and looking to sell, you will need to have a cash lump sum to cover the shortfall, before you can transfer the property to someone else.
Someone in financial difficulty will not have that lump sum. So they can't afford to pay their mortgage, and they can't afford to get out of it. The bank will not give them a large term loan to cover the shortfall in equity because;
a. They don't have the income to service a €50k+ debt over ten years
b. They have no collateral to secure it against

So at present, the only option available to the bank is to begin proceedings against the individual to take possession of the house. This is expensive for the bank and the individual and it consumes inordinate amounts of court time. At the end of it, the bank comes out with a big solicitor's bill and only part of the money they're owed.

So in the current system, nobody really wins. There's no reasonable route through which someone can repay their "gambling" losses.

The proposal above is about providing a means of release for the above individuals without bailing them out or crippling them financially.

It's basically a scheme whereby someone sells their house, and a long-term Government loan makes up the shortfall in equity, so that the loan can be cleared on the house. This gives the person the freedom to move - presumably to a place where there are jobs available, and so forth.

I see very little problems in this. Overall, the government loan will make money because it will charge interest. The banks recover the debt without having to resort to write downs on their loan books (which would require more of our money to fix), and ultimately the individuals themselves who got themselves into debt will remain responsible for getting themselves out of debt. With a NEL against your credit record, most of these people will have difficulty (rightly so) obtaining a new mortgage for many years.

I think most of us have considered this kind of scheme as the best option for a while, but it's the first time I've seen it properly considered and written down, with facts and figures.

It's win-win all the way I think.

Seamus, I see a few flaws here to be honest. I take what you are saing about the home occupying a special place, but I was wondering why this is the case in a society where one can rent good standard accomodation. In the example you give above, the net effect is quite similar - the disposal of the asset (be it a car or a house) for a sum less than the finance outstanding will result in an adverse effect on the creait rating of the borrower.

Now I do realise that in the case of a secured loan this will result in a lifetime judgement and I also take your point about selling the home not being legally possible from the homeowners point of view. My concern is that, for many of those effected, servicing the government loan will take a long time, during which it is unlikely that the borrower will be able to secure another mortgage (due to the debt being serviced) the further liklihood is that, by the time the govrnment loan is cleared, the home owner will be too old to get a mortgage that they can afford.

Given the fact that, in both cases the homeowner will be left without a ome of their own, I can't work out why the proposed scheme (which will cost the tax payer money unless the government charges a rate of interest above that they have to pay on bond yields - in which case it would be unaffordable) is a better option than limiting the banks right of recourse to the propert against which the loan was secured.

I mean, it is commonly acknowledged that the banks loaned in an irresponsible manner, why not let them shoulder a proportion of the burden. They could chose to rent the home to the homeowner until such time as the market recovers thus realising a value that may be acceptable to them.

seamus

seamus wrote: »

Because a house is a home and quite rightly the roof over a person's head occupies a special place in law.

The proposal is not to do with bailing anyone out.

There are a few fundamental things to consider when looking at someone in trouble financially, with a mortgage to service and who are in negative equity. Yes, you can say the person gambled and lost, now deal with it, but that solves nothing. Because the person is actually prevented from dealing with it, effectively.

In normal circumstances (such as the car), you would tell them to sell the car and throw the money against their car loan. Bingo-bango, dead easy. However, you cannot do this with a house. You cannot sell a property until all debts outstanding on that property have been cleared.
So if you're in negative equity and looking to sell, you will need to have a cash lump sum to cover the shortfall, before you can transfer the property to someone else.
Someone in financial difficulty will not have that lump sum. So they can't afford to pay their mortgage, and they can't afford to get out of it. The bank will not give them a large term loan to cover the shortfall in equity because;
a. They don't have the income to service a €50k+ debt over ten years
b. They have no collateral to secure it against

So at present, the only option available to the bank is to begin proceedings against the individual to take possession of the house. This is expensive for the bank and the individual and it consumes inordinate amounts of court time. At the end of it, the bank comes out with a big solicitor's bill and only part of the money they're owed.

So in the current system, nobody really wins. There's no reasonable route through which someone can repay their "gambling" losses.

The proposal above is about providing a means of release for the above individuals without bailing them out or crippling them financially.

It's basically a scheme whereby someone sells their house, and a long-term Government loan makes up the shortfall in equity, so that the loan can be cleared on the house. This gives the person the freedom to move - presumably to a place where there are jobs available, and so forth.

I see very little problems in this. Overall, the government loan will make money because it will charge interest. The banks recover the debt without having to resort to write downs on their loan books (which would require more of our money to fix), and ultimately the individuals themselves who got themselves into debt will remain responsible for getting themselves out of debt. With a NEL against your credit record, most of these people will have difficulty (rightly so) obtaining a new mortgage for many years.

I think most of us have considered this kind of scheme as the best option for a while, but it's the first time I've seen it properly considered and written down, with facts and figures.

It's win-win all the way I think.

I agree Seamus, I think they have concept right and it would be great to see more discussion along these lines in the public eye.

However, apart from last Monday's aftershock program, I've neither seen nor read anything that really talks about the issue. Pity

seamus

Fitzcaraldo wrote: »

Seamus, I see a few flaws here to be honest. I take what you are saing about the home occupying a special place, but I was wondering why this is the case in a society where one can rent good standard accomodation.

Well, the "home" as a concept is what's being protected here. Whether you rent or buy - whichever option you choose - you have some very strong rights over that piece of property. It's these rights which make it difficult for banks to easily repossess, and I think rightly so. Regardless of the abudance of rental property (quality of the stock is debatable), the needs of the individual and their family are more important than the financial concerns of a bank.
In the case of investors and second homes, the process for repossession is far simpler and in many cases, the negative equity can be transferred to the principle residence.

In the example you give above, the net effect is quite similar - the disposal of the asset (be it a car or a house) for a sum less than the finance outstanding will result in an adverse effect on the creait rating of the borrower.

It will only have an adverse effect if the borrower fails to make the repayments. In the case of the car loan, the borrower is usually free to sell the car and treat the loan as a personal loan and pay off what's outstanding, well after the car is gone. This option just doesn't exist for mortgages/houses.

My concern is that, for many of those effected, servicing the government loan will take a long time, during which it is unlikely that the borrower will be able to secure another mortgage (due to the debt being serviced) the further liklihood is that, by the time the govrnment loan is cleared, the home owner will be too old to get a mortgage that they can afford.

That's fine. That's the fallout from it. You can't really expect to (effectively) default on your mortgage and be able to walk into a bank the next day and get a new one. If an individual's fiscal situation improves, they can clear their NEL early and buy a new house, if they wish.

Given the fact that, in both cases the homeowner will be left without a ome of their own, I can't work out why the proposed scheme (which will cost the tax payer money unless the government charges a rate of interest above that they have to pay on bond yields - in which case it would be unaffordable) is a better option than limiting the banks right of recourse to the propert against which the loan was secured.

The bit in bold is what you're missing. The government will make money on the loans by charging an appropriate interest rate. Not a lot, but at the end of the day neither the bank nor the government will lose any money.

I mean, it is commonly acknowledged that the banks loaned in an irresponsible manner, why not let them shoulder a proportion of the burden. They could chose to rent the home to the homeowner until such time as the market recovers thus realising a value that may be acceptable to them.

A "lease-back" system too is proposed in the document, which saves the mortgage holder from trying to sell a potentially unsellable property (think ghost estates) or who don't necessarily need/want to move out.
The problem is that any burden shouldered by the banks will have to be shouldered by the taxpayer. Our banks are just about starting to get on their feet and having to suffer a write down on the loan book would further delay their ability to loan into the economy again. Whatever people's impressions of loans, the economy needs loans in order to move forward.

The plan for NELs also doesn't require any rewriting of fiscal "rules". For example, imagine both me and my neighbour have homes worth €300k, a mortgage of €400k @ 1500/month, but I'm well able to keep up my repayments and my neighbour isn't.
If the bank decides to buy my neighbour out, "write off" the €100k and charge him 1,000/month in rent, then where is the benefit to me of continuing to pay my mortgage? The bank cannot really refuse to do the same for me, and I can pocket €500/month to save up a deposit for a new home.

Anything which involves someone other than the mortgage holder from shouldering the full debt is a bailout, and will result in delaying any growth in our economy.

Head The Wall

Fitzcaraldo

Why should they should be allowed to buy a house again. If they clear the debts they will and if they don't they won't. Someone with credit card debt may not be allowed get a mortgage so why should someone that is still paying off their get special treatment.

If the bank says no to their mortgage request because of another outstanding loan that says it all really. You are not entitled to own a house you have to be able to afford it.

Banned Account

seamus wrote: »

the needs of the individual and their family are more important than the financial concerns of a bank.

Oh, to think of the days when the two were mutually exclusive!:D

seamus wrote: »

In the case of investors and second homes, the process for repossession is far simpler and in many cases, the negative equity can be transferred to the principle residence.[?QUOTE]

You are assuming that this would be possible, what would happen if the PPR has not enough equity to support this?

seamus wrote: »

It will only have an adverse effect if the borrower fails to make the repayments. In the case of the car loan, the borrower is usually free to sell the car and treat the loan as a personal loan and pay off what's outstanding, well after the car is gone. This option just doesn't exist for mortgages/houses.

To be fair, i was assuming here that the individual doesn't have the repayment capacity anymore - sorry, could have been clearer here.

seamus wrote: »

The government will make money on the loans by charging an appropriate interest rate. Not a lot, but at the end of the day neither the bank nor the government will lose any money.

Not missing it, the Government is currently paying 4.6% for its money, add on a margin here and the costs of the scheme and you're looking around 6% - this is significantly higher than most peoples mortgages - to me this is an area that has been overlooked.

seamus wrote: »

The problem is that any burden shouldered by the banks will have to be shouldered by the taxpayer. Our banks are just about starting to get on their feet and having to suffer a write down on the loan book would further delay their ability to loan into the economy again. Whatever people's impressions of loans, the economy needs loans in order to move forward.

Surely though, the banks can afford to hold the properties until the prices recover somewhat. In the meantime, should they command rental rates equivalent to the interest rate charged on the original loan, there should be no balance sheet impact.

seamus wrote: »

The plan for NELs also doesn't require any rewriting of fiscal "rules". For example, imagine both me and my neighbour have homes worth €300k, a mortgage of €400k @ 1500/month, but I'm well able to keep up my repayments and my neighbour isn't.
If the bank decides to buy my neighbour out, "write off" the €100k and charge him 1,000/month in rent, then where is the benefit to me of continuing to pay my mortgage? The bank cannot really refuse to do the same for me, and I can pocket €500/month to save up a deposit for a new home.

In this case, the main difference is that you continue to own your home, your neighbour loses his and becomes a tenant.

seamus wrote: »

Anything which involves someone other than the mortgage holder from shouldering the full debt is a bailout, and will result in delaying any growth in our economy.

I think there may be an in between possible - it would just require a bit more thought, co-operation and a cattle prod for the Financial Services Industry

Banned Account

Head The Wall wrote: »

Fitzcaraldo

Why should they should be allowed to buy a house again. If they clear the debts they will and if they don't they won't. Someone with credit card debt may not be allowed get a mortgage so why should someone that is still paying off their get special treatment.

If the bank says no to their mortgage request because of another outstanding loan that says it all really. You are not entitled to own a house you have to be able to afford it.

Head the Wall, I don't think they should be allowed buy another house at all, in fact quite the opposite. My point was why should the tax payer subsidise this with loss making loans, neither option will allow the home owner to keep the property so why not explore other options.

Head The Wall

I'm with you on that, the loan should be arranged between the banks and homeowners. If it costs the banks more to borrow for the loan then the homeowners should pay the rates for it on their NEL

Tim Robbins

Is there going to be another bail out scheme for everyone who has lost money in the pension as well?

My point: yes a huge percentage of the population have lost equity on their homes. But a huge percentage have also lost thousands on the pension funds.

Seems it did make the media;
http://www.tribune.ie/business/news/article/2010/may/16/mortgage-body-mulls-negative-equity-loans/

johnnyskeleton

Taxipete29 wrote: »

If people think that having 200k people locked out of the property market for the foreseeable future is good for the long term prospects of the country they are very much mistaken.

How many people are "locked out" of the property market because prices are too high?

etc

johnnyskeleton

Deleted User wrote: »

I wouldnt even consider short sales a bailout coz they arent!

I think its more the underwriting of the personal loans which raises shackles.

Banks should offer such things to people who are clearly in default anyways. What the government should do is remove the moratorium so that banks could offer such deals to punters.

However, for many people who have lost their jobs it is a prospect not worth considering. They can stay in their current place for (by my calculations up to 3 years (1 year MIRS; 6 months bank moratorium; 1 year no reposession moratorium; 6 months fighting through the courts); once forcibly evicted they can be housed by the local council (if they voluntarily surrender I've heard some councils don't rehouse). There was another bizzare advantage to having the property repossessed but I can't recall it off hand.

seamus

Fitzcaraldo wrote: »

Not missing it, the Government is currently paying 4.6% for its money, add on a margin here and the costs of the scheme and you're looking around 6% - this is significantly higher than most peoples mortgages - to me this is an area that has been overlooked.

Oh I agree the figures seem off in the document, though I haven't read it fully, just skimmed it really. 6% is only higher than most people's mortgages for the moment. In a year or two, 6% will be standard. In any case, €400k @ 4% over 20 years costs nearly 4 times as much as €100k @ 6% over 20 years, even if the latter is more expensive, percentage wise.
Remember that we're talking about people in massive holes here, not just people looking to restructure their debt to get the best deal.

Perhaps the figures in the document were for illustration only. If we issue a bond @ 4% (for example), then we can ringfence that cash to offer 5-5.5% NELs and make a profit.

Surely though, the banks can afford to hold the properties until the prices recover somewhat. In the meantime, should they command rental rates equivalent to the interest rate charged on the original loan, there should be no balance sheet impact.

One thing I've learned from working in financial services is that it's all about the reporting. The reality is irrelevant, at the end of the day all the head honchos want to see is a table of figures with happy numbers.
This is why these kind of crises arise. On one hand a bank may say, "Look at our property portfolio - we expect rises of 10% over 20 years, that's money in the bank". And in the next meeting they'll say, "We have a property portfolio which has been devalued 30% over the last two years which means that we've lost €10bn".
The figures themselves don't actually exist, it's all estimate and forecast, but in the latter situation especially, these kinds of estimates will make investors and lenders tenuous about giving money to Irish banks.

What the NEL proposal does is capitalise on the bank's loan book now and make their balance sheets much healthier (and therefore more attractive to lenders) without a government handout.

In this case, the main difference is that you continue to own your home, your neighbour loses his and becomes a tenant.

But financially he's been given a far superior deal and being a tenant of an institution is very different to being a tenant of some individual. By and large, there would be little difference between owning and renting in that case.

I'm with you on that, the loan should be arranged between the banks and homeowners. If it costs the banks more to borrow for the loan then the homeowners should pay the rates for it on their NEL

But without assets to back it up, these just become very risky loans. There's no benefit to the bank in this case, it doesn't make the loan book any more attractive to foreign investors.

The source of finance in the document, I believe, is a special line of credit that effectively costs the going ECB rate. However, they don't nail down this point so I may be wrong.

I don't believe financing for this would be borrowed at the going gov rate, hence the low rates they can offer for the NELs.