Writing off mortgage debt

Monty Burnz

moycullen14 wrote: »

You play these things through and the result is always, judgements, days out in court and a flood of non PPR repossessions that nobody wants.

I'm not sure about this assumption. There is a coming generation of FTBs who are effectively locked out of the market by those occupying houses they are not paying for. Repossession of PPRs is not an ideal situation but it certainly seems the fairest where people cannot repay what they owe.

If you ask them whether they want to be taxed extra to subsidise others to stay in the properties that they themselves can't buy, I imagine they will give you a very short answer.

moycullen14 wrote: »

The problem is that it is only delaying the inevitable. The day is coming - very soon - where hugely indebted mortgage holders realise that they would be better off telling the banks to go to hell.

And I guess the next day, renters will tell landlords to go to hell. And perhaps shoppers will tell supermarkets to go to hell. Free goods and property for all.

daltonmd

Monty Burnz wrote: »

Ironically, the tax rises intended to prop up property prices (to pay for NAMA, bank rescues etc.) may well push some of those it is supposed to 'benefit' over the edge.

I suppose that's part of my point. Rightly or wrongly if someone took out a mortgage that they could afford in 2006, then the likliehood is that they have at best taken cuts, at worse lost their jobs and the more squeeze put on disposable income the more people who fall over the edge.

moycullen14

Monty Burnz wrote: »

I'm not sure about this assumption. There is a coming generation of FTBs who are effectively locked out of the market by those occupying houses they are not paying for. Repossession of PPRs is not an ideal situation but it certainly seems the fairest where people cannot repay what they owe.

If you ask them whether they want to be taxed extra to subsidise others to stay in the properties that they themselves can't buy, I imagine they will give you a very short answer.

'fair' has nothing to do with it. It is practical realities. The banks don't want to repossess because it will inevitably lead to crystalizing of loses. The government don't want it because it looks awful and the state is burdened with looking after the fallout.

If, as a group - and this is they key, overborrowed people decide can't pay, won't pay, there's not a damn thing anyone can do about it.

The longer this goes on with no resolution, the more likely it is that there will be a revolt.

Arguing about who deserves or doesn't deserve a write-down/off of debt is completely irrelevant and pointless.

daltonmd

Monty Burnz wrote: »

I'm not sure about this assumption. There is a coming generation of FTBs who are effectively locked out of the market by those occupying houses they are not paying for. Repossession of PPRs is not an ideal situation but it certainly seems the fairest where people cannot repay what they owe.

If you ask them whether they want to be taxed extra to subsidise others to stay in the properties that they themselves can't buy, I imagine they will give you a very short answer.

And I guess the next day, renters will tell landlords to go to hell. And perhaps shoppers will tell supermarkets to go to hell. Free goods and property for all.

He's right Monty. People may struggle along for months, maybe a few years, but when the realisation hits home that their incomes will never revert to boom times and there homes will never revert to boom prices they will default - go bankrupt.

Monty Burnz

moycullen14 wrote: »

'fair' has nothing to do with it. It is practical realities. The banks don't want to repossess because it will inevitably lead to crystalizing of loses. The government don't want it because it looks awful and the state is burdened with looking after the fallout.

Indeed, but isn't that what the huge recaps were for? To set against future losses?

moycullen14 wrote: »

If, as a group - and this is they key, overborrowed people decide can't pay, won't pay, there's not a damn thing anyone can do about it.

Will there be more of them than there are people who are refusing to pay the household charge?

moycullen14 wrote: »

The longer this goes on with no resolution, the more likely it is that there will be a revolt.

Arguing about who deserves or doesn't deserve a write-down/off of debt is completely irrelevant and pointless.

The problem with the revolt idea is that if it goes that far, why would it stop with mortgage defaulters? Why would anyone else bother paying a mortgage that they can afford? Or rent? Or for anything?

daltonmd

moycullen14 wrote: »

'fair' has nothing to do with it. It is practical realities. The banks don't want to repossess because it will inevitably lead to crystalizing of loses. The government don't want it because it looks awful and the state is burdened with looking after the fallout.

If, as a group - and this is they key, overborrowed people decide can't pay, won't pay, there's not a damn thing anyone can do about it.

The longer this goes on with no resolution, the more likely it is that there will be a revolt.

Arguing about who deserves or doesn't deserve a write-down/off of debt is completely irrelevant and pointless.

Exactly. As I said in the other post - people will do it for a certain amount of time, but at some point, with dwindling disposable income, higher taxes and charges, they will simply give up.

Monty Burnz

daltonmd wrote: »

He's right Monty. People may struggle along for months, maybe a few years, but when the realisation hits home that their incomes will never revert to boom times and there homes will never revert to boom prices they will default - go bankrupt.

And so they should if they can't make their payments. But you can't go bankrupt just because you don't want to make your payments.

moycullen14

Monty Burnz wrote: »

And I guess the next day, renters will tell landlords to go to hell. And perhaps shoppers will tell supermarkets to go to hell. Free goods and property for all.

OK, so a tenant tells a landlord to go to hell. The landlord evicts the tenant and everything carries on as normal. Shoppers tell the supermarkets to go to hell? Well, I guess the shopper starves then.

Can you not see that the situation with mortgage holders is different because the counter-party is powerless?

EricPraline

Tigerandahalf wrote: »

Similarly you have the people who saved or had a nest egg and paid a large deposit down on their house so their mortgage is a lot less. Again they are crying that they are losing out while their neighbour is getting relief. Well maybe you shouldn't have put down such a large deposit..

You've managed to nicely summarise the reason for the objections that many people have to writing off mortgage debt. Essentially you are castigating people for being prudent, and arguing that those who were more reckless deserve more support. Do you see nothing inherently wrong in that? Do you not believe this sets a bad precedent for the future?

Monty Burnz

moycullen14 wrote: »

OK, so a tenant tells a landlord to go to hell. The landlord evicts the tenant and everything carries on as normal.

And how is this different to evicting a non-paying mortgagor?

daltonmd

Monty Burnz wrote: »

And so they should if they can't make their payments. But you can't go bankrupt just because you don't want to make your payments.

Where did I say that? I said the more cuts etc then the more people who will get into trouble, meaning the more people who find themselves unable to pay.

I don't know, can you go bankrupt by choice?

Monty Burnz

daltonmd wrote: »

Where did I say that?

Um...I don't think I said that you did say it...?

daltonmd wrote: »

I don't know, can you go bankrupt by choice?

Only if you show that you can't pay your debts.

moycullen14

Monty Burnz wrote: »

And how is this different to evicting a non-paying mortgagor?

Because the landlord is faced with a choice: an empty property that pays no rent or an occupied property that pays no rent. You have got to be able to see the difference here. It's one of scale and consequence.

Don't get me wrong, I am not advocating debt forgiveness, I am simply pointing out what I think will happen if we persist with this crazy strategy of kicking the can down the road

daltonmd

Monty Burnz wrote: »

Um...I don't think I said that you did say it...?


Only if you show that you can't pay your debts.

But you responded to me "But you can't go bankrupt just because you don't want to make your payments."


And now say that you can only go bankrupt if you show you can't pay - I am saying to you that people who are in trouble, cutting neccessities, falling behind in the utilities, struggling with day to day expenses to repay unsustainable mortgages, will only last so long before throwing in the towel, defaulting and they will opt for bankruptcy.

moycullen14

Monty Burnz wrote: »

And so they should if they can't make their payments. But you can't go bankrupt just because you don't want to make your payments.

It is the realisation that there is no point carrying on with paying that causes the tipping point. As far as bankruptcy is concerned, why would you bother? It's down to someone else to instigate that. Someone is only going to try and bankrupt you in this country out of spite or if they feel you are hiding things. Do you think the banks are going to try and bankrupt 000's of people?

moycullen14

I suppose the hazard with defaulting is that you will - eventually - lose the property. The problem with the BTL brigade is that they would actually welcome that at this stage. It is only the fear that other assets might be lost that is preventing wide-scale default.

Monty Burnz

moycullen14 wrote: »

Because the landlord is faced with a choice: an empty property that pays no rent or an occupied property that pays no rent. You have got to be able to see the difference here. It's one of scale and consequence.

Right - so the landlord wants to throw you (and all the other renters) on the streets. But you tell him you are not going anywhere. Even in normal circumstances, it can take years to get people out. In the scenario you portray, the rule of law has more-or-less collapsed. Who is to say who owns what? Possession is nine tenths of the law, and all that. If the bubble buyers can steal a house, why can't anyone else?

Monty Burnz

daltonmd wrote: »

But you responded to me "But you can't go bankrupt just because you don't want to make your payments."

Yes, I was making a point - not stating that you said that!

daltonmd wrote: »

And now say that you can only go bankrupt if you show you can't pay - I am saying to you that people who are in trouble, cutting neccessities, falling behind in the utilities, struggling with day to day expenses to repay unsustainable mortgages, will only last so long before throwing in the towel, defaulting and they will opt for bankruptcy.

But if they can pay - even though it's a struggle - they can't go bankrupt.

moycullen14

Monty Burnz wrote: »

Right - so the landlord wants to throw you (and all the other renters) on the streets. But you tell him you are not going anywhere. Even in normal circumstances, it can take years to get people out. In the scenario you portray, the rule of law has more-or-less collapsed. Who is to say who owns what? Possession is nine tenths of the law, and all that. If the bubble buyers can steal a house, why can't anyone else?

In a way you're making my point for me!

Debtors who can't pay, Legislators & Debt holders who are paralysed and can't take action. What do you think the outcome is going to be?

Monty Burnz

moycullen14 wrote: »

In a way you're making my point for me!

Debtors who can't pay, Legislators & Debt holders who are paralysed and can't take action. What do you think the outcome is going to be?

I don't know, but if mortgagors try to steal houses, all bets are off. Failed state, perhaps? It's going to be very hard to persuade other borrowers or renters to pay their way if tens of thousands of mortgagors decide that they won't bother.

creedp

Monty Burnz wrote: »

I don't know, but if mortgagors try to steal houses, all bets are off. Failed state, perhaps? It's going to be very hard to persuade other borrowers or renters to pay their way if tens of thousands of mortgagors decide that they won't bother.

Why are you equating what a borrowers owes a bank (which is a matter between a borrower and the bank) with want a tenant owes a landlord. So because a borrower doesn't pay back the bank a tenant can give the landlord the 2 fingers. What society have we've just moved into ... Mad Max? Sure we'll all just go into the shops but not bother paying for what we 'buy'.

daltonmd

Monty Burnz wrote: »

Yes, I was making a point - not stating that you said that!

But if they can pay - even though it's a struggle - they can't go bankrupt.

Yes but Monty the whole crux of this argument is not about those who can pay - it's about those who can't.

If you can't afford to pay utilities, can barely afford food in your cupboard then this is not struggling - this is "inability" to pay all your debts out of your income - you are bankrupt.

Add to that the many 1000's who have restructured already - they are technicallly bankrupt.

Unrealistic

daltonmd wrote: »

Yes but Monty the whole crux of this argument is not about those who can pay - it's about those who can't.

I think the crux for many people is the difficulty in making the distinction between those who can pay and those who can't and the likelihood of some (many?) of the former trying to make themselves appear like the fit into the latter category in order to get a taxpayer handout.

daltonmd wrote: »

If you can't afford to pay utilities, can barely afford food in your cupboard then this is not struggling - this is "inability" to pay all your debts out of your income - you are bankrupt.

No argument there and I don't think anyone would feel anything but sympathy for someone in that situation. But then you get the likes of New Beginnings arguing that fees for private schools are essentials that should be prioritised over mortgage payments and getting on their high horses about banks wanting people to do their food shopping in Lidl instead of Marks & Spencers. They are looking for debt forgiveness (a tax payer handout) for people are already in a much better position than the average tax payer who will have to fund that handout.

daltonmd wrote: »

Add to that the many 1000's who have restructured already - they are technicallly bankrupt.

True, but that doesn't mean all their situations are unsustainable. It will all depend on how the actual insolvency bill looks when it is published but you would have to hope it doesn't incentivise people to try to worm their way out of a sustainable situation.

StudentDad

I have to sayI find myself with very little sympathy for those who are in arrears with mortgages and face repossession.

Individuals and couples chose to purchase a property. They chose to obtain a mortgage. They were made aware of the consequences of non-payment of the mortgage. They should have known that the property market was a self-inflating bubble with little or no value supporting it. That being the case the idea of some sort of debt forgiveness scheme abhors me. Who pays for this? The European taxpayer?

People chose to take out loans of whatever amount over x number of years. Adults supposedly capable of making rational decisions. I don't care if the bank was 'giving' the money away at 'reasonable' or 'insanely low levels of interest.' Last time I checked individuals still have the option to say 'no' - Accepting an offer of a bank loan is not mandatory.

SD

Monty Burnz

creedp wrote: »

Why are you equating what a borrowers owes a bank (which is a matter between a borrower and the bank) with want a tenant owes a landlord.

But what's the difference between not paying your mortgage and not paying your rent? Isn't the eviction of a renter as serious as the eviction of a mortgagor?

creedp wrote: »

So because a borrower doesn't pay back the bank a tenant can give the landlord the 2 fingers. What society have we've just moved into ... Mad Max? Sure we'll all just go into the shops but not bother paying for what we 'buy'.

Yes, this is my point. That way leads to potential social collapse.

Monty Burnz

daltonmd wrote: »

Yes but Monty the whole crux of this argument is not about those who can pay - it's about those who can't.

I agree.

daltonmd wrote: »

If you can't afford to pay utilities, can barely afford food in your cupboard then this is not struggling - this is "inability" to pay all your debts out of your income - you are bankrupt.

Yup. So best go bankrupt, say goodbye to your assets and more importantly your debts, and start again. Those in the 'don't want to pay' category will cop on soon enough when they see people losing possession of properties, and whatever government relief or aid there is can be focused on those who need it most.

daltonmd

Unrealistic wrote: »

I think the crux for many people is the difficulty in making the distinction between those who can pay and those who can't and the likelihood of some (many?) of the former trying to make themselves appear like the fit into the latter category in order to get a taxpayer handout.

Indeed - but I am not, would not and have never advocated a handout or a free house to anyone.

I have always maintained that if you bought a house for a million in the boom, that's now worth 500k, but you can only now fund a 200k house then why should you stay in that house?

But by the same token if you paid 300k on a house that's now worth 150k and you can fund it then measures should be taken to keep you in your home.
Restructured payments, a lien on the house, a ban from selling and of course a mark on your ICB. If the objective is to keep the house that you can now afford then you should be willing to do this - if not then you are out and bankrupt.

Unrealistic wrote: »

No argument there and I don't think anyone would feel anything but sympathy for someone in that situation. But then you get the likes of New Beginnings arguing that fees for private schools are essentials that should be prioritised over mortgage payments and getting on their high horses about banks wanting people to do their food shopping in Lidl instead of Marks & Spencers. They are looking for debt forgiveness (a tax payer handout) for people are already in a much better position than the average tax payer who will have to fund that handout.

Are they really arguing that? because thats the kind of rubbish that enrages people. It's the perception that people will get something for nothing that really gets joe public going.

Unrealistic wrote: »

True, but that doesn't mean all their situations are unsustainable. It will all depend on how the actual insolvency bill looks when it is published but you would have to hope it doesn't incentivise people to try to worm their way out of a sustainable situation.

If it's the same as the UK, the US then it shouldn't be.

Look at the situation now with BTL's - it's been recently reported that landlords are stashing the rent - they are building nest eggs and will surely default. These are the first on my hit list.

Monty Burnz

daltonmd wrote: »

Are they really arguing that? because thats the kind of rubbish that enrages people. It's the perception that people will get something for nothing that really gets joe public going.

Yes, New Beginnings feel that tens of thousands for private school fees are 'essential outgoings'. They are total scum.

David Hall of New Beginnings ... was on This Week on radio 1 (13-Nov-11)

Listened incredulously to him describe how unacceptable it was for a bank decide what was "essential spending" and to have a part in deciding whether someone could have their son or daughter in a private school. This would presumably be a still relatively wealthy family taking the decision to let the taxpayer fund their mortgage while they opt to fund the finer things in life.

Making sure Junior gets to go to Clongowes is just the extra argument mortgage forgiveness needs.

Source. There's even a link to the RTE interview where he said it in that thread.

daltonmd

Monty Burnz wrote: »

I agree.

Yup. So best go bankrupt, say goodbye to your assets and more importantly your debts, and start again. Those in the 'don't want to pay' category will cop on soon enough when they see people losing possession of properties, and whatever government relief or aid there is can be focused on those who need it most.

Absolutely - you have no argument from me there - however, there is the issue of - How big is the problem and how damaging would it be if we went down that route and more importantly - will we claw back as much money doing this?

Those who don't want to pay shouldn't be tolerated. End of.

balducci

Debt for equity swap is the most realistic solution as the mortgage holder loses equity for what they can't repay - it limits moral hazard when it comes to those who won't pay as opposed to those who can't pay. As for the money, it's already in the banks. A person who is falling behind or not paying their mortgage is a liability, after debt for equity swap, the bank has a functioning mortgage(asset) and equity in a property(another asset). It avoids an accumulation of more properties for sale on the banks books and messy repossessions/relocation to council housing etc..

The banks would need to be able to find out a mortgage holders ability to pay via revenue, for example, and then be able to hand back equity in exchange for higher repayments. This is so that people who want to live in a 500K house for the price of a 200K house can't.

The reality is, that regardless of the moral argument for and against helping people with mortgage issues out, is that these people are not spending money in their local economy and elsewhere. Without this spending businesses are struggling to survive and employment is not going to come back. Are we going to leave a sizeable segment of our society economically impotent and slaves to the institutions that have put us in this mess?