Unless I’m mistaken, it ought to be profitable for a bank to engage in US-style mortgage lending, where the borrower simply hands back the keys and clears his debt, regardless of the market value of the house.
Traditionally we do recourse lending in this country, but why not the other thing?
I, for one, will never ever get a recourse mortgage, so the only way a mortgage lender will ever make a profit out of me is by writing me a non-recourse product.
Is there something I’m unaware of that prevent banks from offering such a product?
I’m thinking of a way around the slow repossession process. You could write the contract so that it’s non-recourse if you hand over the keys within 50 days of missing the payment.
Leave it 51 days and you’re liable for the rest.
Extra protection for the bank: if they don’t have the keys within 50 days, they have to deal with the slow repo process, but at least they can pursue the mortgage holder for the remainder. In most cases they’ll get the keys pretty lively.
Would that hold up in court?
Is a judge likely to rule that the bank has no recourse, but the borrower doesn’t have to honor the 50 day limit?
This being Ireland, the judge will probably have geared his massive state-guaranteed salary to build his own property empire in tiger days, on which he’s now in arrears since the 29th amendment and he wouldn’t want to set a precedent that could turn around to bite him…
some of the pension based lending (gearing) was effectively non-recourse.
I’ve heard of solvent people with several apartments in a self-directed pension walking away as there was no point throwing good money after bad. There’s nothing the bank can do due to the legislation. The banks were badly stung and are licking ther wounds - this is why there there is now almost zero lending for leveraged property investment
I personally think that the risk should be split equally between the lender and borrower. If the borrower defaults, the bank should only be entitled to claim back half the outstanding debt once the property is sold.
Non-recourse would limit the amount of mortgages given out, as they could not longer rely on the recipient’s income for collateral.
This limits bankers salaries and bonuses.
It also means a lot more effort in determining whether or not the loan would be credit-worthy.
So, more work for less reward.