"The country’s two biggest banks will agree to a new mortgage code of conduct as part of the recapitalisation deal to boost their funds with €8bn of taxpayers’ money.
Taoiseach Brian Cowen last night confirmed the code of conduct will be mandatory and will include all mortgage providers, including sub-prime lenders.
Finance Minister Brian Lenihan threatened to bring in legislation if all mortgage providers did not sign up."
The big 2 already do this, repo is a last resort for them. Attempting to put this on a statutory basis could run into constitutional challenges over property rights (who actually has rights to a mortgaged property?). I’m not a lawyer but we’ve seen thinner challenges in this country before.
Any attempt to move beyond reasonable attempts at settlement or restructuring, i.e an outright ban on repos, would be a defaulter’s charter.
It was always going to happen. It was hardly going to be a case of the Govt saying: “Never a better time to buy” in 2007, then presiding over a swathe of repossessions.
What type of security would a house offer a lender if they cant gain vacant possession from a borrower in default? The long term consequences might be a tightening of lending standards.
This is a very hazardous path to take. It’s not necessarily the wrong thing to do, but it needs to be fully thought out (costed using various stress scenarios not the back of fag boxes). The Independent article is too short on detail to know what is being planned. Delaying repo is similar to doubling the bet. If you win, the borrower can start servicing his debt after a while. If you loss, you have accrued interest and lower recoveries from the forced sale. Any large scale programme would make the banls zombier.
a formalised repossession/arrears process is a good thing, at the moment every bank has its own process and any code as to how the customer is treated is totally voluntary, having a statutory footing given to this would be a big advancement, it won’t stop repo’s but at least if the person co-operates they might avoid being steamrolled.
I would imagine the following scenario - as long as the borrower is paying something, or has had a good payment record up to the point they become unemployed etc. etc. So really this is a way for the government to offload mortgage interest supplement from the public books onto the banks. Two year payment and interest holidays etc. etc. All capital still owed. Term extended. (In a deflationary period, this is not, to a degree, costing the banks anything!).
The reasoning being, I suppose, that the 8% preference shares are an investment, so it’s okay to borrow for that, but the MIS is a drag on the public finances.
One side-effect is that if it does happen, the net benefit to the taxpayer of the bank recapitalisation is far higher than the 8% preference shares would indicate. According to Prime Time last night, only 18,500 people are currently in receipt of MIS. Does anyone not expect this to be in the hundreds of thousands in future otherwise?
To my mind it boots the problem down the line. I still favour nationalisation of bust banks, debt to equity swaps for bond-holders and mortgage cramdowns, as I still don’t see inflation eating away the cost of the debt. At some point the hard decision is going to have to be made.
how sure are we of that? I could easily see this being originally sold to the electorate as one thing and then in practice it’d be fudged so that it *did *prevent repos. And the zombie banks become zombier. And ultimately the taxpayer is picking up the bill (for who-knows-how-long). And *eventually *when the banks performance did improve our preference bank shares will be sold to a small circle of “the right sort of people” who will go on to make a killing on them. Or something to that general effect.
