# Banks taking on negative equity?



## fuzzy10 (18 May 2010)

I heard on the radio & read comments regarding reaction to Matt Coopers negative equity proposal. Banks could purchase the negative equity on the house and owners have the ability to buy back the banks share in the house!

What’s the chances of this occurring?


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## Marietta (18 May 2010)

Sure what overall difference will it make, the homeowner is going to have to pay back the bank eventually. This proposed concept is rather like the affordable housing option, you own a part of the house and one day you will have to take out another mortgage to pay back the council.


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## fuzzy10 (19 May 2010)

Good point but the ability to ease your monthly mortgage payments during the recession (wage cuts, rising interest rates) must be of an advantage to the mortgage holder.

Yes, eventually you will have to buy back the banks share but hopefully we will all be in a better position in the future.

curious...How much does the council own when you purchase an affordable house?


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## Marietta (19 May 2010)

fuzzy10 said:


> Good point but the ability to ease your monthly mortgage payments during the recession (wage cuts, rising interest rates) must be of an advantage to the mortgage holder.
> 
> Yes, eventually you will have to buy back the banks share but hopefully we will all be in a better position in the future.
> 
> curious...How much does the council own when you purchase an affordable house?


 


Apologies, in my post I referred to the Affordable Housing Option when I meant to say the  Shared Ownership Scheme, it is aimed at people in Ireland who cannot afford to buy their entire home in one go. It allows you to buy a proportion of your home to begin with, increasing that proportion in steps until you own the whole house. Whilst you are buying a portion of your home, ownership is shared between yourself and the local authority and you make payments on a mortgage for the part you own and pay rent to the local authority for the other part at a rate of 4.3%. which is very different.  More details here http://www.citizensinformation.ie/c...home/help-with-buying-a-home/shared_ownership 

The [broken link removed] is very different in that people are able buy houses at below cost price after having fulfilled certain conditions and if they sell the house within 20 years they have to pay back what is called a 'clawback' to the local council.


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## paddyd (19 May 2010)

fuzzy10 said:


> I heard on the radio & read comments regarding reaction to Matt Coopers negative equity proposal. Banks could purchase the negative equity on the house and owners have the ability to buy back the banks share in the house!
> 
> What’s the chances of this occurring?



Hopefully no chance. Its great that Cooper is trying to start the debate, but this is a terrible idea.
1. who and how do you decide what the negative amount is? 
2. The people who make the decision to get on this train will probably have massive Neg Eq and will want to load it all on the banks
3. It gets the banks back into the middle of the property game, with all the houses in Neg Eq by and large being out in the satellite towns where they may never appreciate 
4. Where does the bank get the money to buy the stake in the house?
5. Considering you have a big chunk taken off your mortgage, and the bank are now holding part of your house, they in effect have an asset thats not generating any income, rent etc
6. The money used to give you the mortgage in the first place is borrowed from another bank in europe and the interest still has to be paid. So this bail-out for Joe the Plumber is going to cost the bank every single month, with almost no chance of a return on investment
7. Why on earth would anyone try to persuade the banks to get on board?
8. Why would we want to pump good money after bad.


Personally I think it must come to a hard and fast rule; if you want out, you must sell the house, and then deal with the Neg Eq separately.

You either keep ownership of your house or you lose it, I don't believe you can have it both ways. That way only the unfortunately desperate ones make the decision to get out, and the market is no flooded with sellers even more than it needs to be.


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## TRipley (20 May 2010)

+1


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## csirl (20 May 2010)

Huge flaw in this proposal:



> Banks could purchase the negative equity on the house and owners have the ability to buy back the banks share in the house!


 
Who is going to pay for the purchase? The banks currently have no money and are relying on the taxpayer to give them capital. If they start purchasing negative equity, then they will require more capital, so the cost will be passed onto the taxpayer. Also, the banks have got into enough difficulties with ill advised property dealings. Buying negative equity in a house must be the most ill advised thing that a bank could do.


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