Negative Equity Mortgages approved by CBI

daltonmd

Welease wrote: »

If it was a single problem.. Then a single solution would suffice.. This solution works for the problem it attempts to solve, but does not solve all problems.. So sorry.. its more than a single problem.

The reason people cannot move is because they are in Negative Equity. They cannot repay that debt in order to move - it is one and the same.

Welease wrote: »

(This is from your last post) A property being worth 50% of the initial purchase price, does not effect a person's ability to repay that loan.. A person's ability to sustain that loan is completely removed from the value of the asset..
Neg Eq does not have an effect unless they wished to move. This solution address the movement problem.

So the problem is unsustainable loans via those issues.. not NE.. If there was none of the above.. the loan would be serviceable, irrespective of the NE.

Following on from this logic, if there was none of the above then there also wouldn't be Negative Equity would there? You can't simply pluck out what suits your argument.

Welease wrote: »

The NE is one of the problems agreed.. and this is one solution to the problem for certain people.. It's not the sole problem as you suggest.. The problem also lies with all the other issues you mentioned above pay cuts, jobs losses, higher taxes etc.. Removing NE still wont allow an unemployed person to repay a 300K loan.

There are people (unless this issue is properly tackled) who will be in Negative Equity for the next 15 - 20 years at least, now think about that for a minute. Let's say you bought a house for 300k in the boom, it is now worth 150k and by the time you repay the 300k principal you will more than likely have repaid over 250k (taking 5% overall, I'm being modest with that I'd say). By the end of the mortgage the property might be worth 300k - they may as well have rented. That is 250k gone - up in smoke. Now multiply the problem and multiply the money repaid to banks for

Welease wrote: »

Desperate to move.. For a variety of reason incl. access to extremely limited special needs services for children, loss of previous jobs now with 3 hour daily minute commutes, inability to liquidate an assets in a failed relationship, requirement to move to a bigger house as now have family.. and some just becuase they can afford to service a mortgage on a bigger place. Just because it's not a problem you deal with, doesnt make it ok to dismiss it and believe they don't need help.

In other words they are badly affected by Negative Equity and not, as you stated in your earlier posts those who will find it "Very useful for those who want to trade up (or possibly down) or those who want to move to secure new/different employment"?

Edit to add - what you initially said in your earlier post was more like a "lifestyle" choice, that they "wanted to move" they were not "desperate - big difference.

Welease wrote: »

Again sustainable debt is different from unsustainable debt.

Ah yea, but sustainable only if the above hasn't affected you.

Welease wrote: »

I do. I have been explaining they are unsustainble loans to you for the last few hours... I also have the ability to see that NE is not the sole problem there as you claim..

I think I said that given paycuts/job losses etc it was the same as unsustainable debt - I stand ot be corrected of course

Welease wrote: »

Not all moves are based on financial issues.. as per my response above..
You think a bank will give a 100K personal loan to someone so they can liquidate their sole asset capable of covering that loan? Get real..

Of course not all moves are based on financial issues - but they're based on whether or not you can liquidise them and move and as you have outlined above, if you are in NE you can't.


I think it's time you got real yourself - because if you are suggesting that a bank will happily give someone a "Negative Equity" mortgage over 30 years at a price but deem them unsuitable for a personal loan for the same amount - then you are simply making it clear as to who the ONLY winners in this scam sorry "facility" are...

Welease wrote: »

No it wasn't.. I suggest you read up on how banks work and the issues trackers are currently causing with ongoing funding.. no one has funded a further reduction of billions of Euro's in banks loan books.

And I suggest you read this http://www.irisheconomy.ie/index.php/2011/08/22/lack-of-debt-forgiveness-not-realistic/

"The report estimates total lifetime losses on the €74.4 billion owner-occupied mortgage portfolio for AIB\BoI\EBS\ILP at €5.7 billion in their base case and €10.2 billion in the stress scenario. These loss estimates were then used to come up with the capital requirements for each bank, most of which has been met by putting public money into the banks.

For those who say that they don’t think that their money should be used to help write down other people’s mortgage debt, there’s bad news and good news. The bad news is that it’s already happened. The taxpayer injections from the NPRF are covering mortgage debts that won’t be paid back. The good news is also that it’s already happened, i.e. implementing a debt relief programme won’t involve any additional costs to taxpayers over and above those already announced.

What this means is that the banks are sitting on mortgage losses that will be around €6 billion even if the economy recovers in line with the government’s projections. This €6 billion represents debt that simply will not be paid back and taxpayer funds have already been injected to cover these losses. At present, however, the banks are preferring to write these losses off as slowly as possible. But whether the day of writing down is put off some more or whether the banks actively engage in a write-down programme, these losses are being incurred."

I suggest also that you read the report.

Welease

daltonmd wrote: »

The reason people cannot move is because they are in Negative Equity. They cannot repay that debt in order to move - it is one and the same.

This is getting rediculous..
I am not going to continue to respond to each and every point, becuase the same point still stands over and over again..

There is more than 1 issue in play here..
This change is to solve 1 issue (inability to move due to NE).
It is not intended to solve other issues (such as unsustainable debt, job loss, increased tax, bank funding or bad haircuts)..

It's not any more complicated that.. If you still have an issue with that then /shrug.. running through the same point again and again isn't going to change your mind..

daltonmd wrote: »

And I suggest you read this http://www.irisheconomy.ie/index.php/2011/08/22/lack-of-debt-forgiveness-not-realistic/

"The report estimates total lifetime losses on the €74.4 billion owner-occupied mortgage portfolio for AIB\BoI\EBS\ILP at €5.7 billion in their base case and €10.2 billion in the stress scenario. These loss estimates were then used to come up with the capital requirements for each bank, most of which has been met by putting public money into the banks.

For those who say that they don’t think that their money should be used to help write down other people’s mortgage debt, there’s bad news and good news. The bad news is that it’s already happened. The taxpayer injections from the NPRF are covering mortgage debts that won’t be paid back. The good news is also that it’s already happened, i.e. implementing a debt relief programme won’t involve any additional costs to taxpayers over and above those already announced.

What this means is that the banks are sitting on mortgage losses that will be around €6 billion even if the economy recovers in line with the government’s projections. This €6 billion represents debt that simply will not be paid back and taxpayer funds have already been injected to cover these losses. At present, however, the banks are preferring to write these losses off as slowly as possible. But whether the day of writing down is put off some more or whether the banks actively engage in a write-down programme, these losses are being incurred."

I suggest also that you read the report.

I think you need to read the report more closely.. the 6m million cover debts that won't be re-paid.. it doesnt cover a writedown of all debts..
If memory serves correct, in 2008 there was over €110B of mortgage debt in this country.. 6B comes nowhere near covering the NE portion of €110b debt (given people are throwing around figures of 40% NE)

MadsL

At the risk of repeating myself. Short Sales. Why are the banks not taking some of the pain on mortgages they extended 2006-2007 onwards for blatantly overpriced property.

Welease

MadsL wrote: »

At the risk of repeating myself. Short Sales. Why are the banks not taking some of the pain on mortgages they extended 2006-2007 onwards for blatantly overpriced property.

Short Sale with a) unpaid balance or b) refinanced balance?

if a)
I'm guessing the reason is a) because noone is forcing them to do so.. and b) people won't want them to do so if we have to pick up the tab..

daltonmd

"There is more than 1 issue in play here..
This change is to solve 1 issue (inability to move due to NE).
It is not intended to solve other issues (such as unsustainable debt, job loss, increased tax, bank funding or bad haircuts)..

It's not any more complicated that.. If you still have an issue with that then /shrug.. running through the same point again and again isn't going to change your mind.. "



There isn't more than one issue here. It's one underlying problem and that is Negative Equity.

In some cases it affects those who want to trade up, who can afford to repay a bigger mortgage but who really are not in difficulty.

In some cases it is affecting those who have to move/marriage breakup and the other reasons you listed.

In other cases because of paycuts/job losses it has rendered the entire mortgage unsustainable because they cannot sell for what they owe on their mortgage.

It is one underlying problem with various outcomes - it is that simple and running through these same points won't change your mind *shrugs*...

@Madsl - that's called a writedown and it will happen.

MadsL

daltonmd wrote: »

@Madsl - that's called a writedown and it will happen.

The thing is - it is happening, just not in any public or regulated way. Time for the banks and the regulator to come clean about what is being writtendown.

daltonmd

MadsL wrote: »

The thing is - it is happening, just not in any public or regulated way. Time for the banks and the regulator to come clean about what is being writtendown.

Absolutely agree with you. The questions that need to be asked - are people still living in the properties and paying rent to the banks? Are the properties lying idle and if they are why? The banks/Gov are terrified that doing this will cause further drops in property - which it will of course.

Banks eh - still as transparent as ever!!

MadsL

MadsL wrote: »

At the risk of repeating myself. Short Sales. Why are the banks not taking some of the pain on mortgages they extended 2006-2007 onwards for blatantly overpriced property.

Ok, deep breath, here goes...

This to me is the crux of the issue, and it's unfortunate, but understandable if you break it down. It all comes back to the bank guarantee by cowen and lenihan. Those two clowns unilaterally made one of the most monumentally short sighted disastrous decisions, perhaps THE most disastrous decision in Ireland's history, AND they made it contrary to expert advice paid for by taxpayers money at the time. Prior to that guarantee, and the subsequent bank recapitalisations, bank debt was a private matter, for banks, their customers and their shareholders. The government would have been free to legislate for debt write downs without the massive political fallout that goes with the losses being socialised. It wouldn't have been pretty, sure, but it wouldn't have been as fundamentally game-changing an issue as its now become.

However, As we stand currently, the irish property market is collectively billions and billions of euros in negative equity, and a large proportion of it is now underwritten by the state, in nationalised and recapitalized banks. The only thing preventing that huge loss from being realised in its entirety is that there has been no definite, formally recognised program of debt write down written into law. There has only been this "case by case" fudge that we hear so much about but that really just equals a long, drawn out exercise in keeping cost to the state down and kicking the can down the road at a time when the exchequer is strapped for cash. We simply can't afford to have widespread debt forgiveness, regardless of any moral considerations that might occur as to whether it was the right thing to do or not.

If we allowed for negative equity write downs, restructuring, debt forgiveness, or whatever you want to call it, formally through legislation, as is the norm in many countries throughout the world, the floodgates would open, literally overnight and the banks, and hence the state would be ruined. Privately held foreign banks (many of whom are currently facilitating the irish state financially) would go to the wall through their risky exposure to our mortgage market being realised, and nationalised irish ones would pass billions worth of losses on to the exchequer, immediately. All at once. In addition to the social austerity being undergone in ireland as part of the troika's bailout program, the withdrawl of many of our funding sources from foreign markets combined with the huge losses to the exchequer would be the final blow that would push the country undeniably and firmly into bankruptcy, ruining our credibility internationally and removing any prospect of us raising credit from the markets that we might use to get our country back on track. We would have massively higher outgoings as a state, re-enter recession, and be unable to source short term funding to run the state, at any price. It would create a perfect storm from which there would be no surviving, and would put Ireland on a par with Greece as it stands at the moment, or worse.

Not only that, But if that was to happen, our country's best and brightest talent, and our most educated and employable people, the best prospects for driving any eventual economic growth and recovery and the ones who currently have a choice whether to stay or go, would flee to other countries, many of them permanently, and Ireland would languish without money, skills, confidence, or growth for generations. The party that presided over such a disaster would be decimated in elections and would be consigned to the history books in one fell swoop (rather than just the disappointing dressing down that fianna fail got in the last election).

Unfortunately (and this is the key point) to enact the only solution that will REALLY solve our current negative equity problem, ie: large-scale debt forgiveness on a structured basis, would be political and economic suicide by any party silly enough to allow it, and that's why we won't see it happen.

If I was to guess what the most likely outcome to this whole situation was going to be, it would be that our political masters simply cut a large chunk of the celtic tiger generation loose and let them drift in their negative equity until such a point as any losses on their property have been recovered, maybe in 15-20 years. Let them deal with the unfortunate social consequences of their actions, and instead concentrate on coming out of the far end of the EU/IMF rescue plan and rebuilding the economy.

Call me pessamistic, but I have no faith in our government to do the morally right thing in this situation, it's too dangerous and far too costly. Given the situation we're in since the bank guarantee, I think a political decision has already been made to treat the thousands in the worst negative equity in ireland as "acceptable losses" as part of the process of rebuilding the country, and to try to learn the necessary lessons from a dark period in Irish history and move on as best we can.

So much for the most promising generation our country has ever produced...

daltonmd

Completely disagree with you Mack. This is the same line we were fed with the Guarantee, with the Lisbon treaty, with the repaying of the bondholders.

The banks were recapitilised taking mortgage losses into account. No one is suggesting a blanket mortgage debt relief programme.

Banks fail in the states all the time it's not the end of the world and according to Karl Whelan there will be no extra cost on the state.

http://www.businessandfinance.ie/bf/2011/8/commanalyaugust2011/karlwhelanthecaseformortgagewr

Leaving a chunk of people to drift in their NE does not only affect them - it affects the wider economy and as sure as night follows day many will default/avail of the new bankruptcy laws.

The problems you outlined by having a debt relief programme have already happened, that horse has bolted. The only way for the economy to recover is by realising the bad debts, freeing up people from unsustainable debt, identifying those who are on the cusp and sorting the problem. Not knee jerking to every crisis as we have done previously.

daltonmd

daltonmd wrote: »

The problems you outlined by having a debt relief programme have already happened, that horse has bolted. The only way for the economy to recover is by realising the bad debts, freeing up people from unsustainable debt, identifying those who are on the cusp and sorting the problem. Not knee jerking to every crisis as we have done previously.

I agree with the vast majority of your post, but unfortunately I don't make government policy. What i personally think SHOULD happen is pretty much the same as you've outlined. I do think the only way this can be sorted out is with decisive action, but I can also see the other side of the argument (the politician's side) that decisive action of the kind that's needed to sort it out PROPERLY might, in effect sour the deal with the EU(who like it or not, we need at the moment) spook the money markets, and basically throw the baby out with the bath water. It's a political decision about not taking unnecessary risks now when you can lurch along for a while longer and hope things improve.

Wouldn't you agree that a solution to negative equity now would be availed of by almost everybody eligible, all at once? Don't you think that would put a huge strain on an already strained irish exchequer? In an international trading environment where major decisions are taken by traders based on headlines and limited understanding of the key facts of a situation thousands of miles away, and confidence and "gut feel" count for a lot, I think there's an inherent risk involved in that situation for us.

I do think there's an understanding of the need to fix the issue in government, but unfortunately I don't think there's an appetite for fixing it NOW, along with all the other problems we have. Don't forget, governments come and go every five years or so, theres always an underlying understanding in politics that this could all be someone else's problem by then, so why take a risk until you absolutely have to?.

It may not be 15 or 20 years like I fear it will be before action is taken on this issue, and I hate that the real social problems its causing are largely irrelevant to politicians as long as they can keep things ticking over for a while to allow them some breathing space, but i can see how an FG Or Labour cabinet minister could make a case for kicking the can down the road on this one at the moment.

EDIT: by the way I do agree with you and with previous posters on the issue of the cost of a solution which has in effect already been paid for by the state. Part of our last bailout of the banks was specifically earmarked to pay for the consequences of all of the distressed loans in the property market going bad. We paid out to "remove any remaining uncertainty in the markets regarding the state of our banks finances" or something along those lines, according to noonan. The cost of factoring in every dodgy mortgage in the country going to the wall have already been borne by us. The banks have received this money, and it's sitting on their balance sheets doing nothing, shoring them up and not currently being lent out to foster growth. If we've already paid for the cost of write downs, then at the very least, moral disagreements on rewarding reckless borrowing aside, I think we should be getting SOME return for that spend.

daltonmd

Deleted User wrote: »

I agree with the vast majority of your post, but unfortunately I don't make government policy. What i personally think SHOULD happen is pretty much the same as you've outlined. I do think the only way this can be sorted out is with decisive action, but I can also see the other side of the argument (the politician's side) that decisive action of the kind that's needed to sort it out PROPERLY might, in effect sour the deal with the EU(who like it or not, we need at the moment) spook the money markets, and basically throw the baby out with the bath water. It's a political decision about not taking unnecessary risks now when you can lurch along for a while longer and hope things improve.

I don't think it will, but that's just my opinion. We have a major debt problem that is a drag on the economy - it is normal in any restructuring that part write down of debt is used. It's done every day in business.

Deleted User wrote: »

Wouldn't you agree that a solution to negative equity now would be availed of by almost everybody eligible, all at once? Don't you think that would put a huge strain on an already strained irish exchequer? In an international trading environment where major decisions are taken by traders based on headlines and limited understanding of the key facts of a situation thousands of miles away, and confidence and "gut feel" count for a lot, I think there's an inherent risk involved in that situation for us.

If it's badly planned yes and add to that the fear that if money is freed up then people will use it to repay other debt - so this will have to be looked at.

But look at what is happening as opposed to what might - people are scrimping to repay huge mortgages, they could be in employment and will eventually come to the conclusion that they won't be able to continue for the next 20 years. They may then default or go bankrupt which means the banks get no money back - if a debt solution was brought in now, reducing that burden before it's too late then they stay in their homes making manageable repayments.

Deleted User wrote: »

I do think there's an understanding of the need to fix the issue in government, but unfortunately I don't think there's an appetite for fixing it NOW, along with all the other problems we have. Don't forget, governments come and go every five years or so, theres always an underlying understanding in politics that this could all be someone else's problem by then, so why take a risk until you absolutely have to?.

True.

Deleted User wrote: »

It may not be 15 or 20 years like I fear it will be before action is taken on this issue, and I hate that the real social problems its causing are largely irrelevant to politicians as long as they can keep things ticking over for a while to allow them some breathing space, but i can see how an FG Or Labour cabinet minister could make a case for kicking the can down the road on this one at the moment.

That's the problem - they will only be able to kick it down the road for a limited time.

Deleted User wrote: »

EDIT: by the way I do agree with you and with previous posters on the issue of the cost of a solution which has in effect already been paid for by the state. Part of our last bailout of the banks was specifically earmarked to pay for the consequences of all of the distressed loans in the property market going bad. We paid out to "remove any remaining uncertainty in the markets regarding the state of our banks finances" or something along those lines, according to noonan. The cost of factoring in every dodgy mortgage in the country going to the wall have already been borne by us. The banks have received this money, and it's sitting on their balance sheets doing nothing, shoring them up and not currently being lent out to foster growth. If we've already paid for the cost of write downs, then at the very least, moral disagreements on rewarding reckless borrowing aside, I think we should be getting SOME return for that spend.

As long as the markets fear the "mortgage time-bomb" there will be uncertainty and that's what they fear most.