Property Crash getting "Crashier"

Villa05

One of our "Pillar" Banks reported a loss of €1,100,000,000 in six months (there not decimals). In the same week NAMA (our Bad Bank) reported a profit €247,000,000. The accounting wizards at NAMA must have some magic potion if they can come up with this profit when property values in Ireland are down 30% + from the time the purchased. Remember, they included a concept of Long term economic value further increasing the price they paid.

From AIB's report July 2012 http://www.independent.ie/business/irish/aib-lost-11bn-in-first-six-months-new-results-reveal-3182206.html


*AIB IRISH BUY-TO-LET 90-DAY-PLUS ARREARS 37.2% VS 31.4% DEC.
*AIB IRISH OWNER-OCCUPIER 90-DAY PLUS ARREARS 12.9% VS 10.8%
*AIB IRISH MORTGAGE ARREARS 18.5% END JUNE VS 15.5% END DEC.

That's alot of potential repossessions being kept off the market for one bank and does not include restructured loans, interest only loans. Add in PTSB and BOI, not to mention NAMA's stock of housing in trouble.

As an indication of the numbers involved - AIB have 44k BTL mortgages, of which 37% would equate to 16,280 properties. Now PTSB was the BTL mortgage King during the bubble and I would expect BOI to have numbers close enough to AIB. Add in the empties

Are we even half way through this crash with a wrath of additional taxes to be introduced over the coming years

steve9859

Banks haven't even started to face up to the resi mortgage problems. But I don't see banks seizing homes and liquidating the assets. The only way out is debt forgiveness (through debt equity swaps and stuff like that), tax payers to plug the hole in the banks, and people stay in their houses. It is unpalatable as hell.....but the only option. Property repossession on that scale is not a runner. So most of the hit will be taken to banks balance sheets rather than to property prices IMO

L1011

If buy to let's are at that level of arrears, surely they need to look in to appointing rent receivers, and quickly?

Villa05

AIB Restructured Mortgages = 34,000
http://www.independent.ie/opinion/editorial/the-circular-logic-of-aib-3182142.html

That sure is alot of extra stress for the taxpayer, if they are to carry the can for this mess. Given the size of the problem the taxpayer is bound to buckle.

The_Conductor

Villa05 wrote: »

One of our "Pillar" Banks reported a loss of €1,100,000,000 in six months (there not decimals). In the same week NAMA (our Bad Bank) reported a profit €247,000,000.

One bank (AIB) is somewhat involved in lending and everyday business with the public at large. The other bank is winding down assets it bought at firesale prices. Technically they are both banks- however they bear very little semblence to one another.

Villa05 wrote: »

The accounting wizards at NAMA must have some magic potion if they can come up with this profit when property values in Ireland are down 30% + from the time the purchased. Remember, they included a concept of Long term economic value further increasing the price they paid.

No magic potion involved. They bought all their loans at an average 60% discount to book value and have been selling the easier to shift ones. They may have made a profit in the first 6 months of the year- but the bit you left out- is they wrote down the book value of their outstanding loans by even more than the AIB loss. That little nugget puts it into perspective. Its not that difficult to turn a profit when you compulsorily acquired the loans at over a 60% discount......... That the loans need further write downs at this stage- is the real eye opener........

Villa05 wrote: »

From AIB's report July 2012 http://www.independent.ie/business/irish/aib-lost-11bn-in-first-six-months-new-results-reveal-3182206.html


*AIB IRISH BUY-TO-LET 90-DAY-PLUS ARREARS 37.2% VS 31.4% DEC.
*AIB IRISH OWNER-OCCUPIER 90-DAY PLUS ARREARS 12.9% VS 10.8%
*AIB IRISH MORTGAGE ARREARS 18.5% END JUNE VS 15.5% END DEC.

Its a bit sensationalist to be honest. If you compare it with other lenders- they weren't the worst- thats a first- me defending AIB.......

Villa05 wrote: »

That's alot of potential repossessions being kept off the market for one bank and does not include restructured loans, interest only loans. Add in PTSB and BOI, not to mention NAMA's stock of housing in trouble.

As an indication of the numbers involved - AIB have 44k BTL mortgages, of which 37% would equate to 16,280 properties. Now PTSB was the BTL mortgage King during the bubble and I would expect BOI to have numbers close enough to AIB. Add in the empties

Are we even half way through this crash with a wrath of additional taxes to be introduced over the coming years

Yes- interesting times ahead........

lotusm

Does anyone have the exact link to Nama properities. Just saw on the indo that they have revamped it to list more property details. However I can't seem to find it. Any assistance appreciated.

Villa05

Analysis from Davy Stockbrokers shows just over 50pc of all mortgages are on properties that are now worth less than what was originally paid for them.
.....................
"We believe that the official data (on home prices) understates the true falls in prices. This problem may have been particularly acute in 2011 because of the growing importance of cash transactions
.....................
The report also found that:

? The rate of arrears on owner-occupier mortgages will continue to rise and peak at 16.5pc.

? The arrears rate on buy-to-let mortgages is at least twice that of owner-occupiers.

? AIB, Bank of Ireland and Permanent TSB could lose as much as €11.5bn on mortgages -- more than had been expected under last year's bank stress tests.

At the end of March about 13.4pc of owner-occupier mortgages were more than 90 days behind payment.

The firm blamed "cuts in nominal wages and higher taxes, together pushing down on disposable incomes" for pushing "some marginal borrowers into arrears".

http://www.independent.ie/national-news/banks-face-11bn-loss-as-half-of-mortgages-in-negative-equity-3203175.html

Does anybody believe that this situation is going to improve with higher and more taxes on the way.

How come the report does not blame excessive mortgages and resulting higher property prices. Maybe banks can do no wrong

Milk & Honey

Villa05 wrote: »

Does anybody believe that this situation is going to improve with higher and more taxes on the way.

How come the report does not blame excessive mortgages and resulting higher property prices. Maybe banks can do no wrong

The report is a forecast not a blaming exercise. Sitting in your car blaming your sister for not bringing the jump leads will not start the car!

Villa05

Milk & Honey wrote: »

The report is a forecast not a blaming exercise. Sitting in your car blaming your sister for not bringing the jump leads will not start the car!

Maybe if we had a basic understanding of what the problem is, we would not be borrowing money on our childrens heads to pay this specimen.

http://www.irishexaminer.com/breakingnews/ireland/soden-nama-intervention-would-bring-wonderful-factor-of-greed-back-to-property-market-563144.html

Monty Burnz

steve9859 wrote: »

Banks haven't even started to face up to the resi mortgage problems. But I don't see banks seizing homes and liquidating the assets. The only way out is debt forgiveness (through debt equity swaps and stuff like that), tax payers to plug the hole in the banks, and people stay in their houses. It is unpalatable as hell.....but the only option

Why?

steve9859 wrote: »

Property repossession on that scale is not a runner. So most of the hit will be taken to banks balance sheets rather than to property prices IMO

Why not? They did it in the UK in the 90s and the sky didn't fall on them,

steve9859

Monty Burnz wrote: »

Why?

Why not? They did it in the UK in the 90s and the sky didn't fall on them,

The UK crash was not comparable to the Irish situation now. From their peak in Q2 1989 prices fell from £116k to just over £70k. 35ish %. What's Ireland now? 50%? 60%? And leverage was much lower in the UK as the lending hadn't been as nuts There was a negative equity problem, but nothing like Ireland now. Repossessions were largely due to a spike in interest rates, and banks were happy to hold the real estate, as the market continued to function, just about

Davy Stockbrokers now reckon over 50% of mortgages are in negative equity. And there is a huge correlation between those that are behind on their mortgages and the size of the negative equity. IMO there is zero chance of a mass repossession programme even if proportion of delinquencies continues to rise....the social issues are too serious. One family resisting repossession made it in to the Indo today...times that by tens of thousands!! These mortgages need to be worked out in a more imaginative way....I hate that that has to happen...I would rather see people face up to their obligations. But debt sharing or whatever it might be called is now a necessary evil IMO

who_ru

steve9859 wrote: »

The UK crash was not comparable to the Irish situation now. From their peak in Q2 1989 prices fell from £116k to just over £70k. 35ish %. What's Ireland now? 50%? 60%? And leverage was much lower in the UK as the lending hadn't been as nuts There was a negative equity problem, but nothing like Ireland now. Repossessions were largely due to a spike in interest rates, and banks were happy to hold the real estate, as the market continued to function, just about

Davy Stockbrokers now reckon over 50% of mortgages are in negative equity. And there is a huge correlation between those that are behind on their mortgages and the size of the negative equity. IMO there is zero chance of a mass repossession programme even if proportion of delinquencies continues to rise....the social issues are too serious. One family resisting repossession made it in to the Indo today...times that by tens of thousands!! These mortgages need to be worked out in a more imaginative way....I hate that that has to happen...I would rather see people face up to their obligations. But debt sharing or whatever it might be called is now a necessary evil IMO

They won't even consider repossess buy to let properties for god's sake, what a complete joke.

all those 10,000s of people up and down the land not paying a penny on their mortgages, getting free accommodation while people in private rented accommodation paying sky high rents.

those who pay their way in ireland will always lose out to those who don't.

Monty Burnz

steve9859 wrote: »

The UK crash was not comparable to the Irish situation now. From their peak in Q2 1989 prices fell from £116k to just over £70k. 35ish %. What's Ireland now? 50%? 60%? And leverage was much lower in the UK as the lending hadn't been as nuts There was a negative equity problem, but nothing like Ireland now. Repossessions were largely due to a spike in interest rates, and banks were happy to hold the real estate, as the market continued to function, just about

Right, but what has this got to do with repossessing property? The fact is that though their crash wasn't nearly as bad, in 1991 alone they repossessed over 75,000 properties. And the sky didn't fall on them, as I said.

steve9859 wrote: »

Davy Stockbrokers now reckon over 50% of mortgages are in negative equity. And there is a huge correlation between those that are behind on their mortgages and the size of the negative equity. IMO there is zero chance of a mass repossession programme even if proportion of delinquencies continues to rise....the social issues are too serious. One family resisting repossession made it in to the Indo today...times that by tens of thousands!! These mortgages need to be worked out in a more imaginative way....I hate that that has to happen...I would rather see people face up to their obligations. But debt sharing or whatever it might be called is now a necessary evil IMO

If they actually started repossessing properties in earnest, it wouldn't be news any more - the only reason it is newsworthy is that they are so rare at present. I think most people are sick and tired of paying back their own debts and taxes, and won't take too kindly to being taxed even more to pay back other peoples' debts too.

The_Conductor

I agree to a certain extent.
We have to get over our bail-out mentality- just because Bank (whatever) got a taxpayer bailout (which is supposed to be repaid, mind, its not an unconditional bailout), does not entitle anyone, a private individual or someone who letting one or more properties, to imagine they can ignore their debts.

The personal insolvency act, will have to be given a chance to prove itself- we do however *need* to allow repossessions of both owner occupiers, and also BTL property- if we ever want to have more than a pretence that our property sector is anything other than a sham.

We've rehashed all the arguments in favour of, and against, repossessions, time and time again. At one end of the spectrum we have bleeding heart socialists- who think the government should splurge money (that it patently doesn't have) on the proletariat at large- and tax the living hell out of anyone who happens to have a job, to pay for it. At the other end of the spectrum we have people very close to advocating setting up Gestapo style organisations to harry and chase every last cent. Anyone with middle of the road views, or willing to take a pragmatic approach- ends up getting flak from those vocal at both extremes.

Our own politicians have not proven any degree of competence in dealing with this situation- how about kicking the bucket to Brussels, handing over the Irish taxpayer shares in the banks etc to the ECB (or a different organisation) and let them manage both the banks, and their loan books (to include all mortgages), in an appropriate manner- free from interference).

Ireland, is and always has been, dogged by parochial politics- with everyone looking to fight their own little corner- and no-one looking at the bigger overall picture. If we are incapable of maturing beyond parochial politics- we need to get someone who is not bound by parochial politics, to step in and dole out whatever is in our best interests........

steve9859

Monty Burnz wrote: »

Right, but what has this got to do with repossessing property? The fact is that though their crash wasn't nearly as bad, in 1991 alone they repossessed over 75,000 properties. And the sky didn't fall on them, as I said.

Sorry, I thought I was clear. It has everything to do with it.

They were happy to repossess in 1990s UK because they didn't lose much money relative to what Irish banks would lose now....as leverage and LTVs weren't anywhere near as high and the price drops weren't as great. The market still functioned so they could also sell them....and not get stuck with them on the books. The Irish banks do the same now, and they crystallise massive losses that you and me have to pay for. Best spread the problem over time by extending loans, repossess when necessary, but focus on getting what cash flow they can.

People also just sucked it up in the UK....partly as negative equity wasn't as high and therefore wasn't going to stick with people forever like here. And there wasn't the social divide between bankers and the rest....if we went down the road that you want to go down, repossessions as a % of the population would be much higher, as would the social and political co sequences.

It's going to p1ss you off that your neighbour is staying in his house whilst only partially paying his mortgage, but if the banks were imaginative they'd deal with it through debt equity swaps, extensions, and stuff like that.

Like smcarrick said, there are those that want everyone to pay their debts or suffer the consequences, and those that want society to pay for the losses and keep everyone in their houses. There has to be a middle road....but that will need some imagination from the government and bankers

jimmycrackcorm

IMO one of the biggest issues standing in the way of moving forward is the short term view being taken of the mortgage equity problem.

After world war 2 Britain was financially screwed and got a £5bn loan from the USA that was only finally paid off a couple of years ago. The point being that whether is someone with a mortgage equity issue or a country with a financial issue, a longer term view might be the more appropriate view to take.

The_Conductor

Mortgage equity, in itself, is not an issue though- the ability to pay the mortgage is the issue.
Mortgage equity becomes a problem if people have to sell the property and/or move.
In an Irish context we had a lot of people taking out loans to buy property when fundamentally they should have been renting, as they were not yet at stages in their lives where they could honestly say they wanted to tie themselves to a particular property for the forseeable future.

Aka- we had people 'getting on the property ladder' for no good reason, other than to keep up with the Jones- and society has demonised both renting and landlords, in general.

Its highly unusual for young people to settle down and buy property so young- other than in lesser developed, feudal type societies, which it appears we have never dealt with. We are allowing historic repression to cloud our judgement, and its biting us in the ass, time and time again.

Back to the core question here- is the 'crash getting 'crashier'', I'd suggest waiting until water rates, property tax, the proposed residential tax (this is only being floated now- its a tax on residents in a property- wholly separate to a tax on the owner of the property), and a slew of other charges (the septic tank charge etc) come into force. Once the ongoing cost of ownership- other than the upfront purchase price, can be reasonably quantified, then any intelligent people out there, will sit down and work out what a fundamental 'value' for any given property, to them, might be.

Is it getting crashier? Are the falls accelerating? No, they're not- but they're also not stabilising either. A month or two of increases in certain scare property types in high demand areas- is a very poor way of assessing the health of the market.

MadsL

Forgive me, but does anyone else feel a slight shiver of disgust when NAMA try and spin this €247 million 'profit' on turnover, when the investment was actually €35 billion?

Bit like buying a cruise liner and selling trips round the pier for €2 a go.

Monty Burnz

MadsL wrote: »

Forgive me, but does anyone else feel a slight shiver of disgust when NAMA try and spin this €247 million 'profit' on turnover, when the investment was actually €35 billion?

Bit like buying a cruise liner and selling trips round the pier for €2 a go.

Yeah, the 'profit' figure is, as you suggest, total horse sh!t. Just accounting trickery - they will announce profits of a few hundred million for a few years and then announce when winding up that they are recording a loss in the range of 5-10 billion.