Credit unions to lend for deposits

Baby01032012

http://www.rte.ie/news/2015/0209/678816-credit-union-mortgages/

Have I read this wrong or is this a crazy idea? On the face of it it looks like CUs will be able to offer mortgages - but that's not the issue, parents will be able to borrow to fund their children's deposits.

Is this just going to be a way to circumvent the central banks rules on maximum lending. If people are not able to come up with deposit by way of savings of 10% + for first timers, how can they justify being given a mortgage for the balance?

RedPandaDan

Baby01032012 wrote: »

Have I read this wrong or is this a crazy idea? On the face of it it looks like CUs will be able to offer mortgages - but that's not the issue, parents will be able to borrow to fund their children's deposits.

Is this just going to be a way to circumvent the central banks rules on maximum lending. If people are not able to come up with deposit by way of savings of 10% + for first timers, how can they justify being given a mortgage for the balance?

I presume that it will mean that Parents will need to use their own assets as collateral, which means that the banks should still be insulated by any falls in property prices.

Still, if I were in charge I wouldn't allow it, it is a completely unabashed means of getting round the 3.5X salary limit.

Kinet1c

They're a foolish greedy bunch considering the number of credit unions that had to close after the crash. Saying that, having been in my local CU the odd time, they advertise stuff like "communion/confirmation loans" so it's clear they've no real standards towards lending.

hfallada

I find the lack of transparency in credit unions mildly disturbing. There is plenty of credit unions that gave its directors loans that anyone with leaving cert business knew couldn't be repaid. When these credit unions folded the tax payer picked up the tab. Credit unions could do with more standardised procedures for lending like a normal bank has

seamus

The sticking craw here is that it's another level of paperwork for the couple to sort out. Simply having the deposit is not enough, they need to be able to prove repayment capacity. So if someone's parents hand over a €48k CU loan but the person themselves hasn't saved a bean since their confirmation, the bank will tell them to go away and come back after six months of solid saving.

Michael D Not Higgins

Another way to increase credit and drive up property prices? Sure, what could go wrong?

jmayo

hfallada wrote: »

I find the lack of transparency in credit unions mildly disturbing. There is plenty of credit unions that gave its directors loans that anyone with leaving cert business knew couldn't be repaid. When these credit unions folded the tax payer picked up the tab. Credit unions could do with more standardised procedures for lending like a normal bank has

If credit unions want to flout normal sane lending guidelines then they should not ultimately be secured by taxpayers.
The level of cr** that was going on in some of the credit unions was criminal.

seamus wrote: »

The sticking craw here is that it's another level of paperwork for the couple to sort out. Simply having the deposit is not enough, they need to be able to prove repayment capacity. So if someone's parents hand over a €48k CU loan but the person themselves hasn't saved a bean since their confirmation, the bank will tell them to go away and come back after six months of solid saving.

From what I have seen and heard banks are looking for a savings history, not just fact you have 50k in a bank account that has suddnely appeared a few months back.

Also are they not looking for credit union account information ?

gaius c

There's a lot of problems with that article, the primary one being that the Sindo are desperate to try and force panic re the new central bank rules but on a factual level, there is this doozy:

And in a separate move that will radically shake up the home-loan market, the asset-rich credit union movement has earmarked an initial €100m for home loans as it prepares to enter the mortgage market.

Let's zoom in a little bit there:

the asset-rich credit union movement

And a bit more:

asset-rich

They are aware that deposits are liabilities, not assets, aren't they?

mariaalice

gaius c wrote: »

There's a lot of problems with that article, the primary one being that the Sindo are desperate to try and force panic re the new central bank rules but on a factual level, there is this doozy:

Let's zoom in a little bit there:

And a bit more:

They are aware that deposits are liabilities, not assets, aren't they?

Some credit unions are very asset rich in the genuine sense of the word they are not all the same. That headlines of that article is misleading, nobody know what's going to happen in the future however its doubtful if leading for a deposit with be allowed by a mortgage lender not with the 15/20% deposit rules in place. They might get involved in providing some sort of insurance bond for housing though.

jmayo

jmayo wrote: »

If credit unions want to flout normal sane lending guidelines then they should not ultimately be secured by taxpayers.
The level of cr** that was going on in some of the credit unions was criminal.

If the loan is to the parents and the parents are credit worthy then what "sane" lending guidelines are being flouted?

Just because its giving the money to their kids rather than say buying car makes little difference. Some parents who have the saving to gift a deposit could also opt for an option like this rather than using up a chunk of their savings they may prefer to go down this route.

Michael D Not Higgins

Angel Nutty Ballistics wrote: »

If the loan is to the parents and the parents are credit worthy then what "sane" lending guidelines are being flouted?

Just because its giving the money to their kids rather than say buying car makes little difference. Some parents who have the saving to gift a deposit could also opt for an option like this rather than using up a chunk of their savings they may prefer to go down this route.

Why would someone want to take out a loan to gift their kids a deposit if they had the cash in the first place? Unless they have a high return on their savings and a fantastically low interest rate then I don't see the attraction.

seamus

jmayo wrote: »

Also are they not looking for credit union account information ?

Not necessarily, depends on the institution (and perhaps even the person processing the application).

Practically all are looking for an affidavit of some sort that the money is non-repayable cash gift, but some are going as far as looking for bank/CU statements from the gifter to prove that the funding came from savings and not a loan.

I guess regardless of an affidavit, if a parent has borrowed money to gift to you, there would likely still be an informal repayment agreement there, which will impact your repayment ability.

I think it's probably a bit overkill - the child would likely stop paying the parent back before they stopped paying the bank back - but at the same time the rules should aim to curb silly levels of borrowing.

Michael D Not Higgins

Michael D Not Higgins wrote: »

Why would someone want to take out a loan to gift their kids a deposit if they had the cash in the first place? Unless they have a high return on their savings and a fantastically low interest rate then I don't see the attraction.

In order to maintain the capital which they have in savings for something else, emergencies etc etc who knows.

Plenty of people borrow rather than use savings, I did it myself when buying my last car. Borrowed against my savings in the CU and got a very low interest rate. Yes it costs a bit but you have your savings there if you need them for something.

RainyDay

Angel Nutty Ballistics wrote: »

In order to maintain the capital which they have in savings for something else, emergencies etc etc who knows.

Plenty of people borrow rather than use savings, I did it myself when buying my last car. Borrowed against my savings in the CU and got a very low interest rate. Yes it costs a bit but you have your savings there if you need them for something.

Don't the CU hold your savings in these cases, so you can't actually withdraw it? I think it is a bit of a scam by CUs, getting you to pay 8-10% interest on the loan while giving you 1% on the savings if you're lucky.

RainyDay

RainyDay wrote: »

Don't the CU hold your savings in these cases, so you can't actually withdraw it? I think it is a bit of a scam by CUs, getting you to pay 8-10% interest on the loan while giving you 1% on the savings if you're lucky.

They hold the amount you still owe not the full amount and I was only charged around 5% interest for this type of loan.

Converting the loan to a normal loan could be an option however if you did need access to the savings. Yes you are then paying 10% interest but you have the savings if you need them. The idea is you may not need them and can stay at the 5% interest rate until its paid off.

gaius c

mariaalice wrote: »

Some credit unions are very asset rich in the genuine sense of the word they are not all the same. That headlines of that article is misleading, nobody know what's going to happen in the future however its doubtful if leading for a deposit with be allowed by a mortgage lender not with the 15/20% deposit rules in place. They might get involved in providing some sort of insurance bond for housing though.

What is the "genuine sense of the word"? Do you have information to support this statement?

jmayo

Angel Nutty Ballistics wrote: »

If the loan is to the parents and the parents are credit worthy then what "sane" lending guidelines are being flouted?

Ok in that case not insane lending, but we all know the stories of some of the lending that has been carried out by some CUs in the recent past.

Angel Nutty Ballistics wrote: »

Just because its giving the money to their kids rather than say buying car makes little difference. Some parents who have the saving to gift a deposit could also opt for an option like this rather than using up a chunk of their savings they may prefer to go down this route.

BTW why would the parents borrow if they already have the savings ?
They will still have to repay the loan and loans interest probably greater than savings interest.

seamus wrote: »

Not necessarily, depends on the institution (and perhaps even the person processing the application).

Practically all are looking for an affidavit of some sort that the money is non-repayable cash gift, but some are going as far as looking for bank/CU statements from the gifter to prove that the funding came from savings and not a loan.

I guess regardless of an affidavit, if a parent has borrowed money to gift to you, there would likely still be an informal repayment agreement there, which will impact your repayment ability.

I think it's probably a bit overkill - the child would likely stop paying the parent back before they stopped paying the bank back - but at the same time the rules should aim to curb silly levels of borrowing.

The thing here is that I would hope the mortgage lender would pick up on is fact that kids had to get gift or loan from parents to get deposit together.
Then if they have no decent saving history of their own then they should have shag all chance of getting a mortgage.

seamus

jmayo wrote: »

The thing here is that I would hope the mortgage lender would pick up on is fact that kids had to get gift or loan from parents to get deposit together.
Then if they have no decent saving history of their own then they should have shag all chance of getting a mortgage.

Well it depends. Someone could have a solid year or two savings under their belt and €20k in their pocket, but that's not enough of a deposit.

In that regard, payment capacity is proven, so it's kind of irrelevant where the rest of the money comes from. Making them wait two more years to double their deposit isn't going to suddenly make them better borrowers.

mariaalice

gaius c wrote: »

What is the "genuine sense of the word"? Do you have information to support this statement?

I was responding to the idea that all credit union were some how on there last knees which is not true, they are not all in the same position.

by the seaside

jmayo wrote: »

Ok in that case not insane lending, but we all know the stories of some of the lending that has been carried out by some CUs in the recent past.



BTW why would the parents borrow if they already have the savings ?
They will still have to repay the loan and loans interest probably greater than savings interest.



The thing here is that I would hope the mortgage lender would pick up on is fact that kids had to get gift or loan from parents to get deposit together.
Then if they have no decent saving history of their own then they should have shag all chance of getting a mortgage.

What if they have been paying rent atmore than the mortgage payment (stress tested) for the last five years?

Ray Palmer

jmayo wrote: »

BTW why would the parents borrow if they already have the savings ?
They will still have to repay the loan and loans interest probably greater than savings interest.

It really is not complicated. The parents borrow the money and the child pays back the loan. The parents aren't really gifting the money to their child they are allowing them the child get around the loan restriction by using their credit rating.

I am sure some will take out a loan and pay it themselves but that is not the idea being suggested.

adam88

Kinet1c wrote: »

They're a foolish greedy bunch considering the number of credit unions that had to close after the crash. Saying that, having been in my local CU the odd time, they advertise stuff like "communion/confirmation loans" so it's clear they've no real standards towards lending.

I think you'll fund two possibly three credit unions had to close. It's these credit unions that are keeping middle to lower income families going

gaius c

mariaalice wrote: »

I was responding to the idea that all credit union were some how on there last knees which is not true, they are not all in the same position.

But that's not the "idea" I posted and you specifically responded to my post, which suggests that you didn't read it or didn't understand it.

My post tackles the notion than bank or credit union deposits are "assets". They are not. They are liabilities on their balance sheets.

Loans however are assets but the Sindo don't seem to understand this.
To say they are "asset rich" would imply that they have loads of loans, which would further imply that their capacity to lend further is somewhat limited.

Michael D Not Higgins

Ray Palmer wrote: »

It really is not complicated. The parents borrow the money and the child pays back the loan. The parents aren't really gifting the money to their child they are allowing them the child get around the loan restriction by using their credit rating.

I am sure some will take out a loan and pay it themselves but that is not the idea being suggested.

That is the idea Nox suggested. I asked him to clarify and he said he borrowed money to buy a car even though he had the money to buy it outright.

If it goes the other way (kids pay back the parents) I'm even more against it.

Baby01032012

Ray Palmer wrote: »

It really is not complicated. The parents borrow the money and the child pays back the loan. The parents aren't really gifting the money to their child they are allowing them the child get around the loan restriction by using their credit rating.

I am sure some will take out a loan and pay it themselves but that is not the idea being suggested.

The above would be illegal or at best circumventing the rules. If a couple are borrowing the maximum amount the bank has deemed they can afford, in theory how are they supposed to repay short term loan from the CU if the parents aren't going to repay.

I'd hope that taking out a loan in someone else's name because you don't qualify for one yourself will not be the result of what's suggested in the article.

NoQuarter

Baby01032012 wrote: »

The above would be illegal or at best circumventing the rules. If a couple are borrowing the maximum amount the bank has deemed they can afford, in theory how are they supposed to repay short term loan from the CU if the parents aren't going to repay.

I'd hope that taking out a loan in someone else's name because you don't qualify for one yourself will not be the result of what's suggested in the article.

This is what is happening already, the idea of the article is saying the Credit Unions are going to make this "above board".

TrishSimon

Every CU is different I know my one is very strict on giving out loans to people especially large ones and I have a great payment history with them and to be honest this is nothing new parents have been borrowing for years for their kids deposits its just nobody knew about it.
I personally know of 3 people who got their parents to borrow the deposit for a house and then a few months later the loan was tranferred over into their name when the sale of the house went through.
I am sure the CU won't just jump into giving out mortgages they will I'm sure research it.