Wednesday, Jul 01, 2009
'Repossession is a ticking time bomb,' says Vince
Telegraph: Just six families helped by government Mortgage Rescue Scheme
"The numbers of repossessions are likely to soar in the next two years because of rising unemployment. Temporary Government schemes are deferring the problem, not solving it."
Posted by letthemfall @ 10:34 AM (1517 views) Add Comment
22 Comments
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1. flashman said...
This scheme is the sort of government meddling that always exacerbates a problem.
A householder should be able to walk away from a home in negative equity with no further liability to the lender. I say this because the bank and the borrower both made the same valuation error, so why should the bank be able to adsorb the borrowers' deposit and/or send them a further bill. It really isn't fair that a bank can walk away from their error unscathed, while a family suffers humiliation and ruin. Statistics don't really show the suicide and medication aspect of this iniquity.
The benefits of this legislation would be significant. i.e. people could walk away from a house before they racked up more debt, it would free up the property market supply and banks might think twice about dodgy lending.
2. devo said...
@flashman
You've changed.
Is there someone else?
3. bluebeach said...
I like it Flashy.... just like the States, then prices would really be on their ar$e (_8(|)
4. flashman said...
devo: I think some lefty must have drugged my coffee
5. Bricor Mortis said...
Just not seeing these repo's come through at all in Bristol.
6. growler said...
Flashmans on the money: if you advise people all is well, everything is OK and the house is worth the money.... and are proven wrong... why should the guy that's paid for all these "professionals" to advise him/her suffer? People should be able to walk away
7. icarus said...
Flashy - You have a point. In antiquity there was no boom and bust precisely because bad debts were written off before the created a systemic problem that got out of hand. It's worth listening to Fred Harrison interviewing Michael Hudson at
http://www.youtube.com/watch?v=3pwAFohWBL4
For anyone thinking writing off bad debts would create moral hazard (borrowers taking on debts knowing they're going to be cancelled) remember that it's often the lenders' responsibility - they seek out people with a "taste for credit" who will make minimum monthly payments (or subprime mortgage borrowers if the lender knows he can securitise and make it somebody else's problem). Credit card companies in the US like to issue cards to bankrupts because they can't go bankrupt again and because they are likely to have the taste for credit and the companies can charge huge fees for default and pass the IOUs onto the heavy mob. One CEO was told how he could cut bad debts by screening out the riskiest borrowers - he replied that that group constituted his most profitable sector. For more on this:
http://www.youtube.com/watch?v=ZHsKhC2_3Ic&NR=1
8. nomad said...
If the lenders take the loss, should they also share any profit?
Not gonna work - as soon as the market falls keys would be cascading through lenders' letterboxes.
However, if rigid lending criteria were to be introduced resulting in a stable market . . . that's it isn't it? You have to create a stable market first.
9. bluebeach said...
All it needs in one High Court to Rule in the owners favour in a test case and it will bring the whole pack down, is this the next "bad advice from Professionals" scandal?!?
10. stillthinking said...
The unfortunate thing is that it seems to me, IMO, that repossessions are the end solution for the economic woes of the UK. Further, a refusal to countenance repossessions is the same as a refusal to accept that property speculation has winners and losers that balance out.
For all the talk of the UK debt crisis, the reality is that we don't have to worry about the debtors, we need to worry about the people they owe money to not spending <- key point. For as long as they do not wish to spend, they maintain the distorted liabilites of the banks.
We need to move from this situation;
A owes 200K on a mortgage on a house worth 100K, B has 200K in the bank.* Banks can't lend and the economy collapses.
to;
A owes 100K, B has 100K in the bank and a house. * Banks can lend and the economy recovers.
We need to find these people and pair them up. We are still in denial that people have lost huge sums on property, when they obviously have, and dragging the whole mess out just collapses businesses from lack of credit. Repossessions are the route to an economic recovery. Delaying seems like a nice idea but really it isn't. People lost money. Now people are losing jobs. We can rescue the jobs/economy but we can't rescue the debtors, and after all, why should that be done.
Flashman, you are arguing for yet another infringement on personal liberty. People do successfully gamble with debt. You could extend your reasoning to loans for education i.e. the banks would not be able to fund education courses/training because the student could later default, on the grounds it must have been obvious he/she was too thick to get a decent job as a consequence.
11. flashman said...
Stillthinking: I understand your point but would like to offer some counter arguments. Firstly a home is basic shelter and therefore should be higher up the ‘pecking order’ or exempted in terms of protection. Secondly a poorly judged student loan doesn’t cause a chain of events that can lead up to systemic risk for the economy. Thirdly a student might not have worked very hard so they could be genuinely culpable. Lastly, my suggested legislation does not completely absolve the homeowner of responsibility in that they would share the pain with an entity that was equally responsible for the poor judgement.
12. flashman said...
icarus: Yes, the lender should always take at least partial responsibility for an underwriting decision. At the moment the moral hazard argument only applies to the lenders because they are often getting away with their bad decisions. They take the borrowers deposit, hound them for the balance and then add a hefty bill on for administration (and dare I say it, get bailed out). The moral hazard argument in no way can be applied to the borrower because they pay every inch of the way for their sins.
Sometimes it's sensible to leave the intellectual/purist arguments aside and use common sense.
13. flashman said...
nomad: "If the lenders take the loss, should they also share any profit"?
Another fair point but the lender makes their profit from the interest, which usually amounts to several multiples of the original purchase
"However, if rigid lending criteria were to be introduced resulting in a stable market . . . that's it isn't it? You have to create a stable market first".
I don't think the two are mutually exclusive and my suggestion would lead to sensible lending criteria anyway (admittedly, it didn't in the US but the crazy times and other factors trumped logic)
14. growler said...
perhaps I forgot to mae clear that the shortfall of mortgage/debt over the property sale price should be the lenders problem - not that the borrower can walk away unscathed. That way they'd lend less and take some of the hit of overvaluation. Now, the lender can sue you for any shortfall - this I think is fundamentally wrong.
15. Chf said...
exactly flash - non recourse mortgages made no differcne at all in US
16. quiet guy said...
The ideas about redistributing the loss on a repossession are all very well but what are the chances of these things becoming law? About the same chance as the UK embracing LVT I suspect.
17. stillthinking said...
Well, I suppose this is it. Housing straddles the line of speculative asset and basic need, but laws consider housing purely as a basic need. Perhaps future legislation will attempt to address the difference.
But that isn't really the problem we face now. The problem now is that the economy is collapsing, and maybe just the spurious debt part of the economy is going, but either now or at some point in the future even the healthy robust part of the economy will start to collapse.
My point is that typically economies start to recover from recessions when repossessions hit a peak and start going down, but this is presented as two correlated facts. But, really for our situation the link is causal, when sufficient repossessions have taken place the economy recovers. Repossessions are a necessary process.
This is why I am against the LHA acting as a floor for rents, quite aside from the inequity of taxpayer money directly funding overpriced property, because we really need repossessions now because the market has frozen up and the longer we delay the worse the real economy becomes.
We are onto a hiding for nothing.
18. icarus said...
The problem is that debts tend to grow faster than the economy's ability to service them. This is especially true when bank credit concentrates on inflating asset prices rather than on growing the productive sectors of the economy (the sectors that could generate the wealth to pay off the debts). Hence, e.g., high house prices compared to earnings and consequent debt peonage.
This problem is compounded by governments and banks trying to maintain the fiction that debtors can be propped up so that they can carry on for another month servicing the debt. This happens internationally too - bankrupt countries with IMF loans to enable the country to make the next month's payments so that the US, UK and W European banks don't have to write off the debts - yet. A host of the economic undead become a major drag on economic health.
The bank bailouts are obviously not pushing credit into the real economy. Instead they serve purely to make bankers wealthier and are a further drag on the economy. If you think of debt systemically you realise that we live in a kleptocracy where the gap between rich and poor widens.
The only way to move the economy on is to cancel or write down debts and allow assets to revert to market price. The big question is why won't governments and banks allow this to happen.
19. braindeed said...
9. stillthinking said...
A owes 200K on a mortgage on a house worth 100K,
He has a choice ....pay it or be homeless. There are not enough 'greater fools' left - tough titties.
The balancing act regarding A & B ignores the fact of fractional banking ....A1 to A ten and B might make it work.
There isn't the political will, Left or Right, to legislate the market and rectify the imbalances. Frankly I'd like to see speculators truly fried, or to see a market solution, in otherwords…..but VI’s will win over the weaker FTB (more backhands) every time.
I think we actually NEED a catastrophe, so that the greedy who inflated the bubble are made to pay the same price that every other bubble speculator has paid since Tulip mania in the 1630’s – it will take a lesson of that magnitude to dissuade our collective psyches from punting on property again.
20. stillthinking said...
Fractional reserve banking is a misused term for modern banks, because there is no real underlying capital. Fractional reserve is the idea that the goldsmith with 10 gold coins can lend 100.
There is no real money in our system at all, we are on a pure and simple credit based financial system which nets out to zero (or should do). The only reason why the term fractional reserve is used is to describe the multiplier between bank capital (reserves against losses) which are themselves -also credit- matched against debt, not because there is some hard currency. There is none. Which is why there is no real limit to credit expansion.
I agree that A must pay or be homeless. That is what I think is the problem, we are trying to pretend he/she doesn't.
21. braindeed said...
I never said there was real money...'assets' they use now
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