Negative equity-Whats the big deal?

clairefontaine

cson wrote: »

That situation, quite frankly, is an impossibility.



To be honest if you're of a nomadic disposition then you shouldn't be buying property.

If it's an impossibility, why did it happen?

Eh I didn't buy property btw, I have no personal interest in seeing mortgage relief.

I am of a disposition that thinks being able to move is an essential part of one's survivorship, has nothing to do with nomadic dispositions. Boil it down to fire drills in primary schools, but I can't enter a building or an airplane without clocking exactly where the exits are.

Negative equity blocks your exits.

SBWife

Sometimes a job promotion can result in lower take home if someone moves from a overtime eligible position into a managerial position where overtime is unpaid, but it won't happen because of taxes. For each rate of tax, both income and USC you pay the lower amount until you hit the threshold then you pay the higher rate on income above the threshold, but overall your take home will still increase.

SBWife

I'm not nomadic (despite having lived all over the place as a child and younger adult) I still like to think that the rental on my place would cover the mortgage payment giving me the ability to live elsewhere if necessary.

The Corinthian

clairefontaine wrote: »

The borrowers weren't the only ones who took the risks though, so did the lenders, and let's not forget the role mortgage brokers and real estate dealers played in all of this. The lawyers backed them up too. Where are their consequences?

One major bank ended up being nationalized and then wound down. Another, one of the two biggest retail banks, is now nationalized and the owners (shareholders) have essentially been wiped out. The other ended up partially nationalized and the owners (shareholders) have almost been wiped out.

Of the mortgage brokers and real estate dealers; the vast majority are gone, the few left are a shadow of what they once were. Many solicitors, who specialized in conveyancing during the boom, have gone out of business or are at best surviving, having downsized. There's no shortage of estate agents, solicitors and others associated with the construction industry who are now unemployed, retraining or taking whatever scraps of work they can to survive.

Instead people focus not on the banks or developers, but a small group of individuals at the top of these organizations; and there, while many have also been burnt badly, others have survived relatively unscathed. But that's because the laws that were, and still largely are, in place allowed this to happen - and before we blame the government for this, never forget that we the people are ultimately responsible for that government (it's amazing how Fianna Fail got re-elected so many times given how many nowadays deny ever voting for them).

Overall almost nobody got away 'scot free'.

No one is saying that [or at least I am not] that tax payers should prop up struggling mortgage holders, but what I am saying is they don't bear sole accountability here.

I agree; all I'm saying is the same, but from the other perspective - that the banks, et al bare responsibility, but ultimately so do those who rolled the dice and bought.

Do you not feel that the lenders and the brokers should share some of the accountability?

Absolutely they should. Much of the problem is that it is very difficult for someone to default on a mortgage in Ireland. Historically, this is so as a means of protecting the mortgage holder from losing their home, probably a reaction to the evictions of past centuries under British rule. Ironically, it works both ways; just as it is difficult for a bank to repossess a property it is for a mortgage holder from abandoning it.

Yet there's two of them in this: The banks are culpable for offering irresponsible mortgages. The mortgage holders are culpable for taking on irresponsible mortgages. Note that you really can't have one without the other, because if a mortgage holder claims they didn't take on an irresponsible mortgage, then you can't really accuse the bank of offering one either.

So there is probably a need to allow both banks and mortgage holders to terminate a mortgage, better spreading out the consequences between the two. But that doesn't mean the mortgage holders can walk away scot free - at the very least they will have a bad credit rating following them for years, if not financial restrictions too, but unless mortgage holders actually accept that they share culpability, I can't see much support for such reform from the mortgage holders themselves given many of the opinions you get here.

And bare in mind, such reform would also have other consequences; the cost of borrowing would increase (as risk to the bank will have been increased) and the previous protection against foreclosure in Irish law would have been removed, people would become more vulnerable to involuntarily losing their homes.

There's no 'getting away with it' for anyone.

The Corinthian

SBWife wrote: »

I'm not nomadic (despite having lived all over the place as a child and younger adult) I still like to think that the rental on my place would cover the mortgage payment giving me the ability to live elsewhere if necessary.

I agree. I feel that during the bubble, such basic 'bread and butter' assessments were displaced by some bizarre belief that capital appreciation would last forever or at worst flatten out.

clairefontaine

The Corinthian wrote: »

One major bank ended up being nationalized and then wound down. Another, one of the two biggest retail banks, is now nationalized and the owners (shareholders) have essentially been wiped out. The other ended up partially nationalized and the owners (shareholders) have almost been wiped out.

Of the mortgage brokers and real estate dealers; the vast majority are gone, the few left are a shadow of what they once were. Many solicitors, who specialized in conveyancing during the boom, have gone out of business or are at best surviving, having downsized. There's no shortage of estate agents, solicitors and others associated with the construction industry who are now unemployed, retraining or taking whatever scraps of work they can to survive.

Instead people focus not on the banks or developers, but a small group of individuals at the top of these organizations; and there, while many have also been burnt badly, others have survived relatively unscathed. But that's because the laws that were, and still largely are, in place allowed this to happen - and before we blame the government for this, never forget that we the people are ultimately responsible for that government (it's amazing how Fianna Fail got re-elected so many times given how many nowadays deny ever voting for them).

Overall almost nobody got away 'scot free'.

I agree; all I'm saying is the same, but from the other perspective - that the banks, et al bare responsibility, but ultimately so do those who rolled the dice and bought.

Absolutely they should. Much of the problem is that it is very difficult for someone to default on a mortgage in Ireland. Historically, this is so as a means of protecting the mortgage holder from losing their home, probably a reaction to the evictions of past centuries under British rule. Ironically, it works both ways; just as it is difficult for a bank to repossess a property it is for a mortgage holder from abandoning it.

Yet there's two of them in this: The banks are culpable for offering irresponsible mortgages. The mortgage holders are culpable for taking on irresponsible mortgages. Note that you really can't have one without the other, because if a mortgage holder claims they didn't take on an irresponsible mortgage, then you can't really accuse the bank of offering one either.

So there is probably a need to allow both banks and mortgage holders to terminate a mortgage, better spreading out the consequences between the two. But that doesn't mean the mortgage holders can walk away scot free - at the very least they will have a bad credit rating following them for years, if not financial restrictions too, but unless mortgage holders actually accept that they share culpability, I can't see much support for such reform from the mortgage holders themselves given many of the opinions you get here.

And bare in mind, such reform would also have other consequences; the cost of borrowing would increase (as risk to the bank will have been increased) and the previous protection against foreclosure in Irish law would have been removed, people would become more vulnerable to involuntarily losing their homes.

There's no 'getting away with it' for anyone.

I think there is a general problem with accountability in this whole crisis. We have never heard, as far as I am aware, any public statement from Bertie or a bank rep addressing the issues of the crisis or their part in it. So it's no surprise that others haven't either.

If you want to win an election in Ireland, or make a new best friend, just say "It's not your fault" as if this were all about fault and blame and exoneration from some deep seated beaten into you Stockholm syndrome national guilt complex and not about a very screwed up problem that needs to be solved by thinking way outside the box and coming up with new solutions, like more growth, more jobs, etc.... Instead everyone is sniping at each other or emmigrating. If people fear punishment or exaggerated finger pointing, they wont hold their hands up. If they can expect some understanding, they most likely will take on some accountability.

So much for progress. This is not the first time a discussion on accountability has hit an impasse. It beats me why the famine is not discussed in history classes along side economic theory and who exactly is responsible in a natural disaster. It is a great opportunity for bringing to the national conciousness, but sadly and relentlessy skipped over.

Anyhow I have digressed from talking about negative equity. Maybe someone can answer this. Are their pockets of Ireland where the bust did not hit because the boom didn't either? I know in the US there were many parts of the country that the crisis missed because they were very conservative.

SBWife

clairefontaine wrote: »

who exactly is responsible in a natural disaster.

Did you read that before posting?

clairefontaine

SBWife wrote: »

Did you read that before posting?

Yes.

KELTICKNIGHTT

SBWife wrote: »

A property bought in 2002 is not down 50-60% from its purchase price. Most likely given a reasonable down payment and a the principal payments on a 25 or 30 year mortgage such a property has some positive equity. If I recall correctly property prices were pretty stagnant between 2000 and 2002, and I know that my home which I bought in late 2000 has significant amount of positive equity.

and what has this to do with a property being alot less than a mortgage on it ?
easy to quote stats, means nothing today
very simple
the mortgage is more than the house is worth as a lot of people who in same position

KELTICKNIGHTT

The Corinthian wrote: »

A downside of 20% to 25% after a property bubble bursting is pretty optimistic and sounds like the wishful thinking that many were coming out with about 'soft' landings.

But let's consider one simple scenario for a moment; it's 2004, you've got a chunk of change that you can put down as a deposit to buy a two bedroom apartment in Dublin, rather than rent it.

For simplicity's sake, let's sat that around that time, such a place would set you back €300k and prices during the bubble were increasing by 15% p.a. This would mean that in 2005, your apartment would be valued at €345k - and if the bubble were to continue to grow up until today, the same apartment would be valued at the bargain price of €1,055,362.89.

But here's the thing, bubbles do not continue to grow indefinitely. Neither do they simply stop growing and stabilize. They burst. Google it if you don't believe me. And that brings us to the the single biggest presumption (a pretty safe one) eventually the bubble would burst - and let's say that would see a 20% drop in value.

Even given this mythical soft landing, if you bought in 2004 you'd have to keep your fingers crossed that it wouldn't burst until 2006 - otherwise you're in negative equity (€60k if it happened in 2004 and €24k if in 2005).

Presuming, instead, you decide to hold off and pay rent (say a fairly stable €1,500 p.m. as rents really did not change that much, compared to property prices during the same period), you still be better off not buying and instead paying rent for 18 months overall.

And that's with a 20% drop in value when the music stopped, which was wildly optimistic. At 25%, you're already better off buying in 2006 and renting until then; indeed there if you buy 2004 you'd better hope the bubble keeps growing until 2007, otherwise you're going to be in negative equity.

Of course, the media, the bankers, property developers and political establishment were wildly optimistic about what the 'adjustment' that would eventually look like, but that is no excuse to avoid digging further for what is likely to be the biggest financial investment of your life. And it didn't take long to do so; all I needed was Google, a blank spreadsheet and a Sunday afternoon, back in Q4 2004, and I certainly wasn't alone in realizing that:

1. We were not going to get a 'soft' landing; there's never been any 'soft' landing in history and so property values were going to drop by considerably more than 20% or 25%.
2. Given the importance of the property market to the Irish economy, a recession was guaranteed to follow. I would have thought this point would have been obvious, but clearly some didn't join the dots on this.
3. The bubble was not going to continue for another ten years - the hypothetical apartment was not going to end up being worth over a million Euro. Instead the bubble would be very lucky to last five years at best, and in the end it managed to last just under half that before the music stopped.

And that's what it came down to; the music was going to stop, we just didn't know when and what the fallout level would be, but we could slot in a few numbers and see what we came up with.

And when you started crunching the numbers and they began to argue that you needed unrealistically low levels of value depreciation and that the bubble would continue growing for two or three years it didn't make sense to buy to me in 2004.

Now, I don't know when you bought (although if you've lost 60% I suspect you got in late), but this is the kind of research and analysis that many did and as it became increasingly apparent that we were dealing with an economic bubble it became increasingly apparent that the numbers didn't crunch and that the music was going to stop playing before too long.

No one could seriously know it get this bad, but it didn't take a genius to figure out that it would still get bad. Of course, you might be forgiven had you bought in 2001 or 1999, as it became obvious much later, but then again you wouldn't have 60% of the value of your home wiped out if you had.

One thing that stands out in what you've said is that you could never have predicted "in less than 10 yr period to have 50-60% loss, a rescission and loss of income at same time"; you're joking, seriously? A slowdown and/or collapse of the property bubble would result in an effective decimation of an industry that was universally recognised to be the single most important driver of the Irish economy at the time. Oddly, a recession isn't that difficult to expect if that happens and with it harder, at least, times and loss of income. How did you miss that? Seriously?

All the information needed to arrive to these conclusions was online ten years ago and even if you didn't know how to use a spreadsheet to crunch your numbers, that alone should have given people to pause.

If they choose to look, of course - and honestly I think many didn't care to.

most of this doesn't mean anything to most people
simple fact is people are trapped in property [ there house/ home ]
because they can't sell it, the house is worth less than the mortgage , doesn't have to be a big amount but still is a problem for most

The Corinthian

KELTICKNIGHTT wrote: »

most of this doesn't mean anything to most people
simple fact is people are trapped in property [ there house/ home ]
because they can't sell it, the house is worth less than the mortgage , doesn't have to be a big amount but still is a problem for most

Oh, let's just plead ignorance, ignore the facts and rely upon an appeal to emotion instead?

Do you feel you had the competency to purchase? And no, solely relying upon the advice of a few 'experts' does not denote competency.

If so, do you not think that you have a personal responsibility for your actions?

If not, you then feel that you should not have had the right to purchase, for your own safety?

KELTICKNIGHTT

The Corinthian wrote: »

Oh, let's just plead ignorance, ignore the facts and rely upon an appeal to emotion instead?

Do you feel you had the competency to purchase? And no, solely relying upon the advice of a few 'experts' does not denote competency.

If so, do you not think that you have a personal responsibility for your actions?

If not, you then feel that you should not have had the right to purchase, for your own safety?

a complete load of horse
most people got a mortgage to buy or build a home,
Not everyone over stretched themselves , that includes me.
i thought i was well ahead of the game as they say, then a lot of personal things happened , then house went below 56-60 % of original,
then work lessened , there's lots of fractures that caused it it
tried to sell it , couldn't because 2 couples who showed interested , couldn't get a mortgage because banks wheren't giving out mortgages , had it for sale for years and gave up selling it as now its worth less than mortgage
like some posters here who keep going on about people with mortgages a help out or write off
i don't , many don't , just make it a little easier for use to pay,
so to make it simple for you, I'm not looking for a hand out . just better options to pay off over time , till maybe i can sell it .
i can tell you not all banks are helping people get through this .

SBWife

KELTICKNIGHTT wrote: »

and what has this to do with a property being alot less than a mortgage on it ?

EVERYTHING

KELTICKNIGHTT

SBWife wrote: »

EVERYTHING

THATS YOUR OPINION ONLY
but most would care less ,, its easy to post on a forum here without knowing peoples facts to why and how

SBWife

clairefontaine wrote: »

Yes.

From Wiki (seems to be a preferred source around here)

A natural disaster is a major adverse event resulting from natural processes of the Earth; examples include floods, volcanic eruptions, earthquakes, tsunamis, and other geologic processes.

clairefontaine

SBWife wrote: »

From Wiki (seems to be a preferred source around here)

A natural disaster is a major adverse event resulting from natural processes of the Earth; examples include floods, volcanic eruptions, earthquakes, tsunamis, and other geologic processes.

What is your point?

gaius c

mariaalice wrote: »

I do feel sorry for SOME people, however I was listening to Joe Duffy yesterday and the discussion was about people not being able to pay the mortgage etc the usual very sad stories.

BUT

This guy phones in and says after numerous adjustments form the bank the bank has now advised him to sell his house he was not happy with this because he wanted either debt write off or part of his mortgage parked and then written off!!! i.e he wanted to keep his house while the bank take a 50% write down on the loan they gave him. Then there was the woman who is not happy because she lives too far from her work/parents and some how wants her mortgage to disappear so she can buy where she grew up!!

Mortgages can be terribly inconvenient things. Look at noted landlord Brendan Kelly who managed to live in his house for free for two years. I wonder would he have been as "understanding" of tenants doing the same to him?

gaius c

SBWife wrote: »

I'd consider the 6 years under the proposed personal insolvency regime a long time.

If you don't like it, pay off your 35 year mortgage in full then.

SBWife

clairefontaine wrote: »

What is your point?

No one is responsible for a natural disaster.

clairefontaine

SBWife wrote: »

No one is responsible for a natural disaster.

The question is not who is responsible for a natural disaster, who is responsible IN one.

And you asked ME if I read that sentence?

Responsible, as in RESPOND. As in TAKE ACTION.

Why do so many people confuse responsibility with blame?

SBWife

gaius c wrote: »

If you don't like it, pay off your 35 year mortgage in full then.

Relax, I'm not looking for a handout. I've no problem paying the remaining few years of my significantly shorter mortgage off, and if I had I'd sell my current home and use the equity I've built up to buy another less well situated dwelling, or if my circumstances changed to rent out my place and rent elsewhere. I'm one of those boring farts who never overextended themselves.

SBWife

clairefontaine wrote: »

The question is not who is responsible for a natural disaster, who is responsible IN one.

And you asked ME if I read that sentence?

Responsible, as in RESPOND. As in TAKE ACTION.

Why do so many people confuse responsibility with blame?

Because its part of the definition, Responsible - Being the primary cause of something and so able to be blamed or credited for it.

In the case of a natural disaster (not that negative equity is one) outside of insurance companies nobody has an obligation to take action. People and states do for various reasons but there's no obligation to do so.

gaius c

SBWife wrote: »

Relax, I'm not looking for a handout. I've no problem paying the remaining few years of my significantly shorter mortgage off, and if I had I'd sell my current home and use the equity I've built up to buy another less well situated dwelling, or if my circumstances changed to rent out my place and rent elsewhere. I'm one of those boring farts who never overextended themselves.

Fine, just getting sick of folk who want to lose the debt but keep the asset.

The Corinthian

KELTICKNIGHTT wrote: »

most people got a mortgage to buy or build a home,

Actually not true. If you actually check your facts, the majority if mortgages were not down to first-time buyers. In fact, first-time buyers managed to to hit a high of a whole 23.3% of the mortgage market just after it had popped. Hardly "most people", is it?

Not everyone over stretched themselves , that includes me.

Doesn't look like it - at least from what you've told us.

To begin with you likely bought at the tail end of the bubble, given the percentage of negative equity, at a time where people were resigning themselves at best for a 'soft' landing, so not the most clever time to make an investment.

Then somehow (according to you earlier) it didn't occur to you that a slowdown in the all-important property market, that employed 12% of the Irish workforce, might just result in a slowdown of the economy, God forbid a recession. And governments never increase taxes when they have a budget shortfall, of course.

Or that a recession might be possible anyway in the future and that you (having gone into self-employment) might see a serious drop in revenue.

Added to this, you now hint at trying to offload your property pretty quickly when things turned bad (on the market for years and banks still not loaning out) - it didn't take you long to go into the red, did it?

So no, you did clearly overstretch yourself; you just didn't realize you did because you didn't appear have put much effort into checking.

i don't , many don't , just make it a little easier for use to pay,
so to make it simple for you, I'm not looking for a hand out . just better options to pay off over time , till maybe i can sell it .

That's fair enough, as long as you realize that there will likely be a stiff price to pay for you.

i can tell you not all banks are helping people get through this .

Who on Earth expects a bank to help anyone? Banks only 'help' someone when there's something in it for them.

KELTICKNIGHTT wrote: »

THATS YOUR OPINION ONLY

Actually it's maths. Really basic inter-cert maths.

With a 60% negative equity, it is almost certainly down to it having been bought late during the bubble. Unless there's some other explanation you'd care to proffer.

clairefontaine

SBWife wrote: »

Because its part of the definition, Responsible - Being the primary cause of something and so able to be blamed or credited for it.

In the case of a natural disaster (not that negative equity is one) outside of insurance companies nobody has an obligation to take action. People and states do for various reasons but there's no obligation to do so.

No that is not what it means.

It means taking stock of how you got into your circumstances, looking at your circumstances regardless of who caused them, and deciding on an appropriate reaction and attitude to your circumstances without the blame and shame tactics.

SBWife

clairefontaine wrote: »

No that is not what it means.

Well you better get on to the editors of the OED and tell them that they're wrong ASAP.

KELTICKNIGHTT

The Corinthian wrote: »

Actually not true. If you actually check your facts, the majority if mortgages were not down to first-time buyers. In fact, first-time buyers managed to to hit a high of a whole 23.3% of the mortgage market just after it had popped. Hardly "most people", is it?

Doesn't look like it - at least from what you've told us.

To begin with you likely bought at the tail end of the bubble, given the percentage of negative equity, at a time where people were resigning themselves at best for a 'soft' landing, so not the most clever time to make an investment.

Then somehow (according to you earlier) it didn't occur to you that a slowdown in the all-important property market, that employed 12% of the Irish workforce, might just result in a slowdown of the economy, God forbid a recession. And governments never increase taxes when they have a budget shortfall, of course.

Or that a recession might be possible anyway in the future and that you (having gone into self-employment) might see a serious drop in revenue.

Added to this, you now hint at trying to offload your property pretty quickly when things turned bad (on the market for years and banks still not loaning out) - it didn't take you long to go into the red, did it?

So no, you did clearly overstretch yourself; you just didn't realize you did because you didn't appear have put much effort into checking.

That's fair enough, as long as you realize that there will likely be a stiff price to pay for you.

Who on Earth expects a bank to help anyone? Banks only 'help' someone when there's something in it for them.

Actually it's maths. Really basic inter-cert maths.

With a 60% negative equity, it is almost certainly down to it having been bought late during the bubble. Unless there's some other explanation you'd care to proffer.

there you go on again with dribble lol
where did i say anything about first time buyers lol

you live in a dream world where you find it more easy to blame people who are in trouble with mortgages , go to mabs as such places, , spend a day there, might open up your eyes,
very easy come out with blame game as can been seen in most your posts,
according to you, its the people who got montages fault, nothing to do with negative value in there property , or rescission or maybe both people loose there job
if it was as easy as you have said, , ireland wouldn't have problems
and before i forget another worthless comment about
when you said
With a 60% negative equity, it is almost certainly down to it having been bought late during the bubble. Unless there's some other explanation you'd care to proffer.
what a load of bull
this statement tells me how much you really know, nothing

clairefontaine

KELTICKNIGHTT wrote: »

there you go on again with dribble lol
where did i say anything about first time buyers lol

you live in a dream world where you find it more easy to blame people who are in trouble with mortgages , go to mabs as such places, , spend a day there, might open up your eyes,
very easy come out with blame game as can been seen in most your posts,
according to you, its the people who got montages fault, nothing to do with negative value in there property , or rescission or maybe both people loose there job
if it was as easy as you have said, , ireland wouldn't have problems

Its a normal part of life for debtors and entrepreneurs to cock things up and get into trouble. A free economy has room to fail.

People need to get of the fault/blame cycle here, its keeping everyone stuck. It benefits everyone to have more people functioning economically.

If others want to see you punished and living in penury and others like you, they too will end up punishing themselves too.

It would serve the government right if everyone in trouble went to the UK or the US and followed their bankruptcy procedure. IF they don't want people to do that, then they should come up with a more competititive bankruptcy route.

KELTICKNIGHTT

clairefontaine wrote: »

Its a normal part of life for debtors and entrepreneurs to cock things up and get into trouble. A free economy has room to fail.

People need to get of the fault/blame cycle here, its keeping everyone stuck. It benefits everyone to have more people functioning economically.

If others want to see you punished and living in penury and others like you, they too will end up punishing themselves too.

It would serve the government right if everyone in trouble went to the UK or the US and followed their bankruptcy procedure. IF they don't want people to do that, then they should come up with a more competititive bankruptcy route.

if banks didnn't get into trouble, then people could sell off there property and be less of a mess , that's not the case, this new insolvency system seems worse but maybe it work, who knows, you see a lot of people going u.k route if they can .

clairefontaine

KELTICKNIGHTT wrote: »

if banks didnn't get into trouble, then people could sell off there property and be less of a mess , that's not the case, this new insolvency system seems worse but maybe it work, who knows, you see a lot of people going u.k route if they can .

You can sell off your property but you would have to find a cash buyer, so you would likely have to look outside of Ireland. At the same time, with the taxes being so unpredictable right now, I know I definetly would not buy when the are figuring out their property taxes and you have no way of predicting what they will be up the road.

Also if you are living in the country, chances are you are on a private water scheme spending a few hundred a year for that and ALSO going to get taxed, so no way would someone want to buy there either.

So it's not just the banks inhibiting purchases, but the government making too unstable a situation with all their adhoc catch as catch can taxes they are inventing.