Loans are made to people not to properties. The people to whom the loans are made should repay them. The security is there, just in case.
Such a proposal would be open to all sorts of fraud. Overvaluation of properties, sales between connected parties, etc.
It is so expensive and time consuming to get repossession, that people would just stop paying their mortgage if there was any hint of negative equity.
In effect, this would close down the mortgage market or limit the loans to 60% LTV.
That didnt work out very well for a lot of US banks.
Unfortunately given how small Ireland is, how little care is given to risking shareholder money and that downside risk has been abolished for bank management this wont work to avoid the situation which the CBI is trying to protect against.
Non recourse plus the LTV limits I would be all for but we need to protect us and the banks against our respective stupidity. We can't inflate our way of the resulting debt trap now we are in Euro/German framework and we need to adapt to this - the past inflation of wages ain't happening again
Where did the 60% LTV come from?
I agree completely... we should have the US hand back the keys and walkway option for any new mortgages.
Really! So you'd like to have another government bail out would you? Clearly you have not got the foggiest idea how those loans were financed and how it all went horribly wrong. Even today we still do not know much it will end up costing the U.S. tax payer.
OK, so how do we ensure that banks are more on the hook, more frightened of the consequences of bad lending?
How do we ensure that the person who signs off on the loan has skin in the game if the result does pear-shaped. They want bonuses for success so why not have penalties if things go badly?
The senior management of any business are the people who really run it. Who the shareholders are is largely irrelevant.Well I think we need to start by clearing up one popular misconception - bankers are people who are either a partner in a private bank or a shareholder in a bank, all others are just employees! The bankers, the real bankers, were responsible for the appointment of the management, they got it wrong and were wiped out - so the bankers were held responsible, despite the popular press. So both sides were held responsible as they should have been and should continue to be going forward.
From my limited knowledge of the subject I agree though restricting the proportion of the loan book that mortgages constitute to 30% seems severe.The important thing is to ensure that the banks are well enough capitalised to withstand such a blow in the future, so I would suggest:
- Up the T1 ratios to around 21%
- Restrict the banks from using MBC products
- Restrict executive bonuses to long term share option, vesting should be at least 5 years out or so
- Restrict the mortgage business to about 25% to 30% of the loan book
Limiting the term to 25 years is a good idea. Maybe even a shorter term would be good.For the mortgage itself:
- Require a minimum deposit of 20% achieved via documented savings, not a gift from granny!
- Max mortgage period is 25 years
- Load must be paid back by the time the borrower reaches 60 years of age
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