unsustainable mortgage in negativ equity - how best to proceed?

[Negotiator]

Admittedly this example isn't exactly a distressed borrower but if people feel they're gonna have to pay several hundred Euro per month for the next 20 years for absolutely nothing then that doesn't exactly help them to spend and stimulate an economy.

In a normal climate I would understand people's concern about 'walking away from their debts' but we're living in unprecedented times!

I'm all for economic growth and low unemployment no matter what that takes to get there!

 

[bugler]

And the costs of strategic defaulting, namely the costs to the taxpayer (the banks' owners in many cases) and increased SVRs for other borrowers, does that help the economy too?

 

[Negotiator]

And the costs of strategic defaulting, namely the costs to the taxpayer (the banks' owners in many cases) and increased SVRs for other borrowers, does that help the economy too?

It has proven to work very well in the US thank you very much! And Iceland has actually written down loans to 110% of the value of their house and guess what, yep, their economy is growing faster than the US and Europe. So pause and think about that for a moment, debt forgiveness isn't necessarily a case of letting people off scot free, it actually serves the economy as a whole and everyone living in it better in the long run!

We've had the mother of all property crashes and those losses need to be crystallized sooner rather than later so the economy can start functioning normally. Saddling people with debt and negative equity for the next 20 years certainly isn't going to help anyone.

 

[RichInSpirit]

Not saying anything about the right or wrong of this situation, but just taking a long term view on the OP's situation.
Given the OP's earning capacity versus the level of debt I would say that the OP would be off his rocker to sell at the moment.
Hold for 15 or 20 years and wait for the market to return. Even if he never rented the property out in the meantime.

 

[Bronte]

We need to be clear on something here and that is the OP has the title wrong as his debt is sustainable. His options are:

Option 1 - sell

Get bank to agree on sale and allowing him to repay the loan either at the current interest rate and term or over a shorter term if he can afford it. Problem is that the NE is 147 plus costs so a debt of 150K miniumum with no income against it.

Option 2 - continue

Continue to subsidise it, it's only costing about 400 Euro a month which should be well affordable on a salary of 120 GBP. And OP has not mentioned if his spouse is also working.

If he could pay extra to pay down the NE, plus inflation over time, as for everybody mentioning 20 years, well we're not allowed to talk about property prices but OP needs to think about that too. The ideal would be to get it to a level where he could sell at zero loss or see it as an investment with eventually the rent coving most of the costs.

Option 3 bankruptcy

I don't believe OP can do this on a salary of 120K. I think he would be left a certain (fairly basic) minimum amount to live on out of the 120K as per the UK rules and the remainder would be taken away from him and if I correctly recall Steve Thatcher's advice this can be extended for those who can afford it rather than the quickie 1 year bankrupty that is the norm. In addition Steve advised people to only take low paying jobs and I'm assuming there were very good reasons he gave that advice.

As OP certainly has the cash he should hire an expert to see if bankruptcy is an option for him. Also there are repercussions for bankruptcy in relation to future loans and eligibility for certain jobs. And of course it's not just the OP, it's also his wife.


In my opinion OP should do the right thing and go for option 2 but that's easy for me to say.

 

[David_Dublin]

There should be no interest or property tax payable on the negative equity portion of the lone but debts should be repaid where possible otherwise society falls apart.

Really? Do you think this approach should be applied in general? There dont seem to be any reasons why it should only apply here, so presumably you do.

So what does the bank do - go a whistle in the wind for interest payments on a secured loan, where the value of the asset is below the value of the loan. If that were the case, interest rates would not be affordable, they would need to take into account the risk of no interest being paid. Or else mortgages would only be offered at 50% LTV or less or something like that.

What if the borrower has substantial income and wealth elsewhere? Because he makes a bad investment decision the bank cops the hit on it, and he gets to reap profit from his profitable investments.

Honestly, I really despair with some peoples' comments on here. I am all for banks crystallising losses so we can move forward, get the economy growing etc but it has to be fair. If someone is earning 120k per year then tough luck that he has a property in NE. Let him pay the property tax, let him pay up his debt.

The fairness of the solution needs to take into account people who have worked hard the last 20 years, and didn't have borrow 90%+ LTV and are still working hard to pay their debt back. i.e. those who paid 1million for a house now worth 300k, or paid 500k for a house in an unfinished building site.

If there is some sort of write off then the bank should take ownership or some sort of right to proceeds from the eventual sale. It's just not fair that people who had more money to bring to the purchase of a house end up paying their way, and others that are in NE get a write off. Theoretically, they could own the house for 20 years, and profit from its sale, which just isn't fair on those who didn't technically qualify for the write off but who lost substantially more.

 

[Bronte]

Because he makes a bad investment decision the bank cops the hit on it, and he gets to reap profit from his profitable investments.

.

There is a certain belief of some people that this is so, it's called socialising losses and capitalising gains.

Funnily enough on my trips over during the tiger I saw no one willing to share their new found wealth with me as they rode the massive pyramid scheme. But there are plenty of them now screaming for me to share their losses.

I suppose the likes of Sean Dunne et al doesn't help anybody.

 

[dub_nerd]

And Iceland has actually written down loans to 110% of the value of their house and guess what, yep, their economy is growing faster than the US and Europe. So pause and think about that for a moment, debt forgiveness isn't necessarily a case of letting people off scot free, it actually serves the economy as a whole and everyone living in it better in the long run!

You should probably read about what's really happening in Iceland, as written by an actual Icelandic person, instead of what Krugman and his disciples want you to believe...

http://studiotendra.com/2012/12/29/what-is-actually-going-on-in-iceland/

Iceland continues to be a basket case.

 

[dub_nerd]

There should be no interest or property tax payable on the negative equity portion of the lone but debts should be repaid where possible otherwise society falls apart.

Plenty of negative equity resulted from people treating their houses as ATMs, and withdrawing their equity to pay for cars and holidays. Where do you think the bubble money actually came from? There was something like six billion in top-up mortgages in 2006 alone and you can bet it wasn't all being spent on worthwhile home improvements.

 

[Delboy]

People are not debt machines no matter what the Irish taxpayer , Banks , or Government may like to think , they will make decisions which is in their best interests and if that means walking away and planning for the future so be it .

looks like another few new posters from the forgive debt brigade have joined up to AMM. 'Forgive everyone's debt and let the silent majority pay for it, even if you earn 100k+ stg'

Perhaps they're buoyed up by the 'success' of their leader in Meath East recently

http://www.nytimes.com/2013/03/30/b...tgages-nears-an-end.html?pagewanted=all&_r=1&
'Ben Gilroy, one of tens of thousands who over-borrowed in the giddy property boom that preceded Ireland’s economic collapse, has made no mortgage payments for two years. But he says he does not worry that he will lose his home any time soon'

 

[Negotiator]

You should probably read about what's really happening in Iceland, as written by an actual Icelandic person, instead of what Krugman and his disciples want you to believe...



Iceland continues to be a basket case.

4.7% unemployment, decent growth rates, already returned to the bond markets and no major private debt overhand for nearly all the population........not what I would describe as a basket case but I don't think we'll both agree on this!

 

[Negotiator]

While the 'moral hazard brigade' (MHB) are so busy trying to make sure that a tiny % of borrowers don't 'get away with it' they completely ignore the fact that the economy won't get going again until the whole debt situation is sorted out.....that includes NE and yes even people who can afford to repay the mortgages!

And the MHB will still be here in 10 years time moaning that unemployment is still very high and the economy is still depressed......but at least not a single person got a penny written off their mortgage!

 

[Delboy]

While the 'moral hazard brigade' (MHB) are so busy trying to make sure that a tiny % of borrowers don't 'get away with it' they completely ignore the fact that the economy won't get going again until the whole debt situation is sorted out.....that includes NE and yes even people who can afford to repay the mortgages!

And the MHB will still be here in 10 years time moaning that unemployment is still very high and the economy is still depressed......but at least not a single person got a penny written off their mortgage!

tiny % you say!!!....the rest of the World are starting to notice the shenanigans going on here and are asking questions as to how unemployment has stabilised and yet Mortgage default is rocketing which is not exactly a scenario that is replicating itself in other troubled countries.....that's what no repossessions, years of rent/mortgage free living and the idea of debt forgiveness can bring about
http://www.theatlanticcities.com/ho...ers-world-champs-not-repaying-mortgages/5168/

 

[Negotiator]

tiny % you say!!!....the rest of the World are starting to notice the shenanigans going on here and are asking questions as to how unemployment has stabilised and yet Mortgage default is rocketing which is not exactly a scenario that is replicating itself in other troubled countries.....that's what no repossessions, years of rent/mortgage free living and the idea of debt forgiveness can bring about

Please provide one example of where a property market crash resulting in a drop in property values of up to 70% and there hasn't been MASSIVE mortgage default.......I can't think of any recent examples but I'd imagine it would be much higher than it has been here already. By the way, look at Japan and it's 'lost decade' (possibly 2 decades) and how the debt situation still has a stagnating effect on their economy!

 

[dereko1969]

Please provide one example of where a property market crash resulting in a drop in property values of up to 70% and there hasn't been MASSIVE mortgage default.......I can't think of any recent examples but I'd imagine it would be much higher than it has been here already. By the way, look at Japan and it's 'lost decade' (possibly 2 decades) and how the debt situation still has a stagnating effect on their economy!

But one of the reasons for that is stated in the excellent article that delboy linked to where it states

Some suspect it's not just legal haziness keeping foreclosures low. Irish banks may also dragging their feet on restructuring or foreclosing. That's because if they dealt with those problem loans by foreclosing or restructuring them it would, through the magic of accounting, transform hazy "problem" loans into real losses. In fact, there's a well-documented history of banks procrastinating on recognizing bad loans in the aftermath of financial crises. Such widespread "evergreening" of bad loans was an insidious side effect of Japan's financial collapse in the early 1990s.

 

[Negotiator]

But one of the reasons for that is stated in the excellent article that delboy linked to where it states

Some suspect it's not just legal haziness keeping foreclosures low. Irish banks may also dragging their feet on restructuring or foreclosing. That's because if they dealt with those problem loans by foreclosing or restructuring them it would, through the magic of accounting, transform hazy "problem" loans into real losses. In fact, there's a well-documented history of banks procrastinating on recognizing bad loans in the aftermath of financial crises. Such widespread "evergreening" of bad loans was an insidious side effect of .

But forbearance and debt forgiveness are 2 different things. Forbearance in my mind is 'kicking the can down the road' and debt forgiveness is accepting the reality and writing down the loans to a sustainable level to allow people to get back to normal and start spending again etc. Without this we will end up the same as Japan!

 

[Dermot]

There are a number of people on here who think that OP should basically be forgiven. If this were to happen there would be tens of thousands joining him too that would feel "why not me too". So if this were to happen and the banks cannot afford it they then have to be bailed out again and the terms will be much stiffer than before on the taxpayer. Is this they new way of creating employment as insinuated by some posters. We had some of the usual cheerleaders praising the Cypriot Government for the great job they had done in their negotiations with Europe only to find out later that the package that they now have will leave them an economic basket case within a couple of years.
The OP is obviously an intelligent person who really wants ideas from others of how he may get away with paying what he owes. He is different from a lot of others in that he can pay. Some people want a one way street. take the profits and run away from debt.

 

[demoivre]

Plenty of negative equity resulted from people treating their houses as ATMs, and withdrawing their equity to pay for cars and holidays. Where do you think the bubble money actually came from? There was something like six billion in top-up mortgages in 2006 alone and you can bet it wasn't all being spent on worthwhile home improvements.

And most of those people are paying their mortgages on time but it's getting the economy nowhere, a point that continues to elude most, as consumption expenditure is moribund. Add exchequer austerity to that and you get 14% unemployment and 87000 people emigrating ( Eurozone unemployment just hit 12% for the first time ever last month ). But I guess we gots to put manners on the people who were bold boys and girls in the noughties.........unless you're a banker.

 

[Delboy]

And most of those people are paying their mortgages on time but it's getting the economy nowhere, a point that continues to elude most, as consumption expenditure is moribund. Add exchequer austerity to that and you get 14% unemployment and 87000 people emigrating ( Eurozone unemployment just hit 12% for the first time ever last month ). But I guess we gots to put manners on the people who were bold boys and girls in the noughties.........unless you're a banker.

take 150,000 people or so in arrears...give them debt forgiveness, let them start spending (of course all that spending will be in Ireland!), and the economy will get going again.
Wow, did'nt reliase that was all it would take ...let the debt write-off begin!

 

[David_Dublin]

..And for those who are currently paying on-time but are under huge pressure, those that have foregone new bikes/cars/holidays/clothes/heating to keep paying what they borrowed - well they are able to pay so let them keep paying and lets ignore them.

The fact of the matter is there are lots of people not paying who have greater disposable income & less outgoings than those who are. It's natural that different people define "being broke" differently, we all have different baselines.

In a lot of cases, obviously not all, those not paying at all could be paying something. Or those paying something could be paying more. The complexity of all of this is that there cannot be any across the board forgiveness. It just cannot work fairly. Unless the lending institution takes control of the assets, or a call on the value they have forgiven when the asset is liquidated. Otherwise you get the same cute hoors that bought properties off the plans and leveraged themselves up to the gills benefiting again from pathetic government policies.