Irish Times on Mortgage Arrears Deals

An interesting article on property debt restructuring deals by Mark Hilliard in today’s Irish Times, “Secret Deals on Mortgage Arrears Raise Concerns.” For many of us it will bring back our graduate school days studying Stiglitz, Rothschild, Ackerlof, Spence et alia on information revelation and efficient contracts. The laudable goal of the Irish mortgage debt arrears policy is to ensure that almost all householders who cannot pay their mortgages can keep their family homes. The difficulty is that it is virtually impossible to distinguish can’t-pays from won’t-pays except at untenable cost and personal privacy intrusion. So the unwritten “policy” is to restrict the flow of information to consumers regarding restructuring terms and conditions. This is intended to limit the flow of potential won’t –pays into the system. In the article, Noeline Blackwell of FLAC is quoted lamenting the lack of a clear detailed list available to consumers in terms of debt restructuring options. She is correct, but this lack of information is not a bug, it is a feature of the evolving Irish system.

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119 thoughts on “Irish Times on Mortgage Arrears Deals”

  1. The Irish Times property editor,and the other Irish Times property journalists might wish to offer their advice to families trapped in negative equity etc etc.
    Perhaps the Chairman of the Irish Times and former CEO of Irish LIfe and Permanent ,David Went might wish to pen his thoughts on this issue.

  2. @ Gregory Connor,

    As I’m sure you’re aware, banks create the money they lend by typing a higher bank balance for the borrower. Although they create only the principal of the loan, they somehow expect the principal plus interest back and I would see this as the root cause of the mortgage arrears problem.

    Can you acknowledge from this that it’s systemically impossible for every loan to be repaid?

    What are your thoughts on having some, or all, of the nation’s money created publicly without a matching debt such that it would be possible for all loans to be repaid? In other words, why don’t you suggest that we should provide an adequate money supply from which to repay out loans first and then deal with those in trouble from there.

    On a more general note, banks have only ever created & destroyed the nation’s money supply in a haphazard way and I think that we will never have a stable economy while the money supply is at the mercy of the bankers’ mood swings. Can you describe to me how the current system is expected to provide a stable foundation for the economy?

  3. @Paul Ferguson — I do not think that there is a stable “current system” in the Euro area, but rather we are in transition from a clearly failed Euro area monetary/financial system to a new Euro area monetary/financial system, and is still is unclear what the new system will look like — let me get back to you with a better answer in five years or so.

  4. Interesting comment from IMF today in their review if Irish fiscal transparency..

    “The government prepares two sets of annual accounts which are audited and published within nine months of year-end, but neither provides a comprehensive overview of the central government finances or follows international accounting standards though they do conform with domestic legal requirements. ”

    http://www.imf.org/external/pubs/ft/scr/2013/cr13209.pdf

  5. @ Gregory Connor.

    Cheers for the reply.

    And what of the systemic inevitability of loan defaults? I know it’s not as simple as P < P + I but it’s surely a huge factor in the mortgage arrears problem. I’m always curious when economists lament the extent of the mortgage arrears problem. Can you see how it’s not feasible for all loans to be repaid, regardless of how prudent the banking sector might have been?

    I’m also curious when economists express surprise at the extent of our debt problems when we have such a debt-based system. If we wish for more money in the economy it must come with an even higher debt. Conversely if we wish to reduce our debts we must sacrifice that amount of money from the economy. How is the debt crisis to be resolved under such a system? Even a banking union with common deposit insurance etc. can’t defy the money-as-debt conundrum.

  6. @ Gregory O’Connor,

    5 Years??? I think you are being optimistic there old chap.

    This crisis started in August 2007, coincidentally the 6th anniversary is approaching. A lot of financial carnage since then, and still Europe does not have a solution / pathway clearly planned out.

    If the European project is unable or unwilling to get this crisis under control, then perhaps the European project is not worth having.

    Citizens of Europe need to get their lives back, we can’t continue to live surrounded by this crisis for the next 30 years while politicians filibusterer.

    I can only speak for myself… but I am getting very fatigued, every year a new fear approaches…. Budget Day.

  7. @sporthog

    I can only speak for myself… but I am getting very fatigued, every year a new fear approaches…. Budget Day.

    Amusing fact. The UK Guardian’s Eurozone Crisis Live blog has been running since April 28th, 2010 – though not every day, there are only 451 days of coverage. It has also not always been under this name (sometimes it was Greece or a different country not bordering Germany being kicked around).

    http://www.guardian.co.uk/business/blog/2010/apr/28/greece-financial-crisis

    Then as now the excuses for inaction were an approaching German election and the European Commission’s neoliberal oath to “First, do harm.”.

  8. Hello there! I posted a comment at 12.48, just below John Corcoran’s. Anyone seen it?

  9. Sorry guys my mistake – I was running around between student meetings, saw the obsc*nities in the entry, deleted it, but sent the notification/request for censored version to the wrong email address!

  10. OK! Prof Connor – you are forgiven. I’ll re-post later using ‘excrement’ instead of ‘sh*t’.

    Anyways, the situation is very serious. The fianacials are playing Ducks-and-Drakes with us. Our government is not powerless to act, but is acting powerless. Shameful stuff.

    “Stiglitz, Rothschild, Ackerlof. Nice guys. But how about the lives and times of Charles Ponzi, Bernie M., Jamie D, and a few other ‘baddies’. Much more informative about the ‘real’ world of monopoly finance.

    “I’ll be back!”

  11. The laudable goal of the Irish mortgage debt arrears policy is to ensure that almost all householders who cannot pay their mortgages can keep their family homes.

    What in heaven’s name is “laudable” about keeping people in homes they cannot afford at significant taxpayer expense?

    If it’s so laudable, then I’d like the taxpayer to foot the bill for me to live in a house I cannot afford. I’ve got just the one picked out.

    If you think these situations are different, you’ll have to explain how.

  12. @Ernie Ball passed this evening 29 for 15 against in Senad.

    “This is a short Bill which is designed to deal with the legal uncertainty which has arisen as a result of several High Court judgments concerning lending institutions’ remedies in cases of mortgage default. I want to emphasise at the outset that the Bill does not grant any additional powers to financial institutions.”
    http://www.kildarestreet.com/sendebates/?id=2013-07-09a.105&m=1150

    The board of directors would like to say they have full and complete confidence in the manger….

  13. In order to qualify for a loan in the first place you need a good credit rating and or a job, if not and the bank gave you a loan you could not afford, or you lost your job and cant pay your mortgage then the good news is that you won the lotto.

    The bank wont to

  14. The bank wont move to take your home off you because of current legislation or because they may lose because your home is under current market valuation or they feel some vague duty to you because they are owned by the taxpayer but the end result is the same you can live in a house and pay 0-XXX while your neighbour has to pay 1900 in rent, or 2200 in mortgage payments while you can get away with paying nothing because your repayments are underwritten by the average tax payer. Why do you think social charges, tax levels etc are going up to pay the banks!

    This in no way takes away from people in genuine need who need council or other hosing needs which I agree need a helping hand

  15. There is also the risk element that is not addressed if 15-20 percent of all irish mortgages go belly up for whatever reason and losses are irrecoverable due to current market conditions or legislation or whatever then mortgage banks should charge the interest rates on all future loans to reflect that pushing mortgage rates up to15%-205 to reflect that. They wont because all their losses have been underwritten by bend over finna fial and they know in banking if you call it right you get a massive bonus and if you call it wrong you get a state job with benefits

  16. @ EB: “If you think these situations are different, you’ll have to explain how.”

    They are. It just requires a serious, sustained and meaningful engagement with a very difficult, complex and sensitive situation.

    I posted a comment earlier which was removed by a genuine mistake on the part of the moderator. This is an edited version.

    Brian Woods Snr: Says
    July 16th, 2013 at 12:48

    @ GC: “The difficulty is that it is virtually impossible to distinguish can’t-pays from won’t pays except at untenable cost and personal privacy intrusion.” (this quote is copied from Prof Connor’s intro above).

    My reply:

    Prof Connor, there is no difficulty here, it just might be that those skittish lenders have something quite inconvenient to hide – like they had NO VALID (apols for the caps – but I do wish to emphasize some points) Lending Criteria in operation. The lenders appear to have abandoned any Duty-of-Care toward their borrower clients.

    Lenders KNOW most of what is happening in the residential mortgage lending scene. They complete many, many such transactions each working day. But, THE BORROWER MAY ONLY BE DOING THIS (taking out a house loan) FOR THE FIRST TIME. [Think very carefully about this contrast.]

    The lenders are the drivers of the process. The borrowers the passengers. The borrowers are totally, completely and absolutely in the grip of the lenders.

    Now if a lender extends a loan, using an invalid (statistical probability of Value at Risk metric) and ‘skims’ the paperwork detailing the borrowers financial details, employment details and a background credit check (their risk profile) – who is at fault here? It sure is not the borrower – except they have been less than honest about their circumstances.

    A distressed borrower might well ask: “You gave me a loan you KNEW I could not possibly repay. So why did you do that?”

    If a borrower acts tough, then the lender may have a problem. And I suspect that all this secrecy about mortgage loan ‘modifications’ is to disguise some very dodgy lending practices indeed. Its purpose is to protect the lender, not the borrower.

    One final point. I mentioned above the absolute requirement for a lender to have a statistically robust Value-at-Risk metric; to protect both the lender AND the borrower. The lender ‘lends’ thousands of mortgage loans and can expect 5%, 10%, 15% or what? to go bad. They have a fiduciary duty to build-in that default rate into their lending criteria. Hence, they should have a solid financial hedge in their favour and the company will not experience a serious financial position if the maximum default rate is attained.

    As for the Borrower. They have only one loan. They are only one person. If they can no longer pay their loan – they are doomed. All it takes is something (just one) bad thing to happen them. Life is a bitch like that.

    Bye-the-bye. This guff about can’t-pays versus won’t pays and the ‘sky will fall on the taxpayer’ is a truly woeful piece of rhetorical rubbish. Maybe some Albert Hirshman reading* might be appropriate for some folk. But …

    *’The Rhetoric of Reaction: perversity futility jeopardy’

  17. @Paul

    yes it can as America has done by buying private debt in other words printing money. The creditor gets his money back on loans that proabably would not be repaid and the liability is transferred to the central bank or taxpayer who again will not be repaid but it dosnt mater as the central bank has only invented the repayment in the first place by entering a number on to a computer. You are defacto increasing the money supply which may lead to inflation but his does not bother the US as all petro and most commodity deals are carried out in USD. Basically if you have a strong currency you can print (a certain amount!) of cash and distribute it how you will. You could give to the banks whose overjoyed creditors may spend a little more at the joy that their deposit is worth something or they may lend a little more (not many signs of this) or they may just sit on the cash in order to improve their capital ratios (lots of signs of this!) in effect doing nothing but securing deposits or you could put into capital projects like rebuilding crumbling motorways’. With the notable exception of a car company the US decided to put all printed cash into the banks which now need more cash as the enevitable recession caused by making cash king causes bank capital ratios under more pressure needing more cash. Think of the extreme were the economy was retracting by 20% per year then then banks would need 20% of their deposit base every year so depositors could still withdraw – It is that simple giving money to banks is equivalent to a bonfire in economic terms it achieves nothing and could do real damage if it gets out of control

  18. Of course if the same scrutiny was applied to the infamous benchmarking and other ponzi arrangements between government and unions the academics would not be so coy. About strategic defaulters. I suggest strategically defaulting on your salaries and pensions. At least that’s my economics.

    Be careful the scrutiny lacking may yet be applied to salaries and pensions by generation X that are capable of wondering why the hell they should pay for their lecturers ponzi pensions for 40 years of their working lives including giving up the notion of owning their own homes and postponing having any children.

  19. Ernie,
    Well said. You are 100% correct. Not only do we not want to put people out of their unaffordable primary residence but policy also applies to 2nd and subsequent homes.

  20. @ RB: What are you ‘on about’. This thread is about residential mortgage arrears – at least that is what is says on the top of the tin! And the ability or otherwise of some distressed borrowers to make repayments and the unexplained behaviour of the lenders in lending – knowing as they must (or should have) done, that some of those mortgage loans could not possibly be repaid.

    And bye-the-bye, I’m one of those lecturers with his Ponzi pension (37 years actually). Do I look like an ogre? But as that man said,when asked about his 1.5 mill annual salary +bonus – “I’m (must be) worth it!” – yeah. 😎

    And the ironic thing. I now have to provide financial support to two of my adult children who are no longer employed – including helping to pay a mortgage for one of them! That’s fun that is.

    @ Tull: Ah, come on! You can’t be serious. Ernie’s comment is childish.

  21. This topic has previously been the subject of various threads. It is a valid (even laudable) policy objective to keep people in their family homes within reason.It is also appropriate to write down debt that has no realistic possibility of being repaid . Splitting mortgages (although it is unclear what this exactly means) has been mooted but this is only leaving the sword hanging over someones head and the key to any recovery in the domestic economy is confidence.
    What is required in simple terms is a debt for equity swap – or more correctly a debt for future appreciation in value swap. This at least would force those who wont pay to give up something for the write down that they might be unjustly seeking.

  22. @Occam — That is a bad idea IMHO. Commercial banks should not take equity positions in property market assets. Note that Anglo and Irish Nationwide essentially too big equity positions in property markets during the bubble, particularly Irish Nationwide, and this badly distorted their incentives as commercial banks.

  23. Every month after the CSO releases its latest report on house prices the Times and Indo hail it has the bottom has been reached and look prices are rising (in one or two parts of Dublin). It is just a joke. 5 years on and the CSO figure is still not showing the true extent of price falls. We do not need to cheerlead house prices higher, thats one of the reasons that we are is such a mess. We need to write them to the correct value and apply this to the mortagages and most likely write off the differance. Of course this will not happen, the government have to much skin in the game through NAMA. Also with the introduction of Property tax the government need to continue the lie even if it drags the economy further down in to the abyss.

  24. There are significant consequences for the asset class that constitutes the majority of secured lending where the state sanctions clandestine irregular processes to resolve arrears. A lack of transparency and the ongoing mantra that house price falls must be contained at all costs will ultimately fail. Put simply, investors are extremely wary of investing in the Irish market, prices and rents are continue to be manipulated. Interest rates, regardless of the ECB, will continue to climb and not only because banks need to be profitable, but because mortgages have effectively become a type of unsecured debt. The rates on interbank lending to Irish banks will be punitive. This alone will cause prices to fall as capital becomes more expensive than it is already. In fact if I was a bank I might as well feed the stock market as invest in risky mortgage lending with the economy the way it is.
    Even potential cash buyers will sit on the fence, I know I am one, because I know the banks have no money to lend, I know the economy continues to fail, I know this government will try to rob me at every opportunity through ‘smoke and daggers’!
    Unfortunately those that cannot afford the house they live must be removed before normal volumes and confidence returns. It is the right and fair thing to do and I for one will not invest until this happens.

  25. Regarding the tread,typical irish begruddergy and financial immaturity,you lucky to get any deal at all,stop worrying about what your man up the road got.
    Repos and foreclosures will become part of the irish financial picture shortly,with the inevitable hysterical reaction by the media,many I guess in negative equity.
    All borrowers were over 18,could read and provided security to the lender.

  26. No No No.

    Don’t you know that all borrowers in arrears bought at the bubble’s peak? They are probably sitting in a depressing hovel built on a flood plain in Longford. But it’s their hovel.

    They did not overextend themselves, they did not top up the mortgage to buy a SUV or a Bulgarian apartment.

    Neither are any of them in quite grand houses, nor do any of them have any equity in their homes. They are all hopelessly in NE.

    They are living Saints, and the country must recognise their right to live in their home at someone else’s expense for long as it bloody well takes!

  27. Brian Woods Snr, Gregory, Tull, Ernie,

    The banks made mistakes, yes, but the (then) bank-owners suffered. They are called share-holders, and they were wiped out. Rightly.
    What is left are not really banks (yet), they are state agencies, which the state hopes to sell sometime, so that may once again be banks (& hopefully get some cash from the sale)

    The other side to the deals that destoyed the economy were the buyers.

    It is incredible, and wrong, how many people want these people to be rewarded for buying massively over-priced houses. Instead of buying they should have been militantly stopping increasing sales-prices, and showing solidarity with the people who couldn’t afford to buy. They NEVER protested outside Estate Agents / banks / developers, no, instead they bought and hoped the house would go up at least at the rate of inflation, and hopefully above it, and to hell with the people behind them – let them eat cake in social housing in Jobstown.

    We are a civilised country and these unfortunate buyers are entitled to shelter, but they are not entitled to ownership, and they certainly are not entitled to ownership of a beautiful home in Foxrock that they bought with €3m borrowed money and which is now valued at €1.4m.

    Instead of moving to a reasonable council house in Clondalkin (& thereby improve the ‘mix’ in those areas) they incredibly want the debt to be written off, to stay in the Foxrock house, and bizarrely, also want to own the bloody thing, and all paid for by the poor muggins they screwed on the way up!

    Why should these people jump the people at the top of the queue for Social Housing? The people in the queue didn’t do anything wrong?

    And what about no-choice or wise renters, who still can’t afford the home they would like? If capitalism was let work then the repossessed houses would come on the market and drive prices down, and a renter on a modest wage might be able to afford it. Prices went up four times (or more), they only came down by half.

    And even cheaper houses will help employers create new jobs at competitive (lower) rates, as most of the salary-outgoings are on a mortgage/rent.

    Then there are the strategic defaulters, the buy-to-lets…why are they let get away with effective theft?

    All of the establishment behaviour has been to protect people with the right accents. There was no socialism, then they have not let capitalism work, and they have had intervention to protect the elites (especially including the public sector). The government behaviour to try to keep prices up, with the creation of NAMA (with our money, to act against most of us), and the non-repossession of over-priced in-default homes is extremely wrong and unfair. We are living in a new kind of feudal society where the rules are changed to protect the elites & vested interests.

  28. Take the high end house back,allow new entrants,the financially astute or say xpats to buy them,I’ve always fancied a pied a tier in D4…give the deadbeats a copy this book….
    Irish people are way too emotionally attached to houses…various studies support the idea that you will be just as ‘happy’ renting 🙂

    “A growing body of research suggests that spending money on real estate doesn’t necessarily mean investing in contentment. Indeed, the conventional advice to cut back on vacations, restaurant meals and other extras in order to save money for a home may actually be detrimental to felicity. Experts in happiness — an increasingly popular field focused on the scientific understanding of emotional well-being — say that people are happier when they spend money on experiences instead of material goods, whether it be a new car or a bigger apartment.”
    http://www.nytimes.com/2013/07/14/realestate/homeownership-the-key-to-happiness.html?pagewanted=all&_r=0
    http://www.hbs.edu/faculty/Pages/item.aspx?num=43404

  29. Oh dear, housing is an emotive issue. Look what happens when you raise the prospect of debt forgiveness and no repossions. A whole slew of commentators appear out from the ground with views different from the usual whingefest that dominates the daily debate.
    Ernie, for once I salute you. We are ad idem… Scary.

  30. @ JG: “All borrowers were over 18, could read and provided security to the lender.”

    Over 18, yes. Could read,yes. Security??? THE BANK DECIDED THE VALUE OF THE SECURITY! Not the borrower. Now how many sets of signatures would there be on each loan agreement. Yes, I thought so.

    @Peadar: “… how many people want these people to be rewarded for buying massively over-priced houses.”

    Name and shame ’em Peadar. Overpriced houses? Now who was it that set those nice high prices? It was the Risk Officers in the lending institutions. Not the borrowers. Think ship. Think captain. Think passengers. So who decides where the ship goes? The captain, is who!

    Foxrock is not your typical residential housing area Peadar. Please get real on this one. If you cannot afford an existing mortgage, then what can you afford? This is quite easy to determine. If you get a writedown on a large mortgage (say, 1.5 mill -> 250,000), then if you sell later at a higher value you get slapped with a 50% Cap Gains bill on the surplus. No problem with this either.

    “The government behaviour to try to keep prices up … … and the non-repossession of over-priced in-default homes is extremely wrong and unfair.”

    No Peadar, its just plain theft by stealth from the Irish taxpayer. Though the re-possession bit is a tad more complex. It has bad outcomes. Maybe not as bad as the before situation, but bad nonetheless. Unless of course you class ‘less-bad’ as being actually ‘good’.

    @ Tull: “A whole slew of commentators appear out from the ground with views different from the usual whingefest.”

    Name and shame ’em Tull. What’s the ‘usual’ and what’s ‘different’?

    Ours is a consumer society. One of the essential attributes of such a society is that the majority of citizens have some level of disposable income in order to sustain said consumer society. The other little inconvenient truth is that those incomes HAVE to increment (slowly) over time. Or else!

    Now would someone like to fill in the rest of the dots then?

  31. Hi Brian,its was secured lending so cough up the security,come on now take a deep breath,the house does not know or care who owns it.Who gives a f.. bout signatures the flat earthers/where was Obama born,tried that BS nonsense over here-laughed out off court.
    Simple ya got the money-pay it back-cant-ok-hand over the security …ah now but but but the bank did not conduct proper due diligence-where you get this ‘duty of care’ stuff,the duty care a borrower has is to pay it back,Irish people have a weird relationship with money/debt.
    Welcome to the USA..if you think Irish banks are bad actors …

    http://www.propublica.org/article/bank-of-america-lied-to-homeowners-and-rewarded-foreclosures

  32. @ Brian Woods Snr

    Re: “Now who was it that set those nice high prices? It was the Risk Officers in the lending institutions”

    And what happened to the OWNERS of these lending institutions that messed up? The owners are called share-holders, and they were rightly wiped out, after years of getting huge returns based on the immoral vulgar practice of putting house prices beyond the reach of the many.

    the system worked in this case (in spite of all of us being sorry for poorly advised old dears who “invested” in bank shares)

    And the sytem also destroyed the last government. Also rightly. Except it did not (yet) stop the reward-for-failure pension lump-sums & pots for the last government ministers, nor for the Financial Regulator & Co.

    And Re-possession has good outcomes. Get the social mix to improve by getting people with posh accents into ordinary areas (they could start a rugby club there too), and teach a multi-generational lesson not to mess with debt. In 2020 you’ll hear them say “The reason little Tarquin has a different accent is because his parents over-extended themselves on debt. Their family will never let it happen again”
    – it’d be good for society.

  33. Brian, you seem like a man with religious convictions rather than training in economics. Our incomes at all levels overtook our competitors and now must fall back, reflecting a collapse in cheap credit. Our future will be to repair our past, cheap houses, low wages and deflation will help reduce unemployment and set the basis for another attempt at scaling a knowledge economy that failed miserably with the last property gold rush. The world doesn’t owe us a living and manufacturing living standards without adding and retaining value is another ponzi scheme doomed to failure. Sentiment like yours is another distraction up their with with Mr Norris in substance

  34. @peadar

    Except for the part about allegedly “protected” public-sector “elites” (PS workers have had 3 substantial pay cuts and higher workloads), I agree with everything you’ve written here.

    Ireland is a hideously expensive place to live. The main reasons it is so expensive, as far as my untrained eye can tell, are: 1) still insane property prices/rents, both commercial and residential (thanks to NAMA, non-foreclosure policy and whatever you’re having yourself; 2) cartels operating in groceries (especially), medicine, insurance, law, etc. (these are the actual elites that have been protected).

  35. The problem with fictional reserve lending is that it creates massive inflation, actually enabling repayment of P+I! But then, the chumps want in and they get McMansions or striped tulips.

    Look at it another way: borrowing merely takes from the future. No, it also devalues the future by inflation and punishes genuine capitalism, ie the accumulation of income from investment. The distortions created by unregulated lending ensure that no genuine investments can compete with the competition to create lending!

    We need to restrict corporate power. Limited liability and allow banking as fully liable by those who manage. Allowing OPM to be created merely ensures that theft and unlimited creation of money ensues.

    That is the derivative problem…. I remind us all that the tangible assets created by labour are in existence and can be used. But all the paper assets are also liabilities elsewhere. The housing market inequalities are nothing compared to what has still to crash…..

    QE will stop. Then we get to find who was swimming naked. Japan has been at this for 25 years. Got paper assets? FAIL!

  36. I don’t know. Think it is time for a clear architecture of the relation between citizen and citizenry when it comes to ownership of value pledged by incompetent leading representatives of the democratic right of all in the citizenry. So stop paying ALL mortgages until this is settled – we already own most of the banks concerned, hence our entitlement to a majority on the boards of these banks. Time to wake up …

  37. @Alll

    Ernie says

    “..What in heaven’s name is “laudable” about keeping people in homes they cannot afford at significant taxpayer expense?
    If it’s so laudable, then I’d like the taxpayer to foot the bill for me to live in a house I cannot afford. I’ve got just the one picked out..”

    The problem with most of the arguments noted above is that despite the bank guarantee in 2008 many seem to have lost the ability (including both to whom this is directed) to distinguish between the pitfalls of ownership and the economics of property valuation.

    This is the actual nub of the issue. Not those who can or cannot pay and certainly not the simplistic nonsense as enunciated by John Gallagher above i.e. you bought the house for X pay up or get lost. Give me a break. I expected something approaching analysis here not simplistic claptrap.

    I have argued here many times with GC in relation to this issue and sadly GC still doesn’t get the differentiation between ownership, property valuation and the property market generally. By reading what’s gone on above he’s not alone. GCs problem and others it seems is that allowing people to stay in houses they currently cannot afford (more anon) is essentially him feeling aggrieved as a taxpayer subsidizing some else living beyond their means.

    At one level this is undoubtedly true but it’s at the lowest possible analytical level for a problem of this scale and for a practicing economist to continually trumpet out this argument without at least having the good grace to understand that the problem is a significantly more complicated issue than basic money in money out as BW suggests above.

    Can any contributor tell me what political party asked the Irish people if it was ever a good idea to take ownership of the banks and guarantee them in the way that they did?

    We all know the answer to this is none. Yet Ernie,GC etc continually indicate that they are aggrieved as taxpayers paying for someone else’s mortgage. My advice. Take that up with the courts and the politicians because sadly that’s the pitfalls of ownership – unrequited let me add – today’s Irish banking ownership issues has zero relevance with the economics surrounding the original lending decision. Zero. Nada. Zilch.

    The pain of stupid lending decisions should not have fallen on the backs of innocent taxpayers. That is undoubtedly true but to compound the error again by insisting that those who bought at the wrong time because of a wholly artificial pricing regime must pay up or else fear repossession is stupid squared. It’s like suggesting that all the banks in Ireland locally owned or otherwise were still operating as if nothing had happened. My five year old knows that this is not the case and yet some supposed wise owls are suggesting here to mortgage holders pay up or get lost as a remedy. Jesus H it seems we haven’t actually learned anything from the crisis.

    Get this. Property markets are different. They are not cash markets unlike most equity markets, unlike the market for vegetables, clothing etc in fact unlike virtually any other consumable market including the residential rental market, as people generally don’t borrow to pay rent. Property markets are credit driven. Repeat – they live and die and breathe by the availability of credit. This makes them unique. The credit which ultimately sets their price level is born, breed and distributed by our banking friends and as a result banks in fact determine the market prices for property.

    Because in any asset market if you’re fortunate enough to make, allocate and distribute the raw material that dives the market there’s a reasonable chance that you will control the prices charged in such a market. Unless this is actually understood then arguing anything about the nuances of this market is a waste of time.

    The credit released to support the prices in the Irish market from about 2002 until about mid 2008 as Paul Ferguson has correctly argued was not in fact money per se – it was digital horseshit created by banks which fanned a bubble, which the Central Banks didn’t see until it was too late, which the Regulators didn’t understand, which the World Bank is still trying to understand, which the BIS is still trying to analyse, which the rating agencies saw as a massive money spinner and which our own Govt at the time thought translated into a never ending waterfall of tax revenue. But yet, despite all these so called experts calling it wrong its seems, the contributors here still believe that novice property consumers should have known better and the buyer beware axe should rightly fall where it hurts etc etc. Folks, for the love of God cop on. How in God’s green earth can such an argument even come close to establishing anything approaching a reasonable way out of this problem?

    People buy houses, have children and start lives. The thought that we can as a nation suddenly magic 500k people who are affected because they as affected children or their parents can’t afford to pay the mortgage to another part of the country is just unworkable populist nonsense.

    What we actually require is a re-pricing of a missed priced asset class (the real problem) – against a long standing and trusted sensible model and that’s pricing property off a long run net rental yield and using the capitalization rate to go back in time and calculate the actual pricing error house by house and write that error off the mortgage loan.

    If the owner is unable to repay that revised loan then by all means he/she should be asked to vacate and seek alternative accommodation. But the loan does not follow those who vacate. The No house No loan principle is a correct way to proceed in my view.

  38. @Yields or Bust

    “Can any contributor tell me what political party asked the Irish people if it was ever a good idea to take ownership of the banks and guarantee them in the way that they did?”

    Clear cut question that! Worth repeating it …

  39. @ JG: We are not the US John. We have recourse mortgages here. We have a tricky bankruptcy regime. We had the biggest res property property bubble since the 1700s. If signatures have little value on legal documents – then the docs are little value also – Yes?

    @ Peadar: Three of my former work colleagues were ‘shareholders’ (their retirement lump-sums). All gone. Very unfunny. And the ‘system’ worked? That’s a joke, right?

    @ Pale Rider: “Our future will be to repair our past, cheap houses, low wages and deflation will help reduce unemployment and set the basis for another attempt at scaling a knowledge economy that failed miserably with the last property gold rush.”

    “Live horse, and you get to eat grass”. Ride on! And, stow the ad homs. Childish.

    You do know, and clearly understand the implications of the Export-land Model of Liquid Hydrocarbon Fuels? If not, I respectfully suggest you get reading. You have a quite unpleasant surprise awaiting you.

    @ YoB. Thanks for that. I think that’s a 10-4 on this thread.

  40. @ Pale Rider. Could you please stow the ad homs. They contribute nothing.

    in respect of this – ” In reality a massive default and a crisis in the credibility of the state would cause armegeddon.”

    This is a marvelous example of a Rhetoric of Perversity statement. Brilliant, sentimental, arousing claptrap.

  41. yOB,
    A reprising along the lines you suggest would involve massive right downs on the left hand side of the taxpayer,pwned banks which of course would vaporise the liability side aka the deposits. What you are proposing is a massive wealth transfer from the majority who did not participate to the minority who did.
    Form a political party and run on that agenda and by all means do it if you succeed.

    BW,
    You attack others for the ad Homs, yet you are one of the biggest offenders yourself. Less pomposity please.

  42. @ Tull: Do I? Examples please. And if so, then I will have to apologize. Examples please. Asking persons to desist is hardly an ‘attack’. Come now!

  43. @Brian not if you are in the right golf/rugby club you don’t…why else conduct debt forgiveness in the shadows?

  44. Look at your last two posts? You are beginning to sound like a certain hysterical TCD senator.

  45. @ YoB

    + 1

    Very well expressed. Caveat emptor has no meaning where power was so unequally distributed between borrowers and lenders. The govt gtee let the prime offenders off the hook, and made a bad national situation almost insoluble. Things will have to go down to the default wire now, IMHO, before common sense, and economic rationality, prevails.

  46. fyi

    Lonely Struggle: Wolfgang Schäuble’s Fight to Save Europe
    By Michael Sauga

    Germany’s Wolfgang Schäuble wants Europe to be his legacy. But his efforts to reform the EU and save the euro face many obstacles. One of them is his boss, Chancellor Angela Merkel.

    http://www.spiegel.de/international/germany/wolfgang-schaeuble-and-the-lonely-battle-to-reform-europe-a-911076.html#ref=nl-international

    Some would plausibly argue “Wolfgang Schäuble’s Fight to Save [G€RMANY]”

  47. @Tull

    “… a massive wealth transfer from the majority who did not participate to the minority who did.”

    Care to tease out any plausible argument for same …..

  48. @Brian those mortgages are know as “scratch and dent” over here,shoddy paperwork missing pagers etc.
    They trade at a bigger discount but generally lenders prevail in securing the collateral,takes a bit longer costs a bit more.But the borrower has tough job explaining where the money came from for the gaff…notwithstanding scratch and dent paperwork !
    One area of concern should be the integrity off the credit reporting process,can only hope these sweetheart deals are getting properly reported and recorded,otherwise why bother with credit scoring at all.
    Have revenue given a ruling on these “gifts” are they taxable or not ?

  49. DoD,

    Do you dispute the fact that property owners are on average among the wealthiest in society, including the buy to lets. If they get write downs and keep the assets then the liability side will have to be haircut. In order that is the equity (taxpayer now), seniors, depositors and ECB. A write down of the magnitude proposed by YOB would almost certainly hit depositors. The taxpayer equity would be toast anyway. I cannot imagine that it could be structured in any way that was not effectively a transfer to the wealthy property owning classes.

    The ECB would have to be stiffed as well so by by euro and welcome to default.
    Good bye generous welfare benefits and public service salaries as well.

  50. @ Brian Woods Snr

    What you say actually makes me wonder about how much more screwed up the system is than even I had imagined and I am pessimistic.

    What you are saying is that the generation that I am thinking will rise up to tackle the over remunerated and over pensioned government workers, are so messed up ,so financially weak, that they can do nothing only hang on to the boot strings of their parent(s). Presumably all hope the economy recovers, because this is only a holding exercise. If they are not able to find jobs they are going to have to emigrate. My own daughter emigrated last December after coming 2nd place out of a class of 60 studying law in Limerick. After 2 weeks she was working in her field in the US. Thankfully she had no mortgage as she lived at home. As she was leaving she said, “dad I did not run up the debts” she had to work as a baby sitter to help with her fees, books, accommodation in Limerick and of course she was not head hunted because the student that came last has a better chance of a job the way things are organised in this society. She told me that herself and one other student only managed to get jobs in law! Out of 60! The rest are in McDonalds or back in college or on one of End’s back to work scams. I believe that the real rate of unemployment is close to 30%. If someone has 10 hrs work but want to work 40 hrs they are classed as a part time worker and are not unemployed. We are told they are “under employed” a nice way to say you are practically unemployed but not quite.

    I think your personal example really shows how crazy the disconnect has become between peoples salaries and what they should be getting paid. In effect, you need at least two salaries to keep this up.

    Now, you have my sympathy!

  51. @YOB like WTF are you taking bout?
    Property valuation are you serious,it’s bricks and sticks,what analytical method are you advocating…DCF,IRR,Argus some modeling?
    The comparison method is utilized unless its income producing in which case it’s net rental income capitalized by prevailing yields-benched off say 10 year bonds with a spread to reflect illiquidity,costs of transaction,etc.
    It’s a subjective number…crystal ball gazing as you are discounting a future income stream,what if I have access to lower cost of funds or more leverage do I have an advantage over someone who does not,making it more “valuable” to me.
    More than happy to go down this road,it’s a drive by utilizing comp.’s ,which commonly accepted say in capital gains tax cases in court,methodology are you referencing or advocating or are you just making this nonsense up?
    What is the standard accepted by lenders,comparison method or what for PPR?
    Give me an example then …..owner occupied homes are non income generating…

  52. @Tull

    Your’re actually badly mistaken – the boom experienced in Ireland allowed many people across virtually all sections of the social groupings to participate in the property bulge.

    Its simply incorrect to suggest that the cohort with the most to gain in any debt relief (if that is in fact that phrase) are the middle to upper classes – what the arrears data suggest is in fact the opposite – those in most need of a break fall into the lower socio economic classes simply because it is there that job losses have been hardest felt.

    So please desist from the stereotypical suggestions that this is yet another sop to the middle classes. Its yet another lie. Ask MABS for the details an they’ll soon tell you the cohorts in need of a debt break its not your average millionaire.

    @John Gallagher

    With respect John not many lending officers in Ireland during the period under discussion would understand DCFs, IRR or net rental yield. Therein lies our problem and the source of the issue. Banks didn’t use these models to value property, banks lent money to buy property not on the value of the property but on the borrowers ability to repay a loan. Unfortunately the loans in the period from about 2001/2 to c2008 bore no relationship to the long term value of the property. Please note price on the date of purchase did not equal long term value. Hence the balls up.

    Take for instance where I live – in 2005 #2 was rented and the landlord was receiving €700 per month for his property he was repaying his loan which was c€650 per month. Now #3 was sold and financed (exact same property size etc) by the same bank, in fact that same lender who had lent the landlord money to buy his house 5 years earlier but now believed it made sense for the couple who were buying #3 bought to repay a loan of €1,550 per month when the same bank could clearly see that its income generating capacity of the property was in fact €700 and importantly likely to fall as more houses just like #2 and #3 were coming on stream by the hundred load. (This must have been an economic first anywhere in the world – supply was increasing dramatically and rents were actually falling in many parts of the country and yet prices were rising – equally as dramatically – suggesting, as if any more evidence was required that pricing in most property markets is utterly credit driven)

    Anyway – now replicate this scenario by c200,000 times up and down the country over the period under review and I think you’ll begin to understand why this was a credit driven bubble which paid little or no heed to the actual cash driven prices for property on the ground.

    Of course you may say – why didn’t the couple and many like them simply rent. I will say in return – its the banks day job to price these houses and importantly to value them correctly as ultimately in a recourse lending market the banks bet is not on the borrower its actually on its security over the long term. By doing what they did the bank not only screwed the borrowing couple over (see the CBIs Consumer Codes) but their own balance sheet (lest we forget ALL the banks in Ireland involved in the this market failed) and ultimately because of the stupidity of the Govt all our balance sheets.

    Simply suggesting as you have done above as pay up or leave the premises cements the original lending error. Please tell me that even in the US people don’t resort to finding solutions to problems by suggesting that the original error laden path is a good starting point. I would have thought that the objective of the exercise is to find alternatives.

    But the problem here is very basic. The prices charged were wrong. Until we develop a model which rectifies the prices to the actual values on the date the mortgages were originated this problem will not be solved.

    No amount of PIPs, AIs, Mortgage Codes, CBI pilot schemes etc etc will get under the bonnet of the real issue and the issue here is that the banks priced the properties incorrectly. We can shout and scream about one cohort gaining an advantage over another etc but that’s the fairness to all argument and sadly that boat sailed the day the Govt thought it made sense to make the bondholders whole.

    Folks this is not about repossessions, its not about fairness, its not about ownership of banks its not about social standings its simply about prices. Nothing more northing less.

    BTW I posted the same message here about 5 years ago and predicted I’d be having the same argument in five years time unless we were willing to deal with the actual problem – hey presto – five years on and we still haven’t dealt with the real problem and what do you know – its got worse, a whole lot worse.

  53. @YOB thank you for the response,an old adage valuation is an art not a science.Utilizing rental income and capitalizing it to arrive at value,involves a number of subjective decisions.
    What capitalization rate,is it uniform in your model.
    Would the anticipated capital appreciation in South Dublin be higher than in say Waterford,Tullmore or Athlone?
    Is this not reflected in a lower cap rate !
    Take quick look at pg 5 daft report link above.
    Should the vacancy,available inventory impact the yield/cap rate is it trending upwards or downwards any shadow inventory,what’s planned or approved…is oversupply going to be an issue?
    Say a major motorway or public transport system,a Luas stop is planned or under construction,any impact on yields/values ?
    Rental income net of allowance for down time,vacancies,reserves for maintenance,what are the assumptions on say real estate taxes going up by how much ?
    Value is what a willing seller is prepared to pay,say I am AAA can borrow at below the yield slap some positive leverage on it…I can pay more than someone who can’t so its worth more to me,as my yield or return on equity has been enhanced….what was that about simplistic claptrap again…..:)

  54. The average prices of new and second-hand houses in Dublin in Q4 2000 and Q4 2012 were: €234,000 and €230,000; €256,000 and €321,000.
    The 25% price rise for second-hand houses compares with a consumer price inflation rise of about 27% in the period.

    GNP per head at constant prices was about €28,000 in 2000 and 2012.
    So roughly, both the economy and house prices are back to the 2000 level and with low interest rates, those who are in employment and bought before the crazy years, are doing okay.

    Last March The New York Times published a story titled, ‘Irish Legacy of Leniency on Mortgages Nears an End,’ and it reports on a Navan man who bought a house he ‘coveted’ in 2008 and in the intervening period, his electrical business went bust.

    ‘With no income since, he has no hope of paying off the €310,000, or $398,000, loan on the four-bedroom house in Navan, north of Dublin, that he shares with his wife and three children.’

    The gentleman said ‘he and others would need 70 to 80 percent knocked off their mortgages to make them remotely affordable and reflective of current property prices.’

    http://www.nytimes.com/2013/03/30/business/global/irish-legacy-of-leniency-on-mortgages-nears-an-end.html

    Robert Browne is right to highlight the unfair society but at this point the cost of debt forgiveness cannot be funded from those BlackRock capital buffers that have vapourised since 2011.

    Trading down should be part of the process where it is practical and low conveyancy fees should be negotiated by the insolvency agency.

    As for Gregory’s point “that it is virtually impossible to distinguish can’t-pays from won’t-pays except at untenable cost and personal privacy intrusion,” yes on the privacy side but isn’t that what happens in a bankruptcy situation?

    The costs per case do not have to be ‘untenable.’

    The banks have to be legally allowed to share information and for those who haven’t been or are not in the black economy, Revenue records would verify income over a period.

    Buy-to-let mortgages were of course taken out as residential for better rates, using relatives names.

    This is where sharing information would be important.

    Local gardaí should be asked to verify the residency, say twice, during the process, to ensure that the house is occupied by the owners.

    I would not regard that as an intrusion if I was claiming a writedown of €200,000.

    Accountants who issued net worth statements to support loans should be compelled to update them to verify where the assets or values went.

    Parents often paid the non-loan costs of buying property; should the State now solve the negative equity problem?

    On buy-to-let, capital payments on BoI 10-year interest only mortgages taken out in 2006 – – the all-time record year for housing construction — have yet to kick-in.

  55. YOB,
    Would BTL be included in your fantastic scheme? You fail to address the implications on the liability side again. Who pays for the write down?

  56. The shorter YoB: It’s the dealer’s fault that you’re addicted to crack. “I had no choice, officer.” And yet, despite the crack epidemic, many, including (full disclosure) me, managed not to buy even a single one of the overpriced assets, let alone 3 or 4 of them. We looked at them and our bank balances and said: this is not a good deal. Indeed, it’s dangerous.

    Turns out we were wrong. What you seem to be saying is that those who did buy some (or many?) are not to be blamed or held responsible. In any case, they were not wrong. They were right in that their actions were reasonable. The corollary of that, it seems to me, is that those who did not buy must have been wrong, as I’m discovering every day to my chagrin. Heads you win, tails I lose.

    We can agree that crack dealers are bad news–indeed irresponsible, not least in regard to their pricing–and that that is a good reason, among many, for avoiding them to the extent possible, or at least being aware of the (extreme) risks of being involved with them. It does not exonerate those who rush heedless to the nearest crack house to go on a 10-year bender.

    All of which boils down to a question, which you’ll forgive me for personalising: should I or should I not have taken up a crack habit? Was it wise or unwise for me not to have done so?

  57. @ Robert: Appreciate that. Yep, the situation is dreadful. Worse? better? Who really knows? But will it get worse? Yes. The economic fundamentals (both global and national) are weak and show signs of weakening further.

    Michael H, above allows that our residential property ‘market’ has regressed to 2000. Probably correct – with the caveat that Means can be meaningless. However, the broader economy must be into the mid- 1990s by now. The property ‘market’ will follow. And no volume of political rhetoric, spokespersons’ spin or poor analysis (posing as invariant truth) will halt this downward process.

    YoB: 5 years! Where does the time go?

  58. An interesting implication of your proposed solution YOB, is while those in NE and unable to pay would receive a write down those who can pay I guess would not? Certainly creates a more than interesting conundrum for the mortgage holder carrying €100,000’s in negative equity; should I work for the next 30 years to pay of NE and the interest on this or should I not?

    Another corollary on this poorly thought out quick fix for ‘some’ (there are 770,000 mortgages outstanding in Ireland with approx 200,000 with some arrears so a minority), concerns the adjustment of property prices to their real value in calculating a write down. Incredibly arbitrary task but if completed surely there would be a mandatory claw back in the difference from those who sold houses over the period in question ie a house bought for €600,000 was only ever worth €300,000 (cause that’s its price today according to your hallelujah model) so the person who sold this house should be hit with a bill to repay the difference? Lots of private individuals lapped up the property prices from the boom, not just builders.
    In brief I would agree with your plan once the cost was offset entirely through a revenue initiative against those that profited from the ‘incorrect’ pricing

  59. In the long run, the value of an asset must be linked to the income that it can be generated from it (rent from in the case of a property,dividends in the case of shares). It is quite possible for individual assets to shoot up in price since residential areas can become more fashionable and companies can have very successful products. But in aggregrate, share and property prices are constrained by the growth rate of the economy, which in turn depends on the stock of productive capital(new factories etc etc). Rents cannot rise faster than incomes for long before no one can afford to rent. On the same basis, if house prices outstrip GDP, more and more of a homebuyer’s income must go to service the mortgage. This cannot last.
    At the peak BTL properties were been valued at 1% yields. Property has two prices.
    Below is the link to the elementary property valuation error that bankrupted Ireland;
    http://www.irishexaminer.com/opinion/letters/a-question-of-valuation-220487.html

  60. @ Pale Rider: I believe a careful thinking, (slow and in context), about this residential mortgage arrears predicament, is in order. Its next to intractable due to its deep political nature – apart altogether from the pecuniary issues.

    Unless, and until our politicians stop deluding themselves, and baffling the public with their self-effacing rhetoric – this matter will fester. Will it finally erupt in civil disobedience? Who knows. But I’d be a tad cautious. It has that potential.

    The first, and most important matter to be addressed, and agreed, is the principle: unpayable debts are unpayable. Period. Now it might happen that the ECB continues to inflate the money supply to such an extent that those debts do become payable. What would your view be on that scenario? I believe that CBs in western economies may indeed attempt something along these lines. They seem capable of any level of chicanery to prevent the bad outcomes of widescale deleveraging. I’m buying popcorn on this one.

    So, once you have internalized and accepted the principle I mentioned above, you can now proceed to propose ways and means to address it – and in the case of residential mortgages it has to be a highly personalized process. Blanket solutions (such as our Personal Insolvency process), just will not cut it. Each of those distressed mortages will have to be re-opened and examined – and solved in the light of current circumstances of each individual borrower. Its that bad.

    And there is a good current precedent. The repayments (with interest and penalties) of those miss-sold PPI policies. If financial institutions come under sufficient political pressure, they will comply.

    The other predicament to be addressed will be ‘who pays’? Here again, it is high politics. That is where part of the current financial mess originated, is being maintained, but is not being addressed in any meaningful manner – so as to bring closure. Actually, its the wrong question. So it should not be surprising that no operational answer is forthcoming.

    My suggestion to yourself, Ernie, Tull and John is to step back a longish way from this issue. Its fearsomely complex.

  61. @Ernie

    With respect what I’m indicating here and MHs post above surely confirms the fact that prices in the period were out of sync with normalised risk priced assets during the period under discussion.

    I agree nobody was ever forced to buy a property but when one does visit the property shop when ones income allows, surely its not unreasonable to assume that those behind the counter, and those who have an input into the deals understand what the price should be – at least within some sort of margin to long run values – be it through yield, DCFs, IRRs etc.

    These are not crack dealers or drug lords these are regulated professionals who simply got the whiff of easy dollars and abdicated all known pricing methods in the pursuit of commission, fees or bonuses. I believe portraying the situation as you suggests that the buyers should have been aware of the sharks in the property seas, but this argument simply does not tally when the known expert commentators like those I mentioned above were all similarly captured.

    What you are others are inferring is that the consumer should know best, regardless. So despite my doctor telling my that I have cancer I’ll continue to take my cough bottle medicine and sure what does he know….fortunately most non experts believe the experts and rely upon them and their advice. If that advice is now known to have been completely wrong then placing the entire pricing error on the consumer is an easy way out in my view, but it doesn’t actually solve the problem.

  62. @ YOB

    “its the banks day job to price these houses and importantly to value them correctly as ultimately in a recourse lending market the banks bet is not on the borrower its actually on its security over the long term.”

    I’d disagree with this.

    In a non-recourse market, the bet is on the asset/security.

    In a recourse market, the bet is on the combined collateral of the asset/security plus the borrower.

    Given the relatively strict personal bankruptcy laws/obligations in Ireland, the banks were able to lend quite aggressively against even collateral that may have been somewhat overvalued (obviously the problem was that it was chronically overvalued, the subsequent losses not being able to be compensated for simply by lien on future borrower income). Any recourse loan is simply backed up by the future income streams available on the underlying collateral – ie rent on the asset and lien on the income of the borrower. As such, the banks willingness to lend is a function to at least some degree on the onerous personal insolvency regime which existed at the time, as well as the cultural “stigma” which was attached to default.

  63. @YoB

    Banks are still mis-pricing houses in the mid to upper brackets of the Dublin housing market.

    Should someone fall into arrears in 3-4 years time having bought in 2013, I assume you are not averse to revisiting the valuation used and renegotiating the outstanding debt?

  64. Is it not utterly shaming, that given what the housing frenzy has perpetrated on this country, that there is still absolutely no sign of:

    – A cap on LTV ratios for borrowing.
    – Limit on salary multiples to be borrowed.

    Banks could offer 100% mortgages in the morning, and people would queue up to get them.

    Thanks for all your hard work, Mr Elderfield.

  65. @BEB

    Wrong.

    Recourse lending by its nature has the fallback of the asset as security to recoup the capital. The interest returned by the borrower on the money lent will simply stop in the event of non payment. The bigger risk therefore is the capital risk and that risk is protected if the underlying is properly valued taking into consideration the asset on its own – the idiosyncrasies of the borrower will determine if interest will be earned by the bank, it says nothing about the return of the capital.

    I agree however that a quicker resolution and access to the asset by the lender would reduce this capital risk and this is not the position in Ireland today. But that’s a very different argument. Hence the reason for this debate. There are very good reasons in my view as to why banks forfeited their rights to the underlying security, most notably that the broke almost all the Consumer Codes issued by the CBI with regards to property lending. For that reason alone the pricing error in its entirety cannot be assumed by the consumer.

    We all know only too well what happens when a banks capital comes under the spotlight – the banks lenders can get very concerned very quickly. To ensure such concern is mitigated it is absolutely imperative above everything else that underlying security is properly valued because it protects the bank longer term, it ensures the market has some semblance of credibility and in our case would have gone a long way in protecting the general economy.

    In recourse lending the ability for any lender to ensure it can recoup its original capital outlay far out weighs the risk of not generating an interest margin. In a non recourse lending environment the non repayment risk is generally priced into the margin hence the reason why credit card debt cost is about 5 times that of mortgage debt.

  66. @Ronan anything above say 70 or 75% should be non recourse or at least a second mortgage,they can get in line with a lien in event of default and rank pari parrsu with other unsecured creditors in BK.High ratio mortgages can be useful to say immigrants w/o parental support for deposits,but hazardous too.
    Some support over here for changing/abolishing mortgage interest relief,linked a decent readable study on it.
    Given the carnage caused to the Irish economy by binging on housing and other real estate in some ways juiced by tax breaks,abolish them.

    “Costing at least $70 billion a year, the mortgage interest deduction is one of the largest federal tax expenditures, but it appears to do little to achieve the goal of expanding homeownership. The main reason is that the bulk of its benefits go to higher-income households who generally could afford a home without assistance: in 2012, 77 percent of the benefits went to homeowners with incomes above $100,000”
    http://www.cbpp.org/cms/?fa=view&id=3948

  67. The new shorter YoB: Some people got robbed; we must all make them whole.

    It might be helpful if people declared their personal interest in these matters. Like: how many properties do you own, how many are in NE, are you in arrears, etc.?

    I have never owned property in Ireland despite being here since mid-Celtic tiger. Property prices outstripped my income on the way up and are now being propped up (thanks to the lack of foreclosures in part) while my income is repeatedly slashed.

  68. No real estate holdings in Ireland,never conducted any transactions with any Irish bank or financial institution.Left long time ago but frequent visitor/tourist cant miss the gathering…
    I’m always a bit reluctant when people say…you will thank me later..but i assume some people are clinging to the wreckage,diverting savings/income to service NE mortgages and debt.Starving the other parts off the economy,i think retail sales a bit off recently….release them from this debt servitude they may thank you later,no really!
    It must be incredibly stressful possibly bad for your health too,perhaps some ego/pride involved blinding people,over here BK is a rite of passage for many,many successful people,nothing ventured nothing gained.Its not debt forgiveness that has weird religious overtones- try debt restructuring.

  69. @Ernie

    I own 1 property which I bought in 1998 and which has a mortgage attached which I service.

  70. ’tis da culshur.
    Transparency is for strippers in Hamburg night clubs.

    Irish banks being the paragons of probity and prudence that they are would not dream of making public their mortgage rearrangement policies.

    I had a good laugh on their being reluctant to invade the privacy of mortgage rearrangement applicants to determine the the “won’t pay” from the “can’t pay” candidates.

    Ireland poor Ireland continuing to cripple itself daily.

  71. We will probably have to wait until after the German election to see anything happening.

    Nobody knows what the real level of “can’t pay” debt is. Gregory Connor thinks it’s 23%. Honohan’s stuffing wouldn’t cover that.
    It will drag on for ages.

    But there is great value in holiday homes in Wexford, formerly BTLs.

  72. There are two policies that keep the cost of housing from skyrocketing in easy money times. One is property taxes the other is an absence of tax deductions. Even with those policies in place you can have boom + bust but nothing too damaging.

    Ireland had the perfect property mushroom followed by a pancake fuelled by:
    No property taxes
    Tax deductions
    Temporary capital gains suspensions.
    Temporary stamp duty reductions.
    No or low development fees.

    A total lack of ability to understand that accelerating demand artificially using readily available funds and gov’t incentives would lead to a collapse in demand and an oversupply that would cripple the country for at least a decade.
    I know that the sense of entitlement knew no bounds but reality intruding later is worse than adult supervision intruding early.

  73. @ Mickey Hickey,

    “There are two policies that keep the cost of housing from skyrocketing in easy money times

    I would add a 3rd policy…………….

    For mortgage application purposes…. only 1 breadwinner to be taken into consideration.

    Back in the 70’s and early – mid 80’s Banks would only consider one breadwinner for a mortgage application.

    Eventually the populist mob got what they demanded…. two breadwinners salaries to be taken into consideration.

    Guess what happened…………….. the price of housing went UP. Due to the fact that there was more money in the market.

    Couples now became trapped…………… both had to work whether they liked it or not.

    Laws of unintended consequences and all that.

    Of course it did not help that there was a shortage of houses…. due to Ireland being a country with a third world mentality…(ah sure what would you want to do that for?)… build houses, zone land, proper planning………..huh…???

    The seeds of Irelands property rot were sown long before August 2007.

    But of course…. it’s all the bankers fault, never the publics fault.

    @ Shay Begorrah,,

    Interesting link you posted, thanks for that old Sport!!

  74. @Sporthog
    You have a good point there.
    I would meet you in the middle the larger income plus half the smaller income. Contraception is readily available the problem now is fertility or lack of it. We would not want to discourage marriage.

    Once the money flowed the planners and the councillors were falling over themselves for the “commissions” and “campaign contributions” or as we put in Kerry “a little bit for your trouble”. Ah sure twas no trouble at all, at all. The little bits grew enormously leading up to 2007.

  75. Central Bank data shows that at end-March 2013, there were 774,109 private residential mortgage accounts for principal dwellings held in the Republic of Ireland, to a value of €109.9bn. Of this total stock of accounts, 95,554, or 12.3%, were in arrears of more than 90 days. The outstanding balance on PDH (principal dwelling house) mortgage accounts in arrears of more than 90 days was €18.1bn at end-March, equivalent to 16.5% of the total outstanding balance on all PDH mortgage accounts.

    The outstanding balance on PDH accounts in arrears over 360 days was €10.8bn at end-March, equivalent to 9.8% of the total outstanding balance on all PDH mortgage accounts.

    At end-March 2013, there were 149,395 residential mortgage accounts for buy-to-let properties held in the Republic of Ireland, to a value of €30.9bn. Of this total stock of accounts, 29,369, or 19.7%, were in arrears of more than 90 days.

    The outstanding balance on BTL mortgage accounts in arrears of more than 90 days was €8.6bn at end-March, equivalent to 27.7% of the total outstanding balance on all BTL mortgage accounts.

    There are approximately 86,000 Rent Supplement recipients for which some €403m is allocated for the Rent Supplement scheme in 2013 – about 30% of renters, down from 40% in the past as the total number of renters has risen.

    The BTL arrears should be easy to sort out by putting these properties on the market?

    On the residential side, €10.8bn of debt without a repayment in a year – €18.1bn over 90 days.

    The Central Bank passes the buck to the banks but that will only buy some time.

    So YOB, it’s easy to see that a special income tax levy or a gift from Angela Merkel would be more than small change.

    As an alternative, Noonan’s €6.4bn election war chest (the residue of the public pensions fund) could be deployed. However, the minister was reported last weekend to have requested job project proposals from departmental heads and Kenny announced to the Irish Independent that he wanted to put 75,000 of the long-term unemployed to work by end of 2015 – more FÁS type training courses on Toyota’s just-in-time manufacturing .

    Coupled with a repeat of the official spin that “the private sector is now creating 2,000 jobs a month,” the target of adding 100,000 ‘jobs’ by 2016 is in sight as is the next general election.

    So the grim scenario is bank recapitalisation – mortgage debt forgiveness/50% of SME loans banjaxed/499,000 on the Live Register and in publicly funded activation programmes at the end of June (76,000 in the latter are classified as employed) and no credible long-term jobs strategy.

    This surreal situation could in fact work over the next 30 months and yesterday Bruton/ Sherlock announced a new ‘smart economy’ supremo to turn ‘good ideas into jobs.’

    …and the reality or bad news that has been buried at official level, supported by the dependent vested interests, is that for the second straight year, patent applications to the Irish Patents Office fell in 2012 to the lowest since the early 1980s.

    Irish Economy 2013: Only growth in Ireland is in freelance ‘jobs’

    What crisis?

  76. @ Robert Browne

    Robert,

    Thanks for this interesting link.

    The regeneration project at Fatima Mansions with community involvement shows that such investments if managed well can have a positive long-term impact. The community itself says: “From the 1980’s Fatima Mansions was a byword for ghettoisation, crime, drugs and anti-social behaviour.”

    However, the ‘regeneration’ process based on the Public Private Partnership (PPP) model collapsed in five areas in early 2008 (St. Michael’s Estate, O Devaney Gardens, Dominick St, Croke Villas).

    A recent Economist Intelligence Unit report on PPSs in Eastern Europe says they are pretty on paper and can attract much-needed capital, but governments in the region lack the necessary capacity and experience; the projects ‘require strong national institutions and well-crafted regulations’ – where would Ireland rank?

    The data on rent allowance before the bust is interesting; 60,000 individuals and families nationally depending on rent supplement allowance (a 43% increase since 1999). 20,498 (over one third) in Dublin City Council area in 2007 (62.8% of these were ‘long-term’ dependents).

    Much privately rented accommodation is both sub-standard and insecure.
    Repossession orders for homes, 13,931 mortgage accounts in arrears (June 2008); 40,000 empty apartments in Dublin.

  77. @ YoB

    “In a non recourse lending environment the non repayment risk is generally priced into the margin hence the reason why credit card debt cost is about 5 times that of mortgage debt.”

    Credit card debt is non-recourse??! Are you sure you’re not confusing recourse/non recourse with secured/unsecured?

  78. Eoin Bond is correct about the YoB comment, the entry says “recourse” when it means “secured.” But otherwise it seems correct, just the wrong term used. Easy mistake since these two concepts are often confounded. Irish mortgages are supposedly both secured and recourse, but neither feature is reliable.

  79. The aim of keeping people in a family home they can’t or won’t pay for is primarily laudable for those people. The merit to others is highly dubious. The cost is applied to those others, who are often living in housing conditions far less advantageous than those being kept in “their” family home.

    Apart from the direct cost to taxpayers, one immediate impact is to exclude other potential buyers from the market by artificially inflating prices. Since the banks are largely govt owned and run it’s basically a government run cartel operated to restrict supply and keep prices high. It is, frankly, a grossly immoral con.

    But, like many things in politics or economics, it’s easier to see the benefits to those who benefit than to see the damage to those who don’t. Bastiat, anyone? Hazlitt? Ce qu’on voit et ce qu’on ne voit pas.

  80. @ Pale Rider: The setting of interest rates is another example of financial chicanery at its worst. So, its a ‘push v pull’ situation. The push is coming from financials who are desperate for surpluses – the pull from CBs who know that increases will crucify the economy – again!

    Keep an eye on the price of crude oil. Good canary is crude. If crude prices decline, interest rates can be raised. If the prices increase, interest rates must be lowered. The consensus expectation is that crude prices can only rise, and rise, and rise. Predicament is – how do you lower interest rates below Zero?

    Interesting times.

  81. @Pale Rider,I may have misread the link but it appears that’s on the historic loan book,heavily weighted with trackers.I think the banks have been losing a few bob on them,it’s been reported that they are strongy encouraging people to switch to more profitable fixed ones in return for a cuddly toy.
    The link suggests a spread of about 30 points over EU avg. for new loans,not much of a spread but not much lending and probably only to very high quality borrowers.So it’s a subsidy or dig out by new borrowers…

    http://www.irishexaminer.com/opinion/columnists/matt-cooper/banks-must-act-on-tracker-mortgages-to-help-customers-and-themselves-230838.html

    There was a suggestion by a leading economist to abolish mtg. Interest relief to people on trackers as its a subsidy.
    http://www.irishtimes.com/business/economy/public-finances/tax-tracker-mortgages-says-leading-economist-1.1442083

    In other non payment news according to IRPT,you just could not make this up.
    “26. There were 8,304 committals for non-payment of court-ordered fines in 2012; 7,514 in 2011; 6,683 in 2010, 152 of whom were imprisoned for failing to pay fines imposed for not having a television licence.”

  82. @ Pale Rider: Mulling the thing around in my head the idea came to me that perhaps a rise in interest rates might be moderated somewhat. Lets say the the financials started to impose new and increased transactions fees for the services they provide. That should bring in a lot of additional revenue, without the risky chore of lending. Not flat charges mind, but percentage based ones. Not sure how long they might ‘get away’ with this, but I have every confidence that they will attempt it.

    @ Hugh Sheehy: Hugh, we have been over this piece of barren ground a few times too many. Its not a question of “who pays”, but HOW will any debt (personal, corporate and state) be discharged. You need a sufficient amount of disposable income for this. So how are disposable incomes, in Ireland, generated? Answer that inconvenient question, and you have your answer.

    @ John G: “Tax trackers!” Madness cubed! Just abolish ALL – like ALL tax write-offs for insurances, mortgages, interest payments – the lot! The tax forgone is a benefit-in-kind, not to the borrowers, but to the lenders. The lenders love those ‘incentives’.

  83. Regarding,the most probable direction off rates,most likely upwards only,notwithstanding “whatever it takes” comments,but the EU economy is not exactly firing on all cylinders now is it.I would think that only low risk high quality borrowers will be “allowed” mortgages,with limited competition spreads will remain above EU averages possibly widening.
    Stateside,they are already moving up,I think the WSJ blogs are non paywall hope so,anyway widely reported here is the comp.
    “Interest rates on 30-year fixed-rate mortgages have jumped in the recent months, climbing in the most recent week to 4.37%, up more than a percentage point from the 3.35% level of early May.”
    http://blogs.wsj.com/economics/2013/07/19/will-rising-mortgage-rates-halt-the-housing-rebound/

    The link to the numbers on those miscreants who avail of RTE for free,for fecks sake, locking up people for not paying to watch that crap broadcaster,still burning money like a start up.But don’t worry about paying for that BTL,RTE is unlikely to report anyone getting jailed for not paying TV lic.’s,try repo’s or evictions…we interrupt this broadcast to bring you breaking news….any chance the overpaid presenters at the Montrose old folks home,have skin in the BTL game or a touch off NE….
    http://www.iprt.ie/prison-facts-2

  84. Hi Brian,some of the tax incentives initially were targeted at kick starting or rejuvenating blighted areas,Robert Browne linked a very interesting piece on Limerick.But naturally mission creep occurred,not sure if any studies done on who benefits from mortgage interest relief over there,here it’s the better off,who no surprise tend to vote a bit more often than those struggling to pay bills.
    It was phased out in the UK-sounds ok to me!
    “Great Britain phased out the deduction starting in the 1980’s and ended it completely in 2000.
    Home ownership in England will slump to just 63.8 percent over the next decade, down from 72.1 percent in 2001, according to studies. Reasons for the fall include the need for huge deposits, combined with high house prices and strict lending criteria.”
    http://www.cnbc.com/id/100872995

  85. Hi John. Am reading that Limerick article. Its maddening that a basic provision such as housing is mistreated in such a shabby fashion. Speaks volumes, not of our society, but those in positions of influence, authority and decision making. They’re pathetic.

    All those tax reliefs are of no benefit whatsoever – except to those in financial services. They appear to benefit ordinary folk, but a close inspection ‘under the hood’ reveals the true beneficiaries – and the real losers (the taxpayer). This is maddening also.

    Home ownership is not the ‘be-all-and-end-all’. Its having robust security over wherever you decide to live (and hopefully raise your family, and grow old gracefully).

    Just as an aside. There is a documentary on RTE Radio 1 just now: No 3 Mountjoy Square, presented by Joe Duffy. The residence is now an Adult Learning Resource Centre specializing in teaching adults to read (and write). One ‘pupil’ who is aged 65 (it is an adult centre!) said he read his first book at age 61! Imagine the wasted enjoyment there! Reading (and numeracy) are the two most important skills we need. I think, as a society, we have a very long way to go before we can call ourselves ‘civilized’. I’ll amend my appellation of ‘pathetic’ above. They’re fecking pathetic!

  86. @Brian,wil track down that show in fairness the podcasts from RTE radio are terrific.I daren’t comment on the Irish criminal justice system,given the absolute failed US one,howls of protest if I say anything.
    On PPP there was a tread here a while back,looked very interesting.
    http://www.irisheconomy.ie/index.php/2013/05/27/the-challenges-of-public-private-partnerships-in-turbulent-times/

    Miles off tread at this point,but I would like to thank Gregory for the cojones to open it,polarizing topic and the various views opinions,comments rarely get aired.
    Also,as an aside excellent uplifting piece in this morning Barron’s,still widely read in NY-especially as its beach weather,not sure if its paywalled but very bullish on Europe and Ireland.
    Front page..Europes Economy Will Rebound!
    http://online.barrons.com/article/SB50001424052748704093404578613863100842212.html?mod=BOL_twm_fs

  87. Hi John: ‘Europe’s Economy will Rebound’. Sure will. As in ‘dead cat bounce’. Not to worry!

    Yes. Second that thanks. I think progress can be reported. Bit to go yet.

    What in God’s holy name is Obama on about? Is he trying to rile folk up?

  88. When the mortgagor is in arrears and continues to be in arrears for 90 days and upwards the mortgagor has a decision to make. Do I foreclose now or later. In Ireland the mortgagees have overwhelmingly opted for later. It would be safe to assume they have done this because they see rising property values around the corner. Some people would say they are slow to foreclose because it would show up immediately as a write down and the banks would be exposed for what they are and that is bankrupt based on present value of their collateral. Elements of both arguments enter into the equation.

    Re-arrangement should be based on the present value of the property in the case of a family occupied and owned house. A market based solution would be that the family being foreclosed on would have the right to buy the house at the price tendered at the foreclosure auction. Affordability would enter into it as well as a determination as to whether it was a won’t pay or can’t pay situation. Market solutions are the bread and butter of economists and I am sure there is not a person among you who would see anything wrong withe family being foreclosed on having the right of first refusal on the public auction price.

    The bank wins, since they got the market price and the family wins since they got what the market determined.

    It is all quite simple if the politicians cannot meddle and the banks are not allowed to act arbitrarily.

    Please, please do not tell me in this age of digital transactions that the won’t pays cannot be distinguished from the can’t pays. If they have the slightest difficulty with full disclosure of assets and incomes the deal is off and the bank has the property.

  89. @Brian that’s an extremely controversial case/verdict and case over here,no chance I’m touching it…..actually did not follow it too closely difficult as that was with wall to wall coverage.I use/read politico.com it’s free and quite good.
    http://www.politico.com/story/2013/07/obama-weighs-in-on-race-reluctantly-94495.html?hp=l3

    @Mickey Hickey…say like this NAMA developer did!!
    http://www.independent.ie/irish-news/bankrupt-builder-who-owed-1bn-back-living-in-his-former-home-28815457.html

  90. @Mickey Hickey — Are you familiar with the Dunne Judgement — almost all Irish property mortgages have been protected from repossession for the last 3 years or so due to a legal decision called the Dunne Judgement, arising from a technical problem in the 2009 Land and Conveyancing Reform Act. There are a few exceptions to the Dunne Judgement but not that many.

  91. @ Hugh Sheehy: Hugh, its simply the incorrect question to pose. Its not about ‘who pays’, but ‘how’ will those mortgage debts will be repaid (in full, in part or not at all).

    There is a specific manner in which incurred debts – of whatever nature, can be paid down. If the capability to pay is there – then you can ID the payees. If the capability is absent, the ‘who’ is moot. So, it effectively comes down to disposable incomes. Persons either have, or have not, the capacity to service a debt (such as a mortgage).

    Each of the distressed Irish residential mortgages (issued after 2000) must be individually re-visited to ascertain HOW those mortgages were originated. This is a tedious exercise, but is doable. And there is a current precedent for re-visiting tens of thousands of financial records. There is just neither the political nor the commercial will do do so. Why?

    Do we really know ‘who benefits’? And benefits what? I have an open mind on this one. I just do not know the answers.

  92. @Hugh

    “..Sorry, but “who pays” is just as relevant as the old question “who benefits”. You can’t just brush over the issue…”

    The facts are, and in this case they are supremely annoying ones, is that ownership of the banks (or near ownership) was forced upon the normal Joe, without his consent. So spare me the pain of ownership issues. This problem is not about bank ownership and therefore taxpayer grievances its about the error in the original lending deals, when the bank were privately owned.

    You may argue that the Govt at the time had no other option other than guaranteeing the banks liabilities. I vehemently disagree with that argument. The road I would have gone in allowing the banks to fail would no doubt have been a much more volatile one, but my sincere belief is that it would have been fairer and the fiscal adjustment required to rectify the scale of the Govt Debt thereafter would have been significantly smaller. But thats bye the bye. The mortgage cancer remains.

    I mentioned above and will continue to mention the other very annoying fact and that is the underlying belief amongst many that the original mortgage debt deal is sacroscant. Its supposedly untouchable in terms of its terms and conditions and in all facets its assumed to have been correct. That’s what virtually all the insolvency stuff and mortgage relief deals coming from both Govt and the CBI assumes i.e. the mortgage debt deal is absolutely above board and therefore legally enforceable.

    Again I cannot for the life of me understand how this thought process is in any way logical since ALL the banks which entered into such deals in the RoI operating in the mortgage market during the period 2001/2 to 2008 have either gone bust, left, been sold or have been taken over and by the way those international players who are still here, were they stand alone operations, they too would have gone out of business.

    Perhaps its just me but surely there has to be something in that dire stat. The common denominator for all these banks is that they were pricing and selling credit against RoI real estate which ultimately couldn’t support such debt deals i.e. the underlying was mispriced and as a consequence the debt deals made no sense and yet here we are trying to force these deals down the throats of consumers who simply cannot afford them. Does this not seem a crazy way to proceed?

    As indicated above, we can as a country dance around the actual issue which is presented to us or con ourselves into believing this problem can be sorted by mass repossessions and scare tactics by the same institutions which created this disaster. It can’t. The problem is not a bank ownership one and therfore a tax payer whinge its a basic asset pricing problem. It only ever been a basic asset pricing problem. We have allowed this issue to drift to become an issue where ownership of the banks and the Govts zeal in getting its investment back has continued to muddy the economics of the original lending errors. Despite the fact that the two have zero correlation.

    Its the original lending errors where ultimately we will eventually have to go to find real solutions, its a pity that after 5 years we still haven’t realised this, but I’m confident that sense will prevail, when, I’m not so sure.

  93. @YoB

    Perhaps you missed my earlier question, I’ll repeat it here:

    “Banks are still mis-pricing houses in the mid to upper brackets of the Dublin housing market.

    Should someone fall into arrears in 3-4 years time having bought in 2013, I assume you are not averse to revisiting the valuation used and renegotiating the outstanding debt?”

    Also, what probably irks some about your type of proposal is that presumably in order to qualify for any writedown you will first need to be failing to meet your repayments. That may not be what you ideally envisage but that is how it would work.

    Also, on what date did property become overvalued in Ireland? I think we’ll have to settle on one in order to know who qualifies and who does not.

  94. @Gregory Connor
    Thanks for bringing that to my attention.
    I assume that the case in question was Start Mortgages vs Gunn and the need to have started proceedings before Dec. 1st 2009. At one level of my consciousness I can understand that. I have spent so much time in countries with competent governments that I cannot even begin to comprehend that something that can be made good in 90 days give or take is still outstanding 3 1/2 years later. To understand it I would have to accept that the Dail is populated with drunks, clowns and fools. I would also have to accept that the country that produced Daniel O’Connell has now descended into a state of paralysed infantilism.

  95. Yields or bust…your post makes no sense, I’m afraid.

    Your solution to not forcing “deals down the throats of consumers who simply cannot afford them” is to force the deals down the throats of people who didn’t enter into them in the first place – and who don’t get to live in the houses either.

    That’s not a solution, it’s an unjustified transfer of wealth from people who didn’t enter into the deals to people who did. And in the meantime it’s effectively something approaching a price fixing cartel too.

  96. @ Ronan: We are in a declining value residential property ‘market’ – not a rising one. The Irish residential property bubble at 350% was the largest since the 1700s! It has to deflate – and is doing so. There is a great resistance (for obvious reasons) to a decline in value. Its slow. And given the desperate attempts by different groups to ‘goose’ property values in the sector that counts (Dublin city and county) – Dead Cat Bounce is inevitable.

    Within three? years we may expect a sharp and unpleasant downward adjustment of residential property values (prices will follow). Postponing this adjustment for political considerations will only make the final position – in terms of accumulated mortgage debts, worse.

    The proper course of action is for mortgage lenders to return to basics, though they seem to have conveniently forgotten these: ->

    1. Borrower has 20% cash down payment – (like from savings)
    2. Borrower must have cash to pay transaction fees and duties
    3. And more cash to furnish and equip
    4. Only ONE basic income can be used – the most secure, not the largest! (There is considerable scope here for hanky-panky by both parties)
    5. Only x2 that single, basic income can be loaned
    6. A detailed credit check and income stress test, to ensure that the total outgoings of the potential borrower for all their debt repayments does not exceed 32% of nett income. Like what have they left, nett, at the end of each month. Rainy days do happen! One bad financial event and it could be Tits Up Time!

    But as I mentioned at the start, we are in a decliningg value situation, so the down payment should be closer to 40% and the balance lent 60%. This provides robust protection for both parties.

    Silly, boring stuff like that! Think this is possible?

    Unless and until these protocols are copper fastened in place. There is a probability of defaults. The lenders are 100% responsible for ensuring that the situation. If they fail in their duty – and they have showed they can do so spectacularly … …

    A lot of folk have a lot of very hard, slow thinking to do on this one.

    @ Hugh Sheehy: I noted your response above. Please try to engage with this matter. Its complex, its emotive and there is only one solution to unpayable mortgage debts. They get written off or down. That’s it! Its the HOW Hugh, not the WHO!

  97. @Hugh

    Wrong.

    For about the 5th time on this thread alone ownership of the banks is never a good reason to continue to believe that previously agreed crazy debt deals every made sense. You’re rightly annoyed over home owners potentially getting a break on the back of ordinary taxpayers, but take that issue up with the geniuses who believed that bailing out the banks was a sensible move, not the novice property buying consumers.

    You continually make the case that mortgage deals, if any are eventually agreed are are not fair on those who didn’t buy. My argument is simply that the consumers who did buy were entitled to believe that the regulated banks and related professionals to which they entrusted their cash were giving good advice, knew what they were doing and importantly complied with the Central Bank Consumer Codes. None of this happened. We know the regulation failed, we know the banks failed, we know up and down the country solicitors acted in bad faith and we know the build quality in many parts was simply dire.

    Its not sufficient to now protest about a position where taxpayers end up funding the banking losses without understanding the reasons for the losses in the first instance. The ownership you and I find ourselves saddled with with was never asked of us, I know I gave no consent to any Govt to bail out the banks. I know I was never asked in the 2007 General Election campaign that in the event of the banks going tits up that the political party looking for my vote was likely to guarantee the liabilities of the countrys banks.

    I never asked to be an owner of these businesses but what I do ask for, every day, is that the consumer deserves basic protection and with especially with regards to pricing and related matters. During the period under review the consumer, as all the evidence now shows, was completely unprotected and that position needs to be rectified. Like it or loathe it the consumers who bought in the period under review were overcharged – sadly this fact doesn’t change.

  98. @ Yields.

    The two issues are mostly separate. Just because we all got screwed and ended up on the hook for the bank debts does NOT require that people who are sitting in houses that they’re not paying for should be given preferential financial treatment compared to people who are not sitting in those houses.

    Yet that’s what’s continually proposed.

    And meantime the banks and government are operating something like a cartel to keep prices and rents high, further screwing those who didn’t or couldn’t buy during the boom.

    Piling injustice on injustice doesn’t resolve anything. Simply ensures that the corruption of “society” continues.

  99. @ HS: “Yet that’s what’s continually proposed.”

    I think not Hugh. Maybe some politicos, but not those who actually understand how this residential mortgage mess came about, and how un-payable debt is not going to be repaid, unless the assumption being assumed is that those insolvent debtors will get sufficient increases in their incomes to make their repayments possible. Is this latter being proposed? I think not either!

    So there is your predicament Hugh. You, and all others have to spell out, clearly HOW un-payable debts will be handled. Maybe the fact that the previous, and current, governments have handed the ‘bill’ to solvent taxpayers solves the predicament of un-payability. Well it surely does not. Because we have no idea how thousands of residential mortgages were given out in the clear knowledge that these mortgages, would in the short-term, become un-payable. However, if that ‘clear knowledge’ was missing (or ignored) then what does this tell you about the incompetence, staying very close to fraud, of those executives in charge of risk and lending in the Irish banks? That’s a mighty inconvenient question Hugh, and it needs to be addressed and answered – quickly. This residential mortgage mess has run into a financial-predator infested swamp. You clear out the predators by ‘draining’ the swamp. What will it take to drain that swamp?

    “And meantime the banks and government are operating something like a cartel to keep prices and rents high, further screwing those who didn’t or couldn’t buy during the boom. ”

    A cartel? Sure. Keeping property values (prices) high? Hugh, if residential property values in those parts of the country that ‘count’ – the affluent parts, reverted to mean, where value reflected yield, then someones would have a far bigger predicament that we have at the moment. Time (year or two) will sort this out. We have to get past the next parliamentary election first. The ability to ‘goose’ this ‘affluent’ sector of the residential housing market is limited by the actual number of purchasers available. Its not like there are actually ‘thousands’ of eager beavers out there – is it? Meanwhile, the remainder of the country slowly submerges itself into that financial-predator infested swamp.

    And, no one is being ‘screwed’. The ability to purchase (or rent) is not a Right – its a conditional option. The individual has or has not an appropriate income. The fact that the insolvency of Irish financial institutions which lent into a boom were saved by an act of government treachery is seldom mentioned. The majority of folk probably believe the idea that allowing our insolvent institutions to be liquidated by our courts would have initiated a financial avalanche of global dimension. It might indeed have been global, we shall never know. Liquidation was the way to go. It would have drained that swamp!

    At least the Icelanders ‘beat up’ on their perpetrators. We, on the other hand, want to ‘beat up’ on our victims! This matter is far from a resolution.

  100. @ Brian Woods Snr.

    A liquidator would still have had the right or obligation to chase the banks’ debtors. The bank might have been released of some obligation to its creditors. Either way, it doesn’t make the mortgage debt go away nor make it ok to pass that debt on to others.

    And your statement that the ability to purchase or rent is not a right but an option is interesting when contrasted with the apparent view that people have a right to keep living in the houses that they bought but aren’t paying for.

  101. @ HS: “…with the apparent view that people have a right to keep living in the houses that they bought but aren’t paying for.”

    Apparent to whom? What I think I suggested was that each and every residential mortgage since 2000 was ‘opened’ and subjected to a forensic accounting analysis. What part of that statement contains the term ‘right’?

    However, first things first. You, and a few other folk have to fess up and state that you agree with the principle that unpayable debts are quite literally un-payable, then start to explain HOW that scenario is to be unwound. Forgive and forget or what! You’re not even there yet.

    I mentioned a few post back that this residential mortgage mess is a tad complex. And I believe that is an understatement. Consider:-

    There ar two sets of ‘performance characteristics’ for residential mortgages; one set for the lender and a second set for the borrower.

    [Note] The lender is usually a corporate, limited liability entity, the borrower is a single individual. Some difference.

    The lender’s performance characteristics relate to the calculation of asset-at-risk values and setting loan criteria that are a TRUE and FAIR representation of those risks. The lender has a fiduciary duty to both themselves and the borrower. Now please explain to me how our Irish residential motrtgage lenders (from 2000 until today) have discharged their performance characteristics.

    The borrower, being a single individual, has a very much higher level of asset-at-risk value. They did put down that 20% cash deposit? Also, the borrower is under sever legal restraint to fulfill their contract (repay their loan). Else they ‘lose’ the property. In Ireland we take a ‘poor view’ of loan defaulters. But not mendacious bank officials. The borrower must submit a TRUE and FAIR account of their financial situation to the lender. And they all did this? – honestly?

    Hugh, you and some folk have a very long way to travel on this one.

  102. I see lots of words about “mendacious bank officials” and the like. The main narrative I hear everywhere else is that people were being foolish, not that there was organized fraudulent mis-selling.

    If they were being foolish then that’s not a reason to forgive the debt. So the debt remains the responsibility of the original borrower. The creditor (the taxpayer, mostly) may have to suck up losses where the borrower can’t ever pay and is – either essentially or actually – bankrupt.

    But the fact that the state is now the creditor shouldn’t give the debtor any right to expect special treatment. The bank has a duty to get as much value back as it can. Collateral gets taken, etc. Nor should it give the state the right to run a cartel to rig the market to protect their investment in the banks. Cartels are always protective of one part of the market or of society and extremely desctructive to another.

    Protecting the famous “householder” or manipulating the market to “maintain stability and prices” both require that someone uninvolved get screwed, totally unjustly. Irish society has a history of being comfortable with that. You seem to be too.

  103. The statement of prof Connor that it is virtually impossible to distinguish can’t pays from won’t pays bears a little elaboration.
    Most peoples personal finances are very simple.
    Get their bank statements, credit card statements, standing orders, mortgage obligations and spend a bit of time. You will find out what they are up to very quickly. I’m not sure if professor Connor has ever done this exercise for himself or anybody else but there aren’t too many hiding places for the alleged strategic defaulters once those very basic pieces of information are available. Impossible my !!!!
    A specialist tribunal would very quickly sort out deals between the banks and the punters. Letting the banks have the final say is a disastrous policy that guarantees a substantial amount of non-cooperation.
    At the moment my hunch is that fear is keeping people away from the banks. They are petrified of losing their homes and don’t want to approach the banks because the banks are pretending that baked beans and bread and dripping will be on the menu for the next 6 years. In fact everybody is afraid. The banks know that they are lying about their bad debts, the department of finance is afraid that that is the case but don’t really want to know because it would reveal that the banks need for more capital than has been admitted, the government definitely don’t want to know, the TDs have a fair idea what’s going on but know that the majority of voters are not in serious debt and will be unhappy if any significant write-offs are allowed, no matter how sensible such a policy might be …..
    I haven’t read everything that professor Connor has said on this subject but I strongly suspect that he has little empirical evidence from Ireland to back up his sweeping statements about strategic defaulters. His comments on unacceptable personal privacy intrusion seem to ignore the level of intrusion suffered by somebody who is thrown out into the street.
    In any case, could we please have a definition of the term strategic defaulter?
    Here’s me bus!
    Ramanujohn

  104. Ramanujohn, this thread had, I suspected, faded. But fair do’s for giving it a little extra. The issue of poor mortgage originations (into the residential sector) from 2000 until 2008 is not something many folk appear to be able to grapple with. There are some very inconvenient truths in there.

    I hope you have read all the comments. Some are sentimental, some inadequate, and some get to the core. I’ll let you decide.

    There is sequence of linked events in a lending/borrowing stream. Its not all about the final link, the domestic borrower. They were ‘very naughty’ by some accounts. Indeed! But those commercial lenders? They were, in their turn, borrrowers. They had to have made representations and warranties – about the nature of the collateral they would use, in turn, to lend out their borrowed money against. About their income stream from those interest payments. And about their profitability. Else, they would not have been given the loans they did get. Or am I being a complete dope to believe that those ‘foreign’ financial institutions which lent wholesale to their Irish clients – simply ‘shoveled’ the electronic credit at them? Without any checks? And remember that those commercial lenders were, in their turn. borrowers. Or were they? Lots of inconvenient questions there. Its Questions 1: Answers 0.

    In respect of the Irish banks which issued shares. The stockholders would have a strong incentive to ensure that the bank’s lending into the property sectors did not imperil the financial stability (hence the share value) of the company. So who was watching out for those stockholders then? And were they ‘observant’? What does a Board of Directors do?

    My opinion is that the incentives of all the respective officers in Irish financial institutions lending into the property sector were very different from that of the stockholders. I opinion that their incentives were not corporate, but personal. Was the prospect of greater salaries, bigger bonuses not a factor? Was there any ‘pressure’ to go for quantity lending, rather than quality lending? It would be important to know this. Because it was these officials who were making the domestic mortgage lending decisions – not the domestic borrower. And as I mentioned above, the senior officials were simultaneously making representations to their lenders.

    Its little wonder that many folk are wary of truthful disclosure – and the citizen sheep easily fooled. So far, all efforts to get to the root of the matter; and the hopeless proposals to solve the triplet predicament of debt overhang, negative equity and stagnant economic growth are being waved around – in the confident expectation that they will actually solve an intractable predicament – that they are not even addressing.

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