Frontline programme on mortgage arrears and negative equity

[44brendan]

I have no dispute with the issue that the qualifying criteria for HL facilities was incorrect. yes the Bank's were driven by high sales/profitability rather than appropriate credit standards. Somebody should have shouted stop but demand from shareholders and directors drove senior management into making decisions that I agree were foolhardy. So in that context I acknowledge that the term "acceptable standard" was based on levels of acceptability that were well above what should have been applicable.
The 2nd point is that a significant amount of personal debt has been built up over the last 3/4 years which would not have been evident at time of loan approval. There was a tendency to push this debt intermittently on to the mortgage. Again foolish lending policy and one that I would never have agreed with. I was very rarely involved in mortgage approvals but I agree that particularly where mortgages were introduced by a broker the level of information provided left a lot to be desired.

 

[DerKaiser]

........to a large extent most Banks will not take a major hit on this as losses have already been provided for.

Your post is informative and I agree with most of your sentiment except for the above.

Michael Noonan first mentioned this point a few months ago and people arguing for debt forgiveness are quick to seize on it.

The sale of loans from the banks to NAMA at discounted rates, the banks writing down loans in their accounts and the state providing for a certain level of losses (a) does not entitle the people who took out the loan to renege on all or part of it and (b) does not mean the taxpayer isn't taking a hit.

As a country we will either be made bankrupt or crippled with enormous taxes and underfunded public services for a generation if we use the entire debt facility made available to us by the EU/IMF. If we have some discipline and keep the banking losses well below the worst case scenarios envisaged we will recover faster.

The myth that debt forgiveness costs us nothing because it's already been paid for needs to be dispelled before the masses latch onto it as some kind of justification for letting someone else (i.e. the taxpayer) foot the bill where debts are perfectly serviceable.

 

[DerKaiser]

The 2nd point is that a significant amount of personal debt has been built up over the last 3/4 years which would not have been evident at time of loan approval. There was a tendency to push this debt intermittently on to the mortgage. Again foolish lending policy and one that I would never have agreed with. I was very rarely involved in mortgage approvals but I agree that particularly where mortgages were introduced by a broker the level of information provided left a lot to be desired.

This is a very informative point. On the face of it many people (other than those made redundant) should not be in trouble as typical mortgages were 92% LTV, subject to some degree of stress test on repayment capacity and, most importantly, people now generally enjoy lower interest rates.

The practice of borrowing the deposit from the credit union and hiding it from the bank (not hard given they weren't looking too hard!) was widespread. I wonder is there a tendency for people to ignore their own role in such practice and in artificially inflating their salary on application forms when allocating blame?

 

[onq]

So let me get this straight Brendan.

You're saying that -

1. The "acceptable standard" was "well above what should have been applicable".

2. These people (who were already effectively maxed out in terms of mortgage borrowing) were also allowed to run up debts and "to push this debt intermittently on to the mortgage".

As you're being so candid I'm not making any comment on this - I'll leave it stand.

I'll ask the following, because I know its one of the qualifying questions that Social Welfare Inspectors are asking.

"Were these people also allowed take out loans for new cars and transfer these onto the mortgage as well?"

I'll also ask this.

"Were these people also allowed carry out significant extensions to their homes and transfer these onto the mortgage as well?"

 

[44brendan]

I am not proposing or supporting debt forgiveness. However as in any commercial reality there are a number of borrowers who will never be in a position to meet their full obligation. These loans in most part are provided for and the Bank (in line with any commercial entity) must accept that this money will not be recovered. Writing off the loan is in effect revaluing that asset to a level that is realistic.
I agree that any extended levels of provision that would be based on a concept of compensation or "debt forgiveness" does create the potential for significant further losses so I think we are broadly in agreement on this.

 

[44brendan]

ONQ. I'll take your questions as rhetorical. You will be well aware of the number of occasions that this type of top up lending occurred.

 

[onq]

Actually I am only peripherally aware, Brendan not "well aware".

During the Tiger, we were wondering how we were managing to do so "poorly" in comparison to many others despite being busy and getting paid for work.
So to hear your comments - "from the horses mouth" so to speak- brings it all home to me.

Speculation is one thing, confirmation is another.
I'll take your above reply as further confirmation.

I am not proposing or supporting debt forgiveness. However as in any commercial reality there are a number of borrowers who will never be in a position to meet their full obligation. These loans in most part are provided for and the Bank (in line with any commercial entity) must accept that this money will not be recovered.

I think this is the reality of what the banks will do.

Writing off the loan is in effect revaluing that asset to a level that is realistic.

Surely giving the loan a haircut is "revaluing" it.
I would have thought that writing it off would be termed "debt forgiveness".
Perhaps you meant to post "writing down" as in partially, and not "writing off" as in wholly?

I agree that any extended levels of provision that would be based on a concept of compensation or "debt forgiveness" does create the potential for significant further losses so I think we are broadly in agreement on this.

Brendan,

I appreciate your candour in making all these comments.

I think the banks are currently in a bad place, one they willingly and foreseeably went into and they are desperately trying to get out.
Any action must be speedy enough to have the required effect in a timely manner and make sufficient dents in the amounts to restore a decent level of disposable income to within the Irish economy.

Without this disposable income, several sectors won't recover soon or well, particular in the retail sector.
Add another difficult budget and 2012 could see Ireland's consumer confidence crushed totally, instead of cautious optimism creeping in.

In this regard I welcome whatever easing measures the banks can bring to this situation for people who are chronically over borrowed.

 

[44brendan]

I can't disagree with that but how would you envisage the Banks role in avoiding this happening?

 

[onq]

The banks credit flow went from a tsunami in the Tiger to a trickle.

The banks lent to one in ten in 2010 in terms of loan applications made, of all sorts.
This year they approved approximately half the amount of mortgages they approved last year.
These are anecdotal comments, but the first was from my own loan manager and the second was reported in several media outlets.

Going from a Tsunami to a trickle at the same time as a recession hit buckled the economy.
The current credit restrictions are artificially depressing both the construction and mortgage markets IMO.
The banks need to provide credit again, not to Tiger levels or standards but say to to 2002 standards, before the rot set in.

I said as much to Robert Mulhall at the 2010 Photo Journalism Awards in the Cabinteely AIB Branch.
His bank didn't listen, they just took more bailouts, and the economy has suffered.
The Banks need to see themselves as part of the system and proving solutions.

Fantasizing that Banks are all hard-assed private companies is a nonsense.
They are systemic, endemic, dug into the economy like tics.
And they owe it to the electorate to play their part.

Limiting loans, as they seem to be at the moment, to Start Ups is little or no use.
Start Ups are notoriously risky investments even for venture capitalists.
The Banks need to support existing indigenous industries again.

We don't need a Tsunami, but we need the tap turned "on".

 

[Sunny]

This is a very informative point. On the face of it many people (other than those made redundant) should not be in trouble as typical mortgages were 92% LTV, subject to some degree of stress test on repayment capacity and, most importantly, people now generally enjoy lower interest rates.

The practice of borrowing the deposit from the credit union and hiding it from the bank (not hard given they weren't looking too hard!) was widespread. I wonder is there a tendency for people to ignore their own role in such practice and in artificially inflating their salary on application forms when allocating blame?

Here is my situation. I took a mortgage of 85% LTV and paid the other 15% from savings to buy a property. I have no problem paying my mortgage and never will as long as I keep my job. If I lose my job, it is a different story. If that happened, I don't want a bailout, I don't want taxpayers picking up my bill and I would be ashamed at the thought of struggling to pay my mortgage but could easily happen. I don't want/expect/need help but I am not arrogant enough to believe that I will never need it.

 

[onq]

If that happened, I don't want a bailout, I don't want taxpayers picking up my bill and I would be ashamed at the thought of struggling to pay my mortgage but could easily happen.

Believe me, if you are ever in that situation - and I would not wish it on my worst enemy - if you're ever faced with no income, no food in the fridge, no means to pay the bills, your opinion will change.

You will take what you can get and thank people for it.

As someone who has paid tax for 20 years in Ireland, I wouldn't begrudge it to you.

My tax has paid for some utter (insert appropriate expletives) to be kept in ministerial luxury who didn't deserve it.

To see it helping a motivated, work-hungry fellow Irishman through a bad patch would make me feel proud, not resentful.

Despite all the monetarist/capitalist comment on this forum, I am a deep believer in social contracts and helping the other guy, whatever his beliefs.

 

[44brendan]

I agree that the current credit restrictions are to a largent extent choking the cash flow in the economy. banks will currently not approve mortgages due to liquidity problems. I.e. liquidity is all short term from ECB and there is no capacity to lend long against this.
It is currently very difficult to fund commercial entities due to an inability to properly assess their viability and future profitability. previously the risk was mitigated by the taking of security. Given the low property market and reduction in [property values security is no longer reliable in a problem debt scenario. I.e. Borrowing risk has increased and banks are now more aware of potential bad debts. Its a Catch 22 scenario. After the drought comes the Famine.

 

[onq]

Its worse, its a self-fulfilling prophecy scenario and one that the Banks are feeding into.

Unless the Banks pull out of this deflationary spiral this will only get worse.

As the purveyor of liquidity, there is no point the banks looking around and seeing who else is there - its down to them.

Let the government make whatever representations it needs to make to the ECB lift the restriction of liquidity to the short term

I'll leave you with the comment I left Robert Mulhall -

"The Electorate will forgive the Banks the crash as long as they help in the recovery - what they won't forgive is long years of recession after all the bail-outs, because the Banks STILL aren't lending..."

I hope someone reading this can take this advice and do something about it.

 

[Sunny]

ONQ, I know my attitude will change but it would still kill me to know I was getting supported by the State. I have always always worked for everything just like the vast majority of people now struggling.

 

[onq]

Sunny, pride in your own ability and independent accomplishment comes after.

When you have a wife and child and bills to pay, everything takes second place to their survival.

 

[Sunny]

Sunny, pride in your own ability and independent accomplishment comes after.

When you have a wife and child and bills to pay, everything takes second place to their survival.

Completely agree. Fortunately most people here have never experienced that.

 

[DerKaiser]

I don't want/expect/need help but I am not arrogant enough to believe that I will never need it.

Most of us are in the same boat, we wouldn't take help until it was unavoidable, and some even go beyond that point.

As a rule of thumb, if anyone is left with a disposable income after paying their mortgage of less than what they would get on social welfare, I believe they should qualify for debt forgiveness.

From what I saw on the frontline, such people would probably be a small subset of those who feel they are entitled to some sort of debt forgiveness.

Others bandy around a figure north of 35% of net income as being an unsustainable mortgage burden. I find this bizzare.

Take a married couple with no kids on €60k who owe 400k @ 5% interest only. Their interest bill is 40% of net income. They still have €2500pm after the mortgage to live on. This is quite a typical situation, are we really going to set the bar at this level for debt forgiveness? New Beginning say "yes".

 

[losttheplot]

Original content deleted


Please see the posts above. The attitude and personal background of Carolien Lennon-Nally has been fully aired on this thread. There is nothing to be gained by discussing it further.

Brendan

 

[Gekko]

Discussing universal debt forgiveness is a waste of time because nobody has to date seriously advocated it.

Debt forgiveness needs to be targetted. Let's take a few examples...

The lady from The Frontline with the €1,000,000 mortgage on the property that's now worth €500,000. She had an offer of €500,000 on the property but the bank messed around and wouldn't allow her to proceed. The nettle has to be grasped in cases such as hers. The bank has surely already provided for the bad debt element of this loan. The bank should take the €500,000, write off the other €500,000 and the lady should be compelled to go through a revised bankruptcy process (i.e. not the current ridiculous 12 year regime).

The couple from Clonee and others in similar situations should be allowed to take their negative equity with them to a more suitable property. This could perhaps be done through NAMA with NAMA properties. I know couples with babies and secure combined income of €150,000 who are stuck in totally unsuitable apartments. They're a good proposition for any bank but the banks won't touch them right now which is ridiculous. A special product should be created for such couples and banks should be compelled to offer it to them to mitigate the social and medical problems of people holding off starting families or having children in tiny apartments.

Perhaps this has been suggested elsewhere, but I'd suggest where developments are incomplete or half full, people should be incentivised to leave certain developments and fill others thus creating more empty developments which could then be bulldozed.

 

[monagt]

http://www.examiner.ie/opinion/columnists/matt-cooper/why-the-government-isnt-interested-in-solving-our-mortgage-debt-crisis-170606.html

Good Article the Urban Myth as Matt Cooper calls it.

The reality is that NAMA is cutting deals with the developers to allow for only partial repayment of their debts. The banks have been saved with our money. But for all the talk and three reports nobody in power is really interested in solving the issue that outsides like Bill Clinton can see are essential to economic and social recovery.

Read more: http://www.examiner.ie/opinion/colu...ortgage-debt-crisis-170606.html#ixzz1akGVnaKJ