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The Real NAMA 2.0 : Mortgage Defaults

HanleyS

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All of the current discussion around NAMA has been with regard to the price paid for the loan assets currently being examined which comprise mainly of property development and investment loans. The next freight train coming down the tracks contains impaired mortgage loans. We don't yet have an accurate picture of impairments on mortgage loans but inevitably they will be significant with rising unemployment, rising underemployment, and rising wage deflation. The mortgage loan books of the banks increased from EUR 47,200,000,000 in 2002 to EUR 139,800,000,000 in 2007.
 
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Ecoguy

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Yes this will be the next shoe to fall off - especially with the spectre of interest rates rising next year:(
 

HanleyS

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Dios

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14,000 households received mortgage interest supplement of EUR 27,765,000 in 2008. If the average interest rate on those mortgages were five per cent the this alone would represents EUR 555,300,000 in distressed and impaired mortgages.
Thats half a billion against €139 billion. My own guesstimate is an impairment rate, including foreclosures, at this time would be a little over 2%. The mortgage books represent an immensely valuable asset we should be taking from the banks and using to protect the deposits, which the banks gambled away on developers' commercial loans. If they have €140 billion in probably quite decent loans, they do not need a €60 billion handout.
 

HanleyS

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Thats half a billion against €139 billion. My own guesstimate is an impairment rate, including foreclosures, at this time would be a little over 2%.
That's only those that qualify for the scheme, those that cannot even make their mortgage interest payments and who have not already used up their allowance. There's also rent allowance supporting the BTL loan books.
The mortgage books represent an immensely valuable asset we should be taking from the banks and using to protect the deposits, which the banks gambled away on developers' commercial loans. If they have €140 billion in probably quite decent loans, they do not need a €60 billion handout.
With rising unemployment, underemployment, falling wages and very very high LTV ratios on the overwhelming majority of these loans they are very poor quality for the most part.
 

Dios

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That's only those that qualify for the scheme, those that cannot even make their mortgage interest payments and who have not already used up their allowance. There's also rent allowance supporting the BTL loan books.
No doubt the figure will rise, by how much is the question. I'm think maybe 5% to 10% on the outside to be honest, which is still a decent impairment rate. Right now its at 2% or 2.5%.

With rising unemployment, underemployment, falling wages and very very high LTV ratios on the overwhelming majority of these loans they are very poor quality for the most part.
LTV doesn't matter as long as you keep paying the mortgage, from the bank's point of view, unless they want to hike up rates on that basis, which they won't. As for unemployment rates, it might be good to ask who the majority of those recently unemployed are - is there much of a union between that set and the set "mortgage holders"?
 

HanleyS

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No doubt the figure will rise, by how much is the question. I'm think maybe 5% to 10% on the outside to be honest, which is still a decent impairment rate. Right now its at 2% or 2.5%.
I'd have to ask where you're getting that figure from? Do you trust the banks who told us all bare faced lies about the quality of their loan books and their solvency?
LTV doesn't matter as long as you keep paying the mortgage, from the bank's point of view, unless they want to hike up rates on that basis, which they won't. As for unemployment rates, it might be good to ask who the majority of those recently unemployed are - is there much of a union between that set and the set "mortgage holders"?
The discussion regarding LTV and mortgage risk has been done to death here before:
http://www.politics.ie/economy/35022-its-all-about-ltv-mortgage-risk-ireland.html
http://www.politics.ie/economy/29341-18-758-new-houses-built-first-four-months-2008-a.html

Risk Assessment has two dimensions:
1) Likelihood of risk event.
2) Impact of risk event.

LTV is a measure of the impact of the risk event. Unemployment, underemployment and wage deflation are all measures of likelihood of risk event.

I think there is probably quite an overlap in the set of mortgage holders and those unemployed, underemployed and experiencing wage deflation. Is there any evidence to suggest that the recession is concentrated among the lower paid? Public sector workers for instance were traditionally seen as a safe bet during the property bubble but are now experiencing wage deflation. I don't think anybody's safe.

There is also probably quite an overlap between the set of renters and those with diminished net incomes. The renters are subsidising the mortgage interest payments on the billions of BTL mortgages. Landlords are having to sharply reduce rental prices to attract tenants and thereby sharply reducing their own incomes.
 

Dreaded_Estate

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I'd have to ask where you're getting that figure from? Do you trust the banks who told us all bare faced lies about the quality of their loan books and their solvency?

The discussion regarding LTV and mortgage risk has been done to death here before:
http://www.politics.ie/economy/35022-its-all-about-ltv-mortgage-risk-ireland.html
http://www.politics.ie/economy/29341-18-758-new-houses-built-first-four-months-2008-a.html

Risk Assessment has two dimensions:
1) Likelihood of risk event.
2) Impact of risk event.

LTV is a measure of the impact of the risk event. Unemployment, underemployment and wage deflation are all measures of likelihood of risk event.

I think there is probably quite an overlap in the set of mortgage holders and those unemployed, underemployed and experiencing wage deflation. Is there any evidence to suggest that the recession is concentrated among the lower paid? Public sector workers for instance were traditionally seen as a safe bet during the property bubble but are now experiencing wage deflation. I don't think anybody's safe.

There is also probably quite an overlap between the set of renters and those with diminished net incomes. The renters are subsidising the mortgage interest payments on the billions of BTL mortgages. Landlords are having to sharply reduce rental prices to attract tenants and thereby sharply reducing their own incomes.
What most people also miss is there is a very high correlation between LTV and probability of default.

If the LTV is 75% or below the risk of default is negligible. As most people who get into difficulty in this situation just sell the house and repay the banks.

If is when the LTV gets close to 100% or above the real problems for the banks start as this option is taken away from people.

A high LTV increases the impact of default but it also increases the probability of default.
 
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2 % of mortgages are impaired at any point in time and comes from various different reasons from deaths to job losses to marraige breakdown to business collapse.

Issue of whether domestic properties are in negative equity are in reality not an issue provided people continue to make repayment to a mortgage even if only interest only.

Yup there will be cases where people wil pay mortgages for 30 years die and still have a huge debt BUT that happens anyway so no change there.

Some families may not get left an inheritance but then again so.
 

HanleyS

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Issue of whether domestic properties are in negative equity are in reality not an issue provided people continue to make repayment to a mortgage even if only interest only.
Provided being the operative word. LTV is only a measure of the impact of default. Widespread reduction in net wages increases the likelihood of default.
 

Hal

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Provided being the operative word. LTV is only a measure of the impact of default. Widespread reduction in net wages increases the likelihood of default.
Widespread reductions in interest rates and the ability to fix at good rates decreases the likelyhood of default. Depends on how your glass looks.
 
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Provided being the operative word. LTV is only a measure of the impact of default. Widespread reduction in net wages increases the likelihood of default.
LTV is irrelevant as valuers have pretty much no idea of how to value a property.
 

HanleyS

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Widespread reductions in interest rates and the ability to fix at good rates decreases the likelyhood of default. Depends on how your glass looks.
Interest rate decreases are a temporary phenomenon and are resulting in huge losses for the banks. RBS have already quarantined their Irish tracker mortgages. Leave the discussion of property business to the adults.
 

HanleyS

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LTV is irrelevant as valuers have pretty much no idea of how to value a property.
I intended to refer to the actual L and the actual V, not that measured at inception of the loan and not that measured by a valuer. It doesn't matter what the valuer says when the mortgageholder actually defaults and the bank or NAMA has to recover the loss.
 

Hal

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Interest rate decreases are a temporary phenomenon and are resulting in huge losses for the banks. RBS have already quarantined their Irish tracker mortgages. Leave the discussion of property business to the adults.
Did you miss the bit about fixing at good rates?
I can't just leave it to the adults, they all agree with me, you're one of the kids I need to engage with.
 

anewbeginning

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The more loans the bankers gave out, the bigger their bonuses.

Hence we the taxpayer are left with huge loanbooks. Those loans fed the property bubble and we had our own subprime bubble here in Ireland with 100% mortgages. Banking de-regulation and allowing in many competitors was a major mistake. Lending criteria were greatly relaxed as banks competed with each other to get mortgage customers on board.

All of this was a train crash in slow motion, and the government refused to put the brakes on in a timely manner. But that's what you get when you have gombeens as Taoisigh and ministers for finance. Completely unqualified for the job and too arrogant to seek advice from those who know what they are talking about.
 

HanleyS

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Did you miss the bit about fixing at good rates?
I can't just leave it to the adults, they all agree with me, you're one of the kids I need to engage with.
You have been repeatedly shown to have a fundamental misunderstanding of property business and economics. People cannot switch from variable to fixed rates and even if the banks did allow them they would charge more than a struggling household can afford to pay.
How you can beat the banks’ rate increases - Charlie Weston, Columnists - Independent.ie
 

Hal

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You have been repeatedly shown to have a fundamental misunderstanding of property business and economics. People cannot switch from variable to fixed rates and even if the banks did allow them they would charge more than a struggling household can afford to pay.
How you can beat the banks’ rate increases - Charlie Weston, Columnists - Independent.ie
Not only have I not been repeatedly shown, I have not been shown once to misunderstand anything of property business or economics, that's just wishful thinking on your part. You take someone disagreeing with you to mean they are automatically wrong, this is not the only possibility, you might consider the alternative.

Speaking of being wrong, where did you get the idea that you cannot switch from variable to fixed, you can do that at any time and there is no charge when doing this. Going in the reverse direction before your fixed term has run its course is where there might be a problem.
 


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