# Moral hazard of banks writing off debt



## goingforgold (17 Mar 2014)

In light of the many writedowns of mortgage debt that have been made public recently, my friends and I have discussed your type of situation and most agreed that you would be better off telling the bank that if they don't do a deal with you on the negative equity that you will go to the UK and declare bankruptcy. 

I have mentioned the whole moral hazard issue in posts going back nearly 3 years ago now, and how I felt it was going to be a major issue re mortgage debt in this country. Now that the banks are starting to write off debt the "gravy train" situation is very real. We've seen how people (and often generations of certain people) manipulate their circumstances to milk our social welfare system and this is now happening in a very real way in relation to mortgage debt, ie people who can pay are not paying so as to avail of writedowns, better terms etc.

So, if you want to sort this problem you should be prepared to leave your job and go bankrupt in the UK. You will be debt free in 12 months. Downsides include the fact you will have to seek employment here again in 12 months time and you may find it hard to get credit again. Only you can decide what works best for you.


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## ClubMan (19 Mar 2014)

goingforgold said:


> In light of the many writedowns of mortgage debt that have been made public recently


Have there really been "many" such writedowns?
I am aware of a small number via the media but maybe I'm missing others?


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## Bronte (19 Mar 2014)

goingforgold said:


> people who can pay are not paying so as to avail of writedowns, better terms etc.


 
Where is your evidence for this?


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## Delboy (19 Mar 2014)

http://www.independent.ie/business/...as-borrowers-hope-for-writedown-26839056.html

and here's a story straight from the horse's mouth
http://www.mortgagebrokers.ie/uncategorized/talking-with-a-strategic-defaulter/


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## Sunny (19 Mar 2014)

Delboy said:


> http://www.independent.ie/business/...as-borrowers-hope-for-writedown-26839056.html
> 
> and here's a story straight from the horse's mouth
> http://www.mortgagebrokers.ie/uncategorized/talking-with-a-strategic-defaulter/


 
You can can't get a more scientific study than this:

_Mr Deeter based his findings on private conversations with senior bankers and collection staff in the main banks._

So to sum up, banks think people have more money to give them. Well I am shocked. Of course there are chancers out there but if the banks do their jobs properly, these cases will be spotted.


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## callybags (19 Mar 2014)

I doubt very much if you can just "leave your job and go bankrupt in the UK".

These selected writedowns are being overhyped big time, and if people are hoodwinked into thinking it's easy money then they are in for a rude awakening.

In my opinion it's very possible that a so-called "strategic defaulter" could end up with no house and a large negative equity debt hanging obver them, payable at punative interest rates.

I would think the banks can spot them a mile away.


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## Bronte (19 Mar 2014)

Delboy said:


> http://www.independent.ie/business/...as-borrowers-hope-for-writedown-26839056.html
> 
> and here's a story straight from the horse's mouth
> http://www.mortgagebrokers.ie/uncategorized/talking-with-a-strategic-defaulter/


 
You'll have to do better than that, the Indo article is a nonsense, no proof at all, and the second story, from the same source, Karl Deeter, well the landlord there has put 12K aside. 12K ! Not 120K. Second article also mentions that it's mainly landlords, and the person involved mentioned that 'all' landlords are at it. Well that plainly is not true. 

But it may be true that *some* property investors/landlords in the no capital repayment scenario with high borrowings relative to property, bought in the boom, with no hope of rent covering capital and interest are using the rent as income. 

I agree on a couple of points, if all you have is rentals then financially it makes sense not to play ball, as they banks either than have to write down part of the debt or force a sale. The latter may not be worthwhile from the banks point of view, while the former may well be. And the borrowers viewpoint might be the bank shouldn't have given them such a loan in the first place. And they'd be right, but both bank and borrower were at fault here.

There is already another point here, rent receivers, if you are not playing ball, than the bank simply, if they can appoint a rent receiver, and you're snookered. All the liability = taxman, but zero rent. 

As an aside, I know one case where the bank appointed a rent receiver and now the rent receiver has given up and is meeting the owner to formally hand back the file. Interesting developements. Found out also that these guys are being paid circa 1300 a month. And that's not including hiring an estate agent to manage the property. I mentioned it before, how is a property worth less than 100K, in deep NE, paying the rent receiver, the estate agent, the repairs, handling tenants, it doesn't make sense. And then if sold there is thousands in NPPR, the property tax, the banks legals, the auctioneer.....

Rent in the case I mentioned is around the 500 Euro mark.  Total nonsense from the banks.


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## goingforgold (19 Mar 2014)

Bronte said:


> Where is your evidence for this?


 
We can be naive and believe that the radical rise in arrears is down to everybody losing their jobs, higher taxes etc. I think this would be very naive. We can also be naive enough to think that all those people on the live register (including those who were on it during boom years) are genuine cases. My point is that whenever there is an opportunity to "milk" a system there are going to be a lot of people who will avail of it. 

It doesn't take a genius to figure out that if one has 100k-200k of negative equity on a relatively modest wage that it may be more financially prudent to a) "proactively" struggle with mortgage repayments and receive writedwown or avail of PIA/Bankruptcy, b) intentionally lose their job and avail of PIA/Bankruptcy, or c) emigrate and leave the keys to the bank.

I certainly know of people who have "changed" their circumstances to recieve much better mortgage terms from banks, but in terms of hard evidence you'll just have to take my word for it obviously. I'm sure there are lots more people on this forum who know people who have done same.


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## Gerry Canning (19 Mar 2014)

going for gold; 

There is little doubt but that some people will go on as in your words {the gravy train}. I will be very surprised if, in the scheme of things that that will be a significant percentage.

Going to Uk is not a real option for most people . I expect that those who can manage it, eg business types ,have done so . Only Joe Soap types are left.
Mr Joe Soap is petrified by his situation and there is minimal hard evidence that most defaulters are playing games other than what we hear from Bankers , who have proven to be incompetent. 

I would ask any AAM contributor to go on the dole ,try to keep mortgage running and then see what they would do in an arrears situation. 
Vast majority of people want to pay their way .
The Banks have by their inactivity on mortgages created a kind of a sullen logjam in peoples mindsets.

As I see it only a fast appraisal and prompt writedown of debt to sustainable levels will sort this.That surely is why WE capitalized them.
Sunny, I do see Banks squeezing to see how much they can get month by month.That only keeps the drip job going , it is not a solution.


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## goingforgold (19 Mar 2014)

Gerry Canning said:


> As I see it only a fast appraisal and prompt writedown of debt to sustainable levels will sort this.That surely is why WE capitalized them.
> Sunny, I do see Banks squeezing to see how much they can get month by month.That only keeps the drip job going , it is not a solution.


 
I completely agree, but again I ask if this can be done in a fair and transparent manner? Let's take this simple example; should someone with 200K negative equity (and arrears) who are struggling but just about meeting their mortgage repayments be treated any differently to someone with the same negative equity/arrears who don't meet their mortgage repayments?

If they are treated differently and asked to make their repayments in full then that is going to lead to constructive mortgage defaults. It actually makes sense for somebody in this situation to default on their mortgage as they will effectively be at a 200k disadvantage to someone who doesn't...this is the problem!


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## goingforgold (19 Mar 2014)

ClubMan said:


> Have there really been "many" such writedowns?
> I am aware of a small number via the media but maybe I'm missing others?


 
This is just one bank ClubMan...AIB agrees over 100 deals for mortgage write-offs

http://www.rte.ie/news/business/2014/0319/603254-aib-mortgage-write-offs/


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## Bronte (19 Mar 2014)

goingforgold said:


> We can be naive and believe that the radical rise in arrears is down to everybody losing their jobs, higher taxes etc. .


 
But there was a complete collapse in the economy, there were massive tax hikes, and banks also ramped up interest rates where they could.  These are not pretence, they are actual facts.  The story about strategic defaulters has been hinted at for years, but no actual real cases.  Yes I do agree there will be a percentage doing so.


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## Sunny (19 Mar 2014)

Bronte said:


> But there was a complete collapse in the economy, there were massive tax hikes, and banks also ramped up interest rates where they could. These are not pretence, they are actual facts. The story about strategic defaulters has been hinted at for years, but no actual real cases. Yes I do agree there will be a percentage doing so.


 
Now now, don't be bringing rational argument into the discussion. It's just co-incidence that arrears rose as unemployment jumped and now that unemployment is falling, arrears are stabilising.  

Whereas it is obvious that a lot of people are in arrears by choice because we all heard lots of stories about lots of different people who are simply choosing not to pay their mortgage on their family home.


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## Sunny (19 Mar 2014)

goingforgold said:


> This is just one bank ClubMan...AIB agrees over 100 deals for mortgage write-offs
> 
> http://www.rte.ie/news/business/2014/0319/603254-aib-mortgage-write-offs/


 
100 deals out of the 29,852 AIB mortgages currently benefiting from some form of forbearance. 0.33%. Hardly a tidal wave of write downs.


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## Delboy (19 Mar 2014)

Sunny said:


> Now now, don't be bringing rational argument into the discussion. It's just co-incidence that arrears rose as unemployment jumped and now that unemployment is falling, arrears are stabilising.
> 
> Whereas it is obvious that a lot of people are in arrears by choice because we all heard lots of stories about lots of different people who are simply choosing not to pay their mortgage on their family home.



Unemployment is much higher in Spain and Greece than Ireland and they had property crashes but our level of arrears is off the radar v's their's.
But I won't bring rational argument into this discussion....


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## goingforgold (19 Mar 2014)

Sunny said:


> 100 deals out of the 29,852 AIB mortgages currently benefiting from some form of forbearance. 0.33%. Hardly a tidal wave of write downs.


 
This is a process that has only really begun and above figures do not include PIA's/Bankruptcies. 

Debt writedowns are becoming common place in one form or another...let's review in a years time and see where we are at.


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## Sunny (19 Mar 2014)

Delboy said:


> Unemployment is much high in Spain and Greece than Ireland and they had property crashes but our level of arrears is off the radar v's their's.
> But I won't bring rational argument into this discussion....


 
No they aren't. Last reasrch I saw from Greece anyway showed three month arrears of 15.5% and climbing. I think Ireland's peaked (hopefully) at around 18%. Hardly off the radar compared to theirs. We also had a larger property crash than either of those Countries so negative equity is a bigger problem. We had larger mortgages v income due to the generosity of our banks during the boom. And there are other differences if you really want to compare.


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## Sunny (19 Mar 2014)

goingforgold said:


> This is a process that has only really begun and above figures do not include PIA's/Bankruptcies.
> 
> Debt writedowns are becoming common place in one form or another...let's review in a years time and see where we are at.


 
Of course they are going to climb. I don't get your point.


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## goingforgold (19 Mar 2014)

Sunny said:


> Of course they are going to climb. I don't get your point.


 
I'm not sure how I can help you further to get my point! I'll try and summarise...I believe that a certain portion of mortgage holders (never said widespread btw) are (and are better off) constructively defaulting on their mortgages so as to avoid being indebted to banks for the rest of their lives.

I've told you that I know of certain people who have done this and I've given examples in above posts as to why it makes sense to do this. Can't be more clear than that I'm afraid...


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## goingforgold (19 Mar 2014)

Sunny said:


> We also had a larger property crash than either of those Countries so negative equity is a bigger problem.


 
I think this is a contradiction...negative equity should have nothing to do with people going into arrears, but you are proving my point (and Delboy's) by implying that negative equity leads to arrears.


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## Bronte (19 Mar 2014)

goingforgold said:


> This is a process that has only really begun and above figures do not include PIA's/Bankruptcies.
> 
> .


 
There is talk of it only being the beginning, but no actual meaningful figures on PIA's or bankruptcies.  Based on my reasearch the PIA's etc are a total joke and not fit for purpose.  There is not going to be a tidal wave of insolvencies.  There is going to be deals done via personal negotiation or via IMHO etc.  

You mention cases you know.  Give us one case with real details and as close as you can figures, and confirm that these people are living the high life.


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## Sunny (19 Mar 2014)

goingforgold said:


> I think this is a contradiction...negative equity should have nothing to do with people going into arrears, but you are proving my point (and Delboy's) by implying that negative equity leads to arrears.


 
SIGH......

I never said negative equity leads to arrears. It does however lead to rising arrears in the later buckets because people can't offload their property if they get into difficulty.


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## Delboy (19 Mar 2014)

Sunny said:


> No they aren't. Last reasrch I saw from Greece anyway showed three month arrears of 15.5% and climbing. I think Ireland's peaked (hopefully) at around 18%. Hardly off the radar compared to theirs. We also had a larger property crash than either of those Countries so negative equity is a bigger problem. We had larger mortgages v income due to the generosity of our banks during the boom. And there are other differences if you really want to compare.



Ok, your referring to short term mortgage debt whereas I was referring to long term arrears. This graph illustrates the point I was making
http://cdn.theatlantic.com/static/mt/assets/business/Quartz_Ireland_Chart1.png


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## Bronte (19 Mar 2014)

That graph is truly shocking, it's amazing the resilence of the Irish people in the face of figures that stark.  Those figures would be an awful lot better if we had a properly thought out insolvency system and if banks had got their act together and out of the sand 5 years ago.


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## goingforgold (19 Mar 2014)

Bronte said:


> You mention cases you know. Give us one case with real details and as close as you can figures, and confirm that these people are living the high life.


 
Who mentioned people living the high life? I'm not sure if you are deliberately trying to misunderstand my point? 

This discussion is about moral hazard and I originally posted this in response to a person who was asking for solutions to mortgage debt (negative equity and arrears). 

I believe that people should look into all their options if they are in serious negative equity and/or arrears. Why should they pay off all their debt and be slaves to a bank for the remainder of their lives when they can avail of much better deals from the bank by proactively defaulting on their mortgages, or even going as far as giving up their jobs and going bankrupt in the UK for 12 months. I say this because people ARE getting debt writedowns (some even remaining in their homes), and as the precedent is there I believe people should do what it takes to protect their finances and that of their families.


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## Gerry Canning (19 Mar 2014)

It is going to be very difficult to filter out chanchers and smart asses from genuine cases.
And the people to sort things, sadly are our failed banks?

Someone in severe negative equity may with some justification decide to join the bandwagon.

I cannot disagree with most of the posts, all make good enough points. 
But the problem of arrears/default/chanchers can only be resolved by actively writing down an appreciable amount of Mortgage debt.
In writing off debt, there is NO doubt Mr Chancher will feature a lot higher than any of us will like under moral hazard. However , unless we can set up a broad brush stroke type of resolution ,that will sadly include chanchers , we will only end up in the stalling/non resolution that we see. 

Time to take the bitter pill methinks!


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## callybags (19 Mar 2014)

Gerry Canning said:


> It is going to be very difficult to filter out chanchers and smart asses from genuine cases.
> And the people to sort things, sadly are our failed banks?
> 
> Someone in severe negative equity may with some justification decide to join the bandwagon.
> ...


 
I disagree.

While ther will always be chancers, I don't think it will be anywhere near as widespread as posters are making out.

It's not rocket science for banks to perform standard checks to establish the real situation with borrowers.

They have had plenty of practice over the last 6 or 7 years.


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## goingforgold (19 Mar 2014)

Agree @Gerry Canning...think we need a broad solution here rather than picking and choosing who gets what. 

To be fair, if I had 200K of negative equity and was just about meeting mortgage repayments, and I saw someone in a very similar situation getting 200K debt written down just because their ability to pay is marginally worse than mine (or not depending on how honest they are), then I would be looking to get myself a similar writedown by hook or by crook! 

I think there is such a thing as being honest to a fault here...people have to do what's right for their families


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## Gerry Canning (19 Mar 2014)

callybags; 

You may disagree, but it is a fact that whilst Mr Banker has had plenty of experience , sadly he is a slow learner.
Not sure what you mean by standard checks , but I hope they are an improvement on Banks previous checks.I am finding it a bit tedious that anyone can allow any opinion, other than Mr Banker is a proven incompetent . I also find it tedious to believe any one can have faith in their judgment.

I find it worrying that Mr Banker who has had OUR Billions to sort the problem havn,t even really started. 

Apologies if I sound crankey.


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## Bronte (20 Mar 2014)

goingforgold said:


> Who mentioned people living the high life? I'm not sure if you are deliberately trying to misunderstand my point?
> 
> .


 
No not deliberately misunderstanding you, but genuinely misunderstanding you.  I thought you were against debt write downs because of moral hazzard.


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## kmick (20 Mar 2014)

Speaking of moral hazard are these the same private banks who took €62.8 billion out of the public purse to recapitalise themselves while also paying off the bondholders who were supposed to be carrying the risk? In the process writing down (to comply with European directives under Basel etc) these loans which they now in most cases want repaid in full  -thereby essentially charging their customers twice for those loans. Once from general taxation (7% USC Charge anyone?) and twice in loan repayment.

Cry me a river senior bankers.


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## bugler (20 Mar 2014)

I'm not sure you are on the right thread. This thread is about moral hazard, where people may be encouraged or inclined to engage in risky or morally dubious behaviour because they are protected from some, or all, of the consequences of that behaviour, or they are given incentives to do so. It matters because it changes the nature of markets and may pass on costs to other blameless people. (Some) people will act differently based on the available incentives to act in a certain way. Bankers availed of it, and so do property owners. Saying it doesn't happen is a bit like thinking insurance fraud doesn't happen. A lot of people have suffered the ol' whiplash in Ireland though, I think we'll agree!

Look at it this way. If I want to borrow to buy a house, and the bank says I can borrow 400k, I might think it prudent to borrow much less than that. Say only 300k. But my brother (on the same wage) is a bit more reckless, he is going for the full 400k. 

We both buy our houses. Naturally enough my brother's house is nicer than mine. Maybe it has a much bigger garden, maybe it's in a better area. Maybe both. 

The economy turns. Both my brother and I suffer cuts to our wages. Thankfully I was prudent and I can absorb these cuts by making some changes to our family budget, while continuing to service my mortgage fully. 

My brother though, maxed out his borrowings, and despite making some cuts to his lifestyle, he isn't able to meet his repayments. There was a time when this led to repossession if some sort of agreeable arrangement could not be reached, and then my brother would have regretted his unwise decision to max out his borrowings, but no longer. 

Now repossession is to be the "last resort". Ireland has effectively decided that really only the hopeless cases (and maybe not even all of them) should lose their properties. So instead the Government, the whole political establishment really, and as a consequence the banks, will offer my brother every possible arrangement so that he stays put. Capitalise arrears. Interest only. Deferred interest. Split mortgage. Debt write down. Some or all of these methods will be employed so that he can remain where he is. 

When I look at my brother, I'll feel a bit foolish. After all, what did I get for my prudence? If anything I feel it's me who should be getting something done for me, I made the "right" choice. Maybe I should start spending a bit more...maybe I should upgrade my car? The mortgage can wait, right?

Particularly when you consider some of the things the mortgage holders advocates have argued for (retention of private school places for children, holidays, for instance) it is very hard to see why someone should be prudent. Why not just load up on credit, send the kids to private school, buy a nice car, book that holiday and then hope for the best? If it all goes wrong then everyone has decided that you must be accommodated so that you don't suffer much and you stay in the house.

Personally, as someone likely to buy a house in the next 2-3 years, I've learned the lesson. I should not be afraid to borrow the maximum amount because there will be no real negative consequence for doing so. The bank and state have negated the risk. So I will.


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## Delboy (20 Mar 2014)

Well summed up Bugler...thats exactly the type of scenario that highlights the madness of this debt write off programme while retaining the home.

That family in Cork that borrowed 478k and now get 195k written off- that must be some house in Cork that cost 478k plus, even during the boom. 
But now they get to keep it with just a 200k mortgage


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## goingforgold (20 Mar 2014)

Delboy said:


> Well summed up Bugler...thats exactly the type of scenario that highlights the madness of this debt write off programme while retaining the home.
> 
> That family in Cork that borrowed 478k and now get 195k written off- that must be some house in Cork that cost 478k plus, even during the boom.
> But now they get to keep it with just a 200k mortgage


 
+1

This is exactly the point of this thread...

I am pointing out that borrowers should now use the system available to them to get the maximum debt writedown they possibly can. I'm not even saying I agree with it but as I've pointed out in previous posts, I think one would be almost foolish not to look at all debt writedown options available, and manipulate their situation to get what they can.


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## Bronte (20 Mar 2014)

bugler said:


> Personally, as someone likely to buy a house in the next 2-3 years, I've learned the lesson. I should not be afraid to borrow the maximum amount because there will be no real negative consequence for doing so. The bank and state have negated the risk. So I will.


 
I basically agreed with your post until this last bit. You are not serious? To be honest if this crisis has done anything for me, it's made me realise being risk adverse is a good thing.  Any of the people related to me that overborrowed and who will be getting right downs etc are in a whole heap of of a financial mess and total and utter stress for years.


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## Gerry Canning (20 Mar 2014)

Dellboy & Going for Gold &bugler.
I do not disagree with your comments, indeed you all talk sense .

From a pragmatic view and to solve this issue within our lifetimes ,there is and must be very unpalatable write-downs. 
Leaving things as they have been these 6 years is a  slow crash.

We have bailed out Banks/Bondholders , we have got little in return.
To have people hung out on unsustainable mortgages ,simply will not work.

As things stand, people will walk away, go for bankruptcy ,hand back keys etc.
We then have a clatter of unsellable houses, too many repos etc.
Surely it is better to writedown to closer true value .In that way we retrieve more than legal/repo routes.

And yes , some chanchers will con us ! 
And that is tough to take.


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## 44brendan (20 Mar 2014)

The above example does certainly illustrate a situation where a borrower took a higher level of risk certainly. However it has little to do with the moral hazard issue, where borrowers are deliberately not paying their mortgage on the basis that they want to retain funds to meet a high lifestyle. In my own banking experience I have seen very few examples of this. In most cases the banks will trust the SFS sent in by the client and agree to loan repayment reductions, provided expenses provided are within a reasonable level. However, subsequent reviews of these arrangements will include a greater level of interrogation of information provided and segragate those who can't pay from those who won't pay. Ultimately this type of strategy can work in the short term but not the long term!


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## Gerry Canning (20 Mar 2014)

going for gold; 

You are correct ,negative equity can easily lead into an arrears mind-set . 
I just cannot  see that in the scheme of things it will be a major issue. 
Anyone who uses negative equity as a ploy whilst having adequate funds to repay and keep a reasonable life style will be quickly found out. 
I have sympathy for the person who can never see his/her way out of a lifetime of debt and who does not have enough income to maintain a reasonable life style, in that case unless he defaults Mr Bank will not come to a more socially acceptable arrangement.
It is a tough call.

I know Banks are not too bright but they are not that stupid {I hope}as to permit those who can afford play the poor me card.


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## callybags (20 Mar 2014)

44brendan said:


> The above example does certainly illustrate a situation where a borrower took a higher level of risk certainly. However it has little to do with the moral hazard issue, where borrowers are deliberately not paying their mortgage on the basis that they want to retain funds to meet a high lifestyle. In my own banking experience I have seen very few examples of this. In most cases the banks will trust the SFS sent in by the client and agree to loan repayment reductions, provided expenses provided are within a reasonable level. However, subsequent reviews of these arrangements will include a greater level of interrogation of information provided and segragate those who can't pay from those who won't pay. Ultimately this type of strategy can work in the short term but not the long term!



+ 1.

This is what I have been saying, but not nearly as eloquently as put by 44brendan.


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## bugler (20 Mar 2014)

44brendan said:


> The above example does certainly illustrate a situation where a borrower took a higher level of risk certainly. However it has little to do with the moral hazard issue, where borrowers are deliberately not paying their mortgage on the basis that they want to retain funds to meet a high lifestyle. In my own banking experience I have seen very few examples of this. In most cases the banks will trust the SFS sent in by the client and agree to loan repayment reductions, provided expenses provided are within a reasonable level. However, subsequent reviews of these arrangements will include a greater level of interrogation of information provided and segragate those who can't pay from those who won't pay. Ultimately this type of strategy can work in the short term but not the long term!



You seem to equate "moral hazard" with strategic default. Why? My example above is more "pure" as an example of moral hazard than a case of strategic default. Strategic default (not paying when you could reasonably pay) is more akin to fraud. I could pay my contractually obligated debts to you, but I won't. 

We have taken the risk out of borrowing for home purchase. I was offered a mortgage of 310k, but I only wanted and applied for 275k because I am risk adverse and somewhat prudent. I see now that was a mistake, I should take the 310k, if anything goes wrong I get a chunk of the mortgage parked, reduced or so on. The banks carry all the risk here, so I have changed my behaviour accordingly. When I refresh my approval it will be for the maximum amount. I have nothing to fear from even a modest pay cut, the bank will accommodate me, they are effectively obliged to.


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## bugler (20 Mar 2014)

Bronte said:


> I basically agreed with your post until this last bit. You are not serious? To be honest if this crisis has done anything for me, it's made me realise being risk adverse is a good thing.  Any of the people related to me that overborrowed and who will be getting right downs etc are in a whole heap of of a financial mess and total and utter stress for years.



They probably did it to an extreme degree. For instance, I haven't had any borrowings since college (I'm now 32). Never a car loan, never an unpaid Credit Card bill. I don't intend that to change. But as for a mortgage...

Give me one reasonable reason why I should not borrow 310k instead of 275k? There is no extra risk to the extra borrowing. *If* I hit trouble, the banks *must *come to an arrangement that works for me. I'm not the slightest bit worried about it, the Central Bank statistics give me all the comfort I need. I won't suffer because of it.


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## 44brendan (20 Mar 2014)

Dedfinitely more of a "moot point" for the forseeable future Bugler. While the banking sector may over time revert to a less risk averse approach to lending, I don't see this happening in either the short or medium term! possibly your grandchildren may get this opportunity!


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## Delboy (20 Mar 2014)

44brendan said:


> Dedfinitely more of a "moot point" for the forseeable future Bugler. While the banking sector may over time revert to a less risk averse approach to lending, I don't see this happening in either the short or medium term! possibly your grandchildren may get this opportunity!



Now thats wishful thinking...this is Ireland!!!
A precedent is being set that dictates the family home is sacred, no matter how much of a gamble you made initially. And right now we are seeing a boom (some say bubble) happening in  large parts of Dublin for decent sized 3 and 4 bedroom family homes...who's to say that some of the mortgages handed out now won't be in bother in 3 years time when we have a different interest rate picture


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## 44brendan (20 Mar 2014)

> A precedent is being set that dictates the family home is sacred, no matter how much of a gamble you made initially.


My view is that we are slowly coming out of this mind-set, with a progressive re-posession and sale pattern of mortgages that are totally unsustainable. My point was not that there may not be a future slump in hous prices, but that bank lending practises will be repayment led rather than asset led, as was the case up until the early noughties!


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## Sunny (20 Mar 2014)

Delboy said:


> Now thats wishful thinking...this is Ireland!!!
> A precedent is being set that dictates the family home is sacred, no matter how much of a gamble you made initially. And right now we are seeing a boom (some say bubble) happening in large parts of Dublin for decent sized 3 and 4 bedroom family homes...who's to say that some of the mortgages handed out now won't be in bother in 3 years time when we have a different interest rate picture


 
What precedent? Historically, house repossessions in Ireland have been almost non-existant even during previous economic meltdowns like the 1980's when interest rates went through the roof. There is nothing new in this. Banks in Ireland have never wanted to reposess family homes. Everyone knew that.

If people decide that there is no risk anymore to getting a mortgage that they can't afford, then work away. I for one have no interest in playing a game of chicken with a bank and putting my family under extreme stress if things go wrong. Ask thousands of families currently dealing with abnks about arrears if they realise how lucky they are.


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## Kine (20 Mar 2014)

bugler said:


> *If* I hit trouble, the banks *must *come to an arrangement that works for me.


 
This has been a very interesting thread, but the above quoted goes completely contrary to my experiences of dealing with the banks. Several years of stress later and still no workable solution from the bank. They may eventually get there, but not after my credit rating is destroyed and all financial resources have been used. 

I have posted previously on how they are only interested in meeting the central banks statistics as opposed to assisting struggling borrowers - an interest only option for example, regardless of its sustainability over the long term in reducing the debt owed, allows the Bank to chalk up another "restructured" case and move towards the 75% target by the central bank. It is cheaper for the Bank to enforce its security and pursue for the outstanding (and call peoples bluffs on bankruptcy, PIAs etc) than simply write off a huge amount in one go.


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## Kine (20 Mar 2014)

Sunny said:


> If people decide that there is no risk anymore to getting a mortgage that they can't afford, then work away. I for one have no interest in playing a game of chicken with a bank and putting my family under extreme stress if things go wrong. Ask thousands of families currently dealing with abnks about arrears if they realise how lucky they are.


 
+1 

Pretty much sums up my previous post


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## Gerry Canning (20 Mar 2014)

Bugler, I cannot disagree with you.

I suppose the big issue arose in the fluffy times when Mr Bank threw out the money on an expectation that prices would never fall dramatically.
It is a pity that Home -Loans were not on a non-recourse basis ie you can hand back the keys and loan then is Banks problem. Banks and customers would have to evaluate what they should now do, it would have forced a near automatic revaluation that would aid the good and not just the bad..
I would think Banks on non-recourse would have Loans down close to market value , we would have realised the (hit) and we could all move on.

I suppose it is a case of the (if only!)


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## ashambles (20 Mar 2014)

Sunny said:


> What precedent? Historically, house repossessions in Ireland have been almost non-existant even during previous economic meltdowns like the 1980's when interest rates went through the roof. There is nothing new in this. Banks in Ireland have never wanted to reposess family homes. Everyone knew that.


You're effectively saying that they're the riskiest loans a bank can give? If so how can Irish banks hold mortgage rates below those of unsecured loans.

Was there a large amount of NE around in the 80s? In the UK yes, Ireland I'm not so sure. Without NE you just sell and repay the loan.



> I for one have no interest in playing a game of chicken with a bank and putting my family under extreme stress if things go wrong.


It's not about playing chicken, it's rational people thinking what happens if the worst case occurs. They may not go all out but it could push them to borrow more. 

Most of today's borrowers are borrowing well under what the bank would like to give them. The banks have a limited pool of money to lend so they give it to the safest possible borrowers. The safest borrowers will have savings, good earnings, and are smart enough that they won't need a bank to tell them how much they can afford to borrow. 

But thanks to what we're seeing, any buyer now should only pick AIB as a lender, and consider getting a larger loan because there's less downside if they can't afford the loan. If that's not moral hazard I don't know what is.


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## bugler (20 Mar 2014)

44brendan said:


> Dedfinitely more of a "moot point" for the forseeable future Bugler. While the banking sector may over time revert to a less risk averse approach to lending, I don't see this happening in either the short or medium term! possibly your grandchildren may get this opportunity!



It's not moot at all, Brendan. I am speaking here from experience. I *have *been mortgage approved for 275k in the past, but my salary would actually make it *possible *to borrow 310k or so (maybe a bit more since I was approved originally). 

The old me was prudent, I only wanted to borrow 275k at an absolute maximum. I am not looking to live in a grand house or the most salubrious area (just as well here in Dublin). I was risk averse.

The new me has realised that there's no need (or indeed advantage) to being risk averse, as it is actually others who carry the risk. In fact, being risk averse places me at a distinct disadvantage if buying a house, because I'll invariably be bidding against someone who isn't so risk averse and so who has more purchasing power compared to me. 

So I might as well borrow the 310k. Everyone seems to be agreed that to be trying to put a family out of their home because they can't make their full mortgage repayment is abhorrent, to the point where it effectively is not allowed if some sort of reasonable offering by the borrower can be made (and whether repossession is possible or not, the banks don't seem interested in doing it). 

Rationally, this opportunity to borrow more at reduced risk to myself is a no brainer. These are the market dynamics, and you get no thanks for acting prudently. 

The interesting question on the banking side is why, given that Irish banks effectively operate a quasi-unsecured mortgage lending model (the process of repossession is both lengthy and costly, to the point where it seems better in many cases to actually write off debt) are Irish mortgage rates and Irish mortgage lending not as unusual as the wider mortgage environment? 

Mortgage rates should be very high given the extreme difficulty in enforcing security. LTVs should be restricted. But there's AIB without a care in the world lending me over 4 times salary at 92% LTV on a 35 year term, as though they can actually repossess the property if I can only service 75% of the mortgage (they can't and/or won't) I'm not sure if changes in this regard will filter through as the reality dawns on lenders, or if I should expect some sort of plan to deal more stringently with arrears once the CB/Govt/Banks feel enough largesse has been shown, changes that will make mortgage lending secured again.


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## bugler (20 Mar 2014)

Sunny said:


> If people decide that there is no risk anymore to getting a mortgage that they can't afford, then work away. I for one have no interest in playing a game of chicken with a bank and putting my family under extreme stress if things go wrong.




I'm not sure if your misreading of my point is deliberate or not, but allow me to clarify for you: I am not suggesting anyone take out a mortgage "they can't afford". I am merely stating that there is little to incentive to a borrower restricting their borrowings themselves. It isn't rational, there is little to no risk to borrowing to the maximum you can service. Any future shocks will be borne mostly by the bank, by state decree. And if your earnings go down 15%, well there is a clear directive to the banks that they need to play ball with you to keep you in your home. No risk, so no deterrent.


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## Sunny (20 Mar 2014)

ashambles said:


> You're effectively saying that they're the riskiest loans a bank can give? If so how can Irish banks hold mortgage rates below those of unsecured loans.
> 
> Was there a large amount of NE around in the 80s? In the UK yes, Ireland I'm not so sure. Without NE you just sell and repay the loan.
> 
> ...


 
How are they the riskiest loans that banks can give? They are still secured and fully recourse loans even if the banks have always been reluctant to go enforcing their security. 

Banks have no interest in repossessing houses. They never have. They don't want to responsible for the costs of repossession, maintaining and securing a property, possibly becoming reluctant landlords, having to find a buyer and they also have to step into the previous owners shoes with regard to tax so they have implications for payment of LPT, water chages, VAT, Income Tax and CGT when they move to sell the property. And at the end of all that, they will need to write off some of the debt.

Historically, even the Courts have been extremely reluctant to grant judgements on family homes and will usually drag the process out for an inordinate amount of time.

None of this has been a secret. People have always known that banks are reluctant to repossess so the moral hazard as people call it has always been there.

Reading posts here, it is like people assume that everyone who is now in trouble were somehow living beyond their means and deserve to be punished. For every scammer or reckless borrower out there, I am pretty sure there are 100 families who are genuinely struggling due to changed circumstances. 

AIB have done deals to writedown about 100 mortgages which is less than 0.5% of their restructured mortgages. That means 99.5% of people who are in difficulty haven't had debt writedowns yet. It hardly screams moral hazard to me. Bailing out the banks with taxpayers money screams moral hazard to me.


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## Sunny (20 Mar 2014)

bugler said:


> I'm not sure if your misreading of my point is deliberate or not, but allow me to clarify for you: I am not suggesting anyone take out a mortgage "they can't afford". I am merely stating that there is little to incentive to a borrower restricting their borrowings themselves. It isn't rational, there is little to no risk to borrowing to the maximum you can service. Any future shocks will be borne mostly by the bank, by state decree. And if your earnings go down 15%, well there is a clear directive to the banks that they need to play ball with you to keep you in your home. No risk, so no deterrent.


 
You do realise that the Celtic Tiger is over don't you? Walk into a bank now looking for a mortgage and see how far they will let you stretch yourself no matter how much you want to borrow. The days of the borrower basically deciding for themselves how much they want are over. At least one hope they are until the banks then repeat their mistakes because they were bailed out and they know they will be bailed out again.....


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## goingforgold (20 Mar 2014)

Gerry Canning said:


> going for gold;
> 
> You are correct ,negative equity can easily lead into an arrears mind-set .
> I just cannot see that in the scheme of things it will be a major issue.
> ...


 
Honestly @Gerry Canning I am not so sure that the banks aren't that stupid (I could be wrong)

If you look at the high profile debt writedowns that have made the news recently, there is a debt writeoff and a parked portion of the loan for a period of time. If that person/couple come into money (inheritance, Bord Gais windfall etc) there is no provision to use this money as part of the debt writedown arrangement. By not having a broad stroke arrangement whereby debt is written down in a fair and transparent manner we are wide open to an unfair method (moral hazard), and also one that can be abused more freely. 

One final point re negative equity...you state correctly that the bank would not want to come to an arrangement if the person is capable of paying their loan, but my point is that the person can tell the bank they are going bankrupt in the UK unless the bank come to an arrangement, ie the customer should force the banks hand. This may not be palatable to all but if I were in serious negative equity I wouldn't feel like getting up for work for the next 20 years just to get back to a level playing field, especially as my next door neighbour gets a similar amount written off as their circumstances are slightly different!


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## bugler (20 Mar 2014)

You still don't seem to understand the point I'm trying to make. As I have said in this thread, I have been through the mortgage approval process. I know what the banks are willing to lend. For a single income family with a child, AIB will lend 4.3 times that single salary. The point isn't what are banks willing to lend, it's "are people being encouraged to borrow greater amounts due to a lack of significant consequences for doing so". Borrowers have huge incentives to "go big". They have no incentive to be cautious or prudent.


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## goingforgold (20 Mar 2014)

bugler said:


> It's not moot at all, Brendan. I am speaking here from experience. I *have *been mortgage approved for 275k in the past, but my salary would actually make it *possible *to borrow 310k or so (maybe a bit more since I was approved originally).
> 
> The old me was prudent, I only wanted to borrow 275k at an absolute maximum. I am not looking to live in a grand house or the most salubrious area (just as well here in Dublin). I was risk averse.
> 
> ...


 
+1
And this effectively is the main moral hazard issue. Joe borrowed 600K in 2006 because he wanted a big house. Mike on same salary borrowed 250K as he wanted a mortgage he could afford. Mike has continued to pay his mortgage, despite c.100K negative equity. Joe has 300K written off because he can't affored his mortgage anymore, but he still retains his big house. Who is the loser in this situation? Joe has a big house with little/no negative equity and Mike has a modest house with 100K negative equity...my advice to Mike (depending on his circumstances) is to go bankrupt in UK if the bank won't do a deal.


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## bugler (20 Mar 2014)

Sunny said:


> None of this has been a secret. People have always known that banks are reluctant to repossess so the moral hazard as people call it has always been there



It's interesting that you say that. Do you not wonder if its existence was in some way related to our housing bubble? I mean if people are aware that repossession is an unlikely outcome, surely they will change their behaviour accordingly. Maybe this is an under appreciated contributory factor to the Irish housing bubble.  



Sunny said:


> It hardly screams moral hazard to me. Bailing out the banks with taxpayers money screams moral hazard to me



It can't be both? Do we have to pick a side, banks vs people? That is an overly emotive attitude to take. This is not a football match, it is possible that both banks and borrowers have been incentivised to engage in risky behaviour, that both have been allowed to a degree to escape the consequences of their actions, in many cases because the state/taxpayer will pick up the tab.

But let's not cod ourselves. Some people are going to do quite well indeed out of this state sponsored largesse. I was incredulous to hear that borrowers who may be given a write down or a split mortgage will be further rewarded should they pay off a lump sum in the future (AIB-IMHO I believe) Or that those getting write downs may do so without any equity stake being taken in the property by the bank. What about a reward for the people actually meeting their obligations? 
No chance of that I suppose. Get into arrears and then come back to us.


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## ashambles (20 Mar 2014)

Sunny said:


> How are they the riskiest loans that banks can give?



They're the riskiest loans because they're large, they're given out at only a couple percent above their borrowing rates and they're unable to enforce their power to take the assets they're secured against. They're supposed to be the first bill you ensure is paid, but it's not unknown for people to make sure their credit card bill is paid first.  
If you'd a couple hundred thousand to lend how happy would you be to hand it out as a mortgage under those conditions. You might consider it risky perhaps?



Sunny said:


> None of this has been a secret. People have always known that banks are reluctant to repossess so the moral hazard as people call it has always been there.


That's simply not true, when I first took out a mortgage (c 2000) people borrowing were under the impression that a bank could and would very quickly move against you. In fact it used to be recommended to head to the building societies if they'd have you as they had a more tolerant approach if things went pear shaped.

Mortgages don't even have a long history in Ireland, the banks wouldn't give them outside of "professionals" for a long time, which is why the EBS, ICS came into being. For averagely paid private sector workers to get them came later again when the building societies expanded to lend to the general public.

All the main lenders were set up for high interest rates and extremely conservative lending until the euro started to come into being. Despite the seemingly non-stop recession until the late 90s there was no opportunity for people to test the willingness of banks to repossess.


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## Delboy (23 Mar 2014)

Sindo have a nice article on debt forgiveness at work, Irish style
http://www.independent.ie/opinion/a...ng-yourself-a-big-fat-writedown-30117091.html


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## goingforgold (23 Mar 2014)

Delboy said:


> Sindo have a nice article on debt forgiveness at work, Irish style
> http://www.independent.ie/opinion/a...ng-yourself-a-big-fat-writedown-30117091.html


 
This sums up exactly what some of us have been saying...jump on bandwagon and get yourself a strategic default before you are left behind.

I also believe this example answers those who believe the banks are properly vetting people and their financial situation...they are just not capable I'm afraid.


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## Bronte (24 Mar 2014)

Gerry Canning said:


> It is a pity that Home -Loans were not on a non-recourse basis ie you can hand back the keys and loan then is Banks problem.


 
I disagree with this, because then home loans would be prohibitely expensive. 

There was nothing wrong with Irish banking and mortgages prior to the Celtic Tiger. 

The problems were manfold, not enough stress testing, people being allowed lie on their application forms, any kind of forged p60 accepted, any kind of self employed figures, accepted, an eagerness to loan as much as possible, bonuses for bank staff based on how many loans and products they could dish out, people being greedy, people borrowing not only the mortgage, but the deposit, costs, new car, credit card, the regulator pretending and ignoring the problem.....

Banks lending criteria should have been to stick to the old tried and tested way of doing things. And light touch regulation doesn't work.


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## Bronte (24 Mar 2014)

ashambles said:


> Was there a large amount of NE around in the 80s? In the UK yes, Ireland I'm not so sure. .


 
No there wasn't a large amount of NE in the 80's.  I know Irish people who got burnt in the UK crash, loads of keys were handed back then.  You would have thought that Irish banks and regulators would have learnt from what happened over the water, but not so.


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## Bronte (24 Mar 2014)

Liam2014 said:


> I see three options
> 
> *Option 1 :* Continue repayments and be a feudal type serf for the banks for the next 28years. Total payments to bank over next 28 years work out as *€625,623*
> 
> ...


 
The spread sheets would be very interesting. 

Can you clarify. Option 1 actually can be afforded by everybody, but option 2 or 3 is better as it will cost less?  Also how much is the remaining mortgage and the interest rate.  

Can the women with the 4 year old actually go to the UK and go bankrupt. I note that the Gardai now have a 3 year option of a break in service, paid, and no doubt a lot of them will be heading to the UK, not sure if they can though, because of the nature of their jobs. But we did have a divorced wife of a civil servant who took a career break and went to the UK to go bankrupt. 

Not sure what is great about option 3, is there some kind of right down expected there?

What about the future problems of Jill's partner. He has 'interest' only mortgages, but she is paying down 'his' mortgage on 'his' home, but she considers it 'theirs'. When it's paid off, the bank on the two investments will come after 'his' house, not 'their' house. Messy.


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## Bronte (24 Mar 2014)

battybrennan said:


> Can you really do that? Take a one or two year career break, go bankrupt in England,


 
Well what's to prevent one doing it?  But if one were to do it, it would be highly advisable to consult a UK bankruptcy expert.


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## Bronte (24 Mar 2014)

Liam2014 said:


> Jill is committed taking on board her husbands debt once she goes bankrupt by then marrying him.


 
Wouldn't she be better off if he went bankrupty too, or if he got rid of the investments via an arrangement with the bank for debt writedown.

There are four separate people here, and at least one child.  It would be interesting for you to post up a money makeover thread for each of them separately. 

Whatever they do decide on, they might need professional help.


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## Sunny (24 Mar 2014)

Liam2014 said:


> That's partly why I am on this site. I'm trying to work out is there any reason it cannot be done. I can't see why not. Ivan Yeats is happly clappy these days.
> The reason it will work in this situation is because both Mary and Jill are both in stable long term relationships.
> I'm sure it's not the best for Mary's credit rating to go bankrupt! But if her husband, (they get married after bankruptcy) applies for a mortgage in 2015 with wife (cleansed bankrupt Mary, with permanent Civil service job) surely they would be a low risk to the bank and would be approved?
> 
> It works for the other sister too, Jill. Because presently her and her partner are unable to service all their debts. Jill is committed taking on board her husbands debt once she goes bankrupt by then marrying him. Her permanent wage will make their situation sustainable. Together with no bankruptcy they will both sink.


 
It's not that easy. You have the prove that the UK is your centre of main interest. If you simply take a career break, then it is pretty obvious that you are simply a bankruptcy tourist and a Court may not recognise it especially if creditors object. Not sure Ivan Yates is the best comparison. These presenters are self employed. He didn't take a career break. He left Newstalk. Of course he was lucky to be able to walk back in. Most PAYE people aren't in that situation.


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## Bronte (24 Mar 2014)

Yates apart from being self employed, had as far as I know a financial link to the UK via his companies to Wales (where he went bankrupt)


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## 44brendan (24 Mar 2014)

Liam! Option 3 must be addressed fully with the Bank in question. i.e. There is nothing to be agined for mary in meeting the full mortgage repayments of a jointly owned property in considerable negative equity. This is money down the drain. However, UK bankruptcy is the nuclear option and as you can clearly see from many threads on this forum and elsewhere, a 12 month period of bankruptcy in the UK is not a holiday camp and should only be a last ditch approach. Primary approach is to give the bank an outline of the situation and that if a deal cannot be agreed amicably then the bankruptcy option will be taken. However, you need to assess whether the UK receiver will take into account the fact that both parties are on a acreer break as he may well regard that as a future income sream as both parties are intending to return to work. i.e. make sure that your advice to the parties is fully correct and covers all angles before putting them in a position that could prove to be determental to their ultimate financial situation.


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## ashambles (24 Mar 2014)

Moral hazard just to repeat (from wiki) "is a situation where a party will have a tendency to take risks because the costs that could result will not be felt by the party taking the risk". 

If public servants make a habit of taking risks on investment properties because they can take a year unpaid and get back to square one, it would quickly mean no bank would lend to a public servant on anything except what's clearly a PPR.  

The bank can in future (we hope) expect to feel the costs of risk due to lending to people who see a way out if the investment collapses in value. 
So even if the public servant wants to take on the risk because they won't feel the full cost of a big mistake the bank won't fund it - in theory.  

If the bank for some reason didn't care about public servants going bankrupt in the UK then that would be a moral hazard problem. But I think they do care.

It's interesting how often you see people working out how much a mortgage will cost only after they take it out.

Since the spreadsheets seems to be concentrating on the lifetime cost of the loan, then the proposed repayments have to be put in the context of salaries over the same period, presumably around 110,000 a year gross or 71,000 net (including the 6000 rental).  Over a 30(?) career + maybe 20-30 year retirement those salaries all going well will pay out 6-10m gross maybe 4m-7m net? The mortgage doesn't seem quite as daunting against those numbers. 

I wonder how sympathetic the two investors (assuming the apartment was an unlucky step to eventually buy two PPRs) reaction would be if the renter came in with an equivalent spreadsheet and decided to not pay her 500 euro a month rent as renting could cost 300,000 over 30 years with inflation? Why shouldn't a renter find a way to avoid her debt as much as the owner?


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## demoivre (24 Mar 2014)

ashambles said:


> Moral hazard just to repeat (from wiki) "is a situation where a party will have a tendency to take risks because the costs that could result will not be felt by the party taking the risk".



The banks were the greatest exponents of moral hazard, €64bn worth. I think all this media attention for the recent write downs is nonsense as anyone who enters the ISI is going to have debt written down anyway.


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## Delboy (27 Mar 2014)

Bronte said:


> Where is your evidence for this?



another example for the record

http://www.independent.ie/irish-new...te-renting-out-house-court-told-30131916.html


> Couple have paid nothing off €735k mortgage in three years despite renting out house, court told
> Counsel for the bank said the couple, now in Raritan, New Jersey, had borrowed €630,000 in October 2009 on 109 Wainsfort Manor Drive, Terenure, D6W and had stopped making repayments.
> “I can confirm that the occupants of the property are paying rent to the borrowers but those entire monies are being withdrawn in America,” he said.
> In an application for possession of the house counsel told the court the total outstanding debt was now €735,499.  He said the two defendants unfortunately had not engaged in good faith with the bank.
> “They are using any avenue as a delaying tactic so they can receive more rent and use it in America,” he said.  “They are collecting the rent, spending it and leaving the bank out to dry.”


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## Sunny (27 Mar 2014)

Delboy said:


> another example for the record
> 
> http://www.independent.ie/irish-new...te-renting-out-house-court-told-30131916.html


 
What's that an example of? That has nothing to do with what is being discussed since it doesn't look like BOSI is offering them a debt writedown and indeed are trying to repossess the property. Says more about banks incompetence since even the judge said they didn't follow the court's directions and they allowed the borrowers to appeal a crdit decision yet again after three years of getting nothing.


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## Delboy (27 Mar 2014)

it's an example of strategic defaulting I'd reckon! And this thread veered off in that direction so I thought it was as good a home as any to put this one into


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## Sunny (27 Mar 2014)

Delboy said:


> it's an example of strategic defaulting I'd reckon! And this thread veered off in that direction so I thought it was as good a home as any to put this one into


 
If it is an example of strategic defaulting, it's a pretty poor one since they are about to lose the house! Strategic defaulting is not paying your mortgage because you think you will get a writedown and keep your house. These guys are not paying because they don't want to the system is there to protect them. This case does show how ridiculous it is that a bank can't more easily reposess a house when it is obvious that the borrower is taking them for a ride. Why the bank said they could appeal the last decision is beyond me though. Talk about incompetence.


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## ashambles (27 Mar 2014)

They're defaulting on the mortgage, they've a strategy of renting the property and pocketing all the proceeds. 

It's a common method of strategic default. 

They could be making an income of around 20,000 euro a year from an asset they doesn't belong to them.They don't really care that eventually they'll lose the asset, their only concern is the income they make until that happens.  

They can safely assume if the house is sold with a short fall to escape any repercussions.  

Amazing the bank allowed this to happen in late 2009 though. A massive loan to hand out when the banks had more or less locked down on lending.


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## goingforgold (27 Mar 2014)

ashambles said:


> Amazing the bank allowed this to happen in late 2009 though. A massive loan to hand out when the banks had more or less locked down on lending.


 
I'm certainly not amazed by anything the banks do. They created this mess and are now creating another mess with these random debt writedown policy, which as discussed at length already is encouraging people to engage in strategic default type practices.


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## Sunny (27 Mar 2014)

ashambles said:


> They're defaulting on the mortgage, they've a strategy of renting the property and pocketing all the proceeds.
> 
> It's a common method of strategic default.
> 
> ...



But that has nothing to do with moral hazard of debt write downs. Anyone at anytime can decide to rent their property and not pay their mortgage. That could have happened during the boom as easily as now so it doesn't show anything. It's not even strategic defaulting as there is no end strategy. It's just defaulting as they know they will lose the house and it's up to the banks to deal with it. Wouldn't compare them to normal struggling families living in their house trying to pay their mortgage.


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## ashambles (27 Mar 2014)

goingforgold said:


> I'm certainly not amazed by anything the banks do.


True, but a huge loan at that time, by a bank bailing on Ireland, to borrowers who didn't even make the first repayment.  Seems beyond irrational exuberance.


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## ashambles (27 Mar 2014)

Sunny said:


> But that has nothing to do with moral hazard of debt write downs. Anyone at anytime can decide to rent their property and not pay their mortgage...it's not even strategic defaulting as there is no end strategy.


I didn't mention moral hazard for this case.

Do you not think a plan to make perhaps 100,000 for no outlay is a strategy. The end game is money. Would you not like 100,000 given to you for nothing?


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## Delboy (27 Mar 2014)

Sunny said:


> But that has nothing to do with moral hazard of debt write downs. Anyone at anytime can decide to rent their property and not pay their mortgage. That could have happened during the boom as easily as now so it doesn't show anything. It's not even strategic defaulting as there is no end strategy. It's just defaulting as they know they will lose the house and it's up to the banks to deal with it. Wouldn't compare them to normal struggling families living in their house trying to pay their mortgage.



It's not 'their' house until the mortgage is paid, just throwing that in as an aside! I mean, by that logic, a family could buy a home and default after just a few months of living in it... does that make it their home.

Do the people in this case 'know' they will eventually lose the house? Perhaps they felt a deal might eventually be struck whereby all in default would get a write down. Thats the scenario outlined by the landlady Karl Deeter used for his article in the link I posted on a previous page.
If they know they are going to lose the house, why are they now contesting the case and trying to drag it out? I presume at this stage, the rent is no longer been paid


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## goingforgold (28 Mar 2014)

ashambles said:


> True, but a huge loan at that time, by a bank bailing on Ireland, to borrowers who didn't even make the first repayment. Seems beyond irrational exuberance.


 
In my opinion it's no more irrational than giving random debt writedowns with no means of the bank recovering their loss should the benefactors inherit or come into money by other means...hence why all should try and get on this bandwagon. 

The banks have defied logic up to now in everything they have done and I wouldn't fool myself into thinking they will be any different going forward.


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