unsustainable mortgage in negativ equity - how best to proceed?

[dub_nerd]

And most of those people are paying their mortgages on time but it's getting the economy nowhere, a point that continues to elude most, as consumption expenditure is moribund. Add exchequer austerity to that and you get 14% unemployment and 87000 people emigrating ( Eurozone unemployment just hit 12% for the first time ever last month ). But I guess we gots to put manners on the people who were bold boys and girls in the noughties.........unless you're a banker.

I'm struggling to understand what you are implying. We should give money to the imprudent because they already have a proven track record in splurging their cash? While the prudent cannot be trusted with free money because they might save it instead of spend it?

Tell you what, I'm just as capable of spending money as the next man. I have zero debts, so unlike your negative equity "victim" who might have other debts in addition to his mortgage, I'm ready and willing to spend free money on bling and tat. Why give the free 150k to him -- he might only save it or pay down other debts, while I promise to spend it and stimulate the economy.

And that, I think, is the answer to the ridiculous suggestion that we should write off debts "so that people can become economically productive again". The people who are not in debt are just as capable of spending. Why favour one over the other? There may be other reasons for writing down debt, but this isn't it. Any debt written down has to be paid for by someone, so anyone promoting debt forgiveness needs to stop just parading their own magnanimity with other people's cash, and say where they think the money is coming from.

The plain fact of the matter is that consumption in this country got miles ahead of earning. We "pre-spent" money that now has to be paid back. Our recession is the logical consequence -- the figures show that saving is now miles ahead of spending. What is horrific is that some people think the "solution" to all of this is that we go back to spending more money we don't have on cars, holidays, decking, and granite countertops. Personally I'd like to think we could spend on something a bit more productive, like entrepreneurship and genuine social goods, instead of going back to the ugly consumerism and mé féinism that ruined the country.

 

[demoivre]

take 150,000 people or so in arrears...give them debt forgiveness, let them start spending (of course all that spending will be in Ireland!), and the economy will get going again.
Wow, did'nt reliase that was all it would take ...let the debt write-off begin!

You missed the point, I never mentioned people in arrears. Government , corporate and private debt servicing in this country is costing us dearly. We will not recover unless we address the situation. Arrears cases make the headlines, it's only part of the problem.

the figures show that saving is now miles ahead of spending.

Some of our deluded government ministers think the same . In Economics that part of income that is not consumed ( spent ) is classed as savings - the savings you are talking about are debt repayments. You can cut it whatever way you want but this country is at least a generation a way from recovery unless we address our overall indebtedness.

And that, I think, is the answer to the ridiculous suggestion that we should write off debts "so that people can become economically productive again". The people who are not in debt are just as capable of spending. Why favour one over the other? There may be other reasons for writing down debt, but this isn't it. Any debt written down has to be paid for by someone, so anyone promoting debt forgiveness needs to stop just parading their own magnanimity with other people's cash, and say where they think the money is coming from.

Ah right, and we're not paying the price now? The Exchequer adjustments needed for obliterated tax revenues are €3.5bn this year, €3.1bn next year and €2.5bn the year after. #Austerity rocks

 

[David_Dublin]

Demoivre - I really think you are missing the point. By a long way.

One of the main issue with getting the economy going is confidence. What this means is getting people to spend rather than save. It's not altering what money is there - there is ample saved money in the economy, but people are saving for the rainy day, worried that more bad stuff is around the corner. The idea that giving the flahulach more money to waste is laughable.

I'm not sure about your definition of savings to be honest, but in layman terms I think dub_nerd was referring to private cash on deposit, i.e. the total amount Irish people have saved up in bank accounts. Estimates vary wildly between 80 billion and 350 billion. I dont know what it is, but I believe I am right in saying it has nothing to do with what you are talking about.

What government needs to do is to encourage people back into the shops, get people spending again, spending their savings. Not throwing money at the problem.

 

[Dermot]

I agree with you David_Dublin

 

[Luternau]

I dont think the OP's position is unsustainable and it amazing that they think this is the situation. It is strange that the OP has not been back to comment on some of this-which really makes me wonder why post in the first place.

A few weeks ago there was a thread started (now locked) by another new poster that was equally incredible in that the poster did not want to pay what he owed or make any effort to do so-yet he was in a pretty good position to do so. It makes for interesting reading :

I would agree that the banks should share the pain to the same degree that struggling borrowers are and will feel for a long time to come-but sadly thanks to that famous October 2008 night, that means every taxpayer of this country gets hit every time there is a re-structure or debt deal.

However, I do hope that those that can pay are coralled by every bank and made to feel the same hardship and austerity as those that want to pay their debt - but just cant. If this happens, I would begin to think we are making progress with 'moral hazard' and introducing confidence back into the economy.

 

[Dermot]

I would agree that the banks should share the pain to the same degree that struggling borrowers are and will feel for a long time to come-but sadly thanks to that famous October 2008 night, that means every taxpayer of this country gets hit every time there is a re-structure or debt deal.

However, I do hope that those that can pay are coralled by every bank and made to feel the same hardship and austerity as those that want to pay their debt - but just cant. If this happens, I would begin to think we are making progress with 'moral hazard' and introducing confidence back into the economy.

That would come close to my opinion too

 

[dub_nerd]

Some of our deluded government ministers think the same . In Economics that part of income that is not consumed ( spent ) is classed as savings - the savings you are talking about are debt repayments. You can cut it whatever way you want but this country is at least a generation a way from recovery unless we address our overall indebtedness.

Yes, I understand that. And that was indeed what I meant by savings. Some people are saving cash on deposit, being nervous to spend in a depressed economy. Others are paying down debt -- that's saving too in economics terms.

And yes, I understand that we have to speed up the recovery and that means growng our way out of the problem to some extent. That in turn means persuading the people with real cash to start spending again, and have more confidence in the economy.

What it doesn't mean is shifting money from one column on the balance sheet to another. I mean -- everyone would be in favour of debt forgiveness if it was free money. But it's not. How do you think the economy is going to be improved by setting up a situation where we need another bank bailout?

Ah right, and we're not paying the price now? The Exchequer adjustments needed for obliterated tax revenues are €3.5bn this year, €3.1bn next year and €2.5bn the year after. #Austerity rocks

We haven't had any austerity yet. We have reduced capital expediture. As far as I know our current expenditure has gone up every year since the recession hit. We've barely begun to make the adjustments needed.

What we have done is go back to the level of exchequer revenue that would have prevailed if we hadn't been living on borrowed money for a decade. We've got to start realising that going back to that same situation is neither possible nor desirable. We need growth and revenue to be based on a whole new model. Selling houses to each other won't work anymore.

 

[dub_nerd]

That would come close to my opinion too

I'd agree with Luternau too.

 

[AlbacoreA]

Demoivre - I really think you are missing the point. By a long way.

One of the main issue with getting the economy going is confidence. What this means is getting people to spend rather than save. It's not altering what money is there - there is ample saved money in the economy, but people are saving for the rainy day, worried that more bad stuff is around the corner. The idea that giving the flahulach more money to waste is laughable....

Isn't the point you want the financially sustainable people to spend, not the unsustainable.

That said every move the Govt seems to be making is taking money from me, that I won't be spending in the economy.

 

[commonsense]

It has proven to work very well in the US thank you very much! And Iceland has actually written down loans to 110% of the value of their house and guess what, yep, their economy is growing faster than the US and Europe. So pause and think about that for a moment, debt forgiveness isn't necessarily a case of letting people off scot free, it actually serves the economy as a whole and everyone living in it better in the long run!

We've had the mother of all property crashes and those losses need to be crystallized sooner rather than later so the economy can start functioning normally. Saddling people with debt and negative equity for the next 20 years certainly isn't going to help anyone.

You seem to be connecting the write down with growth? That is simply not true and Iceland is really not the country to be comparing Ireland with.

Firstly, regarding the 110% mortgage debt write - down, you should know that household debt in Iceland comes in two forms:

A. Loans linked to a currency index.
B. Loans linked to the consumer price index.


Type A loans doubled during the crash. These loans were illegal and there are numerous court cases underway.


The type B loans are a little more complicated. If you borrow 100k and a year passes with 10% inflation (after a crash this wouldn't be unusual) at the end of the year you will owe 110k even if you have been paying interest. You will never pay off your mortgage. They did bring in debt relief, but it didn't change anything for those in trouble and those it did initially help were back to were they started within a few months.





The index linked loans rose to double the debt relief.



Icelandic households are worse off, not better off.



Icelands economy grew by 2.7% in 2012, but inflation was 4%. In Iceland because the loans are linked to inflation, you cannot trot out "Iceland has the fastest growth in the world" without mentioning inflation.




There is no easy way out. There is no magic bullet. Debt forgiveness does not equal a growing economy.

 

[Negotiator]

Ok perhaps Iceland is not a good example when you factor in all the inflation as outlined in your post. How about the US and non recourse loans? Hand back the keys and the shortfall is written off. That's as real as it gets with regards to debt write off!

 

[commonsense]

Ok perhaps Iceland is not a good example when you factor in all the inflation as outlined in your post. How about the US and non recourse loans? Hand back the keys and the shortfall is written off. That's as real as it gets with regards to debt write off!

There's a difference between non recourse loans and debt write off.

There is no inital contract from the borrower to repay the entire loan.

The banks factor in the risk using higher interest rates and lower LTVs in the first place. In a lot of cases while the original mortgage was non recourse, remortgaging and equity releases create recourse loans.

What I am hearing more frequently here in this country is "I have money to pay, but don't want to" or " I want to keep my home paying a reduced mortgage".

In the states if you cannot pay your mortgage then you lose the asset. If the bank has many defaulters then it closes.

Edit - To be honest if there was one way I'd like us to copy America is their bankruptcy system. You fail, you go bust and are allowed to start up again.

 

[Negotiator]

In the states if you cannot pay your mortgage then you lose the asset. If the bank has many defaulters then it closes.

Isn't this the way it should be......basic market forces allowed to play out naturally?

The notion of people having to hand back their home and being chased forever and a day for the balance is just ludicrous......and so is forcing people to live within incredibly tight budgets for potentially the rest of their lives!

 

[commonsense]

Isn't this the way it should be......basic market forces allowed to play out naturally?

The notion of people having to hand back their home and being chased forever and a day for the balance is just ludicrous......and so is forcing people to live within incredibly tight budgets for potentially the rest of their lives!

I don't disagree. In the states though it's not completely plain sailing todeclare bankruptcy, you really have to be in dire straits, unemployed or already having payments garnished from your income, you home is on the brink of being foreclosed on, you owe taxes, you're being sued.

There are two types of bankruptcy, chapter 7 which is basically if you are unemployed and can't repay anything, in this case you lose everything.
Or chapter 13, whereby you enter into a repayment programme for between 3 and 5 years.

It stays on your record for 10 years, meaning that you'll probably get a loan in the future, but you'll pay more interest.

There is no solution anywhere whereby you walk away and suffer no ill effects from bankruptcy/debt write-down. It just doesn't happen. A lot of people in this country are jumping on a bank wagon that doesn't exist.

 

[mark71]

Isn't this the way it should be......basic market forces allowed to play out naturally?

The notion of people having to hand back their home and being chased forever and a day for the balance is just ludicrous......and so is forcing people to live within incredibly tight budgets for potentially the rest of their lives!

The amount of stress being put on people by our system is frightening. In the last two weeks two men took their own lives in my area due to debt stress. Both with young families.

 

[Negotiator]

I don't disagree. In the states though it's not completely plain sailing todeclare bankruptcy, you really have to be in dire straits, unemployed or already having payments garnished from your income, you home is on the brink of being foreclosed on, you owe taxes, you're being sued.

There are two types of bankruptcy, chapter 7 which is basically if you are unemployed and can't repay anything, in this case you lose everything.
Or chapter 13, whereby you enter into a repayment programme for between 3 and 5 years.

It stays on your record for 10 years, meaning that you'll probably get a loan in the future, but you'll pay more interest.

There is no solution anywhere whereby you walk away and suffer no ill effects from bankruptcy/debt write-down. It just doesn't happen. A lot of people in this country are jumping on a bank wagon that doesn't exist.

Good to get a deeper insight into the US Bankruptcy process. I totally agree that there is no ill side effects from any type of debt writedown and again so it should be. But these ill effects shouldn't be near half as bad as being given a budget that strips borrowers of living a decent economic life in the long term. The notion that there is lots of 'strategic defaulters' is nonsense in my opinion, off course there will be a few but so be it, that's life! It shouldn't influence a policy that will help the vast majority of distressed borrowers.

 

[commonsense]

Good to get a deeper insight into the US Bankruptcy process. I totally agree that there is no ill side effects from any type of debt writedown and again so it should be. But these ill effects shouldn't be near half as bad as being given a budget that strips borrowers of living a decent economic life in the long term.

But that's like what happens in a chapter 13 bankruptcy. Your income is means tested, a living allowance given, not based on your living allowance but by Internal Revenue Service's National Standards. I don't see anything wrong with this if people want a write down of debt.

I do believe though that a lot of what is in the media is smoke, mirrors and populist. What will happen is you are given X amount and can spend it as you will.

The notion that there is lots of 'strategic defaulters' is nonsense in my opinion, off course there will be a few but so be it, that's life! It shouldn't influence a policy that will help the vast majority of distressed borrowers.

But unfortunately they are influencing policy and by virtue of this fact it is clear that there are more than "some" defaulters. Now I have to say at this point that some people could be defaulting to repay other debt - but they should not be doing this, they should be negotiating with these unsecured creditors before not paying their mortgage.

I hate to say it but Irish people are really going to have to wake up to the fact that if they want debt write down then it will not come easy or without restrictions.

 

[Bronte]

The amount of stress being put on people by our system is frightening. In the last two weeks two men took their own lives in my area due to debt stress. Both with young families.

That's terrible sad Mark.

This thread has probably scared off the OP and others. I'm as mad as anyone with stratetic defaulter but that debate should be elsewhere.

 

[Luternau]

This thread has probably scared off the OP and others. I'm as mad as anyone with stratetic defaulter but that debate should be elsewhere.

I would agree there. No advice for the OP.
Suggest moving all off topic posts to a new thread in letting of steam!

 

[gaius]

take 150,000 people or so in arrears...give them debt forgiveness, let them start spending (of course all that spending will be in Ireland!), and the economy will get going again.
Wow, did'nt reliase that was all it would take ...let the debt write-off begin!

And the people who won't be spending because they are paying higher taxes to fund this don't matter!