Debt Forgiveness.


Yes, all bets are off now as the banks have been nationalised and their liability is being borne by the tax payer. That said just missing a few payments wouldn’t be good enough grounds to default on your debts. You would have to prove that you have no other option and it wouldn’t just be your house that they could take; all of your assets, including pension funds etc would have to be up for grabs. You’d have the clothes you stand up in and a clean slate, nothing more.
 
Well you're obviously a very astute guy Purple. But people trying to get onto the property ladder at a time when houses were going up in value by the day and trying to guess when would be a good time to do it were not necessarily stupid or irresponsible. As Truthseeker says, lots of people are intelligent and capable but don't have a huge grasp of economics
 
One law for Irish taxpayers, another for bondholders - interesting POV

Smaghi’s application of the moral hazard principle with a zeal that verges on the vindictive with respect to the Irish taxpayer, stands in contrast to his treatment of the bondholders.

[broken link removed]
 

I don't quite agree with the debt forgiveness mechanism. The banks share of the home should be the reduction in debt divided by the current market value.

Also there would need to be some mechanism for the owner paying the bank for the use of the bank's share of the house i.e. some kind of rent. This portion could be postponed and accumulated until ultimate sale of the house.

Of course the ultimate debt forgiveness if bankruptcy. Maybe the answer is that we should have separate (less severe?) bankruptcy rules for defaulting on residential mortgages
 

I agree, but given the number of people affected and the time & expense of each case legally it might be cheaper for the bank to cut a deal in some instances, than going down the legal route and ending up with a repossesed property they can't sell / sell at a significant loss. However, it would have to be on a case-for-case basis. Any blanket policy will be open to exploitation as there will be too many cases involved...the banks would need 100's of extra staff to process this nevermind doing all of the checks to prove someone can't actually pay. So in summary, I am against the idea per se, but can see where in some cases the bank have a better hope of getting some money back by writing a portion of the debt off than repossesing a dud property.
 

I knew there would/could be ups and downs but also I didnt know it would be this bad.

I wasnt trading up, I was just wanting a roof over my head, a home, even if it went down in value I thought that between the amount Id paid as a deposit, and the amount Id paid back in a 7/8/9/10 year period would allow me to at least break even to sell (or a manageable shortfall like 20k) and in the meantime have saved a good deposit for somewhere bigger. I never saw it as an investment. I just didnt realise it would drop so drastically. Obviously if Id known that in 5 years the place would be over 100k in NE Id never have bought it!

I did know about property bubbles, but I didnt know about government levies, paycuts in work, pay freezes in work etc.

I was single when I bought, Im married now. I didnt know about that either. Nor did I think that both of us would end up facing quite a long future in an apartment. When I got married my husband was on a huge salary. Now he is out of work. I didnt know about that either.

Im not really sure where this makes me a fool. Apparently I was a fool when i was renting. I found renting incredibly difficult, very expensive and a little uncertain. So I stopped being a slave to rent and bought and had a better quality of life because I had more disposable income immediately, no uncertainty, and I could actually decorate the place as I pleased.

Should I have waited til now to buy - well in hindsight - yes. Although between paycuts, levies, a husband out of work and me not getting any younger I dont know if a bank would give me the same mortgage now anyway - although the same mortgage today would go a long way towards buying a 'forever' home. So its possible if I hadnt bought, Id still be renting, and facing continuing to rent for the forseeable.
 
Say 3 couples each bought a house on the same road in 2007 for 400K. The houses are now worth 200K.

All couples are in negative equity to the tune of 200K.

Couple no.1 are have lost one or two of their jobs and are unable to make their repayments or sell house.
Couple no.2 are both are still working and are able to make the mortgage repayments.
Couple no.3 are also working but maybe have taken a small pay cut or now have a young child and are struggling to make the monthly payments. Basically, they bit of more than they could manage when they borrowed 400k and would be struggling even if their house were still worth 400K.

Which of these couple should receive debt forgiveness?
 
Shawady said:
Say 3 couples each bought a house on the same road in 2007 for 400K. The houses are now worth 200K.
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To give you real numbers for this - my apartment was worth 400k in 2007 (luckily I did not pay this). There is currently one for sale at 160k - and its been on the market for months.

So if someone bought in my development in 2007 they are now in more than 200k NE - depending on the deposit they put down.

Which may impact on your thought experiment. Did the 3 couples all put down a minimum deposit?
 
truthseeker said:
I dont know if a bank would give me the same mortgage now anyway
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I think this is one of the reasons so many bought at the top of the bubble...they knew things were likely to get ugly (but not sure how ugly) but at the same time knew that if they didn't buy now, they were likely to be refused a mortgate later (and for good reason!).
 
To be honest, you can't win in this country. Anybody still renting or living at home in their mid thirties is looked on with pity. Anybody who got it together to buy a house is a fool.
 
liaconn said:
To be honest, you can't win in this country. Anybody still renting or living at home in their mid thirties is looked on with pity. Anybody who got it together to buy a house is a fool.
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I don't know!!! A lot of people are sitting on nice deposits and will be buying dream homes for the price of average homes a few years ago (feckers!)
 
Yes, but I bet four years ago people would have been saying 'why hasn't he got his own place. He must be at least 32'.
 
Firefly said:
I don't know!!! A lot of people are sitting on nice deposits and will be buying dream homes for the price of average homes a few years ago (feckers!)
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Only if they havent been subjected to the same pay cuts, levies, job losses as the average person!!
 
People should probably be allowed to hand back the keys to settle the mortgage debt. That option should also ensure that banks were more circumspect in their mortgage lending and might prevent future bubbles growing so large. Many people got caught up in the property bubble and something should be done for them.

Why would one baulk at helping a young couple who 'foolishly' bought at the peak with a 100% mortgage over 30 years and are now trapped but not baulk at the taxpayer paying back a private EU bank that foolishly lent the money to a private Irish bank in the first place?

We need to undo the negative equity trap and restart the banks and economy. The ECB should write off a sizeable chunk of bank debt and then just print new money for that amount.

I realise that this post may simply highlight my economic naivety
 

Well I know a lot of my friends (and me to some extent) had been saving 'normally' for a deposit - and became frightened at how quickly the house prices were rising and just hoped they werent buying at the top of the bubble.

I was saving perhaps 7K a year. The prices were rising a at a ridiculous rate. The goal posts just kept getting further and further away and many people bought apartments because the market simply swept along too quickly for them to afford houses and they knew if it kept going theyd never get a mortgage at all. Then crash-boom, paycuts, levies, job losses - they may not get one anyway.
 

So by your method the bank would own 60%, the borrower 40% with a mortgage of 250k and a further rental liability of some description? This wouldn't do enough for people. Mortgage might drop by about €740 but then rental liability would eat most of that up. Debt forgiveness will have to involve some real benefit.


And at the end of the day we're talking about real people here and therefore human behaviour. We have to motivate people to keep working to do their best and pay as much as possible. If we make it too tough people will give up.


Look , lets look at one of those young couples Shawady and truthseeker are talking about. Bought a two bed apartment in 2006 for €400k. Today worth €160k if it could be sold. NE of €240k. Mortgage payment €2,000. He was working as an engineer earning €65k. She's a public health nurse, was netting about €2,700 now about €2,100 after tax increases and pension levy. He got a cumulative pay cut of 40% before being let go in Jan 2010. They have one child and she is pregnant. They had savings which they used to pay their way while he looked for a job. No luck on the job front (two of his friends got jobs doing bar work in 2009 because it paid more than they were earning at the engineering consultancy, but by the time he was laid off these jobs were much harder to find ) and they have now missed four mortgage payments. He went to a job fair in Dublin and has been offered a job in Australia earning €75k. She can earn good money their too and they are told they will qualify for permanent residency, and ultimately citizenship if they want it. So they have a way out.

So they can either rent the apartment (if its lettable) and send money home to top up the payment, knowing that the apartment will probably never be worth what they paid for it), or they can send the keys in the post and bet that the bank won't track them down. Which would you do? Knowing all that went on in the banking sector, in government, in the regulator, and the EU, would you still feel a strong moral imperative to pay the mortgage?

People like this example are still the lucky ones of course, because at least they have a choice. I'm more worried about the people who don't have any choices.
 

In addition people who, for whatever reason, had waited until their late thirties or early forties to buy really had no choice. They knew they wouldn't get a mortgage if they left it for another couple of years because they'd be considered too old, and the rental market in this country is not well regulated enough to make it an attractive proposition for elderly people.
 
Shawady said:
Assume they all took 100% mortgage.
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and there is one of the biggest problems. Banks handing out and people taking out 100% or even 110% mortgages for houses. the plot was completely lost when they then took out loans for a new car, a fitted kitchen, new furniture, electronics, gardening, etc. Gone were the days of getting loan of furniture or buying it when you had savings. Every friend I knew who bought new house had it fully kitted out before they even moved in and usually had a holiday the same year too (and some a massive wedding funded by another loan). Unfortunately people lost the run of themselves and having had no history of saving to buy things or experiencing anything other than salary increases, thought it was going to last for ever. Watching programmes like `reeling in the years' people though we'd never have job losses and emigration or double digit mortgage interest rates ever again. Lessons should be learned from history, and unfortunately people are learning them the very hard way now.
 
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