Making non-compliant loans non-recourse would have a further desired effect: it would discourage banks and advisors from the practice (endemic in the years leading up to the crash) of inflating the income of clients/prospective borrowers on loan-applications. In the event of mortgage default the onus would be on the lender/agent to show due-diligence.
Make non compliant mortgages non-recourse
- Thread starter Popper
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Brendan Burgess
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Hi Popper
An interesting idea.
If banks did provide non-recourse loans, they would charge a much higher mortgage interest rate.
So, the effect of it would be to completely kill off the exceptions allowed to the 80% LTV and 3.5 times salary rule.
Banks could consider non-recourse where the loans are less than 50% LTV without pushing up the interest rate. But if the loan was 90% LTV, they could not do non-recourse.
Brendan
An interesting idea.
If banks did provide non-recourse loans, they would charge a much higher mortgage interest rate.
So, the effect of it would be to completely kill off the exceptions allowed to the 80% LTV and 3.5 times salary rule.
Banks could consider non-recourse where the loans are less than 50% LTV without pushing up the interest rate. But if the loan was 90% LTV, they could not do non-recourse.
Brendan
Perhaps. But as a mechanism for "encouraging" the banks to ensure the income and other information submitted by or on behalf of loan applicants is true, the sanction of non-recourse would be very effective.
The 80% rule has been proven to have been effective in maintaining an orderly and stable housing market in France and elsewhere. It is folly to pretend that you can have an orderly and stable market and also give loans to everyone who wants them. The best argument for these restrictions is that, given time (and an absence of populist measures to frustrate these restrictions, such as insurance schemes) the effect will be to ensure that first-time buyers won't be leap-frogged by house-price inflation while they save up to borrow prudently.
The 80% rule has been proven to have been effective in maintaining an orderly and stable housing market in France and elsewhere. It is folly to pretend that you can have an orderly and stable market and also give loans to everyone who wants them. The best argument for these restrictions is that, given time (and an absence of populist measures to frustrate these restrictions, such as insurance schemes) the effect will be to ensure that first-time buyers won't be leap-frogged by house-price inflation while they save up to borrow prudently.
Gerry Canning
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Popper;
What you advocate makes sense.
Today though on our mixed up mortgage/housing market, it would create too many ripples at present to go full non-recourse.
I would see Brendans comment on non-recourse on ltv under50% as a good start point.
Maybe legislate to move that up to say 90% over 5 years. In that way over medium term we could stabilize mortgage madness.
And importantly, Mr Bank would be forced to lend competently and honestly.
What you advocate makes sense.
Today though on our mixed up mortgage/housing market, it would create too many ripples at present to go full non-recourse.
I would see Brendans comment on non-recourse on ltv under50% as a good start point.
Maybe legislate to move that up to say 90% over 5 years. In that way over medium term we could stabilize mortgage madness.
And importantly, Mr Bank would be forced to lend competently and honestly.
Gerry,
I never advocated full recourse. However, I still maintain that non-recourse for any amount of a mortgage in excess of the 80% would be excellent idea.
It would allow the banks extend loans greater than 80% LTV where it accepts the risk. It would not undermine the effect and purpose of the restrictions, and would encourage proper due diligence on the part of lenders and agents.
I never advocated full recourse. However, I still maintain that non-recourse for any amount of a mortgage in excess of the 80% would be excellent idea.
It would allow the banks extend loans greater than 80% LTV where it accepts the risk. It would not undermine the effect and purpose of the restrictions, and would encourage proper due diligence on the part of lenders and agents.
Gerry Canning
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Popper.
Am with you.
Am with you.
Just to make it perfectly clear to everyone:
By making non compliant loans 'non-recourse', I should have specified that I meant only that part of the loan exceeding the 80% LTV. It would also probably be wise to limit the loans made in excess of that limit to 15% as originally proposed.
By making non compliant loans 'non-recourse', I should have specified that I meant only that part of the loan exceeding the 80% LTV. It would also probably be wise to limit the loans made in excess of that limit to 15% as originally proposed.
Pat Desmond
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NON recourse mortgages
The Banks should be allowed loan as much finance to homeowners as they prefer with one stipulation- only NON RECOURSE MORTGAGES. This means that they will ONLY have recourse to the mortgaged property and not be allowed pursue the buyer through the courts with judgments for any residue.
There are eight benefits to this suggestion:
1) It will prevent a bubble in the property market from arising again because the old recourse mortgages resulted in reckless lending by banks
2) It will be a welcome paradigm shift in Irish Banking which is a common mortgage arrangement in the USA
3) It will prevent an overheated property market arising again in the future as Banks will be more vigilant in assessing loans to values
4) Lending practices will be far more prudent and therefore the incidence of non-performing loans is dramatically reduced
5) The Banks will carry out detailed and candid due diligence on the borrower’s ability to borrow and repay
6) It will prevent hardship to mortgage holders who default through no fault of their own
7) It will avoid the unedifying spectacle of borrowers being pursued through the Courts by Banks
8) It will reduce bad debts for Banks and reduce the considerable costs of managing defaulted loans
The Banks should be allowed loan as much finance to homeowners as they prefer with one stipulation- only NON RECOURSE MORTGAGES. This means that they will ONLY have recourse to the mortgaged property and not be allowed pursue the buyer through the courts with judgments for any residue.
There are eight benefits to this suggestion:
1) It will prevent a bubble in the property market from arising again because the old recourse mortgages resulted in reckless lending by banks
2) It will be a welcome paradigm shift in Irish Banking which is a common mortgage arrangement in the USA
3) It will prevent an overheated property market arising again in the future as Banks will be more vigilant in assessing loans to values
4) Lending practices will be far more prudent and therefore the incidence of non-performing loans is dramatically reduced
5) The Banks will carry out detailed and candid due diligence on the borrower’s ability to borrow and repay
6) It will prevent hardship to mortgage holders who default through no fault of their own
7) It will avoid the unedifying spectacle of borrowers being pursued through the Courts by Banks
8) It will reduce bad debts for Banks and reduce the considerable costs of managing defaulted loans
I agree with the concept of non recourse mortgages but I genuinely think that this country needs to have another look at the laws around repossession of mortgaged houses and homes.
We can look at how non recourse loans around the world and at mortgage rates as well but we cannot come to judgements about same without looking at the problems around repossession of property in this country.
The repossession problem is a price that new borrowers are having to pay for in the form of higher interest rates.
I cannot see anything been done about this any time soon as for some strange reason it would not be politically very populist even though it could be advantageous to a lot of new borrowers.
We can look at how non recourse loans around the world and at mortgage rates as well but we cannot come to judgements about same without looking at the problems around repossession of property in this country.
The repossession problem is a price that new borrowers are having to pay for in the form of higher interest rates.
I cannot see anything been done about this any time soon as for some strange reason it would not be politically very populist even though it could be advantageous to a lot of new borrowers.
Oh for heavens sake! Do you realize that recourse mortgages are the most common type of mortgages available in the US for private property??
Ever heard of MBS -> Mortgage Backed Securities? It is how US banks gets mortgages of their books and on pension funds and the likes! So that when the bubble does go up it the pensions, local government reserves and the like that get hit and not the banks...
Have a look at Fannie Mae and Freddy Mac... they did not come out to well in the recent property bubble...
Do you even appreciate that there was property bubble that collapse between 2007 and 2010 in the USA???
Well said Jim! There is a perception that the US model is one of non recourse lending at low mortgage rates. Even though the concept does not make sense for any bank it is touted as being a realistic one for Irish Banks. To anyone who is touting this I would say do the math first. Look at the issue from the perspective of a Bank who needs to lend both safely and profitability and then make a decision on the basis that it is your own bank and how your shareholders/savers will react!!
Throwing out solutions such as LTV/LTI ratios are wothless unles they are backed up by analysis on how they will work in practise and exactly what the consequences will be. Patrick Honohan has thrown out these figures and suggested the consequences, but he has supplied no in-depth research on how he arrived at these figures. I have no time for the Magic Bullet solution that has no underlying basis behind it. Anyone who proposes a solution must be prepared to back it up with facts and figures!
Throwing out solutions such as LTV/LTI ratios are wothless unles they are backed up by analysis on how they will work in practise and exactly what the consequences will be. Patrick Honohan has thrown out these figures and suggested the consequences, but he has supplied no in-depth research on how he arrived at these figures. I have no time for the Magic Bullet solution that has no underlying basis behind it. Anyone who proposes a solution must be prepared to back it up with facts and figures!
Gerry Canning
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We can circle on LTV ratios +elements of non-recourse but as on another thread from44brendan ,it does come down to affordability.
If the template does not show ongoing profit for the Bank we will stay in Limbo mode.
I take on board Jims comments that recourse mortgages didn,t seem to help US Banks
Maybe we need a hybrid model with elements of LTV and non-recourse, linked to a robust affordability template.
The big issue then is can Banks be trusted to keep to Spirit & Letter of regulations?
Brendan44.
I think let us have as many proposals as possible and then number crunchers can dissect the proposal.
We might even get a novel workable proposal.
I see were we now are at as not sustainable.
If the template does not show ongoing profit for the Bank we will stay in Limbo mode.
I take on board Jims comments that recourse mortgages didn,t seem to help US Banks
Maybe we need a hybrid model with elements of LTV and non-recourse, linked to a robust affordability template.
The big issue then is can Banks be trusted to keep to Spirit & Letter of regulations?
Brendan44.
I think let us have as many proposals as possible and then number crunchers can dissect the proposal.
We might even get a novel workable proposal.
I see were we now are at as not sustainable.