A possible solution to neg equity....

Thud

A possible solution....just formulating this so prob lots of reasons why it wouldn't work....

Banks would have to become long term landlords....
You hand over deeds to neg equity home to bank but sign a contract to pay rent (=80% of monthly mortgage payment) for 10years (with possibility of subletting open to you as long as it covers the payment)

Banks therefore have 10yrs for property market to recover. It would give some relief on payments and free property owner to some extent.

After 10yrs banks would be:
- possibly in a position to sell the property at a breakeven price if market had improved
or
- in a position as a large (hopefully well run) land lord to find new tenants where rental income (to perpituity) would eventually cover the cost

This would:
- instill a rental mentality in the Irish nation (similar to many Euro nations) where subleting would allow people flexibility to move if circumstances necessitated (contract holder may have supplement the sublet rental income to meet the agreed monthly figure)
- allow homeowners to remain in their homes
- guarantee the banks income for at least 10 yrs
- stabilise property market

Rental agreements woul d have to be treated similarly to mortgage contracts in law.
Homeowner could also have to pay a portion of the neg equity.
Gov would have to take control of prop development in order to maintain a reasonable level of rental income after the 10yrs

thoughts???

Fratton Fred

This isn't a million miles away from what happens with a mortgage. The banks hold your property until the mortgage is paid off, then hand over the deeds.

Negative equity is only a problem for a home owner that wants to sell.

Raskolnikov

That's essentially the NAMA business plan, a plan which has failed miserably and cost the taxpayer billions.

SBWife

What about the whole issue of individual responsibility? I can understand and see a need for workouts where the borrower is in default on the mortgage and legitimately has no resources to pay it. But I don't think homeowners should be bailed out just because they made a bad decision to purchase a home at a certain time which has resulted in them being in negative equity. Nobody stuck a gun to their head and forced them to buy. Yes, there may have been societal pressure and voices in the media saying everything will be alright but at the end of the day they are adults supposedly making adult decisions, not teenagers deciding what running shoes to buy.

BTW on a preemptive note I don't support how the bank bailout was conducted, I certainly wouldn't have left Anglo CTD for as long as the government did and would wholeheartedly support the DPP prosecuting some of the fraud at that particular institution.

Nody

I keep on seeing this plans about how "the bank" will take a hit for the negative equity etc. which sounds great; except we own the bloody banks. That hit you keep on talking about has to be paid by the state and hence by extension us, as taxpayers. Do YOU want to pay the negative equity of your neighbour who bought a shoe box and now wants a free get out of jail card?

Thud

Similar to NAMA but the NAMA business plan only applies to large debtors and not individuals

This isn't quite writing off the negative equity, the bank would own the property and receive 10yrs (or more) rental income which would offset the neg equity to some extent. This method would hopefully lower the default rate and avoid evictions etc. Many would continue to pay rental income after the 10 yrs and if conditions had changed the bank would be free to sell the property.

it's not perfect but it is an alternative to simply writing off large amounts of negative equity and kicking people out of their homes. It might also break the Irish fear of long term renting that partly led to this mess

SBWife

The country can't afford the NAMA it has so let's extend it to cover individuals as well?

I can't see any logic in that whatsoever.

Scofflaw

Fratton Fred wrote: »

This isn't a million miles away from what happens with a mortgage. The banks hold your property until the mortgage is paid off, then hand over the deeds.

They hold the deeds as security, they don't own the property. They can't touch the property except as part of foreclosure, whereas if the bank actually owns the property, it can sell without reference to the mortgage holder the moment it thinks it might make a profit on the deal.

Fratton Fred wrote: »

Negative equity is only a problem for a home owner that wants to sell.

To some extent - however, quite a lot of consumer spending was being financed by the positive equity in houses. I'm not suggesting that's a good thing, but it was helping drive domestic demand.

cordially,
Scofflaw

Laminations

Negative equity shouldn't be a concern. We should only aim to intervene in situations where people cannot pay their mortgage and keep a basic level of living.

This could mean debt-for-equity. It could mean forcing people to trade down in certain instances and it could mean repossession of the house and a rent back scheme for the occupants. I don't think banks should be rushing to broker deals with people who owe copious amounts of money but who are still living in relative luxury but where people are struggling, I do think they need a life line. Negative equity is a component of this suffering but is not sufficient by itself.

SBWife

Scofflaw wrote: »

To some extent - however, quite a lot of consumer spending was being financed by the positive equity in houses. I'm not suggesting that's a good thing, but it was helping drive domestic demand.

It also helped exacerbate the bubble, the number of down payments for kids' properties and holiday homes that were financed by the positive equity in mom and dad's home was not unsubstantial.

hmmm

Laminations wrote: »

but where people are struggling, I do think they need a life line.

They have a lifeline, it's called social welfare and rent allowance. However people don't want the indignity of leaving the house they can't afford and having to rent, they want to keep their house and have someone else pay for it.

I'd like a BMW, but I don't expect the taxpayer to buy me one simply because I don't like driving my present car.

Icepick

Fratton Fred wrote: »

Negative equity is only a problem for a home owner that wants to sell.

It isn't because economy declined as a whole. Many people cannot finance the bubble prices even if they just want to live there.
So negative equity is a problem if you cannot pay the mortgage.

Laminations

hmmm wrote: »

They have a lifeline, it's called social welfare and rent allowance. However people don't want the indignity of leaving the house they can't afford and having to rent, they want to keep their house and have someone else pay for it.

I'd like a BMW, but I don't expect the taxpayer to buy me one simply because I don't like driving my present car.

How does social welfare and rent allowance helpyou pay a mortgage you cant afford? How does moving out of the house and renting help when you still need to pay for the house. The debt follows the mortgage holder whether they live in the house or not.

Your car analogy doesn't work, mainly because homes are not comparable to cars. But if your present car was unaffordable, you owed money on it you can't pay and nobody will buy it off you and even if they do it'd be at such a low price that it wouldn't pay off your car loan (and those are all very different from simply overpaying for a car - negative equity), then suggesting you take the bus and leave the car up on bricks neiether helps you or whoever you owe for the car, and it doesn't help the car essentially abandoning it and leaving it fall into disrepair. We aren't talking about BMWs here, like I said I don't think banks should be brokering deals with people who are living in luxury - these people should have to trade down, but regular home owners should have some relief - not debt forgiveness but debt extending or debt postponement or debt for equity. None of that involves the tax payer paying for anything

hmmm

Laminations wrote: »

How does social welfare and rent allowance helpyou pay a mortgage you cant afford? How does moving out of the house and renting help when you still need to pay for the house. The debt follows the mortgage holder whether they live in the house or not.

That's what we have bankruptcy laws for. Are you asking for a small group of people to have their debts simply wiped out, and allow them to retain their property?

I remember back in 2006 when we were debating property prices on boards (and at the time, very few were interested in listening to the prospect that prices might fall when everyone thought they were going to get rich buying property), and I worried that we'd be asked to bail out these feckless goms. Looks like it is coming true, as the goms turn around and try to blame everyone else for the mess they've made of their lives.

hmmm

Laminations wrote: »

None of that involves the tax payer paying for anything

You really have no idea how banks are funded do you?

SBWife

hmmm wrote: »

You really have no idea how banks are funded do you?

Ah, sure what's €65 Billion between friends?

Laminations

hmmm wrote: »

That's what we have bankruptcy laws for. Are you asking for a small group of people to have their debts simply wiped out, and allow them to retain their property?

That's clearly not what I'm saying.

hmmm wrote: »

You really have no idea how banks are funded do you?

Stop the press! I don't think banks should be funded by the taxpayer. If they suffer losses from bad mortgages then, well, they suffer losses from their bad mortgages. Them and the bondholders. Tax payees bailing out banks creates a moral hazard.

SBWife

Laminations wrote: »

Tax payees bailing out banks creates a moral hazard.

And tax payers bailing out homeowners/mortgage holders doesn't?

Laminations

SBWife wrote: »

And tax payers bailing out homeowners/mortgage holders doesn't?

The type of debt forgiveness I'm suggesting isn't really a bailout. At least I don't see it as such. It's like waiting for someone to recover before you get them to stand trial. They'll still have to face the music, its essentially a temporary reprieve

View

I personally favour a complete building ban and bulldozing half the homes in the state. Once we have a resulting housing shortage, the problem of negative equity will disappear fairly quickly.

Armin_Tamzarian

I suppse one possible benefit of this scheme would be that the truly hard-up could apply for rent allowance as they were now paying rent instead of mortgage payments.

Thud

hmmm wrote: »

That's what we have bankruptcy laws for. Are you asking for a small group of people to have their debts simply wiped out, and allow them to retain their property?

Under this scheme they wouldn't get to retain their property, yes they'd get to stay in them but the bank would now own it with them as a renter (dead money ) so the bank wouldn't be stuck with an empty property and would be free to sell (with renter in place) if market improved.

Essentially the rent would be paying down the negative equity for x amount of years.
Yes the banks would be hugely exposed to the property markets but that's nothing new and Gov would have to regulate new development much more stringently.

If prop market hadn't improved after 10 years there should be a rental mentality instilled by then so that the bank could continue to rent the property. After Xyrs or rental the prop would have paid for itself and bank would be in the black (long term i know)

SBWife

Thud wrote: »

Essentially the rent would be paying down the negative equity for x amount of years.

For this to be the case the rent would have to be pretty much set at the same level as the current mortgage payment (higher if you want it to make a noticeable dent in the negative equity within 10 years - given boom time mortgages stretched out to 30 years).

Now if the resident of the property cannot make the current mortgage payment how on earth does he become better able to pay the same amount by just calling it rent?

I don't think Rent Supplement will make come into as the rents suggested would most likely be above the allowable maximums. Rent Supplement maximum rent level allowable maxes out in Dublin at €1,100 for a family with 3 children. And these are expected to decrease in the next budget.

Thud

SBWife wrote: »

For this to be the case the rent would have to be pretty much set at the same level as the current mortgage payment (higher if you want it to make a noticeable dent in the negative equity within 10 years - given boom time mortgages stretched out to 30 years).

Now if the resident of the property cannot make the current mortgage payment how on earth does he become better able to pay the same amount by just calling it rent?

I don't think Rent Supplement will make a difference as the rents suggested would most likely be above the allowable maximums. Rent Supplement maximum rent level allowable maxes out in Dublin at €1,100 for a family with 3 children.

not necessarily as the mortgage payment int principal + interest, the bank would own the property as a buy to hold asset so 80% of the mortgage payment would be higher than current rental income and a decent return.

Hey it's an idea, it's not perfect, clearly no one wants to simply write down/off mortgages so that taxpayers take the direct hit so this is somewhere in between

SBWife

Thud wrote: »

not necessarily as the mortgage payment int principal + interest, the bank would own the property as a buy to hold asset so 80% of the mortgage payment would be higher than current rental income and a decent return.

Negative equity is principal - to pay this down the renter/owner needs to continue to pay more than the interest.

The bank also pays interest to its sources of funding based primarily on international overnight rates (deposits are not, contrary to what you learned at JR Cert, a major source of funding) which are significantly higher than the current ECB rate. The margins in banking right now are non-existent. What you are suggesting would increase the losses at the banks (which if you recall are owned by the state and thereby financed by the taxpayer). There's no 20% fat to cut.

Thud

SBWife wrote: »

Negative equity is principal - to pay this down the renter/owner needs to continue to pay more than the interest.

The bank also pays interest to its sources of funding based primarily on international overnight rates (deposits are not, contrary to what you learned at JR Cert, a major source of funding) which are significantly higher than the current ECB rate. The margins in banking right now are non-existent. What you are suggesting would increase the losses at the banks (which if you recall are owned by the state and thereby financed by the taxpayer). There's no 20% fat to cut.

yes but instead of a risky non performing asset (dodgy mortgage) on their books the bank now has an income stream (from rent) and a property portfolio which could be securitized to reduce funding cost, it would also improve the banks balance sheet which should reduce funding cost in the market. thanks for the lesson though

swampgas

Thud wrote: »

yes but instead of a risky non performing asset (dodgy mortgage) on their books the bank now has an income stream (from rent) and a property portfolio which could be securitized to reduce funding cost, it would also improve the banks balance sheet which should reduce funding cost in the market. thanks for the lesson though

However if the bank now owns the property, they are effectively the landlord and must provide maintenance on the property, and possibly insurance as well.

SBWife

How does taking another huge asset write down improve the banks' balance sheets? What kind of yield do you think a securitisation would need in this environment? You'd have to write properties down well below fire sale values to give international investors enough upside to fund the securitisation.

@Swampgas I was avoiding the whole what qualifies the bank to be a landlord argument and the margin they'd have to pay out to a property management company to look after these homes. At the very least the keeping up appearances mentality (combined with the what would the neighbours' think fear) means that most owner occupied negative equity properties are maintained.

Thud

swampgas wrote: »

However if the bank now owns the property, they are effectively the landlord and must provide maintenance on the property, and possibly insurance as well.

my first point was :
"Banks would have to become long term landlords....""

Thud

SBWife wrote: »

How does taking another huge asset write down improve the banks' balance sheets? What kind of yield do you think a securitisation would need in this environment? You'd have to write properties down well below fire sale values to give international investors enough upside to fund the securitisation.

@Swampgas I was avoiding the whole what qualifies the bank to be a landlord argument and the margin they'd have to pay out to a property management company to look after these homes. At the very least the keeping up appearances mentality (combined with the what would the neighbours' think fear) means that most owner occupied negative equity properties are maintained.

look at it like this:
Property + Xyrs rental contract > defaulted mortgage + evction costs + empty property

SBWife

But it could very well be:

Property + Rental Contract at X for X with existing resident < Property (cause that's what the bank ends up with following default) + eviction costs + (Rental Contract at Y for Y with new resident or Rent to Buy with new resident or sale to new homeowner or sale to investor)

All we know for sure is the existing resident can't afford the house.

Thud

SBWife wrote: »

But it could very well be:

Property + Rental Contract at X for X with existing resident < Property (cause that's what the bank ends up with following default) + eviction costs + (Rental Contract at Y for Y with new resident or Rent to Buy with new resident or sale to new homeowner or sale to investor)

All we know for sure is the existing resident can't afford the house.

ok you're right so

good luck finding buyers for houses in ghost estates rural longford etc...

SBWife

Thud wrote: »

good luck finding buyers for houses in ghost estates rural longford etc...

Those ones I wouldn't even try. Ideal situation in that case is to foreclose on the few occupied homes (assuming of course the homeowner is in default otherwise offer to buy them out and allow them to transfer part of their negative equity to a new property while writing off a portion of it) and bring on the wreaking ball. Cheaper to bulldoze some of those estates then continue to supply services (guards, water, sewage where supplied by CC). Every house gone brings us closer to equilibrium. AND you get to tear up any developer "Business Plan" that's sitting in NAMA and take said developer off the payroll.

People with roots in Clondalkin, living in Edgeworthstown and commuting to Dublin have a miserable quality of life and have a difficulty contributing to any community.

swampgas

Thud wrote: »

ok you're right so

good luck finding buyers for houses in ghost estates rural longford etc...

Why on earth would a bank want to take (partial or full) ownership of a house in a ghost estate? Its LTV is negligible.

A pity for the poor sod who has the mortgage, they are never getting their money back.

Icepick

Thud wrote: »

my first point was :
"Banks would have to become long term landlords....""

The last things these bank need to do is to enter another industry they have no idea about.

Thud

not such an outlandish idea after all, maybe he's been reading boards...

Central Bank Governor Patrick Honohan :
"It may be possible to arrange that, even very stressed, owner-occupier borrowers who have to surrender ownership could stay in their house on a rental basis; and there could be intermediate shared equity type solutions," he said.

http://www.independent.ie/business/personal-finance/property-mortgages/mortgage-crisis-lsquoborrowers-may-be-able-to-stay-in-homesrsquo-2865474.html

thebman

Thud wrote: »

not such an outlandish idea after all, maybe he's been reading boards...

Central Bank Governor Patrick Honohan :
"It may be possible to arrange that, even very stressed, owner-occupier borrowers who have to surrender ownership could stay in their house on a rental basis; and there could be intermediate shared equity type solutions," he said.

http://www.independent.ie/business/personal-finance/property-mortgages/mortgage-crisis-lsquoborrowers-may-be-able-to-stay-in-homesrsquo-2865474.html

That has nothing to do with negative equity though. That is destressed mortgages. Negative equity is when someones home is worth less than they paid for it which is only an issue if they wish to sell.

The solution for the negative equity problem is for people to stop looking at the price of houses and get a new hobby and for investors to hold onto property until it goes back up or just accept their loss and sell now.

mrgaa1

revalue all property at todays prices - add 15% - that'll be the new mortgage figure and wipe the rest.
then this country can get on its feet and lead the recovery throughout Europe. If we're in front we'll make the repayments to EU/IMF faster and IF we become a digital and agricultural lead nation then we will become a leading beacon.
Failure to do this will mean staying in the doldrums and rolling with the rest of europe

Thud

thebman wrote: »

That has nothing to do with negative equity though. That is destressed mortgages. Negative equity is when someones home is worth less than they paid for it which is only an issue if they wish to sell.

The solution for the negative equity problem is for people to stop looking at the price of houses and get a new hobby and for investors to hold onto property until it goes back up or just accept their loss and sell now.

the thread was named badly, it was a suggestion to deal with those stuggling with mortgages, read the first post

swampgas

mrgaa1 wrote: »

revalue all property at todays prices - add 15% - that'll be the new mortgage figure and wipe the rest.

So ... you want to increase my mortgage, do you?

Who says everyone is in negative equity?

This idea is absolutely unworkable.

ChRoMe

swampgas wrote: »

So ... you want to increase my mortgage, do you?

Who says everyone is in negative equity?

This idea is absolutely unworkable.

SBWife nailed it a good few posts back, this is ridiculous stuff.

hmmm

If someone can afford to pay 80% of their mortgage as rent, they can afford to go interest only and don't need a taxpayer subsidy.

Thud

"Rather than losing their homes, people will be given the opportunity to lease them from the local authorities at a more affordable rate."

http://www.irishtimes.com/newspaper/ireland/2011/1012/1224305641849.html

Greaney

On another thread someone was complaining that our politicians don't know what to do so they're asking us (I think that's called democracy;)). I think, maybe they should read 'boards' once in a while!!

I totally understand what the OP is talking about. If you've an elderly relative or kids, and they go to school in the locality, loosing your house might be a bigger 'inconvenience' than if you were single. It could mean changing schools, spending more money on petrol commuting, selling all your furniture and appliances (unfurnished rentals are rare in Ireland), if there's little rental stock in your area. Rural Ireland has a few expensive Mc Mansions to rent that cost an arm and a leg to heat and light, it's that or an out dated house from the 70's with little or no insulation and dodgy wiring and plumbing.