How would this work? Would the bank look for rent on their part-ownership? In Johnny's case, the amount of negative equity could be the current value of the house so to get rid of negative equity, the bank would end up owning the whole house and the owners would still owe the negative equity amount. And as this thread seems to bear out, the negative equity problem is at its biggest when the owners want to sell and move on, not when they want to stay in part-ownership with the bank.2. What I mean by debt for equity swap is that the bank take part ownership of the house in exchange for a reduction in the loan outstanding. Again the mortgagee could always reverse this in the future or they could sell the property in the future as joint owners with the bank.
It works in that your maths is correct but the LTV ratio would increase from 125% to 150% which the bank won't be keen on. The negative equity stays the same in absolute € terms but the owner has a smaller asset than before. If mortgage payments are reduced to match the 150K mortgage (which is presumably why the owner would be doing this in the first place if they were having problems with payments), the negative equity will take years longer to erode.Would this scenario work;
House value 200k.
Mortgage remaining 250k
Bank takes 50% of value, i.e 100k
leaving person with loan of 150k, but only 50% ownership.
If this is the way it works, then there IS a cost to the bank and, by extension, to tax payers. If the bank has 125K to buy half the house, that's 125K they could put to work elsewhere earning a return. If the 125K doesn't earn a return beyond house price inflation, that's an opportunity cost - this is not a 'free' solution.1. no the bank don't get rent - they are being asked to help out for a mess that they were partly responsible for by providing a radical solution
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