Mortgage Arrears Problem in Ireland.

tommy57

This is probally a stupid statement.why can't banks just drop interest rates and people just pay what they actually owe. seen as the banks at the moment are not going to make money off these loans surely its better that way. though it sounds to easy

Scholesy1981

whats the implications for someone that surrenders / quits the mortgage seen as they cant keep up the payments? ive heard stories bout not being able get credit card for x amount of years, blacklisted, etc. hearing all the time about repossessions too and people handing back the keys, what then for these people??

sarumite

tommy57 wrote: »

This is probally a stupid statement.why can't banks just drop interest rates and people just pay what they actually owe. seen as the banks at the moment are not going to make money off these loans surely its better that way. though it sounds to easy

Banks lend long but borrow short. As such the interest rates are set by the European central bank and not the banks themselves. Also many mortgage holders are struggling to pay what they owe as it is and unfortunately their assets are worth less than what they owe.

sarumite

Scholesy1981 wrote: »

whats the implications for someone that surrenders / quits the mortgage seen as they cant keep up the payments? ive heard stories bout not being able get credit card for x amount of years, blacklisted, etc. hearing all the time about repossessions too and people handing back the keys, what then for these people??

Thats true if they declare bankruptcy. Personally I would like to see bankruptcy laws in Ireland updated so that the "x" amount of years is defined (probably somewhere between 5-7 years) and after that their bankruptcy records is expunged.

Unrealistic

dan_d wrote: »

• These people owe substantial amounts of money to the bank, which they are now behind on repayments in (which I assume accrues further interest)
• If their houses are repossessed and possibly resold, it will not clear this debt.The houses will sell for less than what they were bought for.That is practically a given, with the way the market is.
• These people then move into rented accommodation (assuming they can afford that), possibly paid for by the State.
• So now you have a situation whereby the taxpayer is paying/subsidising their rent, and there's still a hole in the bank's mortgage books - which the taxpayer ends up paying for.

Let me preface what I write by saying I'm not advocating a specific solution, or arguing against the solutions you are proposing. I'm just trying to outline in full the consequences, as I see them, of some of what is being proposed.

Regarding the comment above about "a hole in the bank's mortgage books which the taxpayer ends up paying for", this is true but it is an open question whether it is a bigger hole or smaller hole than if the non-paying mortgage holder is left in the house. If the house has an outstanding mortgage of €200k but the house sells for €150k then, long term, there is a potential loss to the bank of €50k. But that loss materialises only if the mortgage holder never pays back the €50k or if it is forgiven as some sort of blanket accommodation to deal with the NE issue. But right now, when the banks are relying on the taxpayer for liquidity, the proceeds of the sale of that house represent €150k less that the tax payer will have to inject into the banks this year and €150k less that the state will have to borrow from the IMF/ECB at 5.7% this year.

dan_d wrote: »

Your point about them tying up houses and distorting the market - how is that the case? They cannot sell because they are in NE, and can't make up the difference between the price they bought for and the price they would sell for.Therefore they are simply living in their homes.Which is what most people do anyway.House prices are dropping, regardless. Renters payments are governed by their landlords, most of whom need to cover similar massive mortgages.Repossessing their rental properties doesn't change the situation either.They will sell for less than they were bought for. If they are currently distorting the market, then what you are obviously saying is that house prices need to drop much further (which I agree with you, they've a way to go yet). But, in this context, that widens the gap even further between what's owed and what's taken in on the sale.Thereby creating an even bigger hole on the bank's books, inevitably requiring more taxpayer money.

You have accepted that house prices need to fall further. That being the case the loss already exists it just hasn't been recognised yet. We can choose to kick the can down the road, continuing with the current almost non-existent housing market. Almost nobody can trade up or trade down and nothing new gets built. Or we can flush out the system so that we get to realistic sustainable prices and the housing market starts moving again. People can buy at an affordable level and we don't have an entire market stuck in limbo. You say repossessing rental properties wouldn't change the situation but I think it would and for the better. If the banks release those properties onto the market it will, as you say, cause prices to drop. But that will mean that many of the people currently renting those houses will instead be able to buy them. So instead of having those houses owned by amateur landlords who can't afford to pay for them they will be owned by the families who live in them.

dan_d wrote: »

By advocating that people should be thrown out of their homes, etc,etc, all that is being done is moving the debt burden around. It doesn't remove the debt, which surely should be the end point to all of this - clearing as much of the debt as possible.

I don't know that everyone will agree with you that clearing as much debt as possible should be the ultimate aim. My personal thought would be that the aim should be to clear enough debt so that people can move on without disappearing into a financial black hole but not so much so that people who took irresponsible decisions do not have to live with any of the consequences, thereby encouraging repeated irresponsible behaviour in the future.

dan_d wrote: »

We need to weigh up the long term benefits of allowing people to stay in their homes and arrange plans to pay back what they can by whatever means possible, vs repossession and sale on the open market by the banks (who will be trying to get as much as possible for the house, surely, and buoy the market even further). This is not a short term thing, they are sums that need to be done for a period of 15-20-30 years.Repossessions here and now might remove the mortgage arrears statistics, but it doesn't make the debt go away.

Agree wholeheartedly that the long term effect is much more important than a short sighted approach. But I don't think the main aim of repossessions now would be to clean up mortgage arrears statistics and I don't think the primary aim should be to make the debt go away. Repossessions now will make the possibility of being able to purchase their own home much closer for those 50% of renters who are currently paying their own way and not living on rent allowance. It will provide clarity in a situation where the current murkiness is stifling not only the housing market but the wider economy. The country is having to borrow funds at high rates because lenders are factoring in that murkiness. We have guaranteed the banks but no one knows how much that is going to cost us. We need to make the costs clear and move on. The first step to doing that is recognising the real losses on property loans.

dan_d wrote: »

While I completely agree the taxpayer shouldn't have to be involved in this at all, I still think there are ways around this that don't involve repossessing every property that's in arrears.

I agree totally that we shouldn't be repossessing every property in arrears. I think it should be targetted. We should be aiming to keep people in their family homes where there is some hope of being able to restructure their mortgage to something manageable for them. Buy to lets and holiday/second homes should be first on the list for repossessions. Mortgages that have got into trouble because of money drawn down in equity release borrowings should also be treated less favourably. That should free up enough property to allow the market to find its level without throwing families out on the street.

OK, despite what I wrote in the beginning, I did drift in to advocating solutions but I hope it is clear that I don't think the solutions should be of the "f**k them, it's their own tough $h*t" variety.

Unrealistic

tommy57 wrote: »

This is probally a stupid statement.why can't banks just drop interest rates and people just pay what they actually owe. seen as the banks at the moment are not going to make money off these loans surely its better that way. though it sounds to easy

The problem is that the bank is currently borrowing at a higher rate to fund these mortgages so the forcing the bank to decrease their interest rates would mean the banks would be making a loss. At its simplest this is no different to forcing Dunnes Stores to sell bread at less than the cost price it pays to the baker. The only difference is that Dunnes is a private company so its shareholders would be the ones taking the loss but the banks have been effectively nationalised so we would be the ones covering the losses.

dan_d

Thanks Sarumite!!!:o (you'd think I'd know how to do that by now)

I do agree with most of what you're saying unrealistic, but we (and it) appear to be going round in circles with these arguments.

In short, it would seem that the banks/Gov need to weigh up the long term vs the short term, as I said in my other post. I presume that's something that we ordinary folk don't have access to data for; each individual bank will know what's on it's books and who is paying (or not paying) what.

They also need to weigh up the benefits of trying release property onto the market now at a lesser price vs allowing people to stay in them...which feeds back into knowing what's on their books and what people can stay..ie calculating the risk factors.

The argument could also be made against "getting the market moving"...in which direction? Houses will go to sustainable prices, but how long would they stay there, and would we find ourselves again in situation where house prices would rise, and people would be selling to make profits??

I do agree with say "categorising" those who are in arrears - ie buy to let and equity release.But in the overall picture of the number of people who are in arrears, how many of them are those people? What I'm trying to say is how much of an impact on the problem would there be to solely focus on these people?

We come back to the same point. A multiple pronged approach is needed. I don't actually know if banks are better off to let people stay and pay what they can (assuming they'll be better off in terms of a job, etc in a few years time and can pay more), or if they're better to cut their losses and move the mortgage and property off their books. Without seeing some very detailed numbers it's hard to say. But I suppose it would seem to me that it would make more sense in the long run to leave people in their homes, paying what they can through varied restructuring plans - interest -free, interest-only, extended terms (which could be shortened at a later date again), brief payment "holidays", etc, etc....along with new regulations by the Gov forbidding 100% mortgages, requiring a certain deposit or long mortgage terms.(the point of this being to prevent the market from exploding again, should things start moving too fast and recklessly - again).

From a taxpayer's point of view in this discussion, I suppose we should also keep in mind to what extent we want to be bailing the banks out.We've pumped so much money in at this stage....what solution(s) minimises the holes in bank's books created by mortgage arrears and defaults, in order to prevent us picking the tab again. I still don't believe the solution is to push people out and have the state subsidise their subsequent rent.It doesn't make sense to me at all.

I apologise if my posts are somewhat confused. However I agree with you Unrealistic, the "f&*k them" approach is not an option, because if that's the way we go, the taxpayer will end up paying one way or the other.

tommy57

but their making a loss already also a large proportion of mortgage payments is interest. Thanks for the replies.

Unrealistic

dan_d wrote: »

I do agree with say "categorising" those who are in arrears - ie buy to let and equity release.But in the overall picture of the number of people who are in arrears, how many of them are those people? What I'm trying to say is how much of an impact on the problem would there be to solely focus on these people?

I was looking at some statistics yesterday (in a post on the PropertyPin) which indicated more than half of the mortgages taken out during the boom years fit into this category. If we presume that the mortgages in trouble are mostly made up of those taking out during the peak then that suggests half of all mortgages in trouble could be in this category. In fact I would consider it is probably much higher than half for two reasons.
1) anecdotal evidence suggests that interest only mortgages were a most significant phenomenon in the buy to let sector.
2) people who would make such a financially unsound decision as to put their house at risk to fund a fancy car or holiday (equity release) are more likely to have been reckless in their financial behaviour generally and to find themselves in trouble now that the the economy is tighter.

dan_d wrote: »

The argument could also be made against "getting the market moving"...in which direction? Houses will go to sustainable prices, but how long would they stay there, and would we find ourselves again in situation where house prices would rise, and people would be selling to make profits??

That depends on what we do now to prevent future bubbles. Such as......

dan_d wrote: »

....along with new regulations by the Gov forbidding 100% mortgages, requiring a certain deposit or long mortgage terms.(the point of this being to prevent the market from exploding again, should things start moving too fast and recklessly - again).

Exactly.