Why do people expect to be let off Negative Equity? You made a promise, stick to it!

[nconroy]

Re: Why do people expect to be let off Negative Equity? You made a promise, stick to

If a private mortgage is a secured debt, what is it secured upon? Is it on the house? Or on the debt holder.
The lenders hold a lien on the property, if the lender takes a risk and loans 100% of the value of a property, aren’t they speculating (on future growth) and should not they share the risk and the loss.

 

[SarahMc]

Re: You promised to pay it back, why not stick to your word?

The Law Reform Commission have already made their mind up on what they are going to do. Submitting our opinions is futile (Unless you're CEO of a bank). This is simply a PR exercise.

That is nonsense (but a widely held belief), IME consultation is very real in this country, and it is quite easy to influence policy and legislation.

 

[kaplan]

Re: Why do people expect to be let off Negative Equity? You made a promise, stick to

The LRC report whilst lengthy is well worth reading. The logic and arguments for a non-court based personal insolvency regime are compelling. Yet mortgage debt is not fully dealt with. Rather the emphasis is on unsecured debt which amounts to about €30bn or so. Mortgage debt is €147bn (Nov 09). Of this about €25bn was lent to amateur property investors - buy to let lending. The negative equity book is about €80bn with varying degrees of negativity depending on the original LTV and year the loan was taken out. Numbers are reckoned to be about 250k borrowers.

There are two issues with mortgage debt being confused here. The first is the problem with unnaffordable repayment which occurs whether or not a borower is exposed to the second issue which is negative equity.

The evidence is that where you have negative equity and rising unemployment, loan defaults rates rise. They reduce as troubled mortgages correct when people regain employment - this not something that will happen here as jobs are hard to come by.

It takes a drop income before negative equity becomes a problem - which is what has happened here. The cost of financing repayments as a % of net household income has dramatically risen.

So it seems defaults will continue to rise and there will have to be solutions for those who cannot afford to make their mortgage payments in full. Wholesale repossessions or the voluntary jingle mail option are not feasible given a homeowner culture, economic and social costs.

Maybe it's best for people (who want to) to will walk away from their homes, hand over the keys and rent until they can once again buy a house - that is if they are not pursued for the shortfall between their mortgage and house value when sold by the lender.

Of course, if property prices take years to rise to 2007 levels, then negative equity is a long term problem.

 

[giles]

Re: Why do people expect to be let off Negative Equity? You made a promise, stick to

House prices in some areas got rediculously high during the boom. To think that they would keep getting higher and higher was frankly stupid. Common sense says what goes up must come down. This is a big reason why I didn't buy during the boom, I simply wasn't prepared to pay over the odds for a house. A lot of people were blinded by greed and now they have to pay for that greed. If you bought a "home" then negitive equity shouldn't matter. If you bought an investment property then YOUR negitive equity is YOUR problem. Nobody should expect other people to bail them out of their bad investments.

 

[Complainer]

Re: Why do people expect to be let off Negative Equity? You made a promise, stick to

Under the Bankruptcy Act, a person can file for bankruptcy but the law is so expensive and difficult that, in practice, very few people do. I think only 8 did last year. An insolvency specialist told me that he would not recommend the process for anyone with less than €1m in assets.

Is this some kind of Kafka-esque joke? Off topic discussion and responses to it removed

 

[dtlyn]

Re: Why promised to pay it back, why not stick to your word?

But if you only bought it because of the implicit guarantee* that property prices could only go up, but then that guarantee was somehow revoked by nassty Bear Stearns & Lehman Brothers - shurely you are entitled not only to stop paying for your magic money making machine/3 bed semi/shoebox apartment - but also to a full refund?

*not written down anywhere

there is some sort of weird personal accountability thing that certain people are now trying to invoke during this crisis which is making the whole thing worse. it's bad for confidence.

If you're serious here then your logic is ridculous. If I go into BOI tomorrow and say I want 20k to bet on Kyoto Star in the Gold Cup, because he's won loads before and my mates brother (a paddy-power shareholder?) trains him and says he's in great shape this year, and can only win. Thereafter he gets taken out by a falling horse on the third, and I default because I was misled by my info sources, how quickly would I expect to be laughed out of the place i) asking for the money ii) explaining reasons for default?

Personal accountability isn't weird, it's fundamental to a functioning society.

 

[Complainer]

Re: Why promised to pay it back, why not stick to your word?

If you're serious here then your logic is ridculous. If I go into BOI tomorrow and say I want 20k to bet on Kyoto Star in the Gold Cup, because he's won loads before and my mates brother (a paddy-power shareholder?) trains him and says he's in great shape this year, and can only win. Thereafter he gets taken out by a falling horse on the third, and I default because I was misled by my info sources, how quickly would I expect to be laughed out of the place i) asking for the money ii) explaining reasons for default?

Personal accountability isn't weird, it's fundamental to a functioning society.

The analogy doesn't travel well. The banks had a direct role in increasing property prices, by lending more and more, at higher multiples, higher LTVs and for longer periods. There were in a no-lose situation, as they just had to call the Govt to bail them out when things wen't bad.

So unless BOI are involved in setting the odds for Kyoto Star, the analogy doesn't hold.

 

[canicemcavoy]

Re: Why promised to pay it back, why not stick to your word?

The banks had a direct role in increasing property prices, by lending more and more, at higher multiples, higher LTVs and for longer periods.

If it was all the banks' fault, I'm sure you can point out postings on this forum from, say, 3 years ago, showing how people were against banks doing this.

 

[GarBow]

Re: Why promised to pay it back, why not stick to your word?

If it was all the banks' fault, I'm sure you can point out postings on this forum from, say, 3 years ago, showing how people were against banks doing this.

No warning signs of impending doom Here anyway.

 

[canicemcavoy]

Re: Why promised to pay it back, why not stick to your word?

No warning signs of impending doom Here anyway.

Yes, indeed. I quote - "Happy days for FTBs." Hurrah!

([broken link removed] now a dead link - says it all)

 

[Complainer]

Re: Why promised to pay it back, why not stick to your word?

If it was all the banks' fault, I'm sure you can point out postings on this forum from, say, 3 years ago, showing how people were against banks doing this.

For the record, I didn't say 'it was all the banks fault'. But the dissenting voices were there, even if most people didn't want to listen;

http://www.askaboutmoney.com/showpost.php?p=729353&postcount=7
http://www.askaboutmoney.com/showpost.php?p=98923&postcount=31
http://www.askaboutmoney.com/showpost.php?p=97172&postcount=10
http://www.askaboutmoney.com/showpost.php?p=97193&postcount=13
http://www.askaboutmoney.com/showpost.php?p=98825&postcount=27

 

[dtlyn]

Re: Why promised to pay it back, why not stick to your word?

The analogy doesn't travel well. The banks had a direct role in increasing property prices, by lending more and more, at higher multiples, higher LTVs and for longer periods. There were in a no-lose situation, as they just had to call the Govt to bail them out when things wen't bad.

So unless BOI are involved in setting the odds for Kyoto Star, the analogy doesn't hold.

Yes, but by granting large loans specifically for the purposes of betting on Kyoto Star (a sure bet,surely), it does drive the odds down and furthermore punter n+1 requires a bigger loan to make the same return as punter n. So BOI loan more pushing the odds downwards further. This downward press of market odds distills nicely through the "risk models" and ends up on the balance sheet as triple A grade assets against which we can lend more cash to punter n+2. As long as we can distill this "sure bet" into a AAA asset, it becomes in the banks interest (it's easy money) for odds to depress further, increasing further the quality of assets already on it's books and allowing it to leverage against them to loan further.

It's a little bit of a stretch, but I think the analogy holds well and illustrates a point.

 

[sinbadsailor]

Re: Why do people expect to be let off Negative Equity? You made a promise, stick to

It's a pity that everyone involved cannot take the most simplistic view to this problem and fix it in everyones interests.

Any solution going forward will ALWAYS favour the banks at the cost of the consumer. That is sad way of the world.

The banks took the risks, not the consumers in my opinion. They were and still are the guides and protectors of our money and should take more responsibility. The 'you borrow, you pay' is not taking everything into account. People borrowed because they could or because they felt that they could afford it. Both of these factors were 100% in the banks control. The banks should have run better stress tests (to include things like falling prices and unemployment) and should have prevented people from borrowing, stating clearly that they could not afford any blip in the future, whether the consumer liked it or not. Thats responsibility, thats being the guide.

But instead of this they threw out their money for profit, lending with no regard for anyones future, not even their own. They took at every opportunity, sold and mislead consumers with complicated financial products and generally abused their position.

Now when this current situation has occurred, they are unloading their debts for reduced capital amounts to reflect market values but here is the thing, their borrowing obligation for your house has decreased by upwards of 30%, but they want you to still pay back the 100% PLUS more interest as they are now increasing the cost of that borrowing to you! The This post will be deleted if not edited to remove bad language is falling out of everything and the banks now think that you have more capacity to pay back your loan rather than considerably less. That is completely messed up in my opinion.

So we need to come out of the forest, and take a look at the whole picture. The banks have profited enough and in time they will recover, in the long term, whats their rush.

The banks should go through their mortgage loan books, apply the same reduction to each loan as they have been given by NAMA, and then reduce the capital amount owing, esentially putting everyone owing 100% of the current market value of their home. The payments continue at a lower rate as a result. Once this is done, if you cant afford it, then tough luck, you lose your home. This would mean that the banks wuld have no problems with non-payment and everyone would feel that they were taken into account in this process.

Isn't it about time we started acting like human beings, and stop looking at everything in the world through financial glasses. With a strong conviction to change, the banks can still be super profitable without peoples lives being ruined.

And yes, it is this simple, all it takes is a short and temporary blow the financial sector, who will recover, similar to the major blow we as consumers and tax payers have been feeling for last 18 months or so.

*update*
And of course I should mention that in order to prevent any of it happening again, if you accept the reduction on your home, well then you wont be looking for a tradeup in the next 5 years would you as it would be part of the agreement. An agreement that revalues your home and helps you out, not releases you from a debt burden that you want to replace with more debt ;-)

 

[canicemcavoy]

Re: Why do people expect to be let off Negative Equity? You made a promise, stick to

"The banks should go through their mortgage loan books, apply the same reduction to each loan as they have been given by NAMA, and then reduce the capital amount owing, esentially putting everyone owing 100% of the current market value of their home."

So essentially, the more reckless a person was, the more they are rewarded.

Again, this leads back to the point - why would anyone in Ireland ever again be financially sensible and only borrow what they can afford, if they know they will eventually be bailed out?

 

[sinbadsailor]

Re: Why do people expect to be let off Negative Equity? You made a promise, stick to

So essentially, the more reckless a person was, the more they are rewarded.

Again, this leads back to the point - why would anyone in Ireland ever again be financially sensible and only borrow what they can afford, if they know they will eventually be bailed out?

This idea that people are being rewarded is half the problem. Everyone played a part in this mess, no exceptions. Some people were wreckless yes, but others maybe had the idea that the the "bank knows best and with 101 finance ads for trading up cars and houses in our faces, lets see if we can get a mortgage"

In the end the people were only as 'wreckless' as the banks let them be?

The thing that really gets me up about the Irish mentality is that it is dysfunctional. Why does everything have to come down to who has what, who got something that you didn't or that why should certain people in society be allowed to .... yada yada yada.

Mistakes were made, some lost, some won big. The only true change is to completely wipe the past events off the radar. They cannot be changed, so accept that and look at what is best for everyone tomorrow, what is best for Irish society and how they avail of and use their credit.

Irish people don't like to take responsibility, on any level, it's always someone else fault. So lets change that, because in the end it's this close-minded and anti-human thinking that keeps Ireland as the negative force that it is.

So in conclusion to your point, we are not 'bailing people out', we are now 'rewarding' wreckless behaviour. We are learning from past faults on a number of fronts and changing the landscape completely to ensure that a new way of using credit is born, with no pejudices.

A change in the general thinking in Ireland like this would solve so many problems both political and financial.

 

[canicemcavoy]

Re: Why do people expect to be let off Negative Equity? You made a promise, stick to

Everyone played a part in this mess, no exceptions.

The usual cliché from the vested interests. The usual Fianna Fail line - "Everyone is to blame, therefore noone is to blame." Can you tell me exactly what part I played, for example?

Irish people don't like to take responsibility, on any level, it's always someone else fault.

That's about the first thing you've said that I agree with. How this squares with the fact that you want to give some people the equivalent of hundreds of thousands of euro, perhaps even millions, because they made a bad investment, beats me.

There is no such thing as free money. Any money lost by banks will be made up by us, the taxpayers. Please explain to me why it's better for society that Tarquin Evans , who overpaid for his semi-D in Mount Merrion, should receive the equivalent of €500,000, rather than the same money being spent on job creation or on vital health services.

We are learning from past faults on a number of fronts and changing the landscape completely

How on earth are we "changing the landscape completely"? Please tell me one law that has been brought in that will prevent a future property bubble like the one we have seen. Simply giving lots of money and then pretending the whole thing never happened changes absolutely nothing.

 

[sinbadsailor]

Re: Why do people expect to be let off Negative Equity? You made a promise, stick to

Can you tell me exactly what part I played, for example?

No I can't, I am only assuming that you like so many others have been looking at their level of debt and thinking that maybe some of it was completely unnecessary and given the chance again, would have not taken it on.

That's about the first thing you've said that I agree with. How this squares with the fact that you want to give some people the equivalent of hundreds of thousands of euro, perhaps even millions, because they made a bad investment, beats me.

There is the mindset problem right there. You are not giving anyone money, you are only reducing a number in a computer system that tells them what they have to pay in the future. Remember, no-one owns their homes until the mortgage is paid. If the money to lend you for your home was created out of thin air when you signed the mortgage contract, why cant it be reduced in the same fashion?

There is no such thing as free money. Any money lost by banks will be made up by us, the taxpayers. Please explain to me why it's better for society that Tarquin Evans , who overpaid for his semi-D in Mount Merrion, should receive the equivalent of €500,000, rather than the same money being spent on job creation or on vital health services.

By quoting people directly, you are only re-inforcing my point about the Irish attitude. What does this Evans guy have to do with your debt (assuming you have some) or mine or anyone elses for that matter.

How on earth are we "changing the landscape completely"? Please tell me one law that has been brought in that will prevent a future property bubble like the one we have seen. Simply giving lots of money and then pretending the whole thing never happened changes absolutely nothing.

Mis-type on my part, sorry, I meant we should be learning from past faults...

Why does everything have to be a law. This is the problem with Irish Society, do something until you get caught and even then bend the law to avoid punishment.

No one would pretend nothing happend, but what does a whole generation and possibly the generation after being controlled by debt solve?

 

[canicemcavoy]

Re: Why do people expect to be let off Negative Equity? You made a promise, stick to

No I can't, I am only assuming that you like so many others have been looking at their level of debt

I have no debt whatsoever. I'm 6 figures in the black actually. Mainly due to the fact that I looked at the property bubble of the last 10 years, saw it was madness, ignored the vested interests, and stayed away.

There is the mindset problem right there. You are not giving anyone money

There Ain't No Such Thing As A Free Lunch

http://en.wikipedia.org/wiki/There_ain't_no_such_thing_as_a_free_lunch

you are only reducing a number in a computer system that tells them what they have to pay in the future

Oh, in that case, let's increase everyone's bank deposits by tenfold, since that, too, is just a "number in a computer system".

I'm sorry, but this is economic illiteracy of mindboggling proportions. This is on par with the woman I overheard in a restaurant recently who thought NAMA was a great idea as she'd had friends who'd been refused loans for New York shopping trips.

By quoting people directly, you are only re-inforcing my point about the Irish attitude. What does this Evans guy have to do with your debt (assuming you have some) or mine or anyone elses for that matter.

I would have thought it was obvious that was a made-up name. How about you address the point of my argument?

Oh wait, no, I forgot. It's all only "numbers in a computer system" with absolutely no impact on the real world - I forgot that's about the whole of your argument. Somehow, our financial selves are living in some kind of "The Matrix" alternate reality - it's Keano Reeves as Neo, except he's running around with a credit card instead of a gun.

 

[sinbadsailor]

Re: Why do people expect to be let off Negative Equity? You made a promise, stick to

I have no debt whatsoever. I'm 6 figures in the black actually. Mainly due to the fact that I looked at the property bubble of the last 10 years, saw it was madness, ignored the vested interests, and stayed away.

Well then my friend, firstly congratulations to you, your doing something right, but secondly, doesn't this mean that you have dont have the proper perspective or emotional connection to discuss about how to deal with people with debt? I do believe I can see why you think everyone will be getting a free lunch after you bought the ingredients and prepared your own.

Oh, in that case, let's increase everyone's bank deposits by tenfold, since that, too, is just a "number in a computer system".

If you mean that it's that easy to do that then yes, but that wasn't the point I was making.

I'm sorry, but this is economic illiteracy of mindboggling proportions. This is on par with the woman I overheard in a restaurant recently who thought NAMA was a great idea as she'd had friends who'd been refused loans for New York shopping trips.

You do not need an economics degree to know what is right, wrong or fair, or to present an opinion on how to change things for the better. It's the closed mind of the bankers and economists and their advice that sees the boom/recession cycle repeat over and over again

I would have thought it was obvious that was a made-up name. How about you address the point of my argument?

I did, you are not giving anyone money by doing what I suggested. No one is going to walk away with a cheque, just pay less and what they can afford for the asset they are borowing for?

Oh wait, no, I forgot. It's all only "numbers in a computer system" with absolutely no impact on the real world - I forgot that's about the whole of your argument. Somehow, our financial selves are living in some kind of "The Matrix" alternate reality - it's Keano Reeves as Neo, except he's running around with a credit card instead of a gun.

Silly and childish. You do realise that all the wealth/debt in the world bar the possible 10% of hard currency in the system is held on computer dont you? You do realise that money is created out of thin air when loans are given. A bank only has to hold 10% on deposit of the total money it lends out. Money and the monetary system is pure electronic fantasy. I hope a good deal of that 6 figures you have is either in cash stocks or gold, otherwise it could all disappear in any number of ways.

 

[Howitzer]

Re: Why do people expect to be let off Negative Equity? You made a promise, stick to

There is the mindset problem right there. You are not giving anyone money, you are only reducing a number in a computer system that tells them what they have to pay in the future. Remember, no-one owns their homes until the mortgage is paid. If the money to lend you for your home was created out of thin air when you signed the mortgage contract, why cant it be reduced in the same fashion?

LOL. Great stuff.