€8 billion enough to cover banks on coming tsunami of defaults on home mortgages?

patslatt

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At a guess,there could be 100,000 households under water on mortgages and reaching the point of being unable to carry the monthly payments because of a combination of high unemployment,cuts to bonuses and increases in mortgage interest rates. Since the legal system would not be able to cope with such a mortgage default tsunami,the banks ought to face the fact that they will not be repaid in full and offer relief on household mortgage principal.

In principle,reducing the mortgage principal makes sense but creates what insurers call moral hazard: many households capable of servicing their mortgage would be tempted to pretend they couldn't afford to pay in order to get the relief in principal.

To prevent that,some strict guidelines should be drawn up by the banks,possibly with the assistance of the Department of Social Welfare. Maybe names of home owners getting relief should be published in the newspapers as a deterrent to unjustified claims for relief.

On the back of the envelope calculations,the banks would have to write down their household mortgage loans by say €8 billion ie, 100,000 houses x valuation losses of €80,000. That would require the banks to add more shareholder capital from the government.
 
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loner

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Could they,if unable to pay the full repayments,be given the ok to cover interest costs only for a period of time,say 2 years,and then agree a review of the situation?.
 

Eye of Angkor

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Given what is coming down the line in the next three years in terms of bank nationalisations, falling earnings and tax increases, any such facility will have to be offered to everyone or to no one.

Trying to determine the deserving cases is next to impossible. Those that narrowly fall on the wrong side of the line would be very hard done by, since they will be paying additional tax to bail out persons in similar circumstances. And given the public record to date, one cannot avoid the suspicion that some individuals will benefit through corruption of one sort or another.
 

patslatt

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Could they,if unable to pay the full repayments,be given the ok to cover interest costs only for a period of time,say 2 years,and then agree a review of the situation?.
According to US experience,the overwhelming majority of people who have trouble with their mortgages can't be helped by the different options available and default again after getting help. That may be because they are typically low income households.

Thanks to the unprecedented deep crash in Irish house prices typical of economic depressions, Irish households who default would belong to all income groups and so be more capable of responding to options for renegotiating terms.
 

westcork

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90000 ESB customers and 23000 Bord Gáis customers were unable to pay their bills last month. I would assume the Energy bills would be paid before mortgage (at least until March 2011) or rent.

Therefore, it looks like at least 100,000 homes will have difficulty with mortgages, either by owner, or the owner of a rented property. I would imagine this to be at the lower end.

The big issue is not the big Switch, but why the Government are ignoring this.

Is is because when mortgage default happen en masse, it is all over?
 

Paddythai

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This winter will see more job loses for the employed, less business for the self employed, a difficult budget for all, flooding and hard frost.
By January it will become the norm and socially acceptable to default. I am already hearing struggling people advising each other to ignore their debts. The advice being ' what can they do? Can't get you to pay if you are broke, can't jail us all etc.'.
As more and more stop paying debts and mortgages the ones left paying everything will get dis-heartened and join in.
 

Superindigoman

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Bailing out homeowners, have my doubts, first many people across this country took out huge mortgages to build huge houses they never needed or never will, why should they be helped, that was just pure greed, let them repocess these houses and let it be a harsh lesson to them in the future if they ever think of buying again. If we bail them out and good times come again they will just do the same thing again, there attitude will be, ah well if it goes wrong sure well just get bailed out.
People who bought just what they needed to suffice, should possibly be helped in some way, but we can not write off there debts.
I for one having seen the bad times coming and selling my house so i wouldnt be in this position, will be pretty peed of if others get there debt wiped out and keep there houses.
If this is the case i will be demanding to be given a house, simple.
We can not reward greed.
 

Raketemensch

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This winter will see more job loses for the employed, less business for the self employed, a difficult budget for all, flooding and hard frost.
By January it will become the norm and socially acceptable to default. I am already hearing struggling people advising each other to ignore their debts. The advice being ' what can they do? Can't get you to pay if you are broke, can't jail us all etc.'.
As more and more stop paying debts and mortgages the ones left paying everything will get dis-heartened and join in.
That's fine as long as they don't expect to keep their homes. Why should anyone expect the rest of society to have to pay their mortgage?
 

bonkers

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Bailing out homeowners, have my doubts, first many people across this country took out huge mortgages to build huge houses they never needed or never will, why should they be helped, that was just pure greed, let them repocess these houses and let it be a harsh lesson to them in the future if they ever think of buying again. If we bail them out and good times come again they will just do the same thing again, there attitude will be, ah well if it goes wrong sure well just get bailed out.
People who bought just what they needed to suffice, should possibly be helped in some way, but we can not write off there debts.
I for one having seen the bad times coming and selling my house so i wouldnt be in this position, will be pretty peed of if others get there debt wiped out and keep there houses.
If this is the case i will be demanding to be given a house, simple.
We can not reward greed.
im allright jack,so f everyone else
 

jimwin

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Your wan from the Sindo would love it if this happened.
 

hmmm

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It'd be fine for most people if we reformed our bankruptcy laws and and allowed those who got in over their heads to have their debts wiped out after a few years. But this idea of having prudent taxpayers pay their mortgage (effectively) is crazy, it will damage this country now and forever into the future.
 

jimwin

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Ireland's Next Blow: Mortgages - WSJ.com

Ireland's Next Blow: Mortgages

Word is out and percolating across the net ..

Robut
That is partly due to actions by Ireland's government. Its financial regulator last year instituted a rule that lenders must wait six months from the time a borrower falls into arrears before going to court to seize his property. In February 2010, that period was stretched to 12 months.

And Ireland's state welfare system will, with some limits, pay the interest on the mortgage of a person who is suddenly unemployed. In 2008, a total of 8,091 Irish borrowers took advantage of the interest-supplement program, receiving €28 million. This year, the government expects to spend €64 million on the mortgages of 17,500 people.
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Interesting article. So the State is already supporting people in difficulties with their interest repayments. Is this not an adequate safety net?
 

hmmm

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Interesting article. So the State is already supporting people in difficulties with their interest repayments. Is this not an adequate safety net?
That's not even the ultimate social net which is rental allowance. But people don't like the "stigma" of renting, they want to be allowed stay in the houses they couldn't afford and have someone else pay the mortgage.
 

hammer

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Thank God you all realise how bad things are going to get.

100,000 is the tip of the iceberg.

Its too late. There cant be any bailout as the shortfall will need to come from the exchequer. The developers busted the banks with the help of the bank directors.

Fianna FAIL are only interested in power. WAKEY WAKEY
 

FreshStart

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I think in light of the behavior of politicians and bankers, they are not in a position to crib about moral hazard now, are they?

In terms of the taxpayer footing the bill, I think it is better we do it because we are already footing the bill in terms of Mortgage Interest Supplement and Rent Supplement. Furthermore, there is no point in watching families who have fallen on tough times hogging local authorities and soup kitchens.
 

invpat

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It'd be fine for most people if we reformed our bankruptcy laws and and allowed those who got in over their heads to have their debts wiped out after a few years. But this idea of having prudent taxpayers pay their mortgage (effectively) is crazy, it will damage this country now and forever into the future.
And taxpayers paying for the bank's debts isnt going to damage this country.Cmon you guys make me laugh, bail out the banks and phuk the citizen, I'm allright I have paid my mortgage I am in permanent and screw the rest of ye.Two hundred thousand defaulters are going to be hard to rehouse and wont take repossession lying down.Whatever way this thing pans out this country is in for a very rocky period.
 

hmmm

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I'm allright I have paid my mortgage I am in permanent and screw the rest of ye.
Why should those people who lived within their means and went through the pain of paying their mortgage now have to pay someone else's mortgage? What makes you so special?
 

jimwin

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If there is already a financial safety net in place why the need for another one?

The alternative might be some arrangement that if financial support is provided to mortgage holders then the State can recoup the bail out with a stake in the property when it is sold in the future or passed on in inheritance? If people are willing to keep their property and need financial support to do so surely they should repay the cost of the financial support?
 


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