why is there no onus on lenders to share loss

We will look back at this blinkered charade in years to come and shudder at what we are doing to our fellow citizens.

Nobody is thinking straight. Why are people not willing to grasp that we have all been stung by the banks? We are in this together whether we borrowed money or not.

And for the record I am not in debt! I do however have a social conscience.
 
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

It's incredible really how it's allowed to carry on like this. The guts of 5 years into this mess already and we're still no closer to solving this issue. I love the phrase 'extend and pretend' because that's exactly what's happening with everyone taking the ostrich approach!

PS - That video is very funny!


We will look back at this blinkered charade in years to come and shudder at what we are doing to our fellow citizens.

Nobody is thinking straight. Why are people not willing to grasp that we have all been stung by the banks? We are in this together whether we borrowed money or not.

And for the record I am not in debt! I do however have a social conscience.

Totally agree with your sentiments, very well put. I just wish more people would see things like you do........and start taking the brave and necessary decisions!
 
Reckless Lending

Do the Banks or Government accept the reality of reckless lending?
Surely this factor must be part of the settlement or solution. Remember you cannot have a reckless borrower without a reckless lender.
I have heard of a case where a bank loaned 16 times a PAYE salary to buy property.

Can we define reckless lending?
 
Yield or Bust has written a good piece on this topic on Irish Economy.ie. It was in the context of Local Authority loans, so was a bit off-topic, and as I said, it deserved a thread of its own.

http://www.irisheconomy.ie/index.php/2012/11/23/local-authority-mortgages/#comment-352621

Brendan Burgess said

From the borrower’s point of view, if they have a loan of €300k on a house worth €200k, they are probably much better off servicing the interest than surrendering the house and having to pay off a shortfall of €200k. Of course, they would be much better off if the bank agrees to split the mortgage into a €200k annuity mortgage and an interest-free mortgage of €100k. But if the borrower is able to pay the interest on the €300k I don’t see why they should have their effective interest rate reduced so that they can repay capital and eventually own their home mortgage-free.
Yield or Bust said
Your argument suggests that you have no difficulty in accepting the basis of the house price and accompanying mortgage when the deal was completed. I do. In fact, I, and many others have been making this fundamental point over a long long time.



House prices since about late 2001 until now (well not in fact quite yet in many parts of the country) were simply wrong. Prices were wrong because they were not in fact determined, as you continually believe they are, by the interaction of house buying consumers in the marketplace, no far from it, house prices are simply a reflection of the availability of credit and banks willingness to lend into that asset class ahead of virtually any other for the period under review. In simple language, banks determine house prices not the house buying consumers.



Property, particularly residential houses as an asset type is unique compared to virtually all other asset types insofar as its not in fact a cash driven asset market it is a credit asset market. This matters hugely and for my part this basic but hugely significantly difference between property and all other asset market seems to have passed you and your analysis by.
You have assumed that the price of housing charged to consumers over the past decade was somehow fair and reasonable and effectively the ‘market price’ - based on all the available evidence this simplistic analysis of events is clearly wrong. It begs to question your basic understanding of the difference between value and price. They are not the same thing - price is what you pay but value is what you get over the longer term.
We know from study after study that the ONLY sound long term metric for determining fair value in any housing transaction is to use a multiple of rent paid on similar proxy houses for the one being purchased (the capitalisation of rent method). The long run average in the RoI in housing from about the early seventies would suggest rental yields should generally fall in the region of 7% to 8% depending on location and the demand supply dynamic operating in the area. Banks know these ratios and have known them for generations; novice first time buyers who visit the property shop perhaps once or twice in the adult lifetime generally don’t and are always price takers in the property market. Consumers ability to bargain house prices down and yields up to their long run levels during the period under discussion was virtually nil. The reason being is that banks acting on the side of competing consumers simply disregarded these known yield metrics and lent to novice consumers, in the main, at yields as low as 2% gross (and in many cases lower). Not only did this happen on the odd occasion but it went on for years with billions lent and low and behold the banks are all bust as a result. This represents a massive bank lending error (fraud perhaps ?) plain and simple, there is no other alternate argument that could, reasonably be voiced in opposition to this basic conclusion. The banks simply mis-priced the residential property asset class and did so for about a decade.



Your ongoing analysis of this mortgage disaster assumes a no lending error default position on the banks behalf - based on what we know this is a really silly position to adopt and you come across as simply a mouth piece for the banks, a Pat Farrell in disguise if you like. Sorry to say so, but its rather off putting when the overwhelming evidence suggests a massive error on the banks behalf who were regulated to know better.


Take for instance the Irish Permanent RoI mortgage book – perhaps you are not aware but 66% of its entire book was lent in the years 2005 to 2007. Now the average duration of a mortgage in the period under review has increased beyond 25 years so on that basis a three-year lending period should have represented c12% of the outstanding book. The actual is over 5 times that rate. Not surprisingly, out of the mortgages lent in that period by Irish Permanent c80% are now in some sort of default. I’ll repeat that number, 80% of the mortgages lent by Irish Permanent in that period are now in some sort of default or restructuring process. Something has gone badly wrong.



Your analysis and understanding of events would seem to suggest that the 100% of repayment duty still resides with the borrower – given the numbers above anyone with even the most basic understanding of banking couldn’t for a minute suggest that such a stance makes any sense. And it goes without saying that all the banks operating in Ireland in the mortgage space for the years in question are insolvent – and that includes the branches of the foreign banks operating here. Had such branches been stand-alone operations they too would be insolvent, given their ongoing and prior reported losses, and yet you continually suggest that the all the error and repayment obligation resides with the borrower.
 
Guys

I'm no lover of the banks but I do think there needs to be a bit more balance in this debate.

CiaranK and GDuffy and many others besides them are complaining that the banks have been "recapitalised" so therefore its time for them to take out the red pen and start a mass debt forgiveness program. Quite simply, this cannot happen and the facts do not support it. The banks are no where strong enough to weather that type of storm

If you take Bank of Ireland for example and look at some extract figures from their most recent balance sheet.

Loan book of 98 billion (net of impairment charges)

Shareholders equity of 9 billion

Have been bailed out by the Irish tax payer to the tune of 4.8 billion so far
(but have since paid back 2.5 billion to the state in guarantee charges etc etc)

Now I don't know exactly how big the accumulated bad debt provision at Bank of Ireland is (ie Impairment charges reserved but not yet written off) but it is clear that the bank has very little room to manoevre

Quite simply if 50% of the loan book were to be written off they will need a further 50 billion in recapitalization
30% - 30 billion recapitalization
20% - 20 billion recapitalization

Its very clear to me at least that the banks are not able to open the flood gates on mass debt write off. Its just not going to happen except in the pure bankruptcy cases.

If the banks do end up writing off substantial amounts of debt then the taxpayer will end up paying for it.

Instead of hoping that the banks will start writing off debt soon, I think we should all be hoping that they do NOT !!

Yes, we are caught between a rock and a hard place and lets not imply that there are easy solutions. If we decide that we want to "free up the economy" by writing off debt, then in the same debate we must decide who is going to pay for it.
There are only a few possible avenues for mass write-off of bank loans (1) The government borrows even more money to re -finance the banks again OR 2) We find a listening ear in the Troika. I dont think either of these is remotely possible.
 
Simple reason this Country is run by self centered people who have all the power and are not willing to see outside their golden circle but hopefully things will change for the better and the people in the know will start doing what is best for the Country as a whole rathar than the select few,
 
Guys

I'm no lover of the banks but I do think there needs to be a bit more balance in this debate.

CiaranK and GDuffy and many others besides them are complaining that the banks have been "recapitalised" so therefore its time for them to take out the red pen and start a mass debt forgiveness program. Quite simply, this cannot happen and the facts do not support it. The banks are no where strong enough to weather that type of storm.

Hi Dr. Debt,

If people emigrate or simply hand back the keys surely the banks will need to be recapitalised anyway??
 
Hi Dr. Debt,

If people emigrate or simply hand back the keys surely the banks will need to be recapitalised anyway??

Yes but at the very least those people will not retain the asset having received a debt writedown.
 
I love this idea of doling out money to get the economy back on the rails. My only question is why you would give it to people mired in debt, especially housing debt. They've already demonstrated that they'll only spend it on unproductive assets like property. We need to give it to people who will spend it on "proper" goods -- iPads, BMWs, booze and fags etc, etc. All the stuff needed to get our retail industry back on its feet. Why on earth would we give it to people who will only use it to repay the bank? Give it to the people who are already comfortable so that they can spend even more. Debt slaves are not going to get the economy back up and running. Surely any honest person who wants to give out "free" money can see that. The money has to come from somewhere, so if you're going to take it off those who can afford to pay, at least give it to those who can afford to spend. After all, it's all about boosting the economy, right?
 
Hi,

I agree there is absolutely nothing wrong with renting but how do you propose people are going to be able to afford the cost of renting?

Surely if they have the money to rent they can well afford to pay the interest on their mortgage without a further burden on the tax payer.
 
Bankruptcy isn't necessarily the right option for people who are temporarily struggling to keep up with full intrerest and capital repayments on their mortgage. For those people, it may well be in the lender's and the borrower's interest to keep things going until the situation improves.

For those people whose finances are irreparably holed below the waterline and have no hope of ever repaying their debts, bankruptcy could be an option. It doesn't mean they have no income. I presume a Personal Insolvency Arrangement would take into account their need for accommodation.

There's been some pretty strange speculation about what a PIA would entail. Some people imagine the purpose is to leave the applicant destitute. And there's been speculation on other threads on here that the applicant can "pull a fast one" by giving away all their assets before walking away from their debts. I would imagine the first port of call in an insolvency is to examine a history of all transactions to check for just such a thing.
 
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