Provision should be made for guarantors

[Brendan Burgess]

If the objective of the restrictions is to protect lenders from making bad loans, then this could be achieved by allowing higher LTV loans to borrowers with guarantors.

 

[Delboy]

And if the mortgage goes bad, and the bank chase the Guarantor....which could mean the Guarantor is threatened with selling their house to cover the debts!!! Could you imagine the field day the media, Land League etc would have with that.

The Ivan Yates bankruptcy has shown that the Guarantor system does not work for the banks. He used his home place as collateral for his loans...and when the time came to call in that guarantee, the Bank could not do so while his mother remained alive and still lived in the home. So it's all in limbo still

 

[Brendan Burgess]

The Ivan Yates bankruptcy has shown that the Guarantor system does not work for the banks. He used his home place as collateral for his loans...and when the time came to call in that guarantee, the Bank could not do so while his mother remained alive and still lived in the home. So it's all in limbo still

I don't think that this has anything to do with a guarantee.

A guarantee is where X is the borrower and Y is the guarantor.

I doubt if anyone guaranteed Yates' loans

Guarantees, despite their problems, have an important role to play in the financial system.


brendan

 

[TTI]

The problem is, as Delboy points out, is that the Guarantor in this country never expects to have to pay out for the loan and it is very difficult to enforce.

So therefore I think they should be at best avoided, unless for example the funds were to be put in escrow, etc. or the bank was signed over ownership of a pension fund, etc.

 

[Branz]

There is a fundamental concept in lending which says:
If you need security for your loan, then do not lend.
The first time I heard that was in Citi Bank in UK in 1981

The P&I should come back from the cash-flow of the project over the term of the loan so any bolting on of guarantees etc and other fudging, sloppiness should be avoided.

Citi will take security but it is taken only to stop the borrower pledging the asset else where.

That is why the 20% deposit idea is so bad, the LTI/LTI/etc rules are fine but 20% is just an arbitrary, ill thought out number based on fudge and sloppiness .

 

[Padraigb]

If the objective of the restrictions is to protect lenders from making bad loans, then this could be achieved by allowing higher LTV loans to borrowers with guarantors.

First, I don't think that the objective of the restrictions are solely - perhaps not even primarily - to protect lenders.

Borrowers should also be protected from their folly or desperation, and one way of doing that is to limit the amount that they can borrow.

There is also an issue of economic management. We know from recent experience that excessive lending/borrowing for property can cause trouble.

 

[TTI]

First, I don't think that the objective of the restrictions are solely - perhaps not even primarily - to protect lenders.

Borrowers should also be protected from their folly or desperation, and one way of doing that is to limit the amount that they can borrow.

There is also an issue of economic management. We know from recent experience that excessive lending/borrowin for property can cause trouble.

Agreed. Especially in a country with an attitude towards no recourse mortgages and the refusal to give up the house that can no longer be afforded.

 

[Padraigb]

Agreed. Especially in a country with an attitude towards no recourse mortgages and the refusal to give up the house that can no longer be afforded.

And to return to the issue of guarantees: if the guarantee is based on the value of the guarantor's home, then it is very difficult for a lender to call it in.

I recall a situation, many years ago, when a lender operated a back-to-back arrangement: a couple was given a higher loan by a building society than the guidelines of the time allowed on condition that the father of one of them held savings in that building society sufficient to cover the excess.

 

[44brendan]

Ok there are some occasions where a guarantee maight be effective from both a bank and customer perspective!
1. Company/Directors;- Ivan Yeates was quoted above and his guarantees related to borrowings in the name of his company guaranteed by him. Effectively from a Bank's perspective this gets around the limited liability restriction on company debts. From a customers perspective it enables them to borrow in the name of the company (most banks will only lend to SME's if a PLG is available).
2. Educational Loans:- have availed of this myself. College fees borrowed by the student but guaranteed and generally repaid by the parent. Hopefully payments can also be supplemented post graduation by the student!!!
3. Mortgages:- I'm not a big fan of parents guaranteeing mortgages in the names of their children. generally when problems arise the sxxt hits the fan when the bank calls on the guarantor to pay! Give them the money directly as a loan or gift if you can afford it. If you can't afford it don't sign a guarantee as you will be the one who ends up in the excrement if/when problems arise.
In general I don't like guarantees other than for 1 & 2 above.

 

[Steven Barrett]

The banks don't accept guarantors anymore.

Close thread?


Steven
www.bluewaterfp.ie

 

[Brendan Burgess]

The Central Bank has dealt with this issue in the consultation paper

Treatment of mortgage insurance:
It can be argued that lenders wishing to make loans at higher LTV ratios than the cap and who have obtained an adequate form of guarantee from a highly credit-worthy guarantor for the excess of the loan over
the cap should be allowed to treat this guarantee as allowing an exemption from the LTV cap. This would likely need to be a high-quality guarantee, for example provided by a highly-rated financial intermediary and payable on first demand.

While the involvement of an independent mortgage insurance guarantor could help improve loan underwriting quality, and could protect the lender against default, permitting such an exemption would weaken the effectiveness of the macroprudential measure as a tool to dampen the pro-cyclical credit-price dynamics.

 

[Popper]

Making provision for guarantors will completely undermine the restrictions. It would merely widen the blast zone in the event of another default-crisis caused by a collapse in property-values (and make such a collapse more likely, to boot)
It makes me wonder as to whether the Central Bank should now consider a third restriction: making new loans that fail to observe the guidelines, 'non-recourse'.