Non-Recourse Loans

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gnf_ireland

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In a different thread, a comparison was made between switching in the USA mortgage market and the Irish one. I made the comment around non-resource loans, and was advised that only 12 states allow non-resource loans and those have higher default rates & higher interest rates

It got me wondering:
1. would you take a non-resource loan if it was offered to you? What would the maximum LTV this would make sense for?
2. How much extra would you be willing to pay for a non-resource loan percentage wise?

Personally, I have a low LTV so would make no sense for me to pay extra for a non-resource loan at this stage. But I do believe the non-resource loans should be priced based on LTV and higher LTV should incur higher premiums

If we had non-resource loans would it improve the quality of the lending, or change the way we think about repossessions in general. Does it have a part to play in a wider solution

Would you propose something like - all LTV >75% should be non-recourse with added premium, but once they go below this figure they have the option of removing the non-recourse elements & premium from them
 
There is nothing to stop the lenders offering non-recourse loans at present.

A lender would not offer a non-recourse loan over 70% Loan to Value and they would charge a higher rate.

I think that most people who borrow money intend to pay it back. But the reality is that a small percentage of us, maybe 3%, are financially irresponsible and would avoid paying their mortgage if they could get away with it. It is they who would opt for the non-recourse loans.

If the banks were stupid enough to offer them, it is the responsible majority who would end up paying for them.

Brendan
 
I don't want non recourse loans as it's only a ploy to make more people get into trouble and to increase the levels of indebtedness of people and it also means credit for everybody is higher. It might sound like a good idea in theory but I believe it was created by banks to make constant credit seem like a good thing. There are books on this kind of stuff.

Proper controlled lending with responsibility to society used to work well. Now the whole world seems to be buying everything on credit instead of old fashioned saving for what you want. I watch ads for pay day loans, for free couches without paying a penny for a few years in amazement. All part of the keeeping people hooked to credit forever. The latest wheeze is to get everybody gambling online. And they are at this in a very clever subtle way with children even. Rewards for playing games that require a credit card and that the child autorised a payment. Which look very similar to my mind to hooking people to slot machine or bingo type addictions.
 
gnf_ireland said:
1. would you take a non-resource loan if it was offered to you? What would the maximum LTV this would make sense for?
2. How much extra would you be willing to pay for a non-resource loan percentage wise?
Click to expand...

I would, and if things worked out, great. If things didn't work out I could walk away.

How much extra would I pay? Well whatever was asked, it wouldn't matter, because if it worked out, great. If it didn't I could walk away.
 
Just to be clear, the 12 non-recourse States all have statutes that restrict the ability of lenders, to varying degrees, to pursue borrowers for debts in excess of the realised value of foreclosed residential property (so-called deficiency judgments). To the best of my knowledge, no US State actually prohibits non-recourse lending.

One argument that is commonly advanced to justify limiting full recourse loans is that it deters lenders from making overly risky loans and thereby improves stability within the overall financial system.

A cynic might argue that Ireland is effectively a zero-recourse jurisdiction but that hasn’t curtailed imprudent lending practices.
 
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