KBC warns against banks taking equity in borrowers’ homes

KBC warns against banks taking equity in borrowers’ homes - David Clerkin → sbpost.ie/news/ireland/kbc-w … 47412.html

Money for a NAMA for the people in “not gonna come from the banks” shocker :open_mouth:

:unamused:

Taking equity in people’s homes - what does that even mean?

It’s just another way of saying write down the debt.

Yep, the bank already has all the equity in your home… it’s not even your home! If you are going to pass less to buy it from them, that would be, eh, a sale! Party-on dude, the banks are having a sale! And you get to bid on your own house! With, eh, the bank store-card!

When MB first suggested this idea, he wouldn’t admit that it is the exact same thing as the bank simply allowing the borrower to pay off less. Whatever about politicians, why can’t the banks, brokers etc just say it like it is - debt writedown?

If anything, calling it such would avoid the problems that KBC are referring to as the banks could say that it was a once in a lifetime thing never to be repeated (untill the next, and bigger, bust).

The problem is that the scale of the writedowns required is enormous, if you need them.

Look at it this way.
JohnnyX, your invisible brother, has earnings of about 100k a year. He’s a solicitor with his own practice mostly doing conveyancing and probate work. It’s 2006. He decides he want to move to Ranelagh because that’s where Mrs. JohnnyX would like to live (and the schools are good if you can get into them). So he talks to the bank and they will give him 800k, 'cos his business has grown every year for the six years he’s been in it. Add in the 400k equity he currently has in his town centre apartment, he buys a three bed red-brick in need of updating for 1 mn. Spends another 100k putting in new windows, heating, an Aga and a Smeg, and a lick of paint. Spends the other 100k on a car and a Chelsea tractor. Life is great.

Then it all goes tits up. He’s going quickly bust with the private practice, but gets a permanent job as a legal head in a firm for 70k a year. At least now he has a stable income, but the government are chipping away at it. You don’t get cash when you work for a company, so the little luxuries on the nod are gone. He’ll come off the interest only bit of the 25 year mortgage (5 years interest free) next year and that’ll be when the shit really hits the fan. His house is worth about 600k so he has 200k of negative equity. For him to be able to afford his 800k mortgage at 4.4% over 20 years is an impossibility.

His monthly after tax is about 4k

So, option 1: write off 200k of negative equity for a 25% stake in the house

  • he still can’t really afford 600k mortgage over 20 years - repayment 3.75k
  • extend the term to 30 years - repayment 3k
  • extend the term to 40 years - repayment 2.6k
    And at the end he still only owes 75% of the house?

Option 2: bust him and write off the debt that he owes taking one of the cars. A short sale plus a bit.

Option 3: bankruptcy… might impair his career prospects a little, no?

So option 2 would seem the sensible move for all concerned…

All numbers semi-random.
Is it an unreasonably scenario?

Seriously, whoever thought that naming a fridge (it is a fridge, right?) smeg has a wicked sense of humour.

This is the bit I don’t get. So the banks will own 25% of the house? Will they get rent for this portion (if yes, then it’s of little practical benefit to poor Mr. X who still can’t really afford the 600k repayments / if no then they are losing money to inflation each year)? Once the 30/40 year term is up, do they expect him to buy off the 25% or will he have to sell, move to a retirement village and the bank takes 25% of whatever the then market value is (assuming that in 40 years the price will have gone up somewhat from now, even if not back to 2006 peaks)?

Seems like a fairly bad deal for the banks. After all, why would they do this when for less effort they could simply accept a reduced repayment from the guy. They get the same 3/2.6k per month, but he still actually owes them the money. If there is wage inflation over the next 40 years, then eventually he will be able to repay some again.

Let’s look at my other brother, johnnyY. He’s a bit of a crafty one - became an accountant specialising in maximising government handouts. When he lost his job he got another one at a slightly reduced wage, but told his bank that his income was halved. Being a sly one he doesn’t have his current account , savings account and mortgage with the same bank, so they have no way to doubt him. He tells them he can only afford to pay half his mortgage repayment, and they can do whatever they want. Now, the bank has two options - either they can take him at his word and simply write off part of the debt, or else they can put him on his proof as his invisible brother might say and insist on it going to court. Once they have repossessed the property, sent the sheriff to his gaff and obtained statements from his other bank accounts, they can then offer to resell the property to him at a discount, but they’ve also gotten as much of their money back as possible.

Now, here’s the kicker. If johnnyY was, for example, claiming benefits or mortgage relief while employed both of his brothers would tell him that he’s in trouble if the DSW ever find out. But telling the bank that he can’t pay anymore than half his repayment - there’s not a jury in the land that would convict him of fraud for saying that.

So unpleasant as it is, those who wish to have a handout from the state must first satisfy them that they have exhausted all their funds. Again, this carries the moral hazard of people going out blowing all their savings and then going for a bailout.

Realistically, the banks will sell the property, try to get whatever personal property he has, then leave the remainder sit there for years on the off chance of him coming back into funds. They won’t bankrupt him for this reason. In fact, the way banks account for bad debts on loans (or at least how they used to before the national charade began)is that once the loan is in default they write off the entire debt. Then the file is passed to their collection department and whatever funds are reclaimed from the person are considered profit essentially by the collections department. Thus, the bank’s attitude is to keep chasing people and slowly recover whatever they can. It’s a simple, but effective tactic.

All things considered, I prefer Option 0 - stick with the way things are. After all, they have in their trundling inefficient way, managed to survive for centuries of capitalism, and letting the banks decide which is the best way for them to recover their money is, shocking as it may sound, the fairest way to deal with these problems.

Something like giving the banks some sort of “Inheritance Tax” upon death of the owner might work? The banks could then package up these future tax receipts and resell them to pension funds in order to free up the capital that would be stuck in the equity of the houses until the death of the owner.

Obvious problems would be valuing the property upon death - but don’t we have some system for that already with inheritance tax?

Meanwhile

thepost.ie/themarket/kbc-one … 47351.html

I’m going to have to stop reading these things. It’s incredibly frustrating to see stuff being reported as news when it was foreseeable 6-8 years ago.

Am I supposed to be surprised?

YM, I know your borrowed to the hilt professional living in a D6 redbrick, the difference is that he has a BOSI C & I 30 year tracker ECB + .75%. Sure his gross income is less but his interest payments have more than halved since 2007 (thanks ECB). The tracker has meant his net “spending” money has not changed too much. And if you wish to write off €200,000 from his mortgage he will be very grateful and promises to trade in his 06 Merc for another.

Ah he was on the phone, if his house falls further in value, say next year, could he have another €50,000 written off his mortgage, the wife’s 06 Reg will be looking a little tatty by then, she also wants to stick to the Mercs.

No - it’s just a way of formalising negative equity. The only upside for the borrower is that interest may cease accruing on the bank’s interest. It is a bullshit pseudo-proposal in any event. Hard to believe KBC give it any credence at all.