Moral hazard of banks writing off debt

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goingforgold

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In light of the many writedowns of mortgage debt that have been made public recently, my friends and I have discussed your type of situation and most agreed that you would be better off telling the bank that if they don't do a deal with you on the negative equity that you will go to the UK and declare bankruptcy.

I have mentioned the whole moral hazard issue in posts going back nearly 3 years ago now, and how I felt it was going to be a major issue re mortgage debt in this country. Now that the banks are starting to write off debt the "gravy train" situation is very real. We've seen how people (and often generations of certain people) manipulate their circumstances to milk our social welfare system and this is now happening in a very real way in relation to mortgage debt, ie people who can pay are not paying so as to avail of writedowns, better terms etc.

So, if you want to sort this problem you should be prepared to leave your job and go bankrupt in the UK. You will be debt free in 12 months. Downsides include the fact you will have to seek employment here again in 12 months time and you may find it hard to get credit again. Only you can decide what works best for you.
 
Delboy said:
http://www.independent.ie/business/...as-borrowers-hope-for-writedown-26839056.html

and here's a story straight from the horse's mouth
http://www.mortgagebrokers.ie/uncategorized/talking-with-a-strategic-defaulter/
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You can can't get a more scientific study than this:

Mr Deeter based his findings on private conversations with senior bankers and collection staff in the main banks.

So to sum up, banks think people have more money to give them. Well I am shocked. Of course there are chancers out there but if the banks do their jobs properly, these cases will be spotted.
 
I doubt very much if you can just "leave your job and go bankrupt in the UK".

These selected writedowns are being overhyped big time, and if people are hoodwinked into thinking it's easy money then they are in for a rude awakening.

In my opinion it's very possible that a so-called "strategic defaulter" could end up with no house and a large negative equity debt hanging obver them, payable at punative interest rates.

I would think the banks can spot them a mile away.
 
Delboy said:
http://www.independent.ie/business/...as-borrowers-hope-for-writedown-26839056.html

and here's a story straight from the horse's mouth
http://www.mortgagebrokers.ie/uncategorized/talking-with-a-strategic-defaulter/
Click to expand...

You'll have to do better than that, the Indo article is a nonsense, no proof at all, and the second story, from the same source, Karl Deeter, well the landlord there has put 12K aside. 12K ! Not 120K. Second article also mentions that it's mainly landlords, and the person involved mentioned that 'all' landlords are at it. Well that plainly is not true.

But it may be true that some property investors/landlords in the no capital repayment scenario with high borrowings relative to property, bought in the boom, with no hope of rent covering capital and interest are using the rent as income.

I agree on a couple of points, if all you have is rentals then financially it makes sense not to play ball, as they banks either than have to write down part of the debt or force a sale. The latter may not be worthwhile from the banks point of view, while the former may well be. And the borrowers viewpoint might be the bank shouldn't have given them such a loan in the first place. And they'd be right, but both bank and borrower were at fault here.

There is already another point here, rent receivers, if you are not playing ball, than the bank simply, if they can appoint a rent receiver, and you're snookered. All the liability = taxman, but zero rent.

As an aside, I know one case where the bank appointed a rent receiver and now the rent receiver has given up and is meeting the owner to formally hand back the file. Interesting developements. Found out also that these guys are being paid circa 1300 a month. And that's not including hiring an estate agent to manage the property. I mentioned it before, how is a property worth less than 100K, in deep NE, paying the rent receiver, the estate agent, the repairs, handling tenants, it doesn't make sense. And then if sold there is thousands in NPPR, the property tax, the banks legals, the auctioneer.....

Rent in the case I mentioned is around the 500 Euro mark. Total nonsense from the banks.
 
Bronte said:
Where is your evidence for this?
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We can be naive and believe that the radical rise in arrears is down to everybody losing their jobs, higher taxes etc. I think this would be very naive. We can also be naive enough to think that all those people on the live register (including those who were on it during boom years) are genuine cases. My point is that whenever there is an opportunity to "milk" a system there are going to be a lot of people who will avail of it.

It doesn't take a genius to figure out that if one has 100k-200k of negative equity on a relatively modest wage that it may be more financially prudent to a) "proactively" struggle with mortgage repayments and receive writedwown or avail of PIA/Bankruptcy, b) intentionally lose their job and avail of PIA/Bankruptcy, or c) emigrate and leave the keys to the bank.

I certainly know of people who have "changed" their circumstances to recieve much better mortgage terms from banks, but in terms of hard evidence you'll just have to take my word for it obviously. I'm sure there are lots more people on this forum who know people who have done same.
 
going for gold;

There is little doubt but that some people will go on as in your words {the gravy train}. I will be very surprised if, in the scheme of things that that will be a significant percentage.

Going to Uk is not a real option for most people . I expect that those who can manage it, eg business types ,have done so . Only Joe Soap types are left.
Mr Joe Soap is petrified by his situation and there is minimal hard evidence that most defaulters are playing games other than what we hear from Bankers , who have proven to be incompetent.

I would ask any AAM contributor to go on the dole ,try to keep mortgage running and then see what they would do in an arrears situation.
Vast majority of people want to pay their way .
The Banks have by their inactivity on mortgages created a kind of a sullen logjam in peoples mindsets.

As I see it only a fast appraisal and prompt writedown of debt to sustainable levels will sort this.That surely is why WE capitalized them.
Sunny, I do see Banks squeezing to see how much they can get month by month.That only keeps the drip job going , it is not a solution.
 
Gerry Canning said:
As I see it only a fast appraisal and prompt writedown of debt to sustainable levels will sort this.That surely is why WE capitalized them.
Sunny, I do see Banks squeezing to see how much they can get month by month.That only keeps the drip job going , it is not a solution.
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I completely agree, but again I ask if this can be done in a fair and transparent manner? Let's take this simple example; should someone with 200K negative equity (and arrears) who are struggling but just about meeting their mortgage repayments be treated any differently to someone with the same negative equity/arrears who don't meet their mortgage repayments?

If they are treated differently and asked to make their repayments in full then that is going to lead to constructive mortgage defaults. It actually makes sense for somebody in this situation to default on their mortgage as they will effectively be at a 200k disadvantage to someone who doesn't...this is the problem!
 
goingforgold said:
We can be naive and believe that the radical rise in arrears is down to everybody losing their jobs, higher taxes etc. .
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But there was a complete collapse in the economy, there were massive tax hikes, and banks also ramped up interest rates where they could. These are not pretence, they are actual facts. The story about strategic defaulters has been hinted at for years, but no actual real cases. Yes I do agree there will be a percentage doing so.
 
Bronte said:
But there was a complete collapse in the economy, there were massive tax hikes, and banks also ramped up interest rates where they could. These are not pretence, they are actual facts. The story about strategic defaulters has been hinted at for years, but no actual real cases. Yes I do agree there will be a percentage doing so.
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Now now, don't be bringing rational argument into the discussion. It's just co-incidence that arrears rose as unemployment jumped and now that unemployment is falling, arrears are stabilising.

Whereas it is obvious that a lot of people are in arrears by choice because we all heard lots of stories about lots of different people who are simply choosing not to pay their mortgage on their family home.
 
Sunny said:
Now now, don't be bringing rational argument into the discussion. It's just co-incidence that arrears rose as unemployment jumped and now that unemployment is falling, arrears are stabilising.

Whereas it is obvious that a lot of people are in arrears by choice because we all heard lots of stories about lots of different people who are simply choosing not to pay their mortgage on their family home.
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Unemployment is much higher in Spain and Greece than Ireland and they had property crashes but our level of arrears is off the radar v's their's.
But I won't bring rational argument into this discussion....
 
Sunny said:
100 deals out of the 29,852 AIB mortgages currently benefiting from some form of forbearance. 0.33%. Hardly a tidal wave of write downs.
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This is a process that has only really begun and above figures do not include PIA's/Bankruptcies.

Debt writedowns are becoming common place in one form or another...let's review in a years time and see where we are at.
 
Delboy said:
Unemployment is much high in Spain and Greece than Ireland and they had property crashes but our level of arrears is off the radar v's their's.
But I won't bring rational argument into this discussion....
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No they aren't. Last reasrch I saw from Greece anyway showed three month arrears of 15.5% and climbing. I think Ireland's peaked (hopefully) at around 18%. Hardly off the radar compared to theirs. We also had a larger property crash than either of those Countries so negative equity is a bigger problem. We had larger mortgages v income due to the generosity of our banks during the boom. And there are other differences if you really want to compare.
 
goingforgold said:
This is a process that has only really begun and above figures do not include PIA's/Bankruptcies.

Debt writedowns are becoming common place in one form or another...let's review in a years time and see where we are at.
Click to expand...

Of course they are going to climb. I don't get your point.
 
Sunny said:
Of course they are going to climb. I don't get your point.
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I'm not sure how I can help you further to get my point! I'll try and summarise...I believe that a certain portion of mortgage holders (never said widespread btw) are (and are better off) constructively defaulting on their mortgages so as to avoid being indebted to banks for the rest of their lives.

I've told you that I know of certain people who have done this and I've given examples in above posts as to why it makes sense to do this. Can't be more clear than that I'm afraid...
 
Sunny said:
We also had a larger property crash than either of those Countries so negative equity is a bigger problem.
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I think this is a contradiction...negative equity should have nothing to do with people going into arrears, but you are proving my point (and Delboy's) by implying that negative equity leads to arrears.
 
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