Mortgage Balances and Projected Losses

….attacking MK

@Karl
Tora Tora Tora…..
http://www.youtube.com/watch?v=GgX1WBf2SjE

@Karl Whelan

Good post, particularly in relation to how this issue is dealt with. That said Morgan Kelly’s figure of €5 to €6 billion is too low.

There are #50,000, €9.5 billion in arrears at end of March.
There are a further #36,000, €6.0 billion which have been restructured but are not (again) in arrears. To me, this means that there are approx #90,000, €15.5 billion that will be not be able to be servcied by the owners without some kind of ‘assistance’.
So what are the principles involved.

1. This is a bank problem and any resolution of it is part of the cost of bank restructuring, not a seperate exchequer line item.
2. The raison d’etre for dealing with issue is a family, social and community issue, not primarily an economic one.
3. It is of fundemental importance that loss of family home and evictions are avoided. The people should remain in the homes.
4. Following from this any resolution scheme should be confined to owner occupier properties only, where the ‘owner-occupier’ intends to continue to reside in the property. Buy-to-let or investment properties should not be part of any scheme.
5. As debt-relief would be a very contentious issue, any scheme of arrangement must involve State ownership or part ownership of the property.

That any State should permit the situation referred to by Stephen Kinsella (previous blog) is just appalling.

As part of newbeginnings I speak to those having their homes taken from them quite a bit. I spoke to a lady today going through a repossession and eviction. It is not easy when you hear these stories.

So a State that has pumped over €60 billion into banks to ‘get the banks working again’, is to allow the same banks get full on into eviction and repossesion?
So that the same State will have to rehouse the dislocated dispossed and attempt to fire-sale an empty property. The attached link show that the legal profession is doing and will do very nicely under the status quo.

http://www.financialregulator.ie/press-area/press-releases/Documents/RESIDENTIAL%20MORTGAGE%20ARREARS,%20REPOSSESSIONS%20and%20RESTRUCTURES.pdf

This is a debate that is long overdue.

I’m for reform of bankruptcy laws. 3 years sounds reasonable.

It seems to me the tax payer is already involved, NAMAs existance is probably keeping rents and prices higher than they should be, the social welfare is subsidizing 20% of the rental market and probably creating an artifical floor for it via rent allowance, interest relief got expanded for those that bought in the ‘boom’ and the bailed out banks are loosing a billion a year to tracker mortgage holders (generally given out during ‘the boom).

Moral Hazard of course can be argued but when you consider the Financial services sector hasn’t exactly suffered, instead of contribtung to science, working for the greater good or doing something useful for society, these guys have spent their careers essentially working out ways to destroy it with Xcel spreadsheets. If there was any justice most would be in jail, instead of getting rewarded with vulger bonuses via Tax payer bailouts. Yeah when you compare it to bailing out these guys it seems quant to argue moral hazard for bailing out some poor sod who believed Berite Aherns ‘Boom times are getting Boomier’ rant.

Having said that my hope is that, as a country we eventually shake off the ‘be a professional’ and own a house and rent out a few apartments idea of wealth and/or success. I’m rooting for set up a business, fail, set -up another fail again, set-up another make a million and employ a few people. Eventually leading to a – hold on to the business and give the country a Nokia.

How about those in distress apply for bankruptcy, it takes say 3 years but immediately they get a mortgage ‘exception’ for bidding on only their own property when it goes to auction. They’re not allowed to attend the auction, the auctions have to be run by a company that does it well eg Allsops, their max bid being what any lender would allow them based solely on (hopefully a sensible multiple of) thieir salarie(s).

There’s plenty of ideas, the above could be rubbish, it’s more of a think out loud. Either way lets get this property mess behind us. And for the love of God, make sure the politicans aren’t involved anywhere. Can you imagine the nonsense/clientism and the following enquiry.

@ Seamus

“For some reason Morgan Kelly uses a figure of €55 billion as the size of the mortgage market in Ireland. This is less than half the actual figure.”

As I said in the post, I don’t know what Morgan’s figures are based on.

However, as best I can tell from the reporting, Morgan is subtracting off some amount of the total Irish residential mortgage book of the Irish banks to arrive at the €55 billion figure. I’d be inclined to assume that there is a reason for this rather than to go for the “for some reason” “half the actual figure approach”.

Based on his long track record of being more right than many people (including me) I’d recommend going easy on the “for some reason” stuff.

@Eureka
The state owns the debt now – it will not just go away……… unless deposits or bonds are defaulted or inflated on.

This debt forgiveness is just shuffling the cards – we don’t really own the casino chips as we have no control over our money supply.

@Karl
Sure Karl – I guess the symbiotic nature of money and the state is quite redundant now.
Put please explain what exactly is this place if it is not a State and just happens to be in a State.
I am lost in your narrow civil servent space.

@ Dork
On Bond, Eoin Bond’s recommendation I read The Ascent of Money. It’s far from a perfect book but the key message I took from it the absolute primacy of trust in any money system.
In normal life we “forgive” because it allows a broken relationship to be re-established. That is why the solution to this crisis will be a creeping debt forgiveness.
I think MK’s error (and this is only an opinion) is that the solution he proposes is tinkering with an aspect of the dysfuntional system rather than the problem of an overcomplicated international web of debt.
It’s almost as if all the criticism has gotten to him. He can be forgiven for that.
It’s not about 6 billion being pumped into a debt system – it’s about the need for bankrupcy laws that allow people to start again.

@Eureka
Yes but perhaps you miss my point – I am stating the debt is not forgiven as in Babylonian times but it is socialised – it enters goverments books.

Our “goverment” cannot or will not write off debt as it has no money power.

If these mortgage holders are free from debt they will have more spending power in a economic ecosystem incapable of providing greater life support so therefore there will be a transfer of EXISTING wealth to these people.
A not dissimilar transfer of wealth is happening as Gold holders get the fiat surplus from a broken debt system but no knew wealth is created.
But the goverment now does not have the MONEY to spend increasing or even maintaining wealth or more fundamentally life support – particullary in the utility sphere.
I happen to think we are dealing with a fundamental energy crunch as a result of the dollar / oil bubble so therefore new money should be used to create more elegant or productive systems such as rail services , nuclear etc – but these will not be provided if all money services interest on failed investments.
Unless money is created into existence for core wealth utilities that work as opposed to Parlon like initiatives we will soon enter a breakdown crisis in my opinion.
Central bankers only see the volume of credit – they seem blind to its quality control for some reason.
Its as of they never played with building blocks and sand castles when youngsters.

Debt forgiveness means more money in people’s pockets. It means more consumer spending. It means more money for investment. It means more money people could put towards starting a business.

I hardly see how debt forgiveness isn’t an economic issue and is just shuffling casino chips.

Right now people are spending large percentages of their shrinking incomes on their mortgages. That money is going to banks who are not spending money. Debt forgiveness is becoming more and more of a no-brainer.

@Kevin Lyda

“Debt forgiveness means more money in people’s pockets.”

More accurately it means more money in some people’s pockets and less money in others. It is a zero-sum game between under-the-water mortgage holders and taxpayers (as owners via the State of almost all the relevant bank equity). “Forgiveness” doesn’t enter into it – you can argue about how much or how little wealth transfer there should be between taxpayers and mortgage holders, but you cannot argue that there will be a net gain unless you identify the outsiders that will take the hit and the process by which this will be achieved.

One aspect of the mortgage situation that never really seems to get considered is the role of “advice” or even “professional advice”.

Many of the transactions that have ended up as losses to the state were very large investment trades in effect – and that includes non-BTL.

Most buyers would not have listened to advice that a purchase was too risky from a simple non-diversification viewpoint, nor would most have listened to advice that the investment outlook was unsound and could very easily head South bigtime.

But it is really remarkable that say, the Irish financial regulator, has people spending years jumping through hoops to be allowed to give comparatively inconsequential advice on a punter’s savings scraps that are left over after his mortgage commitments. Meanwhile punter’s all around the place were making what were effectively whimsical decisions about what might be their only really big investment decision, based more or less on whether they could access a big enough credit line.

Now I know you have to be realistic about this – a lot of retail financial advice is just crap, plain and simple. It is often poluted by remuneration considerations and dished out by p[eople who are expert on the basis they know 5% more than the people they are talking to. But at least going through the process of obtaining it makes people stop and think for a bit, that they are actually making a risk / reward type decision – it is much harder for them to drift into the mindset that they are simply dealing in reward.

Perhaps if you are going to start a process of “mortgage forgiveness” it should be accompanied by a sea change in the level of understanding of the deal being entered into in the first place by individual buyers. If the state might end up bailing these guys out, maybe they are going to have to be able to demonstrate an understanding of the relevant economics – or have obtained advice to provide that understanding – before gaining access to what might, one day become a non-recourse loan, at least in part.

@ grumpy

‘If the state might end up bailing these guys out, maybe they are going to have to be able to demonstrate an understanding of the relevant economics – or have obtained advice to provide that understanding – before gaining access to what might, one day become a non-recourse loan, at least in part’

This island is the extreme western periphery of Europe. Our state has been captured by vested interests. In the US, at least the lobbyists are visible as such. Here they are merrily ensconced in the executive and legislature.
Although we are not the most corrupt state in the world, our privileged classes are practised at ignoring to conflicts of interest. The old boys club, the clan connection, the sports club affiliation and the party allegiance are constantly at work. These generally conservative forces shape all significant political decisions. It’s not so long since Opus Dei was stirring the pot after all.
The trade unions have been watching the panto of the middle classes for decades. In their eyes, the permanent public sector job and pension is the economic equivalent of a property holding. All the TU leadership are guilty of is going after a slice of the loot. We are all human.

As commentator Ahura recently said on a namawinelake thread:

‘ There are probably 10k+ individuals that have a portfolio of investment properties with debt in excess of 1+ million. In additional many of these piled into leveraged property funds (it’s quite plausible that some may have ‘released equity’ to the tune of hundreds of thousands to get into geared funds)’
http://namawinelake.wordpress.com/2011/08/14/gotcha-morgan-kelly-gotcha-right-back-sunday

To the extent that these folk are well connected, they will probably manage to have their losses covered one way or another. Our legislators and civil servants are well practised in constructing Irish solutions to Irish problems. The trip to Australia is for lesser folk, who don’t fall within the Pale

@ John Foody
‘Having said that my hope is that, as a country we eventually shake off the ‘be a professional’ and own a house and rent out a few apartments idea of wealth and/or success. I’m rooting for set up a business, fail, set -up another fail again, set-up another make a million and employ a few people. Eventually leading to a – hold on to the business and give the country a Nokia’

We have a few Nokias. They just don’t employ many people in Ireland any more. The reasons include some of those above. If the state goes wallop, of course, we might get a more enterprise friendly constitution. Or God knows what.

@ Karl,

Yes, I agree that Morgan’s record is a shining light when many people (including me) weren’t even looking in the right direction.

A debt-forgiveness scheme will be a divisive issue. If there are some people excluded because of their lender or the type of mortgage they have it would be even more so.

The best I can conclude about the €55 billion is that it is mortgages in the covered banks, excluding securitised loans. That is only a guess on my part so I did not include it above.

The headlines over the past few days are that there is a solution to our mortgage crisis that would cost €6 billion. In the light of the cost of the land and development loans transferred to NAMA this is indeed “good news” and it would not be unreasonable for people to expect this to be implemented. But €6 billion will not allow a 50% writedown on 20% of mortgages.

I am opposed to such a general debt-forgiveness scheme. The majority of Irish households are meeting their loan repayments. The loan liabilities of households are falling by about €3 billion a quarter. A case-by-case approach to determine which loans are unsustainable would be more appropriate.

@ Dork

‘Central bankers only see the volume of credit – they seem blind to its quality control for some reason.
Its as of they never played with building blocks and sand castles when youngsters’

+ 1. Still believing that money is a veil over real economic activity, and in general equilibrium theory etc. I agree it looks hopeless when that’s what passes for global expertise.

While the number of Euro billions required for this scheme is important I would like to know why I as a taxpayer should fund a debt-forgiveness scheme at all ?

@Paul
It far better to spend money into existence that will pay down private debt – but this money must be spent on sustainable productive endeavours.
I would however fear the CRHs of this world will move into this goverment sphere again.
I am simply making the observation that we don’t produce any car parts or oil in this country – so therefore it makes sence to reduce the resourse intensity of this limited island and also simultaneously provide the money to pay down private debt.
I am not proposing that unskilled labourers build famine relief boundary walls or some such.
http://www.geograph.org.uk/photo/1958316
But are the guys who were building the western rail corridor sitting around watching telly now ?
Setting up a New NAMA like agency to administer who gets free famine relief and who does not is a appalling vista.

@ Dork and others.

Hey Dork, perhaps we could stock up on gold this way?

‘North Korea’s Gold Farming’

http://terranova.blogs.com/terra_nova/2011/08/north-koreas-gold-farming.html

I had some thoughts on how to work it (from an operational perspective) http://www.mortgagebrokers.ie/blog/index.php/2011/07/28/debt-forgiveness-an-outline-of-how-it-would-work-if-i-was-in-charge/

As for some little facts I picked up along the road in work: PTsb only did 5 mortgages of >€1m in homeloans, on loans for investments there are lots of them but not all on one property – often one mortgage is cross secured by several underlying properties.

I might beat the bushes some more next week and find out how many are in each covered bank, I think it would help advance the debate generally.

@Gavin
Bitcoin Gold ? maybe – I never really understood the concept really – although I noted official concern from the bankers federation which may be a good sign.
However this guy -Stellaconcepts – rips into the concept of money that is not a unit of account , he is always worth a listen – he sold all of his silver a day or two before the Spring crash !!

http://www.youtube.com/watch?v=oHw6fldrObo
In the second video it is obvious the Bitcoin supporter does not know what he is talking about.
http://www.youtube.com/watch?v=7bE24t8vj7Q

I would prefer to head for the Scottish hills with a pan then get involved in a concept I don’t fully understand.
http://www.youtube.com/watch?v=MeKcv2w6Qvk.
(ps the guy at the end overvalues the gold price enormously)

Can some of the advocates of mortgage “forgiveness” have a go at a bit of a puzzle.

Say family A managed their finances reasonably prudently during the boom, perhaps they were even wise enough to not really trust the possibly bubbly property market. They took out a mortgage they were unlikely to had difficulty paying in most scenarios, but this meant they could only buy a modest house and not one near enough to the best schools.

Family B went for it. They stretched their imaginations to maximise all sources for a deposit, obtained the biggest mortgage they possibly could and bought a nice, big house that would give their children access to a really good school education.

Family A can still pay their mortgage.

Family B are having a lot of difficulty doing so, and are behind with the payments. The bank hasn’t foreclosed, and is not likely to for reasons most readers of this blog will be familiar with.

Taxes paid by both family A and B are used to recap the bank family B owes a lot of money to.

Should that bank “forgive” enough of family B’s mortgage to allow them to keep living in the nice big house, in the nice neighbourhood, while their children continue to go through school obtaining a superior education to the children of family A?

Now I know there are lots of cases where this sort of perverse situation doesn’t come into it, but that does not mean it is OK to just wave your hands around a bit, say we shouldn’t get too hung up about “moral hazard” and ignore this and similar questions.

Where are the details, the properly though through proposals on mortgage “forgiveness”?

By the way, what has been done so far by the “new” government so far about the rule preventing creditors going after family mansions? There was pre-election talk of an upper limit on the value of a “family home”. Anyone know where the legislation to correct that absurdity has got to?

Debt forgiveness implies charity/free money…defaults on the other hand are more of a necessity.

I wonder how many mortgages are truly in the red ? As in how many have an outstanding balance more than rthe current value, and have people not paying/paying too little ?

Then the bank needs to figure if the mortgagee, might impove their income prospects (e.g. new job). The problem is that Ireland is a small, open economy – so such a prediction would in fact be equivalent to predicting global recovery.

I think what is needed, is for the banks to choose a (somewhat arbitrary) ‘day of reckoning’. The smoke may never clear globallty, so I suggest June 2012.

The question then is, what do the banks do with properties they foreclose on ?

Hogan,
the net worth of those that invested in bank shares has been destroyed and the net worth if those that bought houses has equally been destroyed. However only one actor is to be compensated by transfer from the taxpayer. Why, I ask?

@ Gregory Connor.

“Mixing up these two activities in this way would destroy the objectivity of bank accounting standards.” Bit late for that Gregory. What standards? What objectivity? I’am surprised that a seasoned commentator would say this. The triple ‘A’ rated loans were collateralised, the banks audits were worse than misleading, prudential lending went out the window, fiduciary obligations were completely ignored in the pursuit of bonuses and salaries. I would love to know or see the objective figures that were put in front of the late Brian Lenihan and who cobbled them together. The auditors should be before our courts explaining themselves, instead they have found lucrative employment winding down the organisations and developer portfolio’s their former bank clients could not get enough of. In fact, it is boom time recession proof employment, with the likes of NAMA’s Frank Daly even having to issued a few hollow sound bites on regretting “having” to employ the big 4. If this were the US they would be in serious, serious, trouble. BoI expanded its’ loan book by 100bn between 2004 and 2008 after taking 221 years to reach 100bn. They did this with full cover from auditors and the accountancy profession who never uttered a syllable of protest.

In Anglo’s case the auditors might, just might, have to answer for some of their rather quaint accounting conventions.

@ Brian Woods Snr

Well, we already had I think it was Olivia Green Mr, Fingleton;s personal secretary, telling us in an RTE documentary that loan cheques were delivered before loan documentation was even filled in and completed. Of course that was for important people. Oh! and of course people were being given more than the asked for almost as a matter of course.

Forget debt-forgiveness, it’s guaranteed that those who benefit will not be those who deserve to benefit. If you can’t afford to pay your mortgage then there should be a method for the bank to (very quickly) take ownership of the property and allow you to rent it. If you can’t afford the market rent, then move somewhere else. It’s just a house. The banks can then call in Allsop’s and get some cash back on their balance sheet. 50-60% of the book price today shouldn’t be sniffed at.

I say this as someone who owns a dog-box apartment and needs to cover the the guts of 100k before I’ll ever be able to shift it. But this is my problem and I’m willing to tough it out. What I’m not willing to do is pay for someone else to live in the style to which they’ve become accustomed.

I have never understood why the Govt didn’t just buy the mortgage books off the banks, wind the banks down and set up a single state bank.
Owning mortgages would allow the state to adjust interest rates etc and actually make some money from the performing loans.
Seems daft to have ploughed in so much capital just for overseas investors to make some dough

@Grumpy

Speaking as a Family A representative, I’ve given the matter a lot of thought and concluded as follows. (Quoting now from a 2009 column…)

“Demanding that borrowers pay back every last cent, but giving them a lifetime to do so, will add to our problems, not cure them.

How does weighing down a generation with debt, and expecting gratitude for not putting them on the street help the economy? We need to get things moving again and anchoring tens of thousands to their past mistakes will fatally prevent this.

The right thing to do for the economy, if not for the moral imperative to pay what we owe, is to let people wipe the slate clean and start over – declare bankruptcy. Pay what you can and do a Phoenix. When banks, developers and businesses do it we spit bile, but the reason we let them do it is because it benefits everyone in the long run.”

Forcing people to pay back all that money renders them economically useless for their whole lives. We just have to accept – as Americans do – that making financial mistakes happens and in order for everyone to benefit in the long run – we have to forgive and forget….The spending won’t start til the debts are gone….

Hogan,
you are right and wrong. The property investing class at the peak is largely bankrupt. The various people called Sean illustrate this. The senior owners have been looked after courtesy of the ECB.

@Tull
“The property investing class at the peak is largely bankrupt. The various people called Sean illustrate this. The senior owners have been looked after courtesy of the ECB.”
Courtesy of NWL, we have had 9 bankrupts so far this year. Now, you can try and tell me that they comprise the property investing class of the peak, but I doubt I’ll agree with you.

That they owe more on their debts than their assets are worth, I’ll grant you. That they will be called to pay as much as they can, I doubt very much.

Which brings us nicely to @Eureka:
“I have never understood why the Govt didn’t just buy the mortgage books off the banks, wind the banks down and set up a single state bank.”
If the government wanted the mortgage books and were going to wind the banks down, they needn’t have done anything so stupid as to buy them, they could just have liquidated them.

It does beg some questions:
Who would pay depositors and bondholders back?
Who would collect mortgage payments?
Who would enforce payment?
Have a look at water rates and see how successful councils are at collecting them. The state is very poor at collecting money owed to it.

But the main point, if you think NAMA is bad and corrupt, how much more bad and corrupt would state mortgage banks be in allocating who gets writeoffs and to what proportion?

PS dramatically increase the tax on cars – (a extra 1000 euros should do it ) and less money will leak from the country as people reduce our imports and thus have more money to save & spend locally.
Carpools would be all the rage for 2012

Dress it up as a environmental measure blah blah blah – of course our state is not independent even in fiscal matters so the conversation is entirely acedemic.

@Sarah
“how does weighing down a generation with debt…..help the economy?”

It doesn’t but the point is that the ” weighing down” has already happened and unless you want the money supply to enter a tailspin (and economic activity to go with it) the debt has to be repaid…that’s the point! That unfortunate generation has already been weighed down with debt and “forgiveness” is really only a discussion regarding who should bear the burden that ALREADY exists.

Some say the burden should be shared, that the prudent should step up and, through higher tax rates on their production, they should accept to pay…obviously many prudent people say no to this…..

@ Eureka + Al: What Eureka suggested was one of the non-discussed options. Why, I wonder? Oh yeah! The sky would fall down! No, that is not good enough; There will be TANKS in the street!!! Oh! Irish army has no tanks, so it has to be the sky! 🙂

[Anyone rem the 10 week bank strike (er, lockout) some time back. Sky is still up there. And banks ????]

@ Niall: My son is in a somewhat similar situation – and lost his job to boot! He’s on crutches (me on the left, his ma on the right!!!). Calvary!

@SC: Hi! You are being irrational again! 😉

@RB: Thanks Robert. This mess is set to run a tad longer and we have only been served up the hors-d’oevre so far. Just wait until the entree arrives! Hope you like nettle, briar and thistle souffle!

@ hoganmahew: No one gets paid back H – that’s the biggie. You press the ‘RESET’ button: you lose all unsaved files. Owners of res property are left with assest worth 1/10 of original – but all properties are ditto. The owners are let out of Debtor’s Prison, is all! They will have to pay something for shelter, but it will not impoverish them. All options are bad.
Shareholders and bondholders will have to file. That’s Capitalism for you.

Brian Snr.

@Al
Dem acedemics are terrible chancers……… nah just being a simple Cork Dork – must rush to the pub now for my Beamish ration…………………….

BW snr.
Shareholders have been wiped already, subbies all but as well. Depositors are protected by domestic politics and bondholders protected by the ECB. So it is the prudent that have to pay for the imprudent.

@grumpy @tull

To clarify – I don’t mean magically wipe the debt away, I mean a reasonable bankruptcy process. So 2-3 years instead of 12 ( I believe 5 is on the table) and a cheap method of filing (in the UK you can do it online; here it’s 30k high court proceeding).
So, do a short sale on the house, and pay off what you can over the discharge period, but after that, let the bankrupt start over.
What I’ve seen so far are proposals to pay the mortgage over 50 years (perhaps even leaving the kids a mortgage instead of a deposit!) – carrying debt from one mortgage to another etc ie, keeping that debt all your life. It means you never have disposable income or the wherewithall to reinvest.
With regard to hypothetical Family A strategically defaulting, I think these fears don’t take into account ( and Morgan Kelly’s original catastrophic predictions of mass mortgage default didn’t either) the cultural imperative to hold onto one’s home. I genuinely can’t see strategic defaults happening in our culture. (Though I couldn’t see FF being reduced to it’s current size, so I’m not big into certainty anymore…)

So it is the prudent that have to pay for the imprudent.

A lot of these “imprudent” people, just wanted a place to call their own. They were forced by reckless speculators, cowboy developers, and feckless banks to pay almost half a million euros for badly constructed suburban cubicles, nearly two hours drive from their place of work.

At the peak, if they wanted a house, they faced the prospect for taking out a ridiculous mortgage now, or waiting six months and paying 10% more. They were assured by virtually every economist, bank, commentator, and newspaper in the country that the boom would continue indefinitely. The trust which house buyers placed in the professional property establishment was sadly misplaced, to the enormous loss of those who took out the 203,953 mortgages in 2006 alone.

Now, if it decides so, the government can decide that these people–who just wanted a house, a dog, and 2.6 children–are recklessly imprudent people who deserve to be punished. Who deserve to lose their home and be placed in bankruptcy for 5-12 years. Maybe we can have a few debtors prisons and public floggings while were at it, while bankrupt bankers who broke the nation wine and dine in handsome mansions in Boston. Vae victis and all that.

Anyone who thinks that is going to fly in Ireland had better open up a history book and read about the Irish Land Wars. Right now, the hundreds of thousands of broke borrowers are scattered and isolated across the country. But if they ever managed to unite into organised protest/political groups–and the Government can use little more than propaganda to stop them doing so–they would become a formidable political force, with a lot more influence than blog commentators I can assure you.

@ karl suggest you consider extrapolating the four banks losses to the full owner occupied book of 116bn (March). Results are: central bank base case €5.5bn, stress case €8.8bn and Blackrock base €8.9bn stress €15.89bn and these do not account for the lower rate applied to BOI’s book ie CB BOI base was 3.1% whereas CB AIB base was 5.6%. Anyone got an explanation as to why BOI’s loss rates were significantly lower than the other three banks?
Looking at arrears stats: 49,000 loans of €9.5bn over three months in arrears . Of the 62,900 restructured loans 40% (26,000) c€4.9bn are included within the 49,000 figure – having been restructured they are in arrears. I have estimated based on property value declines of 60% that on average these loans are 96k in negative equity. The peak boom time mortgage loan cohort (90%+ LTV) are looking at losses of at least c€150k per mortgage. Now factoring in the loan loss scenario – somewhere between 50,000 (central bank) and 105,000 (blackrock) repossessions, cram downs, short sales or debt/equity deals are needed.
MK’s estimate certainly appears to be on the low side.

@JR
Tip of the hat, sir!

@All
By the way, how do you do that indented gray quotation of previous post -‘thingy’?

@John Foody

Use HTML’s <blockquote> tag. Some other HTML tags work too.

@OMF and Sarah,
Your comments are, unfortunately, only a confirmation to me at least, or how controversial and, ultimately, impractical, any formal debt forgiveness is. First, OMF, you cite a perfectly valid story of the first time buyer, or at least the honest one, who got caught up in the hype and essentially ruined his/her future because of it. Sarah says allow bankruptcy and leave these people in their house and then she says, that for cultural reasons, people won’t strategically default.

The problem is, for every story of the innocent striver, there is another of a greedy feckless speculator and hog’s figures suggest that there are more feckless ones than there are innocents. And Sarah, you may be right that, under current legislation and societal mores, a strategic default is unlikely, but what happens when you change the rules? If I see my neighbor get a freebie, why wouldn’t I do the same?

Finally, all of this could be moot…residential borrowers have one enormous advantage over the government and the banks, and that is they are more numerous. Already, we know that banks are not foreclosing on defaulting mortgage holders because it is politically toxic and it is impractical to realize the true value of the house. If a street of houses decides to default, and if evicted, NP, just rent next door, the banks can do very little about it. It really is all about numbers…the problem is…..once you open that door…….

@John Foody

Use HTML’s

tag. Some other HTML tags work too.

Cheers

@ All

This is playing very big in today’s Sunday Independent.

“Mortgage debt plan ‘will save economy'”

http://www.independent.ie/national-news/mortgage-debt-plan-will-save-economy-2853846.html

And related articles.

The Sunday Independent is today dealing with this subject across a wide front.

Does anyone know who the “American economists” are in the following extract

“As American economists called for “capital adjustment” (debt forgiveness) in house prices”

http://www.independent.ie/national-news/mortgage-debt-plan-will-save-economy-2853846.html

@bolshevik
😀

I wonder if Mr. Coleman no longer believes that the best is yet to come? What do we do about those that cheerled the bubble, dismissing all criticism and are now looking for debt writeoffs for their poor judgement? Are they victims too? Even though they still tell us that property is a one-way bet? Well, I suppose if they get their writeoff, it will be a one-way bet…

Pucker up fellows, you’re going to be paying for their lifestyles…

@hogan mahew @robert browne

re the culture.

Homeownership is a creed. Just compare Ireland to the UK and you can see that our society is, despite our sink estates in notorious areas, still cohesive and holding together despite the pressures of recent years. Obviously the longer this recession goes on, the more pressure we’ll have to endure, but right now I don’t see the middle class values of the bulk of Ireland breaking down.

For 3 years I’ve been reading angry columns by journos wondering why people aren’t on the streets being angry because they were “raped and pillaged”. I’ve always argued it’s because they were participants in the problem and not idle bystanders. They borrowed too much. Their signature is on the documents. You can’t riot against the government for your bad decision. (And remember The Pope’s Children aired in 2006 with DMcW LAUGHING at people for spending too much money on one house and then buying the stupid holiday home on top of it). No one can say they weren’t warned.
Anyway they did the sensible CONSERVATIVE thing, which is what Irish people are – CONSERVATIVE – and saved their anger for the ballot box.
That is the culture I am talking about. We are an overwhelmingly conservative people and that is how we will act. So no. No running out on debts. IMHO.

btw I live/grew up in a rural area and having lived in various parts of Dublin it always struck me how easy it is for people in urban areas to pick a bubble to live in – and then never mix outside it. In rural Ireland different classes live side by side. So I’d argue that I see, mix with and am friendly with a much broader slice of Irish society than anyone who lives in a “nice area”. Anyway, I think plenty of people in “nice areas” spent too much and are in big trouble. But they are “nice” and won’t be doing midnight runners.

@John Foody

I’ve made a point on not watching VB all summer in case the other presenters freak me out! I saw 10 seconds of Ganley last week introducing the show and thought WOW! Presence! Not sure how his questioning went after that but he certainly seemed formidable.

In relation to Ganley I have always admired his debating style (he HAMMERED Jim Higgins during a Lisbon debate) and trust me, after everything that’s happened over the past few years I’ve had my “EEEEK! Was I on the wrong side in Lisbon” moment? If I was, I completely approve there was someone on the other side arguing against. Consensus is dangerous so he did us a favour.

However, when I think about our relationship to the euro/ECB I still think we are better off in rather than out. I think if we were out we would not have raised interest rates because, just as we were to sterling, we would have been informally linked to the euro anyway and we’d have been Iceland. We’d have made the mess all by ourselves but without the ECB to get us through.

I’ve been watching the “Oh but Iceland is fine now!” meme and not buying it. The core is not doing us any favours, but I still don’t want to be eating fish. I hate fish.

We’ll get through this with Europe and thank god for the glorious word – VETO.

As for my VB plan! Well I’ve never believed in presenters beating up guests or pushing their own agenda too much. I’m going with good humoured, informative, constructive, debate. Even though I think most people tune in for the car crash moments! Fingers crossed. Am nervous and hoping my jackets aren’t cause for comment.

So fair enough, 6Bn should be set aside in next December’s budget for easing the hardship of those who have suffered from the financial crisis. This will of course require massive taxation and expenditure adjustments elsewhere if we are to honour the EU/IMF deal.

The Minister for Assisting Victims of the Financial Crisis will have many valid claims on her 6Bn budget. Those in negative equity who have kept their jobs and whose mortgage repayments have actually fallen wouldn’t even be in the queue.

There are many examples of nieghbouring houses sold throughout the country for vastly different prices in the space of a few years. Suppose for example that 2 houses were sold for 200k and 270k during the boom. Now if I paid the 270k, I am already fairly unhappy that you got one for 200k. Suppose debt forgiveness is brought in and I am able to avail of it, perhaps the person in the 200k house looks at me and says “well I guess thats fair, he overpayed”.

Now think of the contrasting situation, suppose I am still able to meet my 270k, possibly by working multiple jobs and/or my spouse working. However the person in the 200k house works part-time and so struggles to pay. Debt-forgivenss leads to them paying <150k perhaps. Now I paid 120k more to live next door to them – I work my multiple jobs while that person works part-time and ends up in almost the same position as me (or a better one). Am I likely to say “well I guess thats fair because…”?

Suppose also that they are able to work multiple jobs in future – is their debt re-instated or do they just get to enjoy a much enhanced standard of living? These are the direct results of debt forgiveness.

@Ragusa

Nope, mate, not only are you living in a utopia dreamt up by the banks but you’re doling out their rubbish solution for homeowners while at the same time giving a digout to commercial of property owners through NAMA.

There is no historic precedent as you suggest. Unfortunately the same lame duck arguments appear all the time suggesting we can dig our way out of this similar to the digout we had in the 80’s.

The difference between now and then is the massive amount of personal debt that needs to be dealt with unlike the burden posed by debt in the 80’s.

This debt is out there as personal debt, mortgage debt, bank debt, sovereign debt.

If you read my post more carefully you would see that it is a formula to put into place a Government sponsored Mortgage Debt Relief Programme that would satisfy the requirements of your:

“The writeoffs for negative equity cases are included in the bank recapitalisation capital requirements of the Banks done by BlackRock in March but the resolution mechanism needs to be put in place by Government and the Banks.”

The resolution mechanism I outline should have debt writeoffs. It should allow for retained possession of family homes on rent/lease basis as outlined above. It should allow debt buybacks by the individual. But most importantly, it would avoid repossessions and people losing their family homes as currently is the case.

There ought to be a populist movement to demand the above rather than the case by case bully tactics of the banks seeking to pressurise individuals and families, divide and conquer using partial favoritism, the sleazy world of smoke and mirrors deals behind close doors we need to get out of.

The Mortgage Forgiveness/Bankruptcy Reform/Debt Relief package needs to recognise two things:

– A proper solution for the here-and-now and for the way forward.
– A settling of scores for past sins.

On the proper solution – from2 years ago:

http://www.thepropertypin.com/viewtopic.php?p=324624#p324624

Banks should be incentivised to deal with their historical mistakes. It was their job to make prudent loans. If they advanced monies without appropriate checks then they mis-sold. For this they should pay. So any mortgage since 2001 becomes eligible for review and can be submitted to a complaints procedure.

For those who borrowed above and beyond their means the job of servicing this debt leaves them facing a default. Defaulting on a loan in negative equity is no solution. Defaulting on a loan that is performing at the moment but could become impaired is a dread – why continue to carry it when the outcome looks inevitable and by which time the loan could be in negative equity?

Two things have to happen in tandem to offer some hope to the lender and the borrower.

Firstly, the bankruptcy law is changed to allow defaulters to be cleared of all debt after 5 years. Secondly those who have existing mortgage contracts with the bank are offered an optional upgrade. They can stick with their existing loan which isn’t covered by the new bankruptcy law or they can switch to an upgraded loan which forfeits the right to a mis-selling application but benefits from being covered by the new bankruptcy law – but only after 5 years of servicing the upgraded loan. Any new loan application is automatically covered by the new law.

New loans being covered puts prudence back in the system and allows lending, and house prices, to adjust to a new market level with the risk priced in. Loans which are upgraded give the bank the comfort of knowing they are getting customers committing to at least 5 years of continuous performance, enough time for both parties to start to put their houses in order. Old loans can and should be subject to a review for mis-selling. The lessons of the past should be learned and doing this whilst operating new loans under harsher conditions highlights why the new system requires a return to proper risk management.

People who borrowed now have a choice – they can role the dice and seek redress or they switch in the knowledge that there is an opportunity to meet their obligation but that if things go wrong they can default at some point in the future without too onerous a consequence. Banks will get a handle on their cash flows but will also be forced to cleanse the system.

On the settling of scores for past sins:

Bill Black explains the institutionalisation of fraud:

http://www.youtube.com/watch?v=Rz1b__MdtHY

And how should this be dealt with in Ireland? Well… since you asked (expletives tweaked for the more sensitive eyes round these parts):

http://www.thepropertypin.com/viewtopic.php?p=495264#p495264

What needs to happen is people need to think about things in a 180-degree way.

Currently the commentariat will bang on about moral hazard, saving the banks and debt forgiveness – with all the focus on the here-and-now.

This is completely the wrong way of looking at this.

F*ck the banks – they’re not part of the solution.

All the damage was done in the bubble years. This is just the fallout.

What we need to do is start jailing f*ckers for the damage they did in the bubble years. Accountability for the damage inflicted.

Start doing that and all the poisonous, illegal stuff will start to be revealed – and those who were criminally defrauded can start to seek retribution.

We’ve had a massive fraud perpetrated on the population through a housing bubble. Any efforts to seek some small relief from the fraud only ends up legitimising it.

F*ck the banks.
Let ’em die.
Jail the corrupt.
Learn from our mistakes.
Grow up.

@Shay

thanks for blockquote tip, rushing makes you forget them, here’s another:)

Jesper
Yes.

@ Shay Begorrah

Less is more, only better.

Well said. Unless it comes to chocolate cake. In which case more is better.

hey! my correct brackets disappeared..the mysteries of html

it’s

Dork of Cork – ‘Politics.ie’ would welcome your line of thinking/contributing…

@Vinny
Are you sure ? – It seems I have enough adversaries in cyberspace.

I note today (Sunday Times) that NAMA are considering 37 billion of debt forgiveness for developers. That really puts this debate in context.

The Sunday Times has been reporting for two weeks now that NAMA are to grant 37bn debt forgiveness to developers. All they have to do is find the discounted monies paid to the banks, not the full amount.

Didn’t someone, somewhere once say they would be pursued for every cent? i.e. treated the same way mortgage holders in difficulty are treated?

I’m starting to turn into a lefty… every time I read about NAMA I turn into a lefty.

@ Marcus ORaghailligh: Some much needed sanity on a very vexed issue. Our legislators have to take control of a predicament that they have no experience of dealing with.

Presumably we will observe all the un-workable options being pursued with vigour. until … …

Currently, Sentiment is ahead by several lengths, but Reality has the inside track and will make up ground round the turn and up the hill to the finish line. I hope!

Brian Snr.

Brian G
Would it be akin to a highly regressive tax?

@Eamon

I recognise a relation of mine in that exact description! Bought an apartment in an outer outer suburb of Dublin, it’s badly built and she will never ever pay back the mortgage. Walking away looks like the only sensible thing to do.
But I think we keep mixing up what we each mean by “debt forgiveness”.

In my original article I mentioned the proposal that some favour – short sales. So you manage to sell your hated home for less than the mortgage and the bank agrees to take whatever you can get for it as full settlement. I think there is merit in that. It allows people to move on – literally. Especially for those who still have jobs. In other words, it would effectively transform some mortgages into the non recourse loans we see in the US AND if that kind of product had existed here and was introduced now it would mean lending institutions would think far more carefully about how much money they were lending for houses. The risk would transfer from the borrower to the lender.
But doing so retrospectively would have to be organised on a case by case basis so that strategic defaulters can be weeded out (and for example checking that the new property to be bought is a genuine move and not buying the house next door for a cheaper price…)
However, what I am talking about is much larger scale reform of the bankruptcy laws so that ALL debt – including the mountains of personal debt still out there – can be managed constructively. That to me is the only way to solve the total debt problem and avoid strategic defaulters.

That’s why I think bankruptcy reform is the best bet.
AFAIK Eamon Ryan was pushing this at cabinet and the proposals were to reduce the charge period from 12 to 5 years. I’d cut another couple of years off that.
We don’t need to wonder about theory. Just look at how the US and UK do it.

Also you guys are still assuming that there will be 6bn of debt that will never be paid. I’m still working on the assumption that the social moral code will apply and where possible, people will try and pay, especially on their family home.

They are not all in apartments…..

hmmmm. I haven’t been following the technicalities of the figures so I won’t make a judgement on which is the better one.

To be honest, I thought that his figure was solely in relation to the investor buy-to-let-interest-only which is why it was lower when the conversation evolved into owner-occupier negative equity. But perhaps I missed something. (sometimes I think commenters should obey the Krugman 3 inch rule).

Anyway, as to his motives, I can’t figure him out (have to meet him and apply my female intuition) though what the SINDO accused him of was shooting first and doing the maths later. (which he kinda admitted to).

Anyway, I’m afraid I’m a middle of the roader on this one. A resolution must be found in order that all these home owners aren’t prevented from contributing to the economy when things settle down. But I can see the sense in a case by case basis of solving the debt problem because the recovery, such as it is, depends on gently does it, not more shocks. I think the government is right to rule out wholescale debt forgiveness (ie mortgage write downs) but they really need to get their act together on bankruptcy. 3years into the crisis and no reform is ridiculous.