Writing off mortgage debt

daltonmd

Monty Burnz wrote: »

If they can't pay, they can't pay and they go bankrupt. Bankruptcy is not painless. There's no risk of moral hazard there.

Nor is it free - So again, who pays? Who has to fill the gap created in the banks?

If people opt for bankruptcy then where does the debt go?

Monty Burnz

daltonmd wrote: »

Nor is it free - So again, who pays? Who has to fill the gap created in the banks?

Haven't we been over this a dozen times in the last 24 hours? The banks have been massively recapitalised. This may tide them over depending on the level of defaults. If the capital they have is insufficient, they go bust. Simple enough.

Joe 90

Monty Burnz wrote: »

One question: what are they going to lend? It seems that Irish mortgages are more or less unsecured loans, so how are they going to securitise them?

Yes, the logical ultimate outcome of mortgage debt forgiveness is no more mortgages, cash only house purchase. How would house prices be then?

golden lane

daltonmd wrote: »

Yes but the tactics and the problems caused using those tactics are the same.

The whole point is that a lot of people cannot repay these debts, as each year passes the debt gets higher. Repossessing these homes will bust the banks and ultimately cost the taxpayer more money. It won't mean cheap homes for all - because if you can't get funding then you can't buy the house. If you do succeed in getting a loan for it then you will still pay through the nose because the hole in the bank still has to be filled.

the irish government guarenteed the banks.....if they hadn't, there would not have been the money to sustain the economy and the housing boom....they gambled it would continue (god knows what made them think that)...

everybodyb was happy, getting richer on borrowed money.....now it is payback time.....most of the country turned into gamblers....that is the way it goes....while you are winning all is great......now it is losing time....and everybody is looking for scapegoats........

a lesson there for the future.....but it will be forgotten again, and again....

Monty Burnz

Joe 90 wrote: »

Yes, the logical ultimate outcome of mortgage debt forgiveness is no more mortgages, cash only house purchase. How would house prices be then?

Much lower, one would assume.

daltonmd

Monty Burnz wrote: »

Haven't we been over this a dozen times in the last 24 hours? The banks have been massively recapitalised. This may tide them over depending on the level of defaults. If the capital they have is insufficient, they go bust. Simple enough.

And who exactly own these banks?

Monty Burnz

daltonmd wrote: »

And who exactly own these banks?

It doesn't matter who owns them if they are PLCs. Your liability is limited to the capital you have in the company. That's what the 'L' stands for.

Edit: apologies if that comes across as sarky, but I am getting genuinely frustrated at having to restate the same couple of things again and again.

daltonmd

Monty Burnz wrote: »

It doesn't matter who owns them if they are PLCs. Your liability is limited to the capital you have in the company. That's what the 'L' stands for.

Ah please, you see this is where your argument falls flat on it's face.

The taxpayer own them Monty. And the one they don't got a multi billion euro injection.

Farmer Pudsey

Every body assumes that houses will collapse another 20-50%. What is the average house price now nation wide what was it in 2007/8 at peak. What is avg national income now.
We are led to believe that there is 80 billion in savings in the country. 12% of morgtages are in trouble what amount of houses is this. Money borrowed is supposed to be 80 billion lets assume that 75% is morgtage debt. so 12% of 60 billion is 7.2 billion. But the value of the houses is now half peak value so let's assume 3.6 million if sold at present value.

If you double the value due to higher repossion rate and assuming it is higher value houses we still are at only 7.2 billion. I believe that if there is massive repossions it will not be Joe Soap that will benfit but rather well off people with access to cash who can fund total purchasse from cash resources at short notice. If you look at the allsop auctions these are the people that are benfiting.

You also have to remember that there are only a limited no of people who bought muliple units in the 2000-2008 period alot of professional landlords have cheap stock from the 1990 and have limited stock from the peak period and are able to serrvice debt it is only professionals doctors, dentists and solicitors who invested at the peak and did not manage there own porfolio that have a huge issue I know a lot of people with 2-5 houses rented of them i only know of one that is activly intrested in selling and they have other issue's while I know two more intrested in buying and are actively looking at present.

Monty Burnz

daltonmd wrote: »

Ah please, you see this is where your argument falls flat on it's face.

The taxpayer own them Monty. And the one they don't got a multi billion euro injection.

I'm afraid this is where your claim that our banks didn't receive a multi-billion euro recapitalisation falls flat on its face:

THE Central Bank's controversial emergency liquidity scheme will soon be used solely to fund Anglo Irish Bank and Irish Nationwide, the Irish Independent has learnt.

The news will come as a relief to the taxpayer, who was once on the hook for some €70bn of government-guaranteed emer-gency support extended by the Central Bank to AIB, Bank of Ireland (BoI), EBS, Anglo, Nationwide and Permanent TSB.

Well-placed sources last night confirmed that this week's recapitalisation, which will put close to €20bn into the four 'continuing banks', is likely to see the quartet eased off emergency liquidity assistance or ELA within months.

AIB has already confirmed that it stopped drawing ELA in April, when the Government put €11bn of cash on deposit with the bank ahead of its July 31 bailout.

BoI and Irish Life & Permanent (IL&P) have already submitted plans to the Central Bank showing how they will get off ELA over the coming months, sources confirmed last night. BoI was believed to have reduced its reliance on ELA when it took in deposits of €3bn from the State in April.

IL&P, which is set for a €4bn recapitalisation at the weekend, would have seen a "very significant rise" in ELA had the High Court not forced the cash on the bank, the Department of Finance said in an affidavit this week.

This happened less than a year ago. And I know who owns the banks. I mentioned it yesterday in this thread.

daltonmd

Monty Burnz wrote: »

I'm afraid this is where your claim that our banks didn't receive a multi-billion euro recapitalisation falls flat on its face:


This happened less than a year ago. And I know who owns the banks. I mentioned it yesterday in this thread.

Where did I say that the banks DIDN'T receive a multi billion euro recap? I said that we, the taxpayer now own the banks - in the case of BOI we put a mulit billion injection in - enough to pay for a small stake but not as much as the rest where we completely took over - they are state owned.

And yes, yesterday you said that the shareholders (read taxpayer) were the owners and now today they aren't?


And so your "let the banks go bust" would now be catastrpohic for this country because isn't their debt now sovereign debt?

Cost the taxpayer much you think?

Oh yea.

Monty Burnz

daltonmd wrote: »

Where did I say that the banks DIDN'T receive a multi billion euro recap? I said that we, the taxpayer now own the banks - in the case of BOI we put a mulit billion injection in - enough to pay for a small stake but not as much as the rest where we completely took over - they are state owned.

And yes, yesterday you said that the shareholders (read taxpayer) were the owners and now today they aren't?

I'm sorry - you've lost me. Where did I say the taxpayers don't own the banks (excluding BOI)? You're not inventing stuff now, are you?

daltonmd wrote: »

And so your "let the banks go bust" would now be catastrpohic for this country because isn't their debt now sovereign debt?

Nope. The stuff that was made 'sovereign' does not depend on the well-being of the banks anymore. That's a sunk cost. AIB/BOI/PTSB/EBS are all PLCs.

daltonmd wrote: »

Cost the taxpayer much you think?

Oh yea.

I think you need to learn a bit more about this stuff.

jmayo

daltonmd wrote: »

And I know yours - am I not entitled to take my opinion here? You'll note that you were here before I was. The title of the thread after all is "Writing off mortgage debt".

You are entitled to any opinion you want and to express wherever you want.
But do not expect me to be willing to pay for that opinion.

daltonmd wrote: »

Here you go again, taking an imaginary ball and running up the imaginary field with it. You simply refuse to see and absorb what is being written. Many scenarios have been given and many possible solutions - but you simply cover your ears (eyes) and hear "blah blah blah" someone is getting something for nothing.

No I fight and rail against the scenario where other people's greed and stupidy is going to cost me money.
It is one thing helping someone who has been unlucky, but a lot of the ones who are looking for "a bailout for the little guy" fall into the above categories.
Hell we had two of them last week complainig about hwo the government was renagaing on their promise to kepp people in their homes. :mad:

And that group does also include the ones who took out mortgages they could indeed pay in 2006, but the fact was they could only pay them because their income was so far beyond the normal reality.

daltonmd wrote: »

Your way, which is the way things are being treated now - is NOT working and destroying this entire economy.

And your answer is to punish those of us who are in that position.

daltonmd wrote: »

Yes- key thing here is they were EARNING that and the other key thing is that the banks LOANED that money - so if they should have known better and take responsibility then why should the LENDER not share that?

It is marvellous how you want banks to take responsibility, but the borrowers should take none.
Oh wait, the rest of us are meant to take their responsibility. :rolleyes:

daltonmd wrote: »

My rent is high because my landlord is repaying the banks on a mortgage he can't afford. If the banks took this off him and restructured his debt then my rent would fall lower - can you not see this?

No your rent is high becasue the government have put an artifical floor on the rental market through rent allowances schemes.
Oh and AFAIK I have seen you argue for the lowering of this very thing.
Rents should have fallen drastically but because of government actions and inactions rents are been propped up.

Anyway we are continuing to go round in circles so let us agree to disagree.
Life is too short for these long exchanges.

jmayo

Farmer Pudsey wrote: »

So we are all ment to accept your view and not challenge it.

I don't care what you accept or challenge.
It doesn't matter to me so long as you don't hold a position of power that could allow you to screw my future.

Farmer Pudsey wrote: »

I do not think it is a blip however I also relise that at some stage houses will stop falling in price.

There is a difference between the prices stopping their fall and them going back up to a point near where they were during the bubble, so that banks could then repossess and walkaway without a loss.
That is what is being hinted at by some.

Farmer Pudsey wrote: »

If tomorrow the Banks started to repsosses alot of property they would have to sell it straight away, house prices fall another 30-50% maybe.
They have factored this into their thinking so they will not reposses for the moment.

So what ?
Sooner or later the property market will have to be allowed operate under market principles.
We would be better if we reached the bottom and then at least things could proceed.
As it is we are in limbo.

Our property market is so far removed from reality and our economy so screwed that the banks are going to be waiting a long time for prices to go up.

Farmer Pudsey wrote: »

The Economy recovers houses bottom out at another 10-15%? Banks begin to reposses and sell over 2-5 years which makes most sence to the banks and if they decide to opt for second choice they are better off having an owner in the house keeping it secure and maintaining it. 2+2 = 4.
If you look back history tells a lot during the boom people that were warning about the impending crash were compareing with other bubble like the Dotcom in 2000 and the Southsea bubble in the 17th centuary. When the crash people compare it to what happened in Japan and Sweden

For a start I don't think we can compare out bubble to UK, Japan or Sweden.
We had an economy that was way more reliant on property than any of the above.
We built more unwanted property than any of the above.
Our entire indigenous banking system collapsed and has had to be bailed out by the state i.e. the taxpayers.
I would also guess our level of personal debt dwarfs those other countries.
Maybe the UK is close to us, but that is it.

Farmer Pudsey wrote: »

I do not know the average house price now but a rough rule of tumb for a morgtage is 3X Main Income and 1X second income should be the max of any morgtage and idealy they should average about 3 time main income before tax. How far are we away from that. Houses can be under valued as well as overvalued. At present it is nearly more expensive to build a house than buy an already build house. Also banks are giving out virtually no morgtage's even though people may have 20% deposit

Yes the 3/4 times income is a good rule of thumb.
But you are not factoring in what happens after a bubble the prices actually undershoot their starting point and that can actually be lower than the above rule.

We have had one of the biggest property bubbles in history and our entire financial system collapsed.

daltonmd

jmayo wrote: »

Anyway we are continuing to go round in circles so let us agree to disagree.
Life is too short for these long exchanges.

agreed -

golden lane

jmayo wrote: »

You are entitled to any opinion you want and to express wherever you want.
But do not expect me to be willing to pay for that opinion.



No I fight and rail against the scenario where other people's greed and stupidy is going to cost me money.
It is one thing helping someone who has been unlucky, but a lot of the ones who are looking for "a bailout for the little guy" fall into the above categories.
Hell we had two of them last week complainig about hwo the government was renagaing on their promise to kepp people in their homes. :mad:

And that group does also include the ones who took out mortgages they could indeed pay in 2006, but the fact was they could only pay them because their income was so far beyond the normal reality.




And your answer is to punish those of us who are in that position.



It is marvellous how you want banks to take responsibility, but the borrowers should take none.
Oh wait, the rest of us are meant to take their responsibility. :rolleyes:



No your rent is high becasue the government have put an artifical floor on the rental market through rent allowances schemes.
Oh and AFAIK I have seen you argue for the lowering of this very thing.
Rents should have fallen drastically but because of government actions and inactions rents are been propped up.

Anyway we are continuing to go round in circles so let us agree to disagree.
Life is too short for these long exchanges.

well, i will agree to agree with you...........nobody is respobsible for anothers actions.....

daltonmd

Monty Burnz wrote: »

I'm sorry - you've lost me. Where did I say the taxpayers don't own the banks (excluding BOI)? You're not inventing stuff now, are you?

Nope. The stuff that was made 'sovereign' does not depend on the well-being of the banks anymore. That's a sunk cost. AIB/BOI/PTSB/EBS are all PLCs.

I think you need to learn a bit more about this stuff.

You seem to think that letting the banks fail now won't impact the taxpayer and I am saying that it will. You say it doesn't matter who owns the banks and I say it does matter. The "stuff" that was made sovereign was borrowed money that the taxpayer is now on the hook for, this "stuff" kept the banks open.

Letting them now go bust if they cannot take the level of mortgage defaults/bankruptcy will cost us more - not less and that is my point.

Anyway as jmayo said - life's to short.

But just because you and jmayo feel you're repeating yurselves does not make you right - this is your opinion and you are entitled to it - as I am to mine.

Time will tell in this, but I will tell you something - there is no way out on the path we are taking - none. Time will show that - and as I said before, I hope it's not too late.

Monty Burnz

daltonmd wrote: »

Time will tell in this, but I will tell you something - there is no way out on the path we are taking - none. Time will show that - and as I said before, I hope it's not too late.

We can certainly agree on this - the current ostrich strategy is clearly unsustainable and only stores up bigger problems down the line. I'm not claiming there is a good solution to this. Unfortunately, we are left in a situation where all the options are bad options - all we can do is choose the option that does the least damage to the largest number of people, and leaves the country in a position to begin an economic recovery.

jmayo

How both the credit crisis in Europe and the bubble burst in Ireland has been handled.

hmmm

jmayo wrote: »

How both the credit crisis in Europe and the bubble burst in Ireland has been handled.

And so far it's working. The world has managed to avoid a depression, and in Ireland's case we've been given time to work out the imbalances in our economy over time without a catastrophic collapse of our economy.

golfwallah

According to the Sunday Independent on 15/04/2012, around 10,000 “homeowners who are in trouble with their mortgages could see their monthly repayments fall by up to a third if innovative proposals from international financial-services group IFG are accepted by the banks and the Financial Regulator”.

“Under the proposed debt-for-equity scheme, the amount owed by borrowers to their banks would be reduced in return for the handover of a share of their homes to an independent trust”.

It is not debt forgiveness but a debt-for-equity swap scheme, whereby homeowners would have to have the income to repay the reduced repayment levels to qualify for the scheme.

The banks would use their existing provisions to fund the scheme.
For article see: http://www.homepriceprotection.ie/industry-news/thousands-could-have-mortgages-cut-under-plan.472.html

Seems like a workable win/win scheme for banks and a significant number of people. It’s also a way of helping the economy to move forward from the present impasse.

Monty Burnz

golfwallah wrote: »

According to the Sunday Independent on 15/04/2012, around 10,000 “homeowners who are in trouble with their mortgages could see their monthly repayments fall by up to a third if innovative proposals from international financial-services group IFG are accepted by the banks and the Financial Regulator”.

“Under the proposed debt-for-equity scheme, the amount owed by borrowers to their banks would be reduced in return for the handover of a share of their homes to an independent trust”.

It is not debt forgiveness but a debt-for-equity swap scheme, whereby homeowners would have to have the income to repay the reduced repayment levels to qualify for the scheme.

The banks would use their existing provisions to fund the scheme.
For article see: http://www.homepriceprotection.ie/industry-news/thousands-could-have-mortgages-cut-under-plan.472.html

Seems like a workable win/win scheme for banks and a significant number of people. It’s also a way of helping the economy to move forward from the present impasse.

The problem with this - as mentioned repeatedly in the last several pages - is that property owners usually have no equity to give to the banks as they are in negative equity. These sort of deals seem to assume that we will be seeing a return to bubble prices at some stage.

golfwallah

Monty Burnz wrote: »

The problem with this - as mentioned repeatedly in the last several pages - is that property owners usually have no equity to give to the banks as they are in negative equity. These sort of deals seem to assume that we will be seeing a return to bubble prices at some stage.

Of course, there will be problems - no matter what we do. But the economy is stuck in a rut, whereby many mortgage holders are stifled economically and we have to look forward to real practical solutions.

Nobody is suggesting a return to the property bubble!

And there’s no such thing as a perfect solution, but we’ve got to start somewhere to get out of the existing impasse

Mortgage holders weren’t solely responsible for the property bubble – there were lots of contributors from lax Government, officials not doing their jobs, reckless banks and bondholders and none of these people have had to carry the can totally for their mistakes, as is the current situation for mortgage holders.

Attached article on “burden sharing” by Stephen Donnelly, Independent TD for Wicklow in Sunday Independent, 4th September 2011, makes sense to me: http://www.independent.ie/opinion/analysis/were-morally-obliged-to-share-burden-2866127.html.

Solutions to socio / economic problems require a variety of imaginative approaches, but above all what is required is courage and leadership, as was demonstrated by Roosevelt in the 1930s.

How long will we have to wait for some real leadership from our Government on this issue?

Monty Burnz

golfwallah wrote: »

Of course, there will be problems - no matter what we do. But the economy is stuck in a rut, whereby many mortgage holders are stifled economically and we have to look forward to real practical solutions.

Again, as mentioned previously, I have to question the notion that taking money from the prudent and handing it to the indebted to pay off their debts will stimulate the economy.

golfwallah wrote: »

How long will we have to wait for some real leadership from our Government on this issue?

Well bankruptcy reform is an important step, but they do seem to be hoping for some sort of deus ex machina to save them from making further unpopular decisions.

golfwallah

Monty Burnz wrote: »

Again, as mentioned previously, I have to question the notion that taking money from the prudent and handing it to the indebted to pay off their debts will stimulate the economy.

Taking money from the prudent has already happened. The banks have been re-capitalised with taxpayer money and have already provided for a level of mortgage default in their accounts.

The proposals by IFG provide a mechanism for using these provisions now to try to move forward, rather than letting it happen over years and years to come.

I am one of those fortunate enough to have paid off my mortgage and dislike subsidies of any descriptions. But we are where we are or more precisely where we have been led to by Government, poor regulation, greedy banks, unwise bondholders, etc. Mortgage holders, like I was at one time, have responsibility but only in part with those whom have gotten us into the current economic mess.

Monty Burnz wrote: »

Well bankruptcy reform is an important step, but they do seem to be hoping for some sort of deus ex machina to save them from making further unpopular decisions.

The sooner Minister Shatter gets the finger out as regards delivery on bankruptcy reform the better - not an easy one but that's his job, whether popular or unpopular.

Monty Burnz

golfwallah wrote: »

Taking money from the prudent has already happened. The banks have been re-capitalised with taxpayer money and have already provided for a level of mortgage default in their accounts.

This is true, but as Daltonmd points out, if there are a lot of write-downs then the banks may need further recapitalisation as I doubt any government would take the sensible option of simply letting the banks die. Conversely, the more of their capital that goes write-downs, the less there is for new lending to businesses, and the less there is that could be returned to the state by means of a special dividend or whatever.

The IFG proposal may yet prove to be the most workable though as I imagine that it is at least politically feasible, whereas the short, sharp shock probably is not.

golfwallah

Monty Burnz wrote: »

This is true, but as Daltonmd points out, if there are a lot of write-downs then the banks may need further recapitalisation as I doubt any government would take the sensible option of simply letting the banks die. Conversely, the more of their capital that goes write-downs, the less there is for new lending to businesses, and the less there is that could be returned to the state by means of a special dividend or whatever.

The IFG proposal may yet prove to be the most workable though as I imagine that it is at least politically feasible, whereas the short, sharp shock probably is not.

Nobody is suggesting write-downs willy nilly and provisions for write-downs have already been made in the accounts of the banks.

Let's hope we'll soon see practical solutions being rolled out, such as burden sharing in the form of debt-for-equity swaps, bankruptcy law reform, etc.

daltonmd

Monty Burnz wrote: »

This is true, but as Daltonmd points out, if there are a lot of write-downs then the banks may need further recapitalisation as I doubt any government would take the sensible option of simply letting the banks die. Conversely, the more of their capital that goes write-downs, the less there is for new lending to businesses, and the less there is that could be returned to the state by means of a special dividend or whatever.

The IFG proposal may yet prove to be the most workable though as I imagine that it is at least politically feasible, whereas the short, sharp shock probably is not.

But this is what is happening anyway - each year as more and more people slip further into more debt then the bank has to account for these "possible" losses - even if they don't materialise, they have to put a certain amount of cash aside in that event - so lending is still restricted.

No matter what happens with any solution then a debt write down is inevitable - it might be on the entire loan including interest, but it will be there.

The question that we have to ask ourselves is do we want to claw back some money and give the banks a long term secure loan book (smaller admittedly) or a loan book that is on the verge of collapsing?

This is the entire problem - the markets do not trust the banks and they are nervous about the extent of the problem.

Re: Insolvency bill - this is viewed as great for people in trouble, but it is an impending disaster for the banks - they are terrified and as soon as it comes through you will see action from them - will it be too late though?

Tigerandahalf

I think what we are seeing is that the banks' books are being totally cleaned up so that they can make a fresh start. I wouldn't be surprised to see some entrants investing heavily in AIB and BoI. This will wipe out any ownership that the gov has. The banks will then have the finance to lend properly.

Monty Burnz

Tigerandahalf wrote: »

I think what we are seeing is that the banks' books are being totally cleaned up so that they can make a fresh start. I wouldn't be surprised to see some entrants investing heavily in AIB and BoI. This will wipe out any ownership that the gov has. The banks will then have the finance to lend properly.

Already happened with BOI - Wilbur Ross - only the investment wasn't huge in banking terms, but still big enough to take majority ownership.