Debt Forgiveness v Equity Swap?

Silentcorner

Can someone clear something up for me

I don't believe in debt forgiveness ( and lord knows i could do with it ) but what are the pitfalls with an equity swap on a home whereby your new financial circumstances are considered and based on that a new mortgage plan is executed, you may lose 10 - 20 -30% of your home but you get to keep a roof over your head, and you keep another house off the market, you may even free up money in the wider economy...sounds simple right???

hmmm

Let's say a house was bought for 300k (and that is the mortgage), and is now worth 150k.

Let's also say an equity swap of 30% is arranged.

The taxpayer (via the banks) now owns an asset worth 30% of 150k i.e. 45k, but they are actually taking on 30% of the mortgage, which is 90k. It's a free gift of 45k to the homeowner.

Multiply that by 1,000s of properties and the taxpayer is essentially giving out billions in "free" money to people in negative equity, all paid for by higher taxes on everyone else.

A better option would be that the state takes on the 30%, i.e. 90k, but when the house is eventually sold (or the owner dies), the state gets their 90k back first, before anyone else receives anything.

_Kaiser_

Just been watching the discussion on RTE's "The Frontline" myself tonight and I'm genuinely disgusted with this ****e about Debt Forgiveness for mortgage holders, and more so with the apparent "widespread" support for it.

First off, I have every sympathy for families who are struggling BUT no one forced people to sign for overpriced mortgages (that they probably shouldn't have even qualified for in the front place) for shoe boxes in the middle of nowhere, but now asking Peter to pay for Paul's lifestyle choices is completely unacceptable.

For example take my own situation. I was out of work for a year and as well as the usual bills (that didn't disappear with my job/salary), I had a credit card and car loan to service and that required me to negotiate with banks to lower payments and increase terms (not a very pleasant experience for anyone) so that I could struggle on until I got something else.

I don't see anyone offering to pay that and why should they? It was my choice and my responsibility, yet all these idiots are all for it.. as if the country hasn't shafted enough with paying debts that aren't ours!

Whatever happened to the concepts of taking responsibility for one's actions and choices? These typically Irish "I'm alright Jack" and "can't someone ELSE do it" attitudes to (personal) debt is exactly what has brought the country to the brink, and if a scheme like this goes ahead it may be the final push needed to throw us over.

Silentcorner

hmmm wrote: »

Let's say a house was bought for 300k (and that is the mortgage), and is now worth 150k.

Let's also say an equity swap of 30% is arranged.

The taxpayer (via the banks) now owns an asset worth 30% of 150k i.e. 45k, but they are actually taking on 30% of the mortgage, which is 90k. It's a free gift of 45k to the homeowner.

Multiply that by 1,000s of properties and the taxpayer is essentially giving out billions in "free" money to people in negative equity, all paid for by higher taxes on everyone else.

A better option would be that the state takes on the 30%, i.e. 90k, but when the house is eventually sold (or the owner dies), the state gets their 90k back first, before anyone else receives anything.

That makes perfect sence to me...and at the risk of sounding optimistic there is a chance that the house in 20 years time might have increased in value from €150k...but where is this being discussed at govt levels?

hmmm

Silentcorner wrote: »

That makes perfect sence to me...and at the risk of sounding optimistic there is a chance that the house in 20 years time might have increased in value from €150k...but where is this being discussed at govt levels?

Probably nowhere, we have no money to waste shoring up people who can't afford their mortgages. The last option wouldn't fly in this country, because most people in this country still think their houses will eventually make them rich and want to keep the upside for themselves.

chasm

Kaiser2000 wrote: »

Just been watching the discussion on RTE's "The Frontline" myself tonight and I'm genuinely disgusted with this ****e about Debt Forgiveness for mortgage holders, and more so with the apparent "widespread" support for it.

First off, I have every sympathy for families who are struggling BUT no one forced people to sign for overpriced mortgages (that they probably shouldn't have even qualified for in the front place) for shoe boxes in the middle of nowhere, but now asking Peter to pay for Paul's lifestyle choices is completely unacceptable.

For example take my own situation. I was out of work for a year and as well as the usual bills (that didn't disappear with my job/salary), I had a credit card and car loan to service and that required me to negotiate with banks to lower payments and increase terms (not a very pleasant experience for anyone) so that I could struggle on until I got something else.

I don't see anyone offering to pay that and why should they? It was my choice and my responsibility, yet all these idiots are all for it.. as if the country hasn't shafted enough with paying debts that aren't ours!

Whatever happened to the concepts of taking responsibility for one's actions and choices? These typically Irish "I'm alright Jack" and "can't someone ELSE do it" attitudes to (personal) debt is exactly what has brought the country to the brink, and if a scheme like this goes ahead it may be the final push needed to throw us over.

Glad i read your post, Just watching the repeat of "frontline" now, and was beginning to wonder if i was the only person who doesn't agree with this "debt forgiveness" idea. Someone used the argument on the show that the banks have got their bailouts for their losses so why should morgage holders have to pay them again- well if that was the case i hope the people that were prudent during the celtic tiger years get given a free house seeing as we will also be paying for the bailouts!

FlashD

Kaiser2000 wrote: »

Just been watching the discussion on RTE's "The Frontline" myself tonight and I'm genuinely disgusted with this ****e about Debt Forgiveness for mortgage holders, and more so with the apparent "widespread" support for it.

First off, I have every sympathy for families who are struggling BUT no one forced people to sign for overpriced mortgages (that they probably shouldn't have even qualified for in the front place) for shoe boxes in the middle of nowhere, but now asking Peter to pay for Paul's lifestyle choices is completely unacceptable.

For example take my own situation. I was out of work for a year and as well as the usual bills (that didn't disappear with my job/salary), I had a credit card and car loan to service and that required me to negotiate with banks to lower payments and increase terms (not a very pleasant experience for anyone) so that I could struggle on until I got something else.

I don't see anyone offering to pay that and why should they? It was my choice and my responsibility, yet all these idiots are all for it.. as if the country hasn't shafted enough with paying debts that aren't ours!

Whatever happened to the concepts of taking responsibility for one's actions and choices? These typically Irish "I'm alright Jack" and "can't someone ELSE do it" attitudes to (personal) debt is exactly what has brought the country to the brink, and if a scheme like this goes ahead it may be the final push needed to throw us over.

Pretty spot on there Kaiser2000.

I think you put as well as anyone could.

aftermn

hmmm wrote: »

Let's say a house was bought for 300k (and that is the mortgage), and is now worth 150k.

Let's also say an equity swap of 30% is arranged.

The taxpayer (via the banks) now owns an asset worth 30% of 150k i.e. 45k, but they are actually taking on 30% of the mortgage, which is 90k. It's a free gift of 45k to the homeowner.

Multiply that by 1,000s of properties and the taxpayer is essentially giving out billions in "free" money to people in negative equity, all paid for by higher taxes on everyone else.

A better option would be that the state takes on the 30%, i.e. 90k, but when the house is eventually sold (or the owner dies), the state gets their 90k back first, before anyone else receives anything.

I like this option. Like an interest free loan. It would address a number of the problems with distressed mortgages, negative equity and bank balance sheets. Haven't done the maths, but think it would be cheaper then re-possession and sale by the bank, followed by re-housing by the government.

Yes it is 'kicking the can' a bit, but we have to believe that things will improve 'down the road'. Can property prices fall a further 50%?

Cookie_Monster

aftermn wrote: »

Can property prices fall a further 50%?

one can only hope they do

RichardAnd

aftermn wrote: »

Can property prices fall a further 50%?

It's very possible. Consider how many thousands of people are in mortgage arrears, holding onto their homes simply by virture of the fact that re-possession is very difficult to pull off. On top of this, there are thousands of empty houses all over the country and then let's not forget that the levels of credit needed to buy at celtic tiger simply are no longer available, which is no bad thing.

The property market was a ponzi scheme that's fallen through and it's time people started seeing houses for what they are; homes and not investments.

motherriley

People that purchase their home to live in for years, therefore it should not matter how far the prices fall. When I was young my parents built our home with very little money out of just stones, also my dad had to pay 10shilling land tax for the bit of ground that the house was built on...

People in Ireland now got greedy and purchased large house thinking that the housing market prices would not crash. Now that they money tap has been turned off people are acting like kids, we will not pay back what I borrowed and that is that. Nobody forced people to take out expensive mortgages, it was their choice to take our large mortgage, so deal with it....

Sarn

I can't see how an equity swap would work if you are in negative equity. Firstly there would be no equity to swap, secondly the bank would already have a 100% stake in the house. The bank's stake won't be reduced until the negative equity is cleared.

carm

hmmm wrote: »

Probably nowhere, we have no money to waste shoring up people who can't afford their mortgages. The last option wouldn't fly in this country, because most people in this country still think their houses will eventually make them rich and want to keep the upside for themselves.

So where exactly do you think the people who can't afford their mortgages will go once they've lost their houses? Yes. You'll be paying for their rent by way of rent supplements. At a higher cost to the taxpayer in some cases I might add. Clever thinking.

Can you tell me who these "most people" who still think their houses will eventually make them rich are? I've yet to meet them. Maybe I'm meeting too many down to earth, decent people.

hmmm

carm wrote: »

So where exactly do you think the people who can't afford their mortgages will go once they've lost their houses? Yes. You'll be paying for their rent by way of rent supplements. At a higher cost to the taxpayer in some cases I might add. Clever thinking.

A higher cost to taxpayers? I doubt it. Still, I imagine most people who have been prudent over the past 10 years will take a small hit if it means they don't have to pay off the debts of others. I certainly don't want to end up paying my landlords mortgage just because he foolishly outbid some young family for the house I rent.

carm

hmmm wrote: »

A higher cost to taxpayers? I doubt it. Still, I imagine most people who have been prudent over the past 10 years will take a small hit if it means they don't have to pay off the debts of others. I certainly don't want to end up paying my landlords mortgage just because he foolishly outbid some young family for the house I rent.

Are you familiar with rental supplements? There are those that have been living quite comfortably with HSE rent supplements over the years, particularly in comparison to those on their 12 month short-term mortgage interest supplement. I have been prudent over the past 10 years. I've already taken the hit by redundancy and a post-realisation that all my hard paid tax doesn't come back to me on welfare to help me with any of my mortgage payments or anything else for that matter. Just to let you know not all struggling to pay their mortgages are the "5 sq metre holiday apartment in Bulgaria" people who bought during the boom.

But I would agree with you there. I wouldn't want to see you paying your landlord's mortgage either. That's what partly got us into this sht in the first place. Another one to thank Fianna Failure for, while they and their ilk partied.

RichardAnd

I've said this before on these boards, debt forgiveness is a misnomer. A better term for such a thing would be debt shifting because even though the original borrower might get off the hook, the debt still exists and has to be paid somewhere along the line.

For me, this all comes down to responsibility. One of the things that defines maturity is accepting that decisions have ramifications and that these must be dealt with. Taking debt off people who readily signed up to the property ladder farse would be taking away the responcibility that they should have to take. If we ever want to grow up as a society and stop being the dodgey little island off the coast of Europe, we have to draw the line and start behaving like adults.

fliball123

The gov has to get real one solution and its a hybred of what a different poste put up and one which will not only help out the mortgage holder but also not screw over the tax payer long term is as follows:

Get this Property Database that was promised
Look at all loans in neg equity and struggling to pay
Then if say a house is worth 200k over them 50% say 100k off their mortgage. Now when the current mortgage holder dies and the house is being sold or passed on via a will the Gov get back either 100k or 50% of the prroperty price (which ever is the highest)

This way it is a bit of cash up front with a garentee that they will get it back and maybe more. Currently the only other option is a massive default and the gov via the banks will get a load of properties worth feck all.