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Loan
modification entitlement will be rescinded as prices near the peak - (www.ochousingnews.com) Last year I pointed out that loan modifications are not an entitlement, banks don’t
want to make them one. That’s not how borrowers see it. One of the
moral hazard consequences of the housing bubble is a belief among borrowers
that if they get in trouble, they will be given an opportunity to reduce their
mortgage payments and stay in their homes because that’s what happened over the
last six years. However, the only reason borrowers were given special
dispensation is because the banks were desperate and had no other viable
alternatives. From Must-sell shadow inventory has morphed into can’t-sell
cloud inventory: The necessity of loan modifications: Ostensibly,
loanowners and lenders agreed to the price of money (interest rate and payment)
when the promissory note was signed. Unfortunately, during the housing bubble,
the terms of these notes were onerous, and many borrowers faced excessive
monthly housing costs while simultaneously facing declining house prices and
the elimination of their equity. This prompted many borrowers to strategically
default, and lenders are very worried that more would follow.
Irish Foreclosure Wave Risks Housing Recovery: Mortgages -
(www.bloomberg.com) Irish bankers preparing for
the biggest wave of foreclosures in the nation’s history are struggling with
how to dispose of the homes as the central bank pressures them to go after
owners of investment properties. Ireland, which had the biggest real estate crash
in Europe with
a 50 percent plunge in residential prices since 2007, is only now contemplating
significant repossessions. The focus is on the so-called buy-to-let market, or
properties bought to rent, which jumped during Ireland’s decade-long real
estate boom, and now account for more than a fifth of the 142 billion- euro
($184 billion) mortgage market. More than a quarter of the 31.1 billion euros
of loans on those properties was more than three months in arrears at the end
of December, the Irish Central Bank said this
month. As the banks repossess and then dispose of properties, they risk killing
the nascent real estate recovery, so far limited mainly to Dublin, as
international buyers hunt for distressed assets and the country seeks to emerge
from the international bailout program at the end of this year.
Denmark Races to Prevent Foreclosure Shock as Home Prices Sink
- (www.bloomberg.com) Representatives from
Denmark’s mortgage industry are meeting with the government today in the hope
of easing repayment terms on interest-only loans that threaten to unleash a
wave of foreclosures this year. The Association of Danish Mortgage Banks and
the Mortgage Bankers’ Federation are due to start talks with Business Minister
Annette Vilhelmsen to decide how to treat borrowers who won’t be able to afford
the interest-only loans they took out a decade ago once amortization
requirements kick in this year. Borrowers are also struggling as a deepening
property slump drives house prices down to 2005 levels. “Eighty
percent of homeowners under 35 years of age are under water. That’s a lot,”
Curt Liliegreen, head of the Center for Housing Economics in Copenhagen, said
yesterday in a telephone interview. “This is a problem that threatens the
Danish economy.”
Cyprus Banks Like Iceland’s Dwarf Economy as Clients Pay -
(www.bloomberg.com) The European Union’s decision
to force Cypriot savers into a bailout came after banks grew so large that they
dwarfed the nation’s economy, resembling Iceland’s finance industry before its
collapse. Cyprus’s bank assets swelled to 126.4 billion euros ($164 billion) at
the end of January, seven times the size of the 18 billion-euro economy, from
78 billion euros in 2007, data from the European Central Bank and the EU’s
statistics office show. The Cypriot government announced an unprecedented tax
on deposits three days ago, seeking European aid after its banks lost 4.5
billion euros on Greek sovereign debt and failed to meet euro area capital
requirements. Troubles on the Mediterranean island have resembled those of
Iceland, which seized control of its banks in 2008 when they were unable to
finance debt 12 times the size of the economy. “The banks grew as they amassed
funds from wealthy foreigners and now that size is too much for the country to
handle on its own,” Philipp Haessler, a European banks analyst
at Equinet AG in Frankfurt, said by telephone. “Cyprus is
being made an example of.”
Cyprus shows German line is hardening - (www.ft.com) When news of the Cyprus bailout trickled through to Berlin
on Saturday morning, bearing with it the potentially alarming news that bank
depositors would be “bailed-in” to share the cost, the German reaction was very
positive. Politicians from both left and right agreed that without such a deal,
the rescue would not have a hope of winning approval in the Bundestag. Wolfgang
Schäuble, finance minister, had done a good job, they admitted. At €10bn, it is
a far smaller programme than previous ones for Greece, Ireland and Portugal.
But the German body politic is pretty well united in insisting that a bail-in
of creditors must be part of any bailout by taxpayers. Some misgivings have now
emerged about the burden falling on savers in Cyprus, and
not just on the big depositors with more than €100,000 in the bank. But the
underlying principle of burden-sharing is not in question.
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