Sorted! Survive and thrive in a recession

I like John Maguire, and a part of me knows that this article is about a bit of spin to make interesting reading, but it also provokes a bit of a laugh too because the quotes are pure gold… (having met the guy I can’t help but suspect it was ghost written).

At the starting line of the Berlin Marathon, I chain-smoked five cigarettes while rubbing Tiger Balm into my legs.

I used to joke that only two things would survive a nuclear winter: cockroaches and me.”

The smart thing would have been to take my spare cash and move to my mortgage-free place in Dubai with its private beach.”

I would do things other people were not prepared to do, just to prove a point.”

In between those legendary quotes there is the story of taking a dive into the downturn that so many in this industry have faced, I can tell you from experience it is a painful learning experience, but learn you will whether you want to or not.

John has …

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RTE 6 News: 34% of Local Authority Loans are in Arrears

RTE 6 News, Local Authority Loan arrears figures October 20th 2010 from Irish Mortgage Brokers on Vimeo.

In this piece Samantha Libreri of RTE looks at Local Authority Loans and specifically, at the fact that almost one third are in arrears of at least one month, while just under 30% are in arrears of three months or more. We were shocked to find this out, it makes sub-prime lenders look good in comparison.

We were equally surprised to find that there wasn’t a greater uptake on the story, we see this as a huge issue, especially as it is clear evidence that people who shouldn’t be getting loans are getting them from the state.

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‘Plan B’ for arrears

There is a strange situation occurring in the Irish property market, arrears are rising rapidly, stock of repossessed homes is on the increase, and yet the number of repossessions is dropping; there is a contradiction in here somewhere.

Per quarter the number of properties being repossessed is dropping, banks are taking back fewer and fewer houses, this would normally be a sign of prosperity, people with jobs and a stable property market would mean that there would be some equity in the property as people pay down debt and are able to afford their payments, but that isn’t the case, quite the opposite, Irish households are heavily indebted and arrears are rapidly rising.

The largest number of properties being taken back is actually that of voluntary surrender (and abandonment), so there is no ‘repossession’ monster lurking in the Irish market because we have decided that we don’t want it to exist, this will come at a cost as we incrementally strip banks of their ability to enforce mortgage contracts.

The stock of property …

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How Negative Equity can cause arrears.

A recent report by Moody’s pointed out that increased negative equity will cause a rise in arrears. The commentary surrounding this (in Ireland) takes the view that correlation is not necessarily causation. That people in negative equity won’t automatically go into arrears unless they cannot pay, that negative equity of itself is only an issue if you lose your job or have to sell. This is a valid opinion but it ignores the operational aspect of a household in respect of the way that they react when financial difficulty occurs.

There are several hundred thousand households in negative equity, and about 35,000 in serious arrears, how many of those people would not be in arrears if they were not in negative equity? The answer is: how ever many would have sold their house as a solution.

The first thing many people do if they know they are going to be headed for a situation where they stand no chance of paying their mortgage is to put their home up for sale, in …

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The good things about Negative Equity Mortgages (for the banks)

There was a post on Geckko’s World about Negative Equity Loans – and he rightly pointed out that there had been an instant and widespread denouncement of them, then going on to point out that if a person was to try to reduce their debt that it could in fact be a very good concept. My opinion is that the focus will not be as a facility to reduce a persons debt but rather to increase, however, Geckko makes some very interesting and valid points which show that the first reaction was perhaps not totally balanced, as well as giving some smart operational guidelines (it’s worth leaving here for a while to check out the post).

However, there are some distinct advantages for the lender in this process as well which I have not seen any commentary on (if you have please post links in the comment section!).

1: Reduced borrower risk: Surely a higher LTV makes it riskier right? …

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Mortgage Mediation, a solution for mortgage holders in Florida (could it work in Ireland?)

Currently about 25% of the mortgages in Florida are delinquent, there is a huge amount of foreclosed property on the market, short sellers can’t offload fast enough, property prices are falling, and it is also a judicial foreclosure market meaning people have similar issues to the problems we have here when a home in negative equity is repossessed, they owe the difference.

A possible solution being tried there is that of mortgage mediation. This is vastly different than the scheme in place in Ireland, and perhaps active mediation with a set point of contact and a set representative would be a good idea, chances are we’ll never know because it is not likely to be rolled out in Ireland.

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Irish Mortgage Brokers in the press, May 2010

We had a busy month in the financial commentary world. A list of our press mentions is below

23rd May 2010: Sunday Tribune: Safe for a while against rate hikes

23rd May 2010: Sunday Times: A bad time to invest? Q & A with Jill Kerby

23rd May 2010: Sunday Tribune: Mortgage rate increases

16th May 2010: Sunday Times: Keep hold of your home

16th May 2010: Sunday Tribune: Mortgage group mull over Negative Equity Loans

16th May 2010: Sunday Tribune: Recession Rates

14th May 2010: Newstalk 106: Ivan Yates talks to Karl Deeter about Property Prices

15th May 2010: Independent: Property prices must fall to attract investors

13th …

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Talking to John Schroy

As many of you know, when I like a person’s ideas or research I’ll generally try to call them and talk about whatever the topic is that they are expert on. John Schroy is no different, he is a man whom I first came across via his excellent site ‘Capital Flow Analysis‘ which has tutorials on how to examine the Federal Reserves Capital Flow statistics.

He is also a really experienced practitioner – I have a soft spot for people who have been in the trade with lots of experience – who was in the trade across several continents and with a divergent mix of developed and developing markets at the same time.

I spoke to him in his Florida home last week….

KD: Hi John, so, what exactly is the ‘flow of funds analysis’

JS: Flow of funds analysis is a technique of interpreting capital market trends, using flow of funds accounts. The most useful set of these accounts internationally is published in the US by the Fed, but …

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‘Are we there yet?’…. when will the bottom of the housing market be reached?

The most popular question I am asked as of late is whether or not we are at the bottom of the housing market, and the answer is ‘no…. but perhaps closer than we think’. Today we will consider a few of the things we will need to see in order for ‘recovery’ to occur.

First of all we need to see a reduction in the massive overhang of housing stock, even if the number reduces, they all need to be sold and a degree of scarcity will need to develop in order to make prices go up again, currently supply is swamping demand and that dynamic will leave uncertainty in its wake.

However (and here is part of the ‘perhaps closer’ bit), NAMA will likely take a lot of housing off the market, in particular it will take it off the market and drip feed it back in, if this happens then it will avoid devastating fire sales, it might also lead to stagnation …

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