clarifying what "debt forgiveness" means

[commonsense]

Your debt isnt growing if you extend the lenght of your mortgage

Yes it has.

You lent me money at a higher rate than you borrowed it for. If we agree that I pay it back over 24 months instead of 12 I pay you interest for an extra 12 months, you make more money by me paying money back over longer.

Then it has cost you more than the amount you originally signed for.

I pay more back to you because ive taken longer, thats how you pass it on to me. but my debt doesnt increase. Were arent talking about not paying anything or paying nothing until the end of the mortgage term we are talking about paying slower which is very different

If you pay back more, then your debt increased.

from wikipedia, your own source

It calls restructuring an alternative, hences it is not a form of debt forgiveness

Could you oblige and post the full paragraph where you picked that particular sentence from please? I cannot as I am new.

 

[orka]

If you pay back more, then your debt increased.

No it hasn't. You are confusing 'debt' with 'total repayable over time'.

If you take out a 25 year mortgage today for 100K at 4%, you will pay 528 per month and end up paying a total of 158,352 to the bank (the 100K capital plus 58,352 interest). But your debt TODAY is 100K.

If you take out a 30 year mortgage today for 100K at 4%, you will pay 477 per month and end up paying a total of 171,871 to the bank (the 100K capital plus 71,871 interest). But again, TODAY your debt is 100K.

As long as you pay interest on your outstandings (which those extending their terms do), there is no debt forgiveness - your debt before and after restructuring is the exact same. The total amount you repay actually increases but because it is a lower monthly amount, it is an attractive option to some people.

 

[shigllgetcha]

Could you oblige and post the full paragraph where you picked that particular sentence from please? I cannot as I am new.

You quoted the same page yourself but here you go:

Alternatives

Contemporary
In modern times, the most common alternatives to debt relief in cases where debt cannot be paid are forbearance and debt restructuring. Forbearance meaning that interest payments (possibly including past due ones) are forgiven, so long as payments resume. No reduction of principal occurs, however.
In debt restructuring, an existing debt is replaced with a new debt. This may result in reduction of the principal (debt relief), or may simply change the terms of repayment, for instance by extending the term (replacing a debt repaid over 5 years with one repaid over 10 years), which allows the same principal to be amortized over a longer period, thus allowing smaller payments.
Personal debt that can be repaid from income but is not being repaid may be obtained via garnishment or attachment of earnings, which deduct debt service from wages.

http://en.wikipedia.org/wiki/Debt_relief

I wouldnt usually use wikipedia a a source for this type of thing but your quote came straight from that page so I used it aswell

 

[mark12]

Why keep talking about something that already exists?


We already have debt forgiveness in this country for anyone who wishes to avail of it, and yes you can actually keep the asset as bankrupt builder John Fleming has just proven, he lives in the same house as before, and his debts are cleared.

If this is not Debt Forgiveness, i don't know what is.


When you go on long term interest only and get to live in the house, is this not partial debt forgiveness as well?


When you decide not to pay, but get to live in the house for years and avoid repossession, (because the loss to the bank from a fire sale would be too high), is this not debt forgiveness as well?

 

[orka]

Why keep talking about something that already exists?

We already have debt forgiveness in this country for anyone who wishes to avail of it

Yes we do have debt forgiveness in this country and always have; people have always had probably repaying debts and have gone bankrupt – walking away from their debts and assets. I think what people mean when they ask now ‘will there be debt forgiveness?’ is whether there will be a formulaic or standard approach agreed by or imposed on the banks to help those who are struggling to pay their mortgages. I can’t see the banks ever agreeing anything except on a case by case basis and I can’t see any true debt forgiveness (ie you owe less tomorrow than you did today) that lets the borrower retain 100% of the asset.

...yes you can actually keep the asset as bankrupt builder John Fleming has just proven, he lives in the same house as before, and his debts are cleared.

He gets to live in the house but it is not his unless his son-in-law gives/sells it to him. And yes, anyone with a relative willing to buy back their house can stay in their house – but that is not debt forgiveness. The bank is in no worse a position for the son-in-law having bought the house and let his father-in-law live there.

When you go on long term interest only and get to live in the house, is this not partial debt forgiveness as well?

No. As long as you are paying the interest, there is no debt forgiveness – the debt is still owed.

When you decide not to pay, but get to live in the house for years and avoid repossession, (because the loss to the bank from a fire sale would be too high), is this not debt forgiveness as well?

This depends on what the bank eventually gets back. In theory, the arrears continue to mount up, adding to the debt and until some/all of the debt is written off, there is no debt forgiveness. I would only call something debt forgiveness when there is an acceptance of non-recoverability so that no matter what changes in the borrower’s circumstances (e.g. an inheritance), the debt can never be reactivated.

 

[Wishes]

Why keep talking about something that already exists?


We already have debt forgiveness in this country for anyone who wishes to avail of it, and yes you can actually keep the asset as bankrupt builder John Fleming has just proven, he lives in the same house as before, and his debts are cleared.

If this is not Debt Forgiveness, i don't know what is.


When you go on long term interest only and get to live in the house, is this not partial debt forgiveness as well?


When you decide not to pay, but get to live in the house for years and avoid repossession, (because the loss to the bank from a fire sale would be too high), is this not debt forgiveness as well?

I agree with most of your posts Mark but I think you have painted a very rosy picture here.

I thought Fleming's son purchased the house?? If there were debt forgiveness here surely Fleming wouldn't have had to go to the UK.

 

[manninp2]

I think what gets up peoples noses about debt forgiveness is the possibility of someone agreeing a debt settlement for less than the outstanding amount with the possibility of them gaining at some time in the future.

If someone loses the house, they can't gain from any upswing. They also more than likely exclude themselves from ever being able to buy a house ever again. They'll still be renting when they're on a pension (if they even have one), it's a lot to lose.

 

[commonsense]

No it hasn't. You are confusing 'debt' with 'total repayable over time'.

If you take out a 25 year mortgage today for 100K at 4%, you will pay 528 per month and end up paying a total of 158,352 to the bank (the 100K capital plus 58,352 interest). But your debt TODAY is 100K.

If you take out a 30 year mortgage today for 100K at 4%, you will pay 477 per month and end up paying a total of 171,871 to the bank (the 100K capital plus 71,871 interest). But again, TODAY your debt is 100K.

As long as you pay interest on your outstandings (which those extending their terms do), there is no debt forgiveness - your debt before and after restructuring is the exact same. The total amount you repay actually increases but because it is a lower monthly amount, it is an attractive option to some people.

And you are confusing principal with debt.

Debt is "an obligation to repay a sum of capital, plus interest."

A mortgage is a legal document specifying a certain amount of money to purchase a home at a certain interest rate, and using the property as collateral.

Capital is what you borrowed, capital + interest is what you owe - the debt.

 

[Bronte]

Let's say I took out a FTB mortgage of 185k over 25 years, total repayable inc interest is 277k.

If I extend that to 30 years the repayment is 298k.

So if the bank extend your loan and don't charge you more/higher interest rates, meaning you are repaying what you would have repaid in the first place, then you are getting debt relief.

You are incorrect. Because when you extend the term you have to pay more interest. The interest rate can stay the same but you will pay more. There is no debt forgiveness in that scenario. It's just a restructuring. So the bank is not at a loss. And if the extension of the loan results in higher borrowing costs for the bank, then they have the option of increasing the interest rate to the borrower.

To me debt forgiveness is when some of your debt is written off.

Do I agree with debt forgiveness, yes I do. Am I mad about it. Damn right I am, but not in all cases. But in any case when one adds in all the reasons we are in this mess then does it really matter anymore. The banks were wrong, the regulator was wrong, the borrowers were wrong, so what are we to do. There is absolutely no point at this stage in not moving forward.

 

[commonsense]

You quoted the same page yourself but here you go:
I wouldnt usually use wikipedia a a source for this type of thing but your quote came straight from that page so I used it aswell

I did quote the page but I couldn't copy and paste it here (still cannot until I make 15 posts) as I am new, so thanks.

We are talking about debt that can be (must be?) repaid. In our example of someone extending the loan, this is also called refinancing to achieve smaller repayments at (possibly) more attractive interest rates, this is a form of debt relief.

Debt relief is not only the partial or full wiping of debt. Rescheduling, refinancing and reorganisation of debt is also classed as debt relief.

​

 

[Bronte]

. Rescheduling, refinancing and reorganisation of debt is also classed as debt relief.

What if you reschedule your mortgage to reduce the term, and therefore the amount repayable, what would you call that?

 

[commonsense]

You are incorrect. Because when you extend the term you have to pay more interest. The interest rate can stay the same but you will pay more.

I am not incorrect, I have posted the definition, which you disagree with.

There is no debt forgiveness in that scenario. It's just a restructuring. So the bank is not at a loss. And if the extension of the loan results in higher borrowing costs for the bank, then they have the option of increasing the interest rate to the borrower.

Which is a form of debt relief.

To me debt forgiveness is when some of your debt is written off.

That is your opinion, it's not the true definition of debt forgiveness though.

 

[Bronte]

And again, if you restructure to reduce the debt what do you call that?

 

[commonsense]

And again, if you restructure to reduce the debt what do you call that?

Sorry for not responding immediately to you, I didn't realise that this was the way this forum works.


I know what you are trying to do and I won't fall into your trap.

You have an issue with the definition of debt forgiveness, you refuse to acknowledge that restructuring falls under the term, I can't help you with your interpretation.

Any modification of your loan that changes the terms and conditions which result in you not fulfilling your debt oligations, that you signed up for, is a form of debt forgiveness.

If you cannot repay the debt within the terms of the contract and have to draw up a new one extending the terms, then you have not met the obligations you agreed to.

 

[orka]

commonsense, you originally gave your definition of debt forgiveness as:

Debt forgiveness is defined as:

• " the partial or total forgiveness of debt, or the slowing or stopping of debt growth, owed by individuals, corporations, or nations."

First of all, what sort of definition gives the phrase as its own definition? Debt forgiveness is the forgiveness of debt? Really? And you base your answers on this? What you are actually quoting from is the Wikipedia definition of ‘debt relief’ which you are using throughout your posts interchangeably with debt forgiveness even though they are slightly different things. Debt relief could possibly include any measures to give relief to the debtor; debt forgiveness is, well, debt forgiveness – some of the debt is forgiven (that means written off) – the clue is in the phrase. It should also be clear from the thread title that people want to understand what debt forgiveness means – not debt relief (although in reality there is much more likely to be a debt relief regime introduced than a debt forgiveness one).

So by your definition, debt relief is the forgiveness of debt OR the slowing/stopping of debt ~ that implies that the slowing/stopping of debt growth is different to debt forgiveness doesn’t it?

Looking at your definition of debt, you again provide a quote

Debt is "an obligation to repay a sum of capital, plus interest.".

Yes, but the interest is the amount accrued at a given point in time – it does not include all future interest. Debt is a point-in-time amount – it does not look forward to ‘what will I ultimately have to pay’ but ‘what do I owe today’. When companies prepare their accounts, the debt amounts are the amounts owed at the balance sheet date – they don’t include future interest payments. In your example:

Let's say I took out a FTB mortgage of 185k over 25 years, total repayable inc interest is 277k.

If I extend that to 30 years the repayment is 298k.

what is your debt the day after you take out the mortgage? If you inherit 300K and want to pay off your debt the day after your mortgage, would you expect to repay your 'borrowed the day before' 185K or is the debt 277K/298K?

 

[commonsense]

I am slightly wary of feeding what is increasingly looking like a troll but anyway...

I am not a troll. I have an opinion that I have politely put forward to you and others here. I have stayed within the remit of the topic and that topic is "clarifying what debt forgiveness means".

I have not posted any inflammatory messages, I have not disrupted the topic in any way shape or form and have not set out to provoke anyone.

But humouring you for a moment

Please don't, this is a "discussion forum," not a "humour someone forum".

You do not agree with my opinion that is your perogative, I won't engage in any further discussion with you.


Regards.

CS.

 

[Wishes]

Hi Commonsense,

No offense but you have a very black and white outlook.

I have yet to meet anyone that is looking for a mortgage write down. Everyone I have spoken to is looking for a restructure with the view of paying every last cent they borrowed back.

Do you know what I was told recently by a professional? 'What ever you do, do not ask for a write down or it will be the rock you will perish on'.

I continue to meet mortgage repayments and keep my mouth shut. Does that sound like a write off to you?

 

[shigllgetcha]

Anyway, why do we even care anymore, all future losses in our Banks are covered by the ESM European Stability Machanism

Losses are covered but does that mean profit losses rather than bad debts?

If its profit loses that still effects everyone that has a mortgage with that bank as they are paying more in interest to cover some of the losses as the banks need to/want to get back to a profitible state and will increase rates to get there and try to reduce losses

Do you know what I was told recently by a professional? 'What ever you do, do not ask for a write down or it will be the rock you will perish on'.

I guess they meant that a writedown would close the door to anyother options? Just curious

 

[Wishes]

I guess they meant that a writedown would close the door to anyother options? Just curious

And could also trigger a repossession order. Its all a game of cat and mouse; who's going to make the first move. I've personally been advised to pay what I can and generally keep out of the way.

 

[orka]

commonsense, I apologise for having offended you; I have removed the offending words from my post.

However, it’s not really true that you haven’t disrupted this thread. Current and future readers will come to this thread to find out what debt forgiveness means and will leave none the wiser and not even knowing anymore what debt itself means – that is not helpful. What you now say are your ‘opinions’ were presented as facts (looked up on Wikipedia) and argued repeatedly and quite strongly ‘Yes, it is’, ‘I am not incorrect’, ‘that is your opinion, it’s not the true definition of debt forgiveness though’. No-one agreed with your definition and while there seemed to be some consensus that debt forgiveness meant some/all of debt is written off, that is now lost in this mess of a thread.