Homeowners Need Help Post author By Philip Lane Post date August 22, 2011 Today’s NYT has an editorial on debt workouts for homeowners: you can read it here. [By the way, the NYT photo blog has a nice photo essay today on Ireland’s Ghost Estates here.] Categories In Uncategorized 9 Comments on Homeowners Need Help ← A Review of Irish Energy Policy → Principles of Household Debt Restructuring 9 replies on “Homeowners Need Help” Not more help from banks !!! – enough with the help thingy. People need to help themselves by defecting from the debt trap – as the entire state structure is a debt engine and not what they have been led to believe. The housing estate infecting that beautiful drumlin was especially sad – such visual vandalism must effect peoples heads in a fundamental way – I know it does mine , it robs us of something beyond the mere physical The credit monster has scoured the shire – , we must make the connection between the CB and their Orcish army. Perhaps Irish people need a more basic numerical education with a simple moral theme – Central banks bad , Freedom good. http://www.youtube.com/watch?v=dSiVZ524yW4 Some of the most specious reasoning I’ve ever seen…it opens with suggestions of criminal conspiracy…then hops to debt forgiveness as if the case were somehow made. Fiddly fingered NYT types were behind the Fannie/Freddie fiasco…and they should indict themselves firstly, rather the promulgate facile populist ‘solutions’ @ Dork of Cork But Dork don’t you know they had to get “Planning Permission” for it. Homeowners do not need help – debtowners do. This much should be clear from the crisis at least….. Don’t know how they ‘do it’ in Ireland, but in the US, a homeowner cannot get a loan without the lender conducting an ‘appraisal’ of the property’s value as, again in the US, the property is normally the sole collateral for the loan. Thus the typical buyer relied on the bank’s appraisal to protect them from paying too much for their house as the buyer does not have the expertise the bank does in comparable sales, market conditions etc. Unfortunately, due to securitization of mortgage loans and the resulting failure of prudent loan underwriting standards, this simple but effective mutual protection system broke down. Where credit was extended to unqualified buyers the bank could generate the sale prices that lured other, more qualified buyers, into paying too much for their home and pass the toxic loans onto other hands. That Ireland has a legal system that allows the bank to pursue such a buyer for a deficiency judgement even when the buyer relinquishes title to the property seems a gross injustice IF Irish banks were anywhere near as complicit in fueling a housing bubble as American banks were. Again, key assertions in the article include phrases like this “But many of today’s troubled borrowers were not reckless. Rather, they are collateral damage in a bust that has wiped out equity and hammered jobs, turning what were reasonable debt levels into unbearable burdens.” While I’d agree that most of the people who bought houses are not “bad” people in any way, the assertion is that there was no recklessness. Is that really true? Really? Wasn’t much of the madness in Ireland and the USA actually recklessness embodied? Isn’t it actually going to become a historical example of recklessness that gets mentioned alongside Dutch tulips? Who hasn’t seen the clip of the woman in Adamstown who breathlessly tells the camera “When I woke up this morning I had no idea I was going to own a house by this evening…and yet here I am!”. I confess that I know nothing about that particular woman’s finances so she may not be an example of anything, but that clip was presented as fairly representative of the tone at the time. (note, the above is my paraphrase, not verbatim quote) Apologies if this is a bit of a basic question but can people in negative equity move house if they downsize? Could somebody bought a four-bed house in a middle-class area 2007 for €500k and could sell it for €300k now and trade down to a €200k three-bed in a less salubrious neighbourhood? It wouldn’t solve the problem but it could knock a slice off the negative equity and reduce their mortgage. What irks me about this is the rarely-articulated idea that people are entitled to aspire to – and get – a family home in or around the area where they grew up, regardless of their actual income. The status quo need not be maintained. Of course there are people ‘stuck’ in homes that they think are too small or that are located in an area from which they had intended to move after five or ten years. But there are people born in disadvantaged areas who feel stuck too and they have little chance of getting out. The people whose houses are unsuitable for their families are one thing, but the ones who bought big regardless of their actual circumstances just don’t deserve to have their lifestyle buttressed by the rest. It’s like when the music stops everyone gets to keep what they have. So the guy who grew up in an inner city flat stays there (with poor job prospects and falling social support); the chap from Terenure who bought within his means in Drimnagh ends up staying where he is; and the guy he went to school with who borrowed twice as much in 2007 gets to keep his four-bed in Templeogue. I’d like if the guy who over-stretched himself could trade down to Drimnagh (no offence Drimnagh; it’s just cheaper than Templeogue so it serves the example) and the sensible guy can now trade up given that the gap between his two-bed in Drimnagh and the house he wants in Templeogue is narrowing. Meanwhile, the guy from the flats is barely much better off but at least the pot of money the government has to spend on public hospitals and schools is not being raided to bail out (a specific subgroup of) the middle classes. A bit of downward mobility for those who were unwise, and upward mobility for those who acted responsibly, is in order. Ixelles, +1 on the sentiment The problem is the 500 mortgage has to be repaid at the time of sale so the seller has to bring cash to the closing, I believe. Not surprisingly many don’t have that cash. The bank won’t lend to 500k on a 200k house ex ante ( meaning that it lent 500k on what it thought was a 500k house, the fact that the house is now 300k is less important from the bank’s perspective but to actively allow a new mortgage for 500k be secured by a 200k house, is a problem) The whole system gets jammed up on the way down, but it accelerates on the way up….the downward mobility has to come from a) lose your house b) rent or move back in with relatives and repair finances and c) buy smaller house Thanks Bklyn_rntr. I knew it sounded too good to be feasible! Comments are closed.