12 month 'freeze' on House repossessions

Carlow52

The Government wants 24 months, the banks want a max of 12 months.

Is this not a case of letting the big borrowers off the hook and killing the little guy.

Would it not be better to bankrupt the big builders, seize the land banks for resale later and give the empty houses and apartments to the people on the waiting lists.

In the case of Anglo, the bad debts are already on the balance sheet of Ireland Inc so its just a simple accounting entry or 2.

The_Minister

Errr....this would apply to domestic households too, so its not just "big builders" who benefit.

At the moment many people have unusually low incomes and are unable to pay their mortgages, but they probably will in the future. The idea is to allow people to find new jobs and start repaying again, because if we are looking at a temporary drop in income, it is a bit silly to have all those houses repossessed.

At the same time, it puts the banks in a riskier position, and screws with their assets. If it went on too long, then banks could end up in serious trouble, as people choose not to pay.


So tbh, the main beneficiaries are the little guy, not the "big builders" or the "fat cats" or whatever trite little phrase you wish to use.

BroomBurner

I think 12 months is not long enough. If they reckon this recession will last for the next few years, than 2 years would be better. At least within two years, you've the chance to maybe emigrate and save, or change skills or something. One year isn't enough in my opinion.

Most people have 12 months mortgage protection anyway no?..and once the banks start reposessing many houses, the knock on effects will just get a lot worse..

cooperla

A generalised statement from the banks or government that there would be no repo's for a 12 month period is surely a bad idea.

If the banks would agree to this would we not get the problem of people who can pay deciding to take a break from paying their mortgage since they know they wouldn't lose their homes? It might not be widespread but surely it's a concern.

I'm a bit fuzzy on how the people with genuine problems will be separated from others who just couldn't be bothered. Does someone know if there will be some sort of means testing?

Akrasia

They should just let the banks repossess the houses but change the law to prevent banks chasing mortgage holders for the outstanding balance as a result of the negative equity they will inevitably face when the banks offload their property.

They should also change tenancy laws to give security of tenure and proper protections to renters.

This would undoubtedly be traumatic, but it is much better to allow the property market to crash naturally than to artificially attempt to prop it up. If my ideas were implemented, people might feel like they're losing their homes, but in reality they're only losing the building and the mortgage, if the debt was cleared with the reposession, they would be free to rent one of the hundreds of thousands of vacant properties at a fraction of the cost of their monthly mortgage, and they can start saving to buy a house in a more realistic price range.

Allow people to hand back their keys without being legally responsible for the balance of their negative equity. It has an element of moral hazard, but the banks were supposed to be the experts and they took a risk as well by lending bubble prices to people with low capacity to repay those debts.

If the banks found themselves with thousands of houses being handed back, then we might finally start to see clearing prices properties and some reality return to the market.

cooperla

Akrasia wrote: »

They should just let the banks repossess the houses but change the law to prevent banks chasing mortgage holders for the outstanding balance as a result of the negative equity they will invevitably face when the banks offload their property.

Interesting. I wasn't even aware that banks could go after you if you lost your home but the banks couldn't recoup the cost of the outstanding mortgage.

I think I agree with this. It may cause more problems in the short-term because the banks may finally start conservatively valuing properties and require borrowing to save a larger percentage of the overall value of the home, but long term I guess it would mean banks would have a far less risky loan book and borrowers would have to be more money wise, giving the extra savings they would need to obtain the mortgage in the first place.

mountainyman

As always I agree with 'The Minister' and 'Akrasia' while they are on opposite sides of the field they both have original minds which is refreshing in this cookie cutter world.

A caveat would be that I don't think that handing the keys back to the bank should be completely consequence free for the former homeowner.

But this measure is nonsense the banks will give you at least 12 months at the moment if you have made payments and then lose your job. It is a purely cosmetic measure.

The_Minister

Akrasia wrote: »

They should also change tenancy laws to give security of tenure and proper protections to renters.

I've said before that I think suddenly lowered prices on property could be a bad thing, but I want to address this point.
I'm doing property law at the moment, and (legal) tenants have it very, very good. In many aspects they have the landlord over the barrel, and in nearly all they have an advantage. Our laws favour the tenant over the landlord already.

drunk_monk

cooperla wrote: »

If the banks would agree to this would we not get the problem of people who can pay deciding to take a break from paying their mortgage since they know they wouldn't lose their homes? It might not be widespread but surely it's a concern.

I would have thought that people would first have to prove they have been made redundant since taking on the mortgage??

stovelid

The_Minister wrote: »

If it went on too long, then banks could end up in serious trouble,

Could end up in serious trouble?

Deleted User wrote: »

Most people have 12 months mortgage protection anyway no?..and once the banks start reposessing many houses, the knock on effects will just get a lot worse..

I'd love to see how many people will be able to make a successful redundancy protection claim in the coming year or two. My guess is very, very few.

Liam Byrne

I'm just stunned that the banks are getting a say!!! The Government is footing the bill with OUR money, so the banks should be damn grateful to get it and shouldn't be dictating terms.

nesf

Akrasia wrote: »

They should just let the banks repossess the houses but change the law to prevent banks chasing mortgage holders for the outstanding balance as a result of the negative equity they will inevitably face when the banks offload their property.

They have this system in the US and it's one of the factors that made the whole Sub Prime crisis worse over there. If people can just walk away from a mortgage with nothing but a hit to their credit rating then you're practically inviting mass defaulting on mortgage loans which would bring AIB/BoI etc to their knees. There needs to be a cost for defaulting on a mortgage otherwise a drop in house prices can cause an epidemic of default. It also encourages speculation by everyone, i.e. buy a house looking to sell it on for a profit in a year, if the market turns against you sure all you have to do is hand back the keys and walk away.

There's also the problem that Irish banks approved mortgage loans on the basis that a person would have to cover the balance of the mortgage if the property lost its value.

nesf

Deleted User wrote: »

Most people have 12 months mortgage protection anyway no?..and once the banks start reposessing many houses, the knock on effects will just get a lot worse..

Well from my understanding of it, the moratorium is from 12 months after the mortgage goes into arrears so if you've 12 months mortgage protection then you've a further 12 months after it end if and only if you still can't meet repayments on your mortgage after it ends. So, if you have mortgage protection you essentially get 24 months from this scheme.

mountainyman

nesf wrote: »

They have this system in the US and it's one of the factors that made the whole Sub Prime crisis worse over there. If people can just walk away from a mortgage with nothing but a hit to their credit rating then you're practically inviting mass defaulting on mortgage loans which would bring AIB/BoI etc to their knees.

The bank should be better able to assess risk that the mortgage applicant. I don't think that default should be consequence free but our system encourages reckless lending.

nesf

mountainyman wrote: »

I don't think that default should be consequence free but our system encourages reckless lending.

I don't disagree but I don't think no-recourse mortgages are the way to go about discouraging reckless lending. The burden should be on both the lender and the borrower to ensure reasonable lending.

P. Breathnach

Akrasia wrote: »

They should just let the banks repossess the houses but change the law to prevent banks chasing mortgage holders for the outstanding balance as a result of the negative equity they will inevitably face when the banks offload their property.

I think it is too late now. Such a change would make things worse than they already are. People who can now afford to hang in there would have an invitation to walk away from their obligations.

But, for the future, perhaps that should be introduced. If credit becomes easy again, it might deter banks from giving such high LTV packages, and keep a lid on prices (why do the words "horse" and "stable door" come to mind?).

This would undoubtedly be traumatic, but it is much better to allow the property market to crash naturally than to artificially attempt to prop it up.

I am not sure they are the only options. Property prices are on the way down, and will find a new level. But if policy changes accelerate the rate at which properties come on to the market, they might be temporarily driven below their equilibrium level. That is additional pain for somebody to bear -- and an invitation to speculators.

Daithinski

If the bank evict you out of your house, its a bit rich of them to come chasing after any losses they made due to negative equity.

Surely they can't expect you to pay for a house they basically threw you out of? This is mental!!:eek:

P. Breathnach

Daithinski wrote: »

If the bank evict you out of your house, its a bit rich of them to come chasing after any losses they made due to negative equity.

It's not "losses they made"; it's losses you made.

Daithinski

P. Breathnach wrote: »

It's not "losses they made"; it's losses you made.

As far as I am aware the bank holds the deeds to my house, so do they not own it until I pay the money back? Its not my house until its paid for.

In any case, it will be their loss if people are evicted and there is money owing, because people will not pay it back. So the loss will be theirs.

nesf

Daithinski wrote: »

As far as I am aware the bank holds the deeds to my house, so do they not own it until I pay the money back? Its not my house until its paid for.

No. You borrowed money from the bank which you then used to buy a house. The house is put up as security against your loan which is why the bank holds the deeds but it is still yours. What you owe the bank is not the house but the money you borrowed from them. The only claim the bank has on your home is if you default on your loan and stop paying them back.

Daithinski

nesf wrote: »

No. You borrowed money from the bank which you then used to buy a house. The house is put up as security against your loan which is why the bank holds the deeds but it is still yours. What you owe the bank is not the house but the money you borrowed from them. The only claim the bank has on your home is if you default on your loan and stop paying them back.

I suppose that makes sense.

Its a pity the banks don't do for the ordinary person what they do for their developer buddies. They can just "write down" the bad debt if you are a developer looking to make a profit.

But if Joe public defaults on the mortgage for the house he lives in, he gets dragged through the courts.

There was an interesting article today about how the judges will be looking at the issue of homeowners being brought to court by lenders. Looks like the banks won't be getting it all their own way...

http://www.breakingnews.ie/ireland/mhsnidojidoj/

Sand

Loans taken out by ordinary borrowers will be pursued fairly ruthlessly, but bad debts with developers and Fianna Fails buddies will be written off. It was done in a similar fashion back in the good old days [The story of the mother who was thrown out of her home with her children by the same bank manager who wrote off Charlie Haugheys bad debts is memorable] and nothing has really changed in that regard.

nesf

Daithinski wrote: »

Its a pity the banks don't do for the ordinary person what they do for their developer buddies. They can just "write down" the bad debt if you are a developer looking to make a profit.

Writing down bad debt just means that you've accepted that it can't/won't be repaid in full and adjusting your accounts accordingly to reflect this. For instance, if a building company goes bankrupt then the banks will have to write down any losses on loans given to the company after they've sold off all assets of the company etc.

nesf

Sand wrote: »

Loans taken out by ordinary borrowers will be pursued fairly ruthlessly, but bad debts with developers and Fianna Fails buddies will be written off.

Bluntly, developers were probably smart enough to have done the loans through a limited company meaning they themselves don't owe a penny on them.

Sand

Bluntly, developers were probably smart enough to have done the loans through a limited company meaning they themselves don't owe a penny on them.

Yup, its a good trick. I wonder how hard it would be to register a property investment company and take out your mortgage through that and then lease the property to yourself as a private individual?

Would be one way to limit your losses.

nesf

Sand wrote: »

Yup, its a good trick. I wonder how hard it would be to register a property investment company and take out your mortgage through that and then lease the property to yourself as a private individual?

Extremely difficult unless your company had substantial initial capital, was taking out mortgages which were small relative to the value of the property bought etc. Banks aren't stupid. A development company at least stands a decent chance of turning a large profit while the times are good.

Sand

Banks aren't stupid.

I dont know - the jury is out on that one.

SkepticOne

nesf wrote: »

Bluntly, developers were probably smart enough to have done the loans through a limited company meaning they themselves don't owe a penny on them.

I believe a lot of developers, although they may have had companies, were forced to borrow in their own names against their own personal assets. Only way they could get finance. It is too easy to fold a development company when times are hard and banks know this.

nesf

SkepticOne wrote: »

I believe a lot of developers, although they may have had companies, were forced to borrow in their own names against their own personal assets. Only way they could get finance. It is too easy to fold a development company when times are hard and banks know this.

In that case I'd say a fair number of them might be dragged through the courts over this.