stop blaming mortgage holders

[Bronte]

Steve
In fairness if my house went up 100k we wouldn't be talking about bailouts, its clear the reason behind the crash it and it wasn't you or I.

That wouldn't be at all clear to me. Did you borrow recklessly? Did anyone in Ireland borrow recklessly. Apparently nobody on AAM did.

 

[Chris]

Property prices have crashed in most of the USA -in some states by more than 50% No expert has reported any sign that property prices will generally increase .

So, it seems that non-recourse mortgages do not result in higher prices.

Non-recourse mortgages have always been in place in the US, they weren't suddenly introduced after the crash in house prices. What I'm saying is that over the 10 years of the real estate bubble in the US there were predominantly non-recourse mortgages in place and this still lead to massive speculation and a huge bubble.

Also, are you sure USA banks (of which hundreds have closed/merged in recent years) are still asking for low deposits and giving nonrecourse mortgages ?

Yes, US banks are doing so and with Federal Government backing, encouragement and assurance. All you have to do is get an FHA approved mortgage and you can have as little as 3% down payment. I have seen figures reported that between 30 and 40% of all mortgages being taken out are FHA mortgages, so there is a huge amount of low down payment mortgages still being taken out.

You are right about the rainy day savings point. Some people were silly. But the rain has been falling on many(often quite sensible and cautious) people for far more than a year now.

Yes it has been raining for quite a while, but the vast majority of people I have asked about their rainy day funds, or lack thereof, have less than 1 months worth of savings to cover cost of living. I know one other person that has 12 months worth of savings.

True, the US are not a great example of how to implement non recourse loans. It would fuel speculation if the deposit requirement was low and the approval process was very loose. The banks should be more risk adverse because the loans are non-recourse, it is this more cautious approach by lenders that should quell speculation. The recent banks action has shown that banks do not act logically which is a bit of a problem.....for all of us !

Yes, but the US banks' behaviour was exactly what government wanted them to do. Through Fannie Mae and Freddie Mac the government looked for ever looser lending policies so that poorer people good buy their own home. The lending practices were encouraged by government policy and the implicit and explicit bailout guarantees.

Blaming individuals for what is understood to be a rational human phenomena is rather naive.

I don't think that going deeply into debt is a rational human behaviour, it may be a common human behaviour but that doesn't make it rational or desirable. There are many countries where going into debt is not seen as rational. Germany is probably the best example where people do not tend to spend on credit. One quote I read a few years ago summed it up, it went something like "In the US and UK when people want to buy a car they go to the bank and ask for a loan. In Germany when people want to buy a car they go to the bank to get a savings account."

 

[Ryandd]

I really don't believe I borrowed recklessly I got a mortgage like many thousands it was an average mortgage for that time which I was comfortably able to pay back, since being made redundant Ive used savings to continue to pay that mortgage along with all my bills I don't have credit cards or loans to pay so I'm not as bad as some, but never the less I've reached the end of savings and there is no work in sight, and facing the banks to explain myself is a daunting task.

 

[Firefly]

I really don't believe I borrowed recklessly I got a mortgage like many thousands it was an average mortgage for that time which I was comfortably able to pay back, since being made redundant Ive used savings to continue to pay that mortgage along with all my bills I don't have credit cards or loans to pay so I'm not as bad as some, but never the less I've reached the end of savings and there is no work in sight, and facing the banks to explain myself is a daunting task.

I think you should have approached the bank a lot earlier...when you still had addequate savings and tried to reach an accomodation (such as interest-only, sabatical) etc. It's not a dig and please don't take it as such, but for others who are where you were it might be an idea.

 

[moycullen14]

And do you think the banks would have talked to him? No, their attitude has been and will continue to be 'keep paying until you can't afford to pay' then we'll pass you over to another department to 'deal' with. There is no-one more guilty of kicking the can down the road than the banks.

 

[Bronte]

And do you think the banks would have talked to him? .

My experience is that the banks are engaging and making arrangments for people. But you cannot bury your head in the sand and not engage. People have to talk and write to their banks if they want help.

 

[moycullen14]

Bronte
Firstly Im not asking for your opinion weather I was reckless in buying a home or not, the point is I wasn't deemed reckless when signing for my home and more importantly I didn't feel reckless because at the time I was financial able to make that purchase, so knowing point 3 or any other point of your report is of no help to anyone in a dreadful situation we find ourselves in today

You have my complete sympathy. It is an awful position to be in and, to make it worse, you are being villified for being 'reckless'.

Back in 2005 or so, if you had a joint income of X and were offered a mortgage of 2X , you should have discounted it by 60% because one of you was going to lose their job and the other subject to paycuts/levies, etc. Also, it should have been discounted by a further 60% to reflect a firesale price when the inevitable crash came. Oh, and don't forget to factor in a tripling of mortgage rates (which hasn't happened, thank god). So, to put figures on this:

Salary: €100,000
Mortgage: €200,000
Discounted for future unemployment: €120,000
Discounted for price drop: €48,000
Discounted for 3x increase in interest rates: €16,000

so, if you were being prudent and had 20-20 future vision, you would have discounted anything that was offered and seemed affordable by 92%. You didn't do this? Well, silly you. All the other posters did and that's why they are sitting pretty today.

The fact is that with 20-20 hindsight NO-ONE but NO-ONE should have bought or built a house under any circumstances since about 2001.

I am in complete awe of everyone who saw this one coming to the extent that it did. I presume they shorted bank shares, bought Apple and Gold and are multi squillionaires today.

 

[Bronte]

All the other posters did and that's why they are sitting pretty today.

.

I don't think that's a true statement. I bought since 2001 and am in negative equity which as far as I can tell is only getting worse. There are many posters on here probably in the same situation, but that doesn't mean that we cannot say that some of the things that went on were not reckless.

Ryandd is in a bad situation, but unless he is prepared to put up facts and figures it is impossible to make any helpful suggestions. For example if he is a single man, out of work and cannot meet his mortgage repayments and is not entitled to social welfare help on this, then he should default and he probably should not have used his savings to pay the mortgage.

 

[fababby]

But the banks will not talk to people unless they are already in arrears and will then come to an arrangement but will not put something in place that can take affect 6 months down the line when savings exhaust.

A

 

[Bronte]

But the banks will not talk to people unless they are already in arrears and will then come to an arrangement but will not put something in place that can take affect 6 months down the line when savings exhaust.

A

Then what you do it write to the bank, default one month, continue then to pay, hide your savings, I firmly believe people should keep some of their savings for unforseen emergencies, health bills etc. It is not the case that people should not have one penny extra in their account before the bank will engage and if that is the case, make sure the money is not in that bank.

Certainly the banks have not made it easy for people to engage. But it's also true that some are burying their heads in the sand until it is gone past repair.

 

[Chris]

You have my complete sympathy. It is an awful position to be in and, to make it worse, you are being villified for being 'reckless'.

I think vilified is very much out of proportion. The simple fact is that an awful lot of people made the same mistake. Just because lots of people were doing it does not excuse it, it was still a mistake to buy into the hype and not significantly prepare for the downside risk.

Back in 2005 or so, if you had a joint income of X and were offered a mortgage of 2X , you should have discounted it by 60% because one of you was going to lose their job and the other subject to paycuts/levies, etc. Also, it should have been discounted by a further 60% to reflect a firesale price when the inevitable crash came. Oh, and don't forget to factor in a tripling of mortgage rates (which hasn't happened, thank god). So, to put figures on this:

Salary: €100,000
Mortgage: €200,000
Discounted for future unemployment: €120,000
Discounted for price drop: €48,000
Discounted for 3x increase in interest rates: €16,000

The biggest flaw in your calculation is that people were taking out 6 and 7 times their combined salaries, not 2 times. A €200000 mortgage would be very serviceable on one wage in your example. And I really do not know why you think that 60% is the discount that should be applied, but maybe you can elaborate.

 

[Firefly]

I think vilified is very much out of proportion. The simple fact is that an awful lot of people made the same mistake. Just because lots of people were doing it does not excuse it,

I agree. Those who bought after 2005 had a growing number of voices (either official ones like D McWilliams or others like here on AAM or on other sites) calling the market a bubble. Perhaps these voices were not in the majority yet, but they were growing and should have been considered in any case.

it was still a mistake to buy into the hype and not significantly prepare for the downside risk.

A mortgage is such a huge commitment in my book and I'd go as far as saying that several years' repayments should be in place for a rainy day.

 

[kaplan]

@chris, suggest you read first and then consider rational behaviour. Your combination of hindsight and self-righteousness is quite a heady naive mixture as your understanding of mental accounting, human behaviour and rational actors is manifestly flawed. In time we may become more German than the German's.
@firefly, there is one body of opinion that holds that bank lending drove house prices in the latter stages of the boom - consider the salary multiple effect amplified by 100% mortgages. As far as I recall the voices you write of were muted by an overwhelming feel good factor - recall discussion on house prices was banned here which was a pity as it could have surfaced the key driver of price - bank credit. As I recall prominent posters here were encouraging first timers to maximise borrowings - even suggesting they do so on interest only terms. Our memories are not as good as we hold them out to be and we have a tendency to fill in the gaps with flawed hindsight.

 

[Ryandd]

Just want to say that I applied for interest only to allow my savings stretch further to have more time to find work, this however is proving more difficult, I am in to my 6th month on interest only and will not cover next months Salary, My siutation is I'm married with 3 children with a mortgage of 300k before both of us lost our jobs we had a combined salary of approx 65k I bought in 2007. I await your analyistic views

 

[oldnick]

+1 kaplan !

Incidentally, Chris, the "official" voice of Mc Williams and a few others like him were advised to commit suicide by the most official voice of all -our beloved leader at the time - for daring to suggest any negativity.

 

[moycullen14]

I think vilified is very much out of proportion. The simple fact is that an awful lot of people made the same mistake. Just because lots of people were doing it does not excuse it, it was still a mistake to buy into the hype and not significantly prepare for the downside risk.


The biggest flaw in your calculation is that people were taking out 6 and 7 times their combined salaries, not 2 times. A €200000 mortgage would be very serviceable on one wage in your example. And I really do not know why you think that 60% is the discount that should be applied, but maybe you can elaborate.

My point - probably badly made - was that even if you were cautious and applied sensible multiples back in 2005 (or earlier) you would still have been caught because no-one could have foreseen how bad this was going to get. Applying discounts based on what has happened would have meant that no-one would have bought. In fact taking out any mortgage or debt back then based on the PROBABILITY of reduced income/redundancy was, in hindsight, reckless. I suppose no matter what the OP had done, he was going to be in trouble. I used 60% because I assumed that both were working with salaries of 50K and the sensitivity analysis assumed one was to lose a job (50%) and the other have an effective drop of 10% - probably not enough really.

What has been the real killer for people is the combination of a drop in prices AND a drop in incomes. Either could have been coped with - it is the combination that has placed so many in a difficult situation.

I lived through the 80s property crash in the UK and the one thing you learned from that was that it was so much down to luck - wrong place, wrong time. Mind you, back then negative equity of 10K was seen as disastrous!

The OP is in trouble - he needs to be helped. Only the banks or government can help and will end up footing the bill. Because of the bank guarantee, it will all fall on the taxpayer either by welfare payments or bank bailout. It is inevitable. Blaming (villifying) him is pointless.

Your best bet in 2005 would have been to be made redundant, go on welfare and let the state pick up the tab. That's a horrible message for the people of this country.

 

[moycullen14]

Just want to say that I applied for interest only to allow my savings stretch further to have more time to find work, this however is proving more difficult, I am in to my 6th month on interest only and will not cover next months Salary, My siutation is I'm married with 3 children with a mortgage of 300k before both of us lost our jobs we had a combined salary of approx 65k I bought in 2007. I await your analyistic views

I don't know what to advise. Have you been to MABS or sought any professional advice?

 

[ClubMan]

Just want to say that I applied for interest only to allow my savings stretch further to have more time to find work, this however is proving more difficult, I am in to my 6th month on interest only and will not cover next months Salary, My siutation is I'm married with 3 children with a mortgage of 300k before both of us lost our jobs we had a combined salary of approx 65k I bought in 2007. I await your analyistic views

I skimmed the thread but can't see if/where you have posted a more detailed summary of your overall financial situation. If you have can you point to it please? If not then perhaps posting that will garner some useful feedback. Might even need a new thread as this one has arguably gone off into Letting Off Steam territory...

 

[Firefly]

@firefly, there is one body of opinion that holds that bank lending drove house prices in the latter stages of the boom - consider the salary multiple effect amplified by 100% mortgages.

Hi Kaplan,
There is no doubt that the cheap availability of bank credit was part of the problem, but credit only facilitates borrowing. At the end of the day, the borrower must sign the dotted line...all the available credit in the world can't change this.

As far as I recall the voices you write of were muted by an overwhelming feel good factor - recall discussion on house prices was banned here which was a pity as it could have surfaced the key driver of price - bank credit. As I recall prominent posters here were encouraging first timers to maximise borrowings - even suggesting they do so on interest only terms. Our memories are not as good as we hold them out to be and we have a tendency to fill in the gaps with flawed hindsight.

I agree..most poeple were saying to buy at the time (normal in a bubble to be fair). However, there was a growing number of people saying the very opposite...that we were in a bubble and a crash was imminent. These voices ranged from posters here to dedicated sites like the propertypin, to almost weekly writings by David McWilliams. In addition, key acticles from the Economist were estimating property here was way over-valued. The point I am making is that those who say that everyone was saying to buy are not being honest...there were plenty people at the time saying the opposite. Any anyway...even if everyone was saying to buy, I would still do my own homework on something this big. We were all told how wonderful Eircom was going to be a few years earleir by the same crowd so that should have been a warning in itself.

 

[Bronte]

Just want to say that I applied for interest only to allow my savings stretch further to have more time to find work, this however is proving more difficult, I am in to my 6th month on interest only and will not cover next months Salary, My siutation is I'm married with 3 children with a mortgage of 300k before both of us lost our jobs we had a combined salary of approx 65k I bought in 2007. I await your analyistic views

If you are unemployed and have no income, or assets then you are entitled to mortgage interest supplement from social welfare? In addition from personal knowledge I am aware that the banks are allowing people on social welfare, whose mortgage interest is being paid by the government, to stay on interest only periods over and over. Or in some cases with small amounts of capital being paid.

I'm not sure but I don't think social welfare expect you to use all your savings to pay your mortgage before they will help you. You're generally allowed to have a certain amount of savings that they will discount. 20K I think.