why is there no onus on lenders to share loss

[bakerbhoy]

As part of the bankruptcy legislation ,where a property is surrendered why is there no onus on a lender to

1. Share in any loss ie sale price not achieving outstanding mortgage value
Homeowner still on the hook for balance
2. Lender not accepting low price ,as it achieves their aim of outstanding
mortgage , no consideration given to mortgage holder
The lender accepted valuations at the outset , so shouldn't they now accept some share of the loss and not leave the weaker party carry all of the loss

My point is not about giving debt forgiveness but fairness . If a bank takes possession of property to realise a value there should be some pressure on them to achieve good value rather than dumping them ,a side effect would be to continue to drive property prices down rather than normalise .

 

[Gardener]

There was a good article in yesterdays Independent entitled "Banks don't do charity - except for themselves". The article was written by Brendan O' Connor, though not a fan of his chat show, I do agree with most of his articles! The content of same is self explanatory.

As we regularly hear on our radio, one bank in particulars mantra, "your investments may go up as well as down", maybe this is a mantra the people of Ireland need to adapt whilst dealing with unsustainable mortgages!

The banks are still living on cloud cookoo. The disaster the banks have inflicted on this nation has yet to be felt for generations to come.

 

[44brendan]

But what is fairness in this context? If I borrow money to invest in a business opportunity and that opportunity fails, is it fair that the Bank or individual that I borrowed the money from should suffer part of the loss?
Banks lent money at a relatively low margin (2/3%) to clients to assist them to purchase property. While the Bank took the properties as security, their primary recourse was to the individual/s who borrowed the money and not to the security.
I accept the fact that during the property boom period, banks tended to look at the value of the asset rather than the repayment capacity of the borrower in a large number of lending decisions. I would also agree that where standard lending criteria was not applied, a Court could interpret this as culpability on behalf of the Bank and in such instances, perhaps the Bank should be made liable for part of the loss.
It's a moral arguement at this stage as I'm sure a competent barrister would have taken a test case at this stage if he/she felt that the culpability issue would stand the test in Court.

 

[Delboy]

There was a good article in yesterdays Independent entitled "Banks don't do charity - except for themselves". The article was written by Brendan O' Connor, though not a fan of his chat show, I do agree with most of his articles! The content of same is self explanatory.

As we regularly hear on our radio, one bank in particulars mantra, "your investments may go up as well as down", maybe this is a mantra the people of Ireland need to adapt whilst dealing with unsustainable mortgages!

The banks are still living on cloud cookoo. The disaster the banks have inflicted on this nation has yet to be felt for generations to come.

Thats the Brendan O'Connor who advised all in about 2010 in his Sindo column that all the 'ballsy' people he knew were getting into property again as the market was near the bottom!!!

 

[Purple]

Banks lent money based on them being able to recover the full amount of the loan. Their risk was seen as minimal and so they didn’t price in any risk.
If the value of the property was the only thing the loan was secured against then they would have priced in a greater risk and the interest rate would have been higher.
I agree that that’s the way it should be but that’s not what us borrowers paid for. It is a much better scenario though; interest rates would be higher so property prices would be lower (which is always a good thing) and people would not be saddles with negative equity in a down-turn.

 

[Brendan Burgess]

Hi baker

I don't agree with the Personal Insolvency legislation but the PIA does allow for insolvent borrowers to have their debts written off after the PIA period which cannot exceed 6 years. While the bank has a veto, in most cases, I would imagine that they won't exercise the veto.

I would much prefer to see a section in the legislation dealing specifically with unsustainable mortgages. Where the borrower has engaged meaningfully in the MARP and has sold their home, the shortfall should be written off within 3 years, the same period as the bankruptcy period. I would go further and say that the 3 years should start when the borrower first engaged in the MARP.

This would only be for totally insolvent borrowers who have engaged in MARP and not for people in negative equity who want to be rid of it.

Brendan

 

[Jim2007]

I agree that that’s the way it should be but that’s not what us borrowers paid for. It is a much better scenario though; interest rates would be higher so property prices would be lower (which is always a good thing) and people would not be saddles with negative equity in a down-turn.

The idea that some people should be shielded from the consequences of their decisions, while others are not, is just not acceptable!

First we have the shareholders in BOI, AIB etc., many of these are people who were depending on the dividends from those shares to live on: old age pensioners, widows, people with disabilities who sunk their compensation into it etc... they have lost everything, so why should the tax payer not cover them?

And of course we have the builders, developers and other intermediaries who borrowed to put up the housing estates, offices and what not. At least they gave us employment, so perhaps we should not cover their losses too?

And we have the home owners, who like everyone else in this saga invested in something that has lost value, but unlike the other expect they are special and the taxpayer should come up for their mistakes... seriously.

If what was been asked for were no recourse mortgages, where by you hand back the keys and walk away, I'd agree. But the idea that someone should be allowed to continue living in nice four bedroom house, while some other poor sod who was careful with his money and is struggling to get by should carry the can is just not going to fly.

 

[Purple]

The idea that some people should be shielded from the consequences of their decisions, while others are not, is just not acceptable!

First we have the shareholders in BOI, AIB etc., many of these are people who were depending on the dividends from those shares to live on: old age pensioners, widows, people with disabilities who sunk their compensation into it etc... they have lost everything, so why should the tax payer not cover them?

And of course we have the builders, developers and other intermediaries who borrowed to put up the housing estates, offices and what not. At least they gave us employment, so perhaps we should not cover their losses too?

And we have the home owners, who like everyone else in this saga invested in something that has lost value, but unlike the other expect they are special and the taxpayer should come up for their mistakes... seriously.

If what was been asked for were no recourse mortgages, where by you hand back the keys and walk away, I'd agree. But the idea that someone should be allowed to continue living in nice four bedroom house, while some other poor sod who was careful with his money and is struggling to get by should carry the can is just not going to fly.

I agree completely. Welfare and charity that helps people stay out of poverty is one thing, their fellow citizens giving them an asset is quite another.
I should have been clearer; I was talking about non-recourse mortgages. They would be more expensive because of the increased risk.

 

[Bronte]

My point is not about giving debt forgiveness but fairness . .

This is nonsense, if a bank should share in a loss then presumably they should share in a gain by your thinking? So far on AAM I've never seen one poster ever come on here with a capital gain on selling who asked how to share this gain with the bank.

Even if we go with the statement that banks should share in the loss. Well apparently in our capitalist system it doesn't work this way for banks. The only one who is going to pay for bank losses is ordinary people. So when people make suggestions that banks should share in losses, what they mean is that us taxpayers should pay for these losses.

And as for the banks forceing sales and allowing them at a very low price, it would behove all those in that situation to try and come to an arrangement with the bank to allow an orderly sale at the best price to mitigate the losses to us taxpayers.

 

[burmo]

But what is fairness in this context? If I borrow money to invest in a business opportunity and that opportunity fails, is it fair that the Bank or individual that I borrowed the money from should suffer part of the loss?
Banks lent money at a relatively low margin (2/3%) to clients to assist them to purchase property. While the Bank took the properties as security, their primary recourse was to the individual/s who borrowed the money and not to the security.

This is a very good analogy. I'm sick listening to people who want other people to share the blame for their decisions. If you drink and drive, if you abuse your health, if you make countless other decisions then you suffer the consequences (good and bad) but in this case people want to burden others with the consequences of their free choice. Yet, as it was pointed out above, if it had worked out in their favour they wouldn't have wanted to share the gains with the bank.

I haven't bought a house yet because I don't believe it is feasible at the current level of gearing that I am willing to accept. All these talks about socialising debt, because having to rent would tear the fabric of Irish family society... really annoys me. There are so many vested interests in the media that are trying to prop up house prices and promote debt forgiveness while still staying in their house! "It was our dream house..." I've only seen one article so far that talked about the positive attributes of a stable low priced property market, in particular to cost of doing business with respect to our external competition in the EU and further afield.

Personally I also lost some money in a property investment fund over the last couple of years... I was told it was boring and a sure thing, property only goes up... can I have it back? Can I have my capital and some of the gains back as well? Pretty please?

Like a quote from Mrs. Cornflakes (the Garda's wife)... "How can I be expected to survive on €2,100 a month" and someone replied... no one expects you to, that's what you have.

 

[bakerbhoy]

And as for the banks forceing sales and allowing them at a very low price, it would behove all those in that situation to try and come to an arrangement with the bank to allow an orderly sale at the best price to mitigate the losses to us taxpayers.[/QUOTE]

This is the nonsense .
The borrower is in unsustainable position due to any amount of reasons and you say come to an arrangement with the bank.
What leverage would they have in any negotiation , there is none in the legislation , there is no onus to achieve best value , borrower cannot veto a sale once repossesed regardless of sale price accepted by lender. Any equity they had in the property is gone and in the case of our upstanding 'pillar' banks at least it would seem the borrower carries ALL losses .

The banks priced in the risk in the interest rate , the borrower presumably paid it until disaster struck .

I did not post here looking for bailouts , but to point out that the proposed legislation is a fudge and the status quo remains, the vested interests have won the day again.

Not all banks are state owned and just because tax euros are in some ,it is not a good enough reason to let them screw the nation all over again.

Thankfully i am not in the situation that many of our fellow taxpayers are in , but it is not ok to take the i'm alright jack attitude that some hold . The majority of the working population would soon be in similar territory if their employment was taken from them .

 

[Bronte]

You are incorrect that the borrower has no options. The banks don't want to repossess. It costs them more money. They don't want to manage and hold onto property. It is easier to sell a house that is well kept and maintained by the current owner, and if that owner cannot sustain the mortgage than the owner should come to an arrangment with the bank for an orderly sale. They don't have to use the new insolvency legislation to come to an arrangement with the bank now.

If the bank sells, they are in a hurry to offload, of course they'd like a good price, but 20K or 30K less than what would be achieve by the original borrower is not going to affect a bank, who have a duty to shareholders to get money back asap.

I think what your actual argument is for is non recourse mortgages, as they are called in the USA. It means that a borrower who cannot pay the mortgage can literally walk away from a property. Another term for it is jingle mail. But they key point is that they walk away from the house and have to start again. They don't get to stay in the property. It also means that the costs of borrowing would be higher for everybody.

 

[Purple]

The banks priced in the risk in the interest rate ,

The bank did not price that risk into the interest rate, that’s the point. The borrower was liable for the debt, above and beyond the price of the house. That's why lending rates were so low. Risk carries a premium so non recourse mortgages would be much more expensive.

 

[bakerbhoy]

http://www.google.ie/url?sa=t&rct=j...7oHYCg&usg=AFQjCNEGbUMWZzOpJ378Y3miEa-g86gB_w


Primary mortgage market survey in America Freddie Mac

30 year 3.39%
15 year 2.27%

5% fixed seems to be the norm , risk priced in .
We could do with a bit of that over here OR ARE WE PAYING MORE FOR LESS

 

[Bronte]

I haven't followed your link, but you are not seriously bringing the dis credited lender FreddyMac into it. You realise the chaos they caused in the USA?

FreddyMac and FreddyMay (or is it Mae?) poster boys for what is the absolute worst in bank lending practices. And who had to pick up the pieces on that mess do you think

 

[bakerbhoy]

I haven't followed your link, but you are not seriously bringing the dis credited lender FreddyMac into it. You realise the chaos they caused in the USA?

FreddyMac and FreddyMay (or is it Mae?) poster boys for what is the absolute worst in bank lending practices. And who had to pick up the pieces on that mess do you think

And which institute in ireland has not been discredited or bailed out . I think we are down to a couple of local credit unions . Please enlighten us all.

 

[Jim2007]

http://www.google.ie/url?sa=t&rct=j...7oHYCg&usg=AFQjCNEGbUMWZzOpJ378Y3miEa-g86gB_w


Primary mortgage market survey in America Freddie Mac

30 year 3.39%
15 year 2.27%

5% fixed seems to be the norm , risk priced in .
We could do with a bit of that over here OR ARE WE PAYING MORE FOR LESS

Do you have any actual experience of building MBS models?

And if so please explain why you are assuming the entire default rate is being built into the interest rate by Freddie and Fanny?

 

[mercman]

The bank did not price that risk into the interest rate, that’s the point. The borrower was liable for the debt, above and beyond the price of the house.

The Banks in Ireland did exactly what can be classed as Bad business. The less asset profile a customer had, the more the interest rate was discounted.
And still they are at the same practice --- a borrower with a strong asset base and up to date repayment history are being forced to pay ridiculous interest rates on loans.

Very much a case of, we have 'em now so make 'em pay.

 

[ciarank]

It never ceases to amaze me how some people (maybe even the majority of people) are fixated on the whole 'moral hazard' issue with regards to debt forgiveness. They don't seem to think the whole thing through fully in my opinion.

If a very significant % me the population are strangled with debts they cannot pay (regardless of how they got there in the first place) then the whole economy is gonna stagnate for many years to come until these debt ridden individuals are a very insignificant % of the working population.

So that effects everyone and while Johnny with no negative equity is so busy worrying about his neighbour next door being forgiven some of his debt, he completely overlooks the fact that his own house and overall wealth will never rise much because his neighbour and many other entrepreneurs around the country have lost the will to live and make a positive contribution to the economy and society being saddled with so much debt!

It's a typical Irish begrudgery mentality, and one that you'll rarely (if ever) experience from an entrepreneur!

So let the banks take out the red pen and start forgiving debt to those that need it and get this country back in the saddle and on it's way to real economic growth that will benefit everyone.

Wake up and smell the coffee!

 

[GDUFFY]

So let the banks take out the red pen and start forgiving debt to those that need it and get this country back in the saddle and on it's way to real economic growth that will benefit everyone.

Wake up and smell the coffee!

The Banks are not forgiving anything, They have been given the money to write down unsustainable debts by the Irish people already, but have chosen not to fulfill the conditions of their bailout money, given their two fingers to the Irish Government,and the Irish people. Fool me once shame on you fool me twice shame on me. http://www.youtube.com/watch?v=eKgPY1adc0A