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Ireland, where repaying your mortgage is optional

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    #242
    Ray Palmer
    Registered Users Posts: 8,394 ✭✭✭Ray Palmer


    gaius c wrote: »
    Split mortgages plan won't work say MABS.

    Reason being that the cohort in arrears are older than expected and won't have the funds to repay the split mortgage upon "maturity".

    These are the people who bought BTL's, upgraded their houses but kept their old house to rent out and used their houses as ATM's. No bailout for the insolvent landlord class I say!


    If you read the articles there are some issue on data source. It isn't all the people in trouble but those who went to MABS. That could be very different to the actual figure as it is not the entire market.

    Why would call landlords a different class? I agree they should pay for their own gamble but I wouldn't call them a different class. I have no doubt people didn't do their sums properly.


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    #243
    murphaph
    Registered Users Posts: 19,022 ✭✭✭✭murphaph


    I think debt for equity is the only workable solution. Bank gets some equity in property, occupier pays some form of reduced mortgage and when property is sold or occupier dies, bank gets it's equity released back to it.

    I don't think split mortgages are fair. It's a debt write off without a loss of equity, which is not fair to others.

    Debt for equity silences the screams of "making people homeless" but at the same time is not unfair to the majority of citizens who will not be getting anything for free (a debt write down, or split mortgage is getting something for nothing, no matter what way people spin it).

    Debt for equity also means banks don't have to become landlords or sell properties at a "discount". It should be the only option on the table IMO.


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    #244
    makeorbrake
    Registered Users Posts: 4,664 ✭✭✭makeorbrake


    murphaph wrote: »
    Debt for equity also means banks don't have to become landlords or sell properties at a "discount". It should be the only option on the table IMO.
    It makes so much sense - I can't understand how all parties are not pushing for that option. Those that think people shouldn't have their homes repossessed, the banks as it means that for a certain proportion of mortgages, they get their equity, the property is getting looked after as the owner still has an interest and they don't have to dump it onto the market on top of those btl properties that they will have to repossess (as they have simply gone too far and are unsustainable).


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    #245
    Cuddlesworth
    Registered Users Posts: 13,994 ✭✭✭✭Cuddlesworth


    murphaph wrote: »
    I think debt for equity is the only workable solution. Bank gets some equity in property, occupier pays some form of reduced mortgage and when property is sold or occupier dies, bank gets it's equity released back to it.

    I don't think split mortgages are fair. It's a debt write off without a loss of equity, which is not fair to others.

    Debt for equity silences the screams of "making people homeless" but at the same time is not unfair to the majority of citizens who will not be getting anything for free (a debt write down, or split mortgage is getting something for nothing, no matter what way people spin it).

    Debt for equity also means banks don't have to become landlords or sell properties at a "discount". It should be the only option on the table IMO.

    How does that work. They already have the house as equity?

    If you swap 200k debt for a 200k equity arrangement. House is sold in what, 20 years? Whats 200k worth in 20 years? Is there interest on the equity? What if the value of the property market drops further? You would be a fool to think that house prices can only go one way.

    How does the bank rationalize assets its unable to touch, with repayments on their own borrowings, interest on savings accounts?


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    #246
    Ray Palmer
    Registered Users Posts: 8,394 ✭✭✭Ray Palmer


    makeorbrake wrote: »
    It makes so much sense - I can't understand how all parties are not pushing for that option. Those that think people shouldn't have their homes repossessed, the banks as it means that for a certain proportion of mortgages, they get their equity, the property is getting looked after as the owner still has an interest and they don't have to dump it onto the market on top of those btl properties that they will have to repossess (as they have simply gone too far and are unsustainable).


    Because the banks then have a an outstanding asset that they can't account for correctly. Effectively you would have banks owning a portion of property that they never know when they will get. There are issue of inheritance and the tax from that too. We would end up with a very strange situation that has to be approved by the IMF and EU. This would then be on-going for at least another 60 years. Then you would have people protesting and stories of somebody be kicked out of their childhood home because they can't afford to pay the bank.

    It would be a complete mess and restrict investment into the banks. It is strangely better to write off the debit and have it tidy. There is logic to it but just impractical due to agreements the country has made and I don't mean the current government or the last. We are bond by many agreements spanning a long time.


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    #247
    seamus
    Registered Users Posts: 68,317 ✭✭✭✭seamus


    Cuddlesworth wrote: »
    How does that work. They already have the house as equity?
    No, the house is security, not equity. The bank do not have the power to release equity from a property unless they get a repossession order.

    I think what a debt-for-equity swap involves is the bank taking an actual stake in the house.

    So if you have a mortgage of €300k on a property valued at €200k, the bank take a €100k equity stake in the house and the homeowner's mortgage drops to €200k, so they can afford the repayments and continue living in the house. When the house is sold or the owner dies, the bank takes their €100k.

    I'm not sure how it works for prices increases/decreases. I suspect there's a way of having a fixed equity, so that no matter when or at what price the house is sold, the bank will only ever get their equity stake - i.e. if the house in the above example is sold for €400k, the bank walks away with €100k, not €200k.

    This kind of swap would mean that the bank changes bad debts into actual equity on their balance books and the homeowner is able to service their mortgage. The price to the bank is the loss in interest.

    The only thing is that it's really only an issue for someone who wants to service their mortgage and continue living in the property. If lots of the arrears are BTL properties, the owners may be intentionally withholding mortgage payments in the hope that they get a write down or that the bank will just take the property and walk away. They don't want a debt-to-equity swap or something that makes the mortgage serviceable, they just want rid.


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    #248
    Ray Palmer
    Registered Users Posts: 8,394 ✭✭✭Ray Palmer


    seamus wrote: »

    I'm not sure how it works for prices increases/decreases. I suspect there's a way of having a fixed equity, so that no matter when or at what price the house is sold, the bank will only ever get their equity stake - i.e. if the house in the above example is sold for €400k, the bank walks away with €100k, not €200k.

    .
    That wouldn't be equity in the house that would be a interest free loan. Equity would be a portion of the house. In the case given they would own 50% of the house so entitled to 200k. How would you deal with inheritance tax and any outstanding debits the owner has? People would rack up debits so the bank would not get the money.

    Why would a bank agree to a 40-60 year interest free loan? How would they account for it on their books? It is too simplistic. Write off of the debit after selling the house is really the only solution but that would also include taking any saving or other assets. A smaller write off to let it be sustainable is also on the cards for those who match the criteria.

    The decision has already been made and is going to happen.


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    #249
    murphaph
    Registered Users Posts: 19,022 ✭✭✭✭murphaph


    Ray Palmer wrote: »
    That wouldn't be equity in the house that would be a interest free loan. Equity would be a portion of the house. In the case given they would own 50% of the house so entitled to 200k. How would you deal with inheritance tax and any outstanding debits the owner has? People would rack up debits so the bank would not get the money.
    The bank would own (in this example) 200k of the 400k property. The deceased occupier would own the other 200k. If he owed Revenue 300k from unpaid VAT or whatever then his heirs would get 0. revenue would get his 200k share and the bank would realise their 200k share.

    If he had no outstanding debts, his heirs would inherit the 200k share he had in the property and would be liable for CAT on that. The bank would still get their 200k share.

    The bank would be totally unaffected by the occupiers remaining debts or his heirs inheritance tax issues. The bank would get their half share back in full regardless.

    This is already the case if I buy a 400k property with my brother tomorrow and he racks up a million in gambling/revenue/whatever debts next week and dies a month later...I still own my 200k share and his creditors get to squabble over his 200k share (though Revenue are always top dog and get their full cut first).
    Ray Palmer wrote: »
    Why would a bank agree to a 40-60 year interest free loan? How would they account for it on their books? It is too simplistic. Write off of the debit after selling the house is really the only solution but that would also include taking any saving or other assets. A smaller write off to let it be sustainable is also on the cards for those who match the criteria.
    It is not an interest free loan. The bank would OWN a share of the property (typically we probably won't be talking 50%...it has to be at a level that the occupier still has enough of a stake to keep up his repayments and also maintain the property. The bank gets a stake in a property that it (in most cases) won't have to maintain or let or worry about at all until the occupier wishes to sell up or dies.

    I agree that it is not as clean an accounting practice as a bank might like, but banks and other financial institutions own and invest in property all the time. They don't "know" the day to day worth of property they own (cannot be known without actually selling it) but it has a book value.

    The only difference is that the bank would not be free to dispose of the equity at any time. This is really the only issue here. The bank would be dependent on the owner wishing to sell or passing away.


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    #250
    Ray Palmer
    Registered Users Posts: 8,394 ✭✭✭Ray Palmer


    murphaph wrote: »
    The bank would own (in this example) 200k of the 400k property. The deceased occupier would own the other 200k. If he owed Revenue 300k from unpaid VAT or whatever then his heirs would get 0. revenue would get his 200k share and the bank would realise their 200k share.
    Actually this would mean the person got €200k free. The original 100k from the bank and the other €100k they never paid the revenue. People would do this intentionally.

    I was talking about the example given which was not an equity share but an interest free loan. It was not given by you it was given by the person I quoted.

    Your example still involves a bank agreeing to a 40-60 year loan with no interest payments based on equity on a property and have no say how the property is maintained. Try selling bank shares with such a massive uncertainty on loan values would be next to impossible. It is too simplistic and unworkable in the real world and would never be agreed by the EU/IMF. They have a say with how we operate our banks. It is simply a no go.


    I understand the logic but the issue is much more complex and controlled by many other agreements. Repossessions have to happen and it has already been agreed. The only issue is when and how it will actually be implemented.


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    #251
    murphaph
    Registered Users Posts: 19,022 ✭✭✭✭murphaph


    Ray Palmer wrote: »
    Actually this would mean the person got €200k free. The original 100k from the bank and the other €100k they never paid the revenue. People would do this intentionally.
    They wouldn't be getting anything for free. Anyone, mortgaged or otherwise can intentionally rack up debts to Revenue or anyone else and then die. The debt for equity agreement with their bank would be irrelevant (as long as we're talking sensible shares...no 10% occupier equity 90% bank equity nonsense).
    Ray Palmer wrote: »
    I was talking about the example given which was not an equity share but an interest free loan. It was not given by you it was given by the person I quoted.
    Fair enough, didn't spot that. My mistake.
    Ray Palmer wrote: »
    Your example still involves a bank agreeing to a 40-60 year loan with no interest payments based on equity on a property and have no say how the property is maintained. Try selling bank shares with such a massive uncertainty on loan values would be next to impossible. It is too simplistic and unworkable in the real world and would never be agreed by the EU/IMF. They have a say with how we operate our banks. It is simply a no go.


    I understand the logic but the issue is much more complex and controlled by many other agreements. Repossessions have to happen and it has already been agreed. The only issue is when and how it will actually be implemented.
    I don't think it's impossible, but I agree that it will probably not happen now. I must say, I would only have offered debt for equity for people trying to pay their mortgage. With strategic defaulters I would have no mercy and would want to see their properties repossessed and the shortfall pursued, forcing them to bankruptcy if necessary.

    The bank would not be getting no interest btw. Let's say the 400k house is split in equity, bank gets 50%, occupier 50% (I think this would need to be higher for the occupier for it to be workable, but anyway). The Mortgage is say 500k outstanding presently. The occupier now pays interest on 250k from now on. The other 50% belongs to the bank now, so no interest on that portion obviously.

    The debt for equity (assuming sensible ratios) places the onus on the occupier to maintain the property. The bank don't need to care about it because letting the property fall to rack and ruin diminishes the resale value and the occupier (as well as the bank) will want to maximise the resale value (either so they can move house or so their heirs will inherit something useful). A small minority of heir-less occupiers could theoretically try to spite their banks and intentionally destroy the value of the asset, but we have that ALREADY with housing going to repossession having their fireplaces and fitted kitchens stripped out etc. Repossessing is even more likely to see intentional damage IMO.

    Like I said though, it's never going to happen now, but it could have worked if the will was there. It would not have been used in all arrears cases, but could have been a useful tool in the arsenal to help those genuinely trying and to reduce the amount of shoring up of the banks that the taxpayer is going to have to pay for, that's all.


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    #252
    Joe Hart
    Closed Accounts Posts: 358 ✭✭Joe Hart


    gaius c wrote: »
    Split mortgages plan won't work say MABS.

    Reason being that the cohort in arrears are older than expected and won't have the funds to repay the split mortgage upon "maturity".

    These are the people who bought BTL's, upgraded their houses but kept their old house to rent out and used their houses as ATM's. No bailout for the insolvent landlord class I say!

    They will go down as the most greedy and entitled generation in history. Another 16 billion going the banks way to allow these chancers writeoff their debts and become "economically active" again in restaurants and bars.


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    #253
    Villa05
    Registered Users Posts: 4,613 ✭✭✭Villa05


    Ray Palmer wrote: »
    If you read the articles there are some issue on data source. It isn't all the people in trouble but those who went to MABS. That could be very different to the actual figure as it is not the entire market..

    6,000 is a fairly big sample size. I'm not a statistical expert but I'm pretty sure there would be significant correlation between the results of this survey and the rest of those in arrears.
    It finds that the majority of people in mortgage distress are aged between 41 and 65.
    Most of those who go to MABS because of mortgage difficulties are at an age when they should be nearing the end of their mortgage.

    truly shocking!


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    #254
    cookie1977
    Registered Users Posts: 6,794 ✭✭✭cookie1977


    Villa05 wrote: »
    6,000 is a fairly big sample size. I'm not a statistical expert but I'm pretty sure there would be significant correlation between the results of this survey and the rest of those in arrears.

    It wasn't the sample size he was pointing out but rather the sole source of the data (6000 who went to MABS)


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    #255
    Joe Hart
    Closed Accounts Posts: 358 ✭✭Joe Hart


    cookie1977 wrote: »
    It wasn't the sample size he was pointing out but rather the sole source of the data (6000 who went to MABS)

    In what way would that have biased the data? How would they differ from the 150K+ in arrears?


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    #256
    cookie1977
    Registered Users Posts: 6,794 ✭✭✭cookie1977


    it depends on the type of population that goes to mabs. The data is not from all of those in arrears but rather from those in arrears who went to mabs. Ergo the data population is skewed that way. That may or may not affect the outcome but it has to be considered.


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    #257
    gaius c
    Registered Users Posts: 3,528 ✭✭✭gaius c


    murphaph wrote: »
    I think debt for equity is the only workable solution. Bank gets some equity in property, occupier pays some form of reduced mortgage and when property is sold or occupier dies, bank gets it's equity released back to it.

    I don't think split mortgages are fair. It's a debt write off without a loss of equity, which is not fair to others.

    Debt for equity silences the screams of "making people homeless" but at the same time is not unfair to the majority of citizens who will not be getting anything for free (a debt write down, or split mortgage is getting something for nothing, no matter what way people spin it).

    Debt for equity also means banks don't have to become landlords or sell properties at a "discount". It should be the only option on the table IMO.

    It's a nice idea but it assumes a few things:
    1. That the equity is positive. What happens if the equity is negative. House prices are still dropping after all.
    2. What's in it for the bank? They will be stuck with an "asset" with a hypothetical value that cannot be realised until their "partners" feel like selling on. They have obligations to meet themselves and they can't meet them if their "asset" has an unknowable maturity date.


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    #258
    Villa05
    Registered Users Posts: 4,613 ✭✭✭Villa05


    cookie1977 wrote: »
    it depends on the type of population that goes to mabs. The data is not from all of those in arrears but rather from those in arrears who went to mabs. Ergo the data population is skewed that way. That may or may not affect the outcome but it has to be considered.

    For someone who has been calling for analysis, you are quick to knock the first decent piece of analysis.

    The type of population that goes to MABS are those that are experiencing financial difficulty, not all, of course. They are a significant sample size. From my own experience, the younger people are the more likely they are to seek help


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    #259
    cookie1977
    Registered Users Posts: 6,794 ✭✭✭cookie1977


    Villa05 wrote: »
    For someone who has been calling for analysis, you are quick to knock the first decent piece of analysis.

    The type of population that goes to MABS are those that are experiencing financial difficulty, not all, of course. They are a significant sample size. From my own experience, the younger people are the more likely they are to seek help

    I do want proper analysis. I just dont believe we can extrapolate a lot from this MABS analysis. Yes it may offer trends and maybe it is the complete picture, but I dont believe it is and would prefer a full analysis of the entire situation. How many are can pay wont pay, how many are mortgages are sustainable long term if given a proper deal. I dont believe in the blame I want solutions for all (banks, mortgage holders and the country as a whole). We've sat on our hands about this for too long and we need a workable solution for all. Yes no solution will please everyone but there is workable solution out there.

    Can you tell me how you've come to that solution on your own experience?

    Look at the numbers of people going to the UK and NI to declare bankruptcy. It's akin to our policy of no abortions in Ireland but here's the info on where to go. Sticking our heads in the sand and another Irish solution to an Irish problem. We just need to all grow up and make tough decisions but unfortunately the givernment seem to be very slow at moving towards this conclusion.


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    #260
    RATM
    Closed Accounts Posts: 3,591 ✭✭✭RATM


    cookie1977 wrote: »
    it depends on the type of population that goes to mabs. The data is not from all of those in arrears but rather from those in arrears who went to mabs. Ergo the data population is skewed that way. That may or may not affect the outcome but it has to be considered.

    I think you could take some pretty relieble inferences from the 6,000 that went to MABS.

    In political polling you only need to interview 1,100 people to get the electoral opinions of 4.5 million people, which is accurate to +/- 3%.

    Given we have data from 6,000 people and that the overall population with mortgages is 1.6 million I'd say that it is statistically even more accurate than a opinion poll.

    When people get into financial difficulty there will always be a minority who bury their heads in the sand. But the majority will face up to it and seek help where necessary.


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    #261
    cookie1977
    Registered Users Posts: 6,794 ✭✭✭cookie1977


    When we do political polling we sample froma wide range of ages/communities locations. When you sample from MABS you run the potential of getting a more monochrome sample and not one that's necessarily representative of those in arrears at all.


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    #262
    StillWaters
    Closed Accounts Posts: 1,799 ✭✭✭StillWaters


    RATM wrote: »
    I think you could take some pretty relieble inferences from the 6,000 that went to MABS.

    In political polling you only need to interview 1,100 people to get the electoral opinions of 4.5 million people, which is accurate to +/- 3%.
    It would be the equivalent of polling only those who were members of a political party, or only those who had already decided who to vote for, a self selecting group. It is not nearly as valid a random sample as a political poll.

    I'd imagine there are very few structural defaulters in that pool.


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    #263
    riclad
    Registered Users Posts: 8,184 ✭✭✭riclad


    A Woman on joe duffy show,today,
    She lives in a nice house ,in a posh area,
    Shes, a widow on a pension ,with kids .
    Says the bank is going to sell the house ,arrange viewings.
    She seems to be suprised ,the bank wants her to sell the house ,she has no hope of paying the mortgage.
    A caller rings ,up says the bank might sell it, for say 150k, you,ll be left
    with say 50k debt.
    ie the bank will take the first reasonable offer they get.
    She did,nt say whether its in negative equity ,
    JUST says its a nice house in a very nice area.
    House has been on the market ,the last 2 years.

    DOES she expect the bank to just write off the loan,
    or freeze the payments,
    she sounded like she,s just retired.

    She,ll probably end up living in a rented house on rent allowance .


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    #264
    Anynama141
    Closed Accounts Posts: 964 ✭✭✭Anynama141


    riclad wrote: »
    A Woman on joe duffy show,today,
    She lives in a nice house ,in a posh area,
    Shes, a widow on a pension ,with kids .
    Says the bank is going to sell the house ,arrange viewings.
    She seems to be suprised ,the bank wants her to sell the house ,she has no hope of paying the mortgage.
    A caller rings ,up says the bank might sell it, for say 150k, you,ll be left
    with say 50k debt.
    ie the bank will take the first reasonable offer they get.
    She did,nt say whether its in negative equity ,
    JUST says its a nice house in a very nice area.
    House has been on the market ,the last 2 years.

    DOES she expect the bank to just write off the loan,
    or freeze the payments,
    she sounded like she,s just retired.

    She,ll probably end up living in a rented house on rent allowance .
    She also mentioned that she has a car that she is not paying for. And that all bar one of her kids is finished college. Her husband committed suicide and they had stopped paying mortgage insurance, so she was left unable to pay the rather large mortgage on her Kerry mansion.

    I genuinely felt sorry for her, but I don't see why she expects to get a free mansion and car as well as free everything else.


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    #265
    Joe Hart
    Closed Accounts Posts: 358 ✭✭Joe Hart


    Funnily enough there the repossesion business for cars has been roaring since 2008. There doesn't seem to be the same entitlement to own a luxury car without paying for it as there is a house. If they take your car then you can always get another one and its no different for a house.


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    #266
    Norwesterner
    Registered Users Posts: 725 ✭✭✭Norwesterner


    Anynama141 wrote: »
    She also mentioned that she has a car that she is not paying for. And that all bar one of her kids is finished college. Her husband committed suicide and they had stopped paying mortgage insurance, so she was left unable to pay the rather large mortgage on her Kerry mansion.

    I genuinely felt sorry for her, but I don't see why she expects to get a free mansion and car as well as free everything else.
    Felt sorry for her too.
    But just sell the house already and get on the waiting list ffs.


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    #267
    riclad
    Registered Users Posts: 8,184 ✭✭✭riclad


    I,TS pretty easy to repossess a car , on finance, they garage may have a set of keys.
    I think she,s willing to sell the house .
    IT sounds as if shes ,not the type to be used to living on a small income ,or asking for help from welfare.


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    #268
    Villa05
    Registered Users Posts: 4,613 ✭✭✭Villa05


    These guidelines issued yesterday are going to encourage more into arrears
    Under the guidelines a single adult with no car will be permitted expenditure of €898.96 in set cost over and above any mortgage or rent payments. The set costs will rise to €1,030 if that adult has a a car. They will be given €126 a month – or €29 a week to cover social inclusion. An allowance of €204.88 is to made for each child of primary school-going age.

    http://www.irishtimes.com/news/consumer/new-insolvency-rules-to-allow-899-monthly-spend-for-debtors-1.1364648
    I know many that are living on alot less than that in an attempt to pay their mortgage. even the banks allow you less when determining new mortgage loans (1,000 per adult 200 per child)


    Get ready for more interest rate rises as banks charge for the added risk.
    Bank of Ireland boss Richie Boucher said he was looking at raising the interest rates on variable mortgages to compensate for this added “risk”.

    He said the new insolvency laws, due later this year, could mark a fundamental change in the playing field for banks ( in Ireland )and make mortgage lending more risky. He said “We price for risk,” he said, implying that the cost could be passed on to customers in the form of higher interest rates.

    http://insolvencyarrangement.com/mortgage-increases-possible-if-insolvency-bill-is-passed/

    I am pretty sure the banks will be tightening their criteria for new mortgage lending. Fasten your seat belts Stage 2 of the collapse is about to begin......


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    #269
    MMAGirl
    Registered Users Posts: 484 ✭✭MMAGirl


    If only there was some way for customers to take the banks to the European court for price gouging or something like that. Unfair profits taken from people locked in and way way above the ecb rate.
    Better legal minds than mine must look into this though. Might be impossible


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    #270
    desertcircus
    Registered Users Posts: 2,648 ✭✭✭desertcircus


    Nine hundred a month above mortgage repayments is pretty generous. That's more than I live on after rent and savings, and I can't afford a suitable mortgage.


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    #271
    gaius c
    Registered Users Posts: 3,528 ✭✭✭gaius c


    MMAGirl wrote: »
    If only there was some way for customers to take the banks to the European court for price gouging or something like that. Unfair profits taken from people locked in and way way above the ecb rate.
    Better legal minds than mine must look into this though. Might be impossible

    Don't know if you noticed but the banks are losing money hand over fist.


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