# "Parking" mortgage article



## dubinamerica (9 Nov 2010)

Hi, there's an article in the independent indicating that a scheme may come in whereas people can "park" up to a 1/3 of their mortgage if they have found themselves unemployed, or with a large income cut. It mentions that there will be strict critera and only those that have a likelihood of increasing income will be eligible. 
Has anyone any information on this?  Any comments regards pros/cons of such a scheme?


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## NorfBank (9 Nov 2010)

The


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## fobs (9 Nov 2010)

THis seems similiar to David McWilliams idea of a mortgage payment freeze for 2 years. Both ideas have merit imo.


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## Howitzer (9 Nov 2010)

> Banks that take part in the scheme would be paid something like 10c a year for every €1 that was "parked" in this way.


So the bank gets a 10% return per annum from the state in return for turning a risky loan into a less risky loan.

Seems like a no bainer to me. For the bank.


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## NorfBank (9 Nov 2010)

It just looks like a government idea over complicating matters. 

Why not just allow the people who are approved for this scheme to go on interest only for a period - this will automatically reduce payments without us having to pay 10% to those bloody banks.

e.g 200k over 30 years at 4%

Park 1/3 = repayments of €805pm plus we pay 10% to bank
Give interest only on full sum = repayments  of €666pm, no payment to bank, more breathing space for mortgage holder.


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## dubinamerica (9 Nov 2010)

If there's any further details of this coming down the line could you update the thread ? I am not on the ball at the minute so completely missed this til today so would be keen to find out if it's actually happening or if it's just a lot of bluster


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## Mouldy (9 Nov 2010)

On first look this is crazy.

If Mr Jones can’t pay his mortgage at 5%, the bank loses its money and has the property as collateral, which is probably not worth having.

The state now proposes to introduce a scheme where Mr Jones can park 1/3 of the debt and only pay for the 2/3 left. This can last up to 5 years. The bank gets paid 10% on the one it “parks”.

Look at the his from the opposite (or real) perspective – the bank has a loan which is underperforming, the state doesn’t want the bank to write off the mortgage, so the state is paying the bank 10% interest so that the bank will transfer the 1/3 of the distressed loan.

Why is the state (i.e. us) paying 10% on a 5% loan? Not only that, but after the loan is reinstated the borrower proceeds to pay interest on the same money again. So that bank gets paid twice for the same money, making in this scenario, 15% on a 5% loan.

This favours the banks far far more than the customer and again it’s at the expense of the taxpayer. I would suggest that instead of this banks with distressed loans be offered a scheme where they are required to request a serviced like this for each distressed mtg where payments are being made i.e. where borrowers have not simply walked away.

The bank would be allowed to park 1/3 of the loan but at half of the interest being paid by the borrower, so the bank would receive 2.5% in this scenario. The bank gets some money for the loan its parked but more importantly the loan continues to perform, making the bank the big winner still. After the loan is reinstated, the borrowed proceed to pay the full 5% but 2.5% goes back to the state until the state (i.e. us) have been repaid in full. Call it a floating interest payment service.

I’m sure this idea could be refined by the brilliant minds here at AAM but surely anything is better than taxpayers once again overpaying to save bankers from their own bad lending.

M


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## jambo (11 Nov 2010)

Mouldy said:


> Why is the state (i.e. us) paying 10% on a 5% loan? Not only that, but after the loan is reinstated the borrower proceeds to pay interest on the same money again. So that bank gets paid twice for the same money, making in this scenario, 15% on a 5% loan.


Unless the state continues to pay the interest on the capital at the same time as the borrower this is untrue. Interest is rent on money borrowed and is paid at an agreed rate per time period. The fact that the state pays the rent for one time period and the borrower pays for another time period does not mean that the bank is paid twice.


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## buddysmiley (11 Nov 2010)

*Hi every one,*

Hi every one,

Well it would be great to introduce some sort of mechanism to help mortgage holders.  And implement it soon before people give up, befoe the situation get's worse regarding arrears.

when your in this situation there is very little you can do?


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## Mouldy (14 Nov 2010)

Hi Jambo

Thanks for the correction on my point. Looking at the loan from a “regular” timeframe point of view, you are completely correct.

Let’s say the money parked is 100k. The government pays 10% in the 100k for 5 years. The capital of 100k does not reduce. 

Then the parked amount is returned to the borrower as part of their mtg payments. The borrower continues to pay the 5% mentioned before on this money.

Had the borrower not availed of the scheme then the bank would only have got the original 5%, assuming the borower didn't defualt. The fact the bank is able to park the capital, get paid a massively increase rate and then return the same capital to the original loan for the original rate and collect all of it, may not represent the bank collecting interest twice, but it does collect more interest that it would have on the original deal, plus the loan has gone from non performing (or being at risk of same) to performing. 

This is a scheme for the banks, not the mortgage holder and certainly not the tax payer.

I’ve no objection in principle to helping out distressed mortgage holders but this scheme is designed to protect banks first. It is also a clear indicator that despite public anger the bank bailouts, policy makers are still willing to overpay public money to rescue banks from themselves.


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