Your argument suggests that you have no difficulty in accepting the basis of the house price and accompanying mortgage when the deal was completed. I do. In fact, I, and many others have been making this fundamental point over a long long time.
House prices since about late 2001 until now (well not in fact quite yet in many parts of the country) were simply wrong. Prices were wrong because they were not in fact determined, as you continually believe they are, by the interaction of house buying consumers in the marketplace, no far from it, house prices are simply a reflection of the availability of credit and banks willingness to lend into that asset class ahead of virtually any other for the period under review. In simple language, banks determine house prices not the house buying consumers.
Property, particularly residential houses as an asset type is unique compared to virtually all other asset types insofar as its not in fact a cash driven asset market it is a credit asset market. This matters hugely and for my part this basic but hugely significantly difference between property and all other asset market seems to have passed you and your analysis by.
You have assumed that the price of housing charged to consumers over the past decade was somehow fair and reasonable and effectively the ‘market price’ - based on all the available evidence this simplistic analysis of events is clearly wrong. It begs to question your basic understanding of the difference between value and price. They are not the same thing - price is what you pay but value is what you get over the longer term.
We know from study after study that the ONLY sound long term metric for determining fair value in any housing transaction is to use a multiple of rent paid on similar proxy houses for the one being purchased (the capitalisation of rent method). The long run average in the RoI in housing from about the early seventies would suggest rental yields should generally fall in the region of 7% to 8% depending on location and the demand supply dynamic operating in the area. Banks know these ratios and have known them for generations; novice first time buyers who visit the property shop perhaps once or twice in the adult lifetime generally don’t and are always price takers in the property market. Consumers ability to bargain house prices down and yields up to their long run levels during the period under discussion was virtually nil. The reason being is that banks acting on the side of competing consumers simply disregarded these known yield metrics and lent to novice consumers, in the main, at yields as low as 2% gross (and in many cases lower). Not only did this happen on the odd occasion but it went on for years with billions lent and low and behold the banks are all bust as a result. This represents a massive bank lending error (fraud perhaps ?) plain and simple, there is no other alternate argument that could, reasonably be voiced in opposition to this basic conclusion. The banks simply mis-priced the residential property asset class and did so for about a decade.
Your ongoing analysis of this mortgage disaster assumes a no lending error default position on the banks behalf - based on what we know this is a really silly position to adopt and you come across as simply a mouth piece for the banks, a Pat Farrell in disguise if you like. Sorry to say so, but its rather off putting when the overwhelming evidence suggests a massive error on the banks behalf who were regulated to know better.
Take for instance the Irish Permanent RoI mortgage book – perhaps you are not aware but 66% of its entire book was lent in the years 2005 to 2007. Now the average duration of a mortgage in the period under review has increased beyond 25 years so on that basis a three-year lending period should have represented c12% of the outstanding book. The actual is over 5 times that rate. Not surprisingly, out of the mortgages lent in that period by Irish Permanent c80% are now in some sort of default. I’ll repeat that number, 80% of the mortgages lent by Irish Permanent in that period are now in some sort of default or restructuring process. Something has gone badly wrong.
Your analysis and understanding of events would seem to suggest that the 100% of repayment duty still resides with the borrower – given the numbers above anyone with even the most basic understanding of banking couldn’t for a minute suggest that such a stance makes any sense. And it goes without saying that all the banks operating in Ireland in the mortgage space for the years in question are insolvent – and that includes the branches of the foreign banks operating here. Had such branches been stand-alone operations they too would be insolvent, given their ongoing and prior reported losses, and yet you continually suggest that the all the error and repayment obligation resides with the borrower.