Switching Mortgages - feasible that the original bank should underwrite some of the risk?

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gnf_ireland

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I am wondering if its possible where some of the risk of a mortgage could be assigned to the original bank when a customer switches the mortgage to another bank.

For example, lets say I have a 250k mortgage on a property with bank A. My house is worth 200k. The loan is fully performing and there is no arrears on it. The only 'issue' is negative equity. Bank A are already carrying the risk for the 50k negative equity, although in effect have a personal guarantee on the short-fall.

Would it be feasible to create a system whereby Bank A continues to hold risk on the 50k portion of the mortgage, but the mortgage of 250k is switched to Bank B. Bank A in effect give Bank B a guarantee on the negative equity portion for say 5 years. After this time Bank B would assume all the mortgage risk.

I am just wondering is this an option to allow a level of those in negative equity to switch providers, so they are no longer trapped ?

If you look at the English Premiership for example, players who sign to some clubs for crazy wages are often sold on but on cheaper wages. The original club has to top-up the wages as per the original contract, and therefore assume the risk

Its just a notion I had, but wondering is it feasible to implement. I assume it would be, just difficult !
 
whats in it for Bank A, they still have a risk and not getting any reward for it, whereas Bank B is getting interest on full 250 but only on the hook for Mortgage proceeds less 50k guarantee from Bank A.
 
cloughy said:
whats in it for Bank A, they still have a risk and not getting any reward for it, whereas Bank B is getting interest on full 250 but only on the hook for Mortgage proceeds less 50k guarantee from Bank A.
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One obvious gap in my suggestion !

Ok, say for the 5 year term, Bank B pays Bank A the 'deemed interest' on the 50k element until the guarantee has lapsed. Agree that Bank A are carrying risk for the 5 year period (the reward part can be agreed), but they lose that risk after the 5 year period. Until the terms of the mortgage agreement they would carry that risk until the end of the mortgage term.
 
I am guessing another option could be that Bank A pays Bank B a sum to 'transfer the risk' off their books, which allows Bank B to take on the extra risk for the negative equity (so no guarantee from Bank A). I am wondering would that be a workable option ?
 
No.

You want Bank A to gtee the last-out 50k. Banks do give gtees but you have to pay for them.

1. So youd have a cheaper 250k mortgage from Bank B but an expensive 50k uncollateralized gtee from Bank A.
2. Why would Bank B only accept a 5 yr gtee? At a minimum they'd want gtee to run until 50k principal has been repaid. Even at that stage you'd be at a 100% ltv.
 
I like the idea of thinking outside the box, but this might be a bit too far outside the box.

Bank A has a €250k mortgage on a property worth €200k. The borrower is making the repayments in full.

The bank is probably not too worried about this. They may not even have made any provision. As it's a non-tracker mortgage, they are making great profit on it.

In effect, they have a performing secured loan of €200k and a performing unsecured loan of €50k.

There is no incentive at all for Bank A to do anything about it. After a few years, the NE will be paid off.

But maybe Bank B should be looking at this mortgage anyway? If the mortgage is with BoSI at 4.95%, maybe AIB should be offering to take it over at, say, 4%? Or lower still, if a parent is prepared to guarantee it.

Maybe Bank B should offer the borrower a 90% mortgage or €180k while offering the parent a €70k mortgage on their home? Bank B gets two well secured profitable loans.

Brendan
 
Please don't go there, Parents possibly paid up to 16.25 % on there Mortgaging in the eighties to the bank,They should not give a personel guarantee on a house they do not own,By all account help where they can ,
I am following gnf-ireland switching mortgages ,People in negative equity who paid there mortgage over the last few years are low risk,They pay there way ,We the taxpayers/supporters who own some of the clubs/banks should be asking why they are treating good players so bad and demand changes ,
 
Guarantees could play an important role and they should not be dismissed out of hand.

This borrower could be paying 4.95% to Danske Bank. He could reduce this to 3.45% if he were able to reduce the LTV and switch. A saving of 1.5% on €250k is a saving of almost €4,000 a year.

I would agree that parents should not put their homes at serious risk. But in the case outlined by GNF, there is minimal risk.

If I could borrow at 3% to lend to a responsible family member who was being charged 4.95%, then I would have no hesitation in doing so.

Brendan
 
I understand your point about Danske Bank, Just saying the responsible borrowers meeting there repayments are the people state supported banks should be trying to hold on to,I suspect responsible family members are already doing just that,I would hate if this suggestion spilled over into the property market
 
Brendan Burgess said:
If I could borrow at 3% to lend to a responsible family member who was being charged 4.95%, then I would have no hesitation in doing so.
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I am sure many feel the same way, although nothing like money to introduce serious stress into a family. Like everything its about getting the balance right
 
Thanks everyone for their comments on the idea above. The one thing that does strike me out of it is how much there is it in for Bank A - they have a relatively low risk loan and the customer is paying a premium price simply due to negative equity.

Someone who has more equity in their house, although may be a higher risk, is probably on a lower rate purely due to the equity in the property (that is very difficult for the bank to realise currently)

Ultimately its down to the risk assessment carried out by banks in Ireland and I believe they are a little 'crude' if I am being honest from what I see. It is currently all about LTV, rather than taking into account repayment history etc.

Having gone through it again I can how see why Bank A would not be interested in doing anything or should they offer any sort of 'concession' to get out of it. It is really up to Bank B to try and acquire the customer, with the small level of risk they have and build a relationship with them that may be extra profitable in the future.

Just to point out, I am not in this position myself - but really do feel for people who are, and was trying to come up with a creative solution that may form the basis of a proposal to help them. Back to the drawing board again !
 
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