mortgages, jobs and bank lending

ei.sdraob

I was thinking about this subject recently

the problem(s):

mortgage debt is a hidden iceberg that could really bring the whole house down, while there is evidence of plenty of people recklessly borrowing from our own centralbank who chose to ignore the warning signs :rolleyes: (30% of all mortgages were "investment" buy to lets at peak, which are only viable provided prices kept rising, and of course plenty of 2nd home/holiday home/foreign home mortgages)
since it takes 2 to tango the banks are also partially responsible, i am sure many here first hand experienced them trying to push debt onto people at all cost in order to get commision/meet targets/keep up with Anglo

also it doesn't look like we would have US style bankruptcy laws where bankruptcy is easier making lenders think twice (well in theory at least, there's no need to think twice if you know you might get bailed out, but that's another subject)

and finally the promised "flood of credit" we kept hearing about to get business going has not materialized as the banks are hoarding money trying to rebuild balance sheets and meet new ECB targets, the same ECB who is refusing to help in a mess they are partially responsible for :rolleyes:

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solution?:

so how can the mortgage problem be "solved" and "lending" started?


IF and only if both the husband and wife lost their jobs and unable to find one for a year (if only one lost a job and they are unable to service the mortgage then they should renegotiate the terms with lender under a judge or arbitration service, since both parties are at fault of being being reckless!)

then after a year they can hand back the keys to the bank and start fresh

BUT

to prevent "strategic defaults" they can no longer claim the dole, last thing we need are people defaulting deliberately and abusing the welfare system, this way there is an incentive to find a job

some of you might say "well there are no jobs"

yes there are no longer the need for so many construction jobs, but here is where the banks come in and the main point of my idea (sorry for being so long)

it would be in their interest to lend to small/medium companies in ireland and encourage job creation, more people have jobs then they have less defaults, the banks directly become a stakeholder in the economy, not just a lead weight for their own good of course

finally there are many ways the government can help in job creation, such as stepping aside from micromanagement (EI,FAS), making for a fair competitive environment (selling semi-states), constructing infrastructure (grid, roads etc) and not taxing fuels as much (used by business and consumers to trade), but thats a whole other thread


tl:dr: make the banks a stakeholder in the recovery of the economy, and stop bloody rewarding failure with bonuses and bailouts.

Permabear

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ei.sdraob

ei.sdraob wrote: »

solution?:

so how can the mortgage problem be "solved" and "lending" started?


.

So they start fresh (get work again, buy a house for reasonable money with a small mortgage) and folks who don't lose their job go on paying their mortgage for the full term. Great solution, NAMA for the people on the scratch too. So the folks in the middle get shafted again.

zig

ei.sdraob wrote: »

so


IF and only if both the husband and wife lost their jobs and unable to find one for a year (if only one lost a job and they are unable to service the mortgage then they should renegotiate the terms with lender under a judge or arbitration service, since both parties are at fault of being being reckless!)

then after a year they can hand back the keys to the bank and start fresh

BUT

to prevent "strategic defaults" they can no longer claim the dole, last thing we need are people defaulting deliberately and abusing the welfare system, this way there is an incentive to find a job

some of you might say "well there are no jobs"

yes there are no longer the need for so many construction jobs, but here is where the banks come in and the main point of my idea (sorry for being so long)

it would be in their interest to lend to small/medium companies in ireland and encourage job creation, more people have jobs then they have less defaults, the banks directly become a stakeholder in the economy, not just a lead weight for their own good of course

So basically as soon as you hand back the keys to the house, you are now homeless and can't rent cause you're not entitled to the dole either?
Thats insanity. You would have whole families on the streets.

Anyway nothing like this will work, the banks don't want those houses, as donegalfella said, they have a long long way to fall. People are fooling themselves if they think we've hit some sort of bottom. My parents bought a house for a decent house in a good area for 60k in the late 80s , its STILL worth about 200k minimum now after all thats happened. I reckon it'll drop by another 70 or 80k over time.
I still don't think we've seen anything yet.
A bank possessing an empty house doesnt equate to the same in money. It is pretty worthless to them meaning they wouldnt have money to loan out for business.

ei.sdraob

donegalfella wrote: »

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True prices are still overvalued (tho if the euro is devalued which it might...)
but
being able to walk away from a mortgage is partly the reason these states seen such falls (and apparently growing in some markets now)

donegalfella wrote: »

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Yes we do but thats only going forward.

donegalfella wrote: »

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Hence why what I proposed be only for situations where both family members lost their full time jobs
Any other scenario both parties should renegotiate the contract they signed, apparently the government is promising us 10% rise in 10 years
negative equity is not a problem if the mortgage is being services, if it takes longer for the people who where irresponsible then that's that. This is already whats being done anyways.

donegalfella wrote: »

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like us

donegalfella wrote: »

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My idea involves the banks becoming a stakeholder in lending to companies ( right now it is not in their interest to do so)
and therefore creating jobs
if there are more jobs then they have less people defaulting on them

danbohan

donegalfella wrote: »

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need a firmer policy of removing distressed homeowners from houses


does your solution not have a touch of the old landlord removing the tenants from the land so he can have a bigger farm about it ? , perhaps you would also like to send the people that have their homes reposes ed to Australia , Canada , USA , i am not a believer in reincarnation , but sometimes when i see some your statements lord leitrim comes to mind , he was killed in donegal too , hmm

ei.sdraob

RoverJames wrote: »

So they start fresh (get work again, buy a house for reasonable money with a small mortgage) and folks who don't lose their job go on paying their mortgage for the full term. Great solution, NAMA for the people on the scratch too. So the folks in the middle get shafted again.

If both family members lost their jobs and the banks are not willing to lend into the economy then a phrase squeezing blood from a rock comes to mind
My idea revolves around the banks realising that lending into companies that create jobs is in their own interest not leading to a default in the first place
Tho its probably to late now that they are nationalised

zig wrote: »

So basically as soon as you hand back the keys to the house, you are now homeless and can't rent cause you're not entitled to the dole either?
Thats insanity. You would have whole families on the streets.

Its just an idea to prevent strategic defaults, of course the family can choose not to default and live in limbo

If the banks start to lend then one or two of the members might get a job and not endup in a default situation

Hayte

I don't think its a case of them not wanting to lend. Fractional reserve lending is one of the primary ways that a bank makes money though in the property boom years the big money was in trading, usually property based assets or derivatives dependent on the performance of such assets.

I think the Banks are unable to lend as they used to because alot of their trades went bad so the bank ends up with tonnes of collateral thats worth less than half of the original par value of the loan. They require regular capital injection, presumably so they can lend but in the absence of any lending happening one can surmise that this money is simply paying down the losses made on its trades.

ei.sdraob

Hayte wrote: »

I don't think its a case of them not wanting to lend. Fractional reserve lending is one of the primary ways that a bank makes money though in the property boom years the big money was in trading, usually property based assets or derivatives dependent on the performance of such assets.

I think the Banks are unable to lend as they used to because alot of their trades went bad so the bank ends up with tonnes of collateral thats worth less than half of the original par value of the loan. They require regular capital injection, presumably so they can lend but in the absence of any lending happening one can surmise that this money is simply paying down the losses made on its trades.

That could very well be true, in that case these mortgage owners are screwed and will get a lesson in life and borrowing.

My idea is based on the claim from the banks that they are well capitalised and are now working towards having higher % as per new EU requirements. I am just trying to come up with solutions be positive An argument could be made that its not the job of the government to get involved tho they already got themselves and us into so much ****

A question that could be asked, is
the 90 billion we wasting on banks could have been used to create a new bank who could have hoovered up depositors and have the ability to lend 10x that or so, which of the parties where proposing a "new good bank" again...

Hayte

They already tried to split up Anglo into a 'good bank' and a 'bad bank' which as far as I am aware has failed or the idea has not gained traction since the plan is to wind down Anglo. The idea is sound. You move the loans with the worst losses in the value of the underlying asset over to NAMA or a 'bad bank'. This bank's job is simply to absorb the losses and pay down the debts. It doesn't take out new loans, it doesn't lend out money and it doesn't take on new deposits. Meanwhile, the good bank gets a capital injection and liquid cash from NAMA which it is supposed to lend out so that small businesses etc can continue to get credit.

For various reasons that have not been fully explained or laid out clearly, that hasn't happened or at least not with any kind of permanency. The creation of new banks probably wouldn't work. Everyone would pull out their investments and deposits in the failing bank and put them into the new bank yes but the loan losses never disappear. A debt is debt and it doesn't go away so no matter what accounting trickery you pull, if you owe someone 1 billion euros, you owe them 1 billion euros and there ain't no disguising it.

At the point Anglo is state owned so the owners (the taxpayer) eats the losses. It spreads the loss over 4 or 5 million people. Even if Anglo wasn't nationalised however, the strategy you propose is in a more technical sense just to default on the loans which has other consequences much debated on this forum. I'd rather not rehash it. I appreciate the need for a positive outlook but I believe that there can only be a positive outlook when there is surety.

I mean, at this point looking at Ireland 10 year bond yields on the sovereign debt market is pointless since we are effectively locked out of it and its simply cheaper to borrow from the ECB and IMF hence the deal. But if you looked around when the yields were like 8% to 9.4% - that was an incredible pay off when you compare it to Germany which was hovering between 2.5% and 3% at that time. And furthermore, it was already public knowledge that the government would guarantee the debt and Irish taxpayers would make up for the losses if necessary. But the Ireland 10 year yields just kept on going up and up and up anyway even though the pay off was so big because there was no sign that it was worth the risk.

Theres alot that can be said for surety. If you know the risk then people will go for a bad deal if its (a) cheap enough and (b) the potential payoff is huge. Its why people play the lottery even though the chance of winning is tiny. You know the odds and they stay the same, always (or maybe you don't if you even bother to play heh). Its why people buy those mystery boxes on eBay where you are 95% certain to get complete crap but you know the risk and you know the odds of getting an iPod so you hand over your money.

ei.sdraob

Hayte wrote: »

They already tried to split up Anglo into a 'good bank' and a 'bad bank' which as far as I am aware has failed. The idea is sound. You move the loans with the worst losses in the value of the underlying asset over to NAMA or a 'bad bank'. This bank's job is simply to absorb the losses and pay down the debts. It doesn't take out new loans, it doesn't lend out money and it doesn't take on new deposits. Meanwhile, the good bank gets a capital injection and liquid cash from NAMA which it is supposed to lend out so that small businesses etc can continue to get credit.

For various reasons that have not been fully explained or laid out clearly, that hasn't happened. The creation of new banks probably wouldn't work. Everyone would pull out their investments and deposits in the failing bank and put them into the new bank yes but the loan losses never disappear. A debt is debt and it doesn't go away so no matter what accounting trickery you pull, if you owe someone 1 billion euros, you owe them 1 billion euros and there ain't no disguising it.

true

now that I think of it a "bank" is a bad name, a "fund" would be better name

the state lodges lets say 10bln into a fund whose job is to invest in Irish businesses, the fund promises to repay the state its investment in X years at which point it becomes a fully private entity attracting more investment

ricman

The problem is much worse than that, theres people that got 1 mortgage , then in the last ten years remortgaged, cos my house is worth x amount,
ie they borrowed another 70k based on value x which was meaningless, ie house values have fallen 50 per cent , they are now in negative equity and left with a large debt and falling incomes.The bankers were overlending and were not regulated or monitored properly by the central bank or regulators who were not doing their job.
WE could do with a wikileaks here to show the corruption and incompetence and greed of the banks and politicians.And now the civil servants and ploiticians who wrecked the economy are retiring on large pensions.

Permabear

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Hayte

ei.sdraob wrote: »

true

now that I think of it a "bank" is a bad name, a "fund" would be better name

the state lodges lets say 10bln into a fund whose job is to invest in Irish businesses, the fund promises to repay the state its investment in X years at which point it becomes a fully private entity attracting more investment

The idea with Keynes is that in a recession you are supposed to run a big deficit. i.e. you spend more on education, on high tech industry etc. so that you can produce yourself out of recession. Then when times are good you start running budget surpluses which can cover the cost of having to run future deficits and pay down the last one. Its kind of like always having a bit of money in the bank so that you can spend it when you have to and replenish it when you have the means.

I can't remember which US economics advisor said this (I think it was one of Newt Gingrich's) but he (in)famously said 'deficits don't matter'.

Imagine it like an overdraft facility. When business is slow, you work into your overdraft to get you through the tough times. Then when times are good again, you clear your overdraft and save up some money to buffer you against another bad time in the future. Contrast that with the student who is always at the edge of his overdraft limit. During good times its ok when your part time job can keep you under the overdraft limit and avoid having to pay huge interest on the balance. but during bad times? Say you get sacked from tesco for smoking weed in the storeroom. Now you have a problem. You need to go to mum and dad (IMF and ECB) and borrow money to prevent your debt from spiralling out to the point where you can never repay it, even if you get a new job.

Permabear

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danbohan

donegalfella wrote: »

It involves the bank removing delinquent homebuyers from houses they can't afford, so that those properties can be re-sold to people who can afford them. If Joe and Alice borrowed €300,000 to buy the house, which the bank is ultimately forced to reposess and sell to John and Jane for €100,000, then it has lost €200,000 plus legal and administrative fees. So, the bank that lent foolishly gets royally screwed, and Joe and Alice who borrowed foolishly wind up with damaged credit, forcing them to spend years working and saving before they can buy another home. John and Jane, who didn't buy into bubble euphoria, get to buy a nice home for a bargain price. This is the only way to retain a sense of social justice (:)) and for property to start to find its proper level again.



The first point is that these homes are not "theirs." They are collateral for a bank loan, and if the bank loan is delinquent, then the collateral reverts to the bank. The second point is that there is no shortage of decent rentals in this country. It's possible to rent a good house for far less than the cost of trying to pay a huge mortgage on a home that is mired in negative equity.

But yes, they can go to the USA if they like. Why not? I'm currently looking at buying a home in Phoenix, Arizona, where the bubble has largely corrected, and where you can get gorgeous homes for a song:

[/QUOTE? I'm currently looking at buying a home in Phoenix, Arizona,
id recommend long island myself !!
do i take it from that that you feel Ireland may not be a suitable place for a man of wealth and taste like yourself to live in next few years ???

Noreen1

donegalfella wrote: »

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You mean Keynesianism didn't work in Ireland under a reckless, incompetent FF administration, who became so accustomed to power that they completely lost touch with reality?

Keynes' plan, like any other, requires that the plan be implemented - in our case, that should have meant fiscal restraint (or saving for the rainy day), during the boom years.

The fact that FF failed, and failed utterly, to regulate the banks, or to plan for the eventual "bust", is solely a reflection of FF......

Noreen

ei.sdraob

Noreen1 wrote: »

You mean Keynesianism didn't work in Ireland under a reckless, incompetent FF administration, who became so accustomed to power that they completely lost touch with reality?

Keynes' plan, like any other, requires that the plan be implemented - in our case, that should have meant fiscal restraint (or saving for the rainy day), during the boom years.

The fact that FF failed, and failed utterly, to regulate the banks, or to plan for the eventual "bust", is solely a reflection of FF......

Noreen

I dont think Keynesian policies will ever work in Ireland
when we have it we spend it, when we dont have it we borrow it and spend it


the spend spend policy to bribe the electorate is ingrained in our politics

Dempo1

Pretty tricky situation all round, where do i start.

Firstly we now know that bailing out banks seems to have been pointless, its a bottomless pit by all accounts with Alan dukes now saying another €35b wont be enough for Anglo's woes, in addition other Irish banks managed to borrow an additional €16b from the ECB in the past month despite all the taxpayers cash thrown at them. The plan was simple, improve the banks liquidity and suddenly they would all start lending again. This of course has spectacularly back fired with credit now even more difficult to obtain. Apart from all the crisis already well documented, there has been nothing done about the catastrophic residential mortgage crisis which is about to implode based on clear evidence that nearly 100k mortgages are in trouble and the fact the 12 month moratoriums are about to come to an end.

Already we know that 100% mortgages are in negative equity but perhaps too much time is spent on assuming all mortgages taken out were reckless, indeed i suspect a large number of mortgages in distress are those which were taken out when economic times were more stable albeit prices inflated. I further suspect a lot of mortgage holders are in trouble due to job losses and there is evidence original mortgages taken out were manageable but this changed with extensions, top up mortgages, re mortgaging etc.

I have a simple but perhaps naive solution and this prior to expected large Interest Rate Hikes!

• Clearly there are mortgages that are just unrealistic even with a change in the mortgage holders circumstances. Harsh reality deems these mortgages are unsustainable and these mortgage holders should be assessed for social housing. Heres a plan, finish all these ghost estates and assign them for social housing, employment could be created in the process and distressed mortgages will at least have a home and roof over their heads. Yes the tax payer will foot the bill but ultimately if there are enormous amounts of defaults, families will have to be re housed somehow. Yes debts remain on default mortgages but seen as the government (and indeed us) are shareholders of the banks, a realistic settlement figure could be reached with a manageable repayment schedule agreed with a fixed interest and term which would be paid along with an agreed rental price for the newly created Social housing.
• Residential Mortgages not deemed sustainable should be reverted into fixed term loans with fixed interest applicable. This could include an extension of the loan term. What is critical with this option is interest being fixed much the same as a personal loan. Extending the loan term is also sensible based on my belief a majority of mortgage holders purchased a HOME, not an investment and would ideally want to remain in their homes which was always considered a long term investment. Again given the government (us) are shareholders, such an arrangement could be garnered.
• Housing Stock now empty due to point one, could now be priced realistically for re sale, various tax incentives could be created to attract new purchasers to the market. One caveat is a realistic and statutory pricing structure for Houses, in other words mechanism's to stop speculation should be considered, yes its anti competitive but clearly the madness of the past decade can never be permitted to happen again.

As an aside, yes i accept the above will be deemed as Bailouts as such but what else is on offer. The situation is going to implode making the banks situation worse (and probably fatally), thousands will be left facing repossession and ultimately homelessness with the government ultimately having to re house these families. Ghost estates may have to be demolished if no suitable use is found, they are there now and i suspect finding a use for same would be far less costly than bulldozing them down.

Sense has to be brought into the property market, gone seem to be the days were people purchased a HOME. Yes debts have to be paid or at least managed, people have to be housed, seems to me the above is a win win situation and far less painless than what will happen if nothing is done!

Yours Humbly "Social Economist"