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Mortgage written off by bank

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    #32
    seamus
    Registered Users Posts: 68,317 ✭✭✭✭seamus


    Monty Burnz wrote: »
    I'd say natural justice suggests it should be the borrowers who bear the brunt of the consequences.
    Why should the lenders go (effectively) scott free? When a bank makes a loan to someone, both entities are taking on a certain amount of risk. But when it goes tits up, all of the liability is placed on the borrower. Why should the lender not be required to shoulder a certain amount of loss for providing a bad loan?


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    #33
    Monty Burnz
    Closed Accounts Posts: 12,455 ✭✭✭✭Monty Burnz


    seamus wrote: »
    Why should the lenders go (effectively) scott free? When a bank makes a loan to someone, both entities are taking on a certain amount of risk. But when it goes tits up, all of the liability is placed on the borrower. Why should the lender not be required to shoulder a certain amount of loss for providing a bad loan?
    The lenders did not get away with it, that is a myth. The banks are all bust, and those who owned the banks (the shareholders) have lost 99% of their money. The guys working in the banks who were responsible for lending policy should be sacked, as should the boards and senior executives, and the people who borrowed should pay up.


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    #34
    aero2k
    Registered Users Posts: 1,690 ✭✭✭aero2k


    Monty Burnz wrote: »
    The question is this - who do you want to make the losers in this social catastrophe? The people who borrowed or the people who didn't? I'd say natural justice suggests it should be the borrowers who bear the brunt of the consequences.
    You left out the people who loaned - they're making a gain, so perhaps natural justice would suggest that they should bear some risk.
    seamus wrote: »
    Why should the lender not be required to shoulder a certain amount of loss for providing a bad loan?
    Why not indeed?

    When you take out a mortgage the bank accepts your house as security - in fact they force you to have the house valued and make you pay for the valuation. If that valuation later turns out to be wrong, who should bear the loss?

    Better informed people than me may be able to confirm this, but I believe that in the US, when you take out a mortgage, the bank has no recourse over and above repossessing the house.


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    #35
    Monty Burnz
    Closed Accounts Posts: 12,455 ✭✭✭✭Monty Burnz


    aero2k wrote: »
    You left out the people who loaned - they're making a gain, so perhaps natural justice would suggest that they should bear some risk.
    They do bear some risk. Tell the owners of the banks that that they bear no risk as they look at their worthless AIB, Anglo and BOI share certificates.
    aero2k wrote: »
    When you take out a mortgage the bank accepts your house as security - in fact they force you to have the house valued and make you pay for the valuation. If that valuation later turns out to be wrong, who should bear the loss?
    The valuation is correct at the time it is made - otherwise, why would the purchaser be willing to pay that price? Do you expect the banks to look at their crystal balls and know what the house will be worth in 5 years? And, having lived through the bubble, the usual complaints that I heard were that the bank wouldn't lend people enough. I (almost never) heard someone say that the bank was offering them too much.


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    #36
    yawnstretch
    Registered Users Posts: 861 ✭✭✭yawnstretch


    I'm no expert but I hear two sides complaining that both share the responsibility... what about splitting the loss 50/50 between bank and mortgage owner?

    Or is that too simplistic?


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    #37
    aero2k
    Registered Users Posts: 1,690 ✭✭✭aero2k


    Monty Burnz wrote: »
    They do bear some risk. Tell the owners of the banks that that they bear no risk as they look at their worthless AIB, Anglo and BOI share certificates.
    I was confining my comments to the context of home mortgages. If the bank can take your house, sell it, and still go after you for any shortfall then the only risk they have is their costs - which presumably they can seek to recover.
    Monty Burnz wrote: »
    The valuation is correct at the time it is made - otherwise, why would the purchaser be willing to pay that price? Do you expect the banks to look at their crystal balls and know what the house will be worth in 5 years? And, having lived through the bubble, the usual complaints that I heard were that the bank wouldn't lend people enough. I (almost never) heard someone say that the bank was offering them too much.
    Prudent lending would imply something more sophisticated than a crystal ball, and for the entire period of the loan.

    Life insurance companies don't have a crystal ball to see when someone is going to die, but somehow they manage to set premiums at an appropriate level to make a profit.


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    #38
    amber2
    Registered Users Posts: 1,597 ✭✭✭amber2


    What if they need to borrow again in the future in this country a bureau check will show their credit history. Its all fine and well not to be lumbered with a mortgaged property in negative equity, but what if there comes a point when they need another one or even an overdraft, this will remain on their record for years to come.


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    #39
    Monty Burnz
    Closed Accounts Posts: 12,455 ✭✭✭✭Monty Burnz


    aero2k wrote: »
    I was confining my comments to the context of home mortgages. If the bank can take your house, sell it, and still go after you for any shortfall then the only risk they have is their costs - which presumably they can seek to recover.
    That was the system that people signed up for when they asked the banks for money. Now, non-recourse loans may or may not be a good idea in future, but you can't introduce them retrospectively. And as I've stated, banks are taking on a risk when they grant a mortgage - the risk is that they won't recover the amount that they have lent. I think you will agree that that risk is being realised in spades these days.


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    #40
    aero2k
    Registered Users Posts: 1,690 ✭✭✭aero2k


    Monty,

    I reckon we agree on more than we disagree on. I wasn't advocating introducing anything retrospectively, just that risk-sharing is done differently elsewhere.

    I fully agree that the risk of default is being realised in spades these days - which just proves that the banks got their risk assessment and bad-debt provisions catastrophically wrong. Shareholders and taxpayers are paying for these mistakes (or negligence if you prefer), just as the defaulters are paying for their bad judgement by losing their homes. The only ones who haven't paid so far are those who made the poor lending decisions.


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    #41
    Monty Burnz
    Closed Accounts Posts: 12,455 ✭✭✭✭Monty Burnz


    aero2k wrote: »
    The only ones who haven't paid so far are those who made the poor lending decisions.
    Indeed. How many of those responsible are still in well-paid, comfortable jobs is one of the greatest injustices of the whole affair.


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    #42
    Blackjack
    Registered Users Posts: 3,612 ✭✭✭Blackjack


    yawnstretch wrote: »
    I'm no expert but I hear two sides complaining that both share the responsibility... what about splitting the loss 50/50 between bank and mortgage owner?

    Or is that too simplistic?

    Yes, considerably.

    The banks purpose for extending the loan wasn't to invest in the property, but to extend Capital it had and expect a return on that Loan - not the investment in the property.

    If I was to lend you money, and you back a horse that comes last - do you expect me to write off the loan because you backed a bad horse?.

    If you were to promise me a Majority share in the potential upside of winning, then I would be somewhat responsible.
    If I agreed with you a rate upfront that you knew you would have to pay, regardless of the outcome of the horserace, then the liability should be yours.


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