KBC move to 90% LTV

This is a very healthy sign for the mortgage market, and in our opinion it could mean that 2010 might mark the low point for credit that we have been watching out for.

In 2009 KBC under-lent, they had €1bn and didn’t lend out anywhere near that, they are also here to stay, and prior to the crisis they had about 1/8th of the market share. The fact that they are rolling out a higher loan to value is a very confident sign that

Banks have a few internal policy tools to control lending 1.    Curtailing the amount of lending – we see that already, mortgage lending is about 85% down from the peak of 40bn p.a. , peak wasn’t exactly a gauge of normal, but half of that would be normal, and even on that basis it’s down 75% – that story still has to play out 2.    Rate increases: this has the same effect as central bank rate increases, it reduces lending and everybody has increased their margins by at least 1% in the last year, you and …

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Everybody pays, even the innocent

There were many innocent parties to the credit fuelled property bubble, they are generally those who didn’t borrow, or who carried no debt, choosing instead to live frugally, and if they used debt they used it wisely. Many of these people are at the polar ends of the age spectrum, very young (who don’t even have access to credit) or much older (who have paid off their mortgages), something we will all need to get used to though is the fact that everybody is going to pay for the mess left behind, this goes farther than NAMA.

The process I am describing is already under way, the very payments system (our financial infrastructure), is going to be used to generate economic rent from the people of Ireland in order to bring in more profit to banks so that they can repair their balance sheets. This price will be paid by the taxpayer outside of the bailout money already being supplied on our behalf. This will be even paid by people who manage to …

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Primetime 2nd February 2010: Mortgage Market Focus

Primetime took a look at the mortgage market situation in Ireland on the 2nd of February, they spoke to various industry experts as well as people on the street about their feelings on the situation. The clips below are well worth watching.

In this clip Primetime spoke to people on the street, and the general opinion was one of empathy for borrowers in trouble but the overall tone was that people didn’t necessarily want to step in and have their tax money going to bail them out. Then David Murphy interviews an anonymous borrower who is in debt trouble, as well as getting the opinion of Irish Mortgage Brokers Operations Manager Karl Deeter and Paul Joyce of the Free Legal Aid Centre (FLAC).

In the second video Pat Farrell of the IBF (Irish Bankers Federation), Stephen Kinsella (Lecturer of economics at University Limerick, and author of ‘Ireland in 2050), Pauline Blackwell of FLAC (free legal advice centre) and Ciaran Cuffe of the Green Party talk to Miriam O’Callaghan about the issues of debt and the solutions for solving …

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The day I mis-sold an insurance policy

About five years ago I had a couple in with me who were buying a home, I was helping them to determine their insurance needs and I realised that they had literally no protection if either of them ever fell seriously ill – not via their job/employer schemes or individually. So I suggested that they consider some serious illness cover, it would have cost them about €20 a month but they were insistent that they only wanted what was ‘cheapest and nothing more’.

As an adviser, it isn’t my job to always accept what people say they want because often, with adequate probing and understanding they actually want something entirely different, a skewed but simple way of understanding what I mean is that when saving or investing the majority of people want ‘high growth and high security’ – when in fact, these two features are normally night and day, if there ever was an asset that could deliver high growth with deposit account style security then everybody would pile in and the market would adjust accordingly, therefore you need to …

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USA: Failed mortgage modification programme

Kudlow talks to Christian Weller, Center for American Progress and Dan Mitchell, Cato Institute on the topic of debt relief and mortgages in the USA, the argument for straight out write-downs on mortgages is compelling, and yet so too is the argument for allowing the market to work. Sometimes believing in the free market is seen as a ‘dirty thing’, but the side effect of trying to manage an economy from every aspect is also a bad thing (look no further than the former Eastern Bloc). Somewhere in the middle is a fair and sustainable path, but ideology bias is usually in the way before the conversation passes go, for that reason you will favour one speaker over the other quite often from the outset. However, ideology doesn’t actually get results, it is merely the platform from which a concept is launched and the better path would be to have an operational model to prove the point – although that isn’t always practical.

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Banks are not competitive?

Roger Bootle notes that markets do quite well at the end of a recession and at the start of a recovery by drawing the benefits of the future down into the present. Roger has a lot to say on the topic of banks, in particular that of banker bonuses – he states (and we agree) that when banks become ‘too big to fail’ they essentially are oligopolies and hence they are able to pay so well. From an Irish perspective the domination of AIB and BOI put some stock in this theory.

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Toxic traders, capitalising on volumes

Joe Saluzzi of Themis Trading (I mistakenly read the link initially as ‘the mistrading’!) have recently published a paper which accuses traders of intentionally trading huge volumes where they buy and sell for the same price and in the process make a half a cent per share. The volume of trading is fictitious ‘high frequency traders’, what they do is buy and sell and collect liquidity rebates from the exchange (note: 50 milliseconds is a huge amount of time) in this game. Do it 8 billion times and it really starts to add up.

This is just depressing, actual investors don’t get to join in because the firms engaged in this are doing it within the actual exchanges using the fastest computer technology available. They also have an unfair advantage in how they trade because they use rules intended to match buyers and sellers to their advantage, they find hidden liquidity and in essence remove it from the market as profit.

The most powerful deterrent would be to make a rule …

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Rent or Buy the 5 year outlook

Today we are going to look at a comparison of renting vs buying with a five year outlook given the current interest rates, the yield outlook and lastly the cost of renting.

The following figures factor in real life examples taken from existing lending rates/rental prices and the forward estimation on rates is taken from presumptions in the current yield curve (chart is below). The terms applied in each example are 30 years, and the purchase is assumed to be a couple buying together, we can examine the impact for a single person in a separate post.

If you were to take a price of €313,000 for a two bed property (current average taken as a mean of prices in todays daft report – this figure is the Dublin average price across all geographic areas, the figures can be determined for any county the same way) and do the following.

1. Compare the total cost of ownership (we are not factoring in house insurance, bin …

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Geithner plan, re-explained by Khan Academy

Another video from the Khan Academy, talking about the working reality of the Geithner Plan. Really it seems that the plans sole purpose is to allow investors to use taxpayer money to buy assets with all upside and little or no downside by using a credit default swap to insure the deal. Even a zero return isn’t to be balked at when investing during a period of deflation, the way it’s described here puts it out in plain english.

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