How does a mortgage holder get a writedown when banks sell their loan?

Tonight on RTE’s Primetime they are going to cover the dilemma some IBRC mortgage holders (residential mortgage holders from both Irish Nationwide and Anglo) face when their loans are sold.

If the loans have a discount limit set on them as the commercial loans do then there will be little or no appetite for them because as it stands estimates are that 50% of the former INBS loan book are impaired in some way.

The  sale will probably proceed but it’s a question of who the buyer may be. The IBRC loan assets are being independently valued and then offered for sale through a competitive auction process.

Loan assets may only be sold for bids that exceed these independent valuations. All but a very small number of loans are being offered for sale as part of larger portfolios of loans.  

Successful bids must exceed the independent valuation, this is in effect a restriction on any discount. We have found no difference in the sale process as between IBRC mortgage loan assets and other IBRC loan assets.

The values that …

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Best deposit rates in Ireland November 2009

The lenders offering the best deposit rates are listed below with the highest in each category being the one we have shown.

Best demand account: INBS 3.75% (up to €20,000), Halifax 3.75% (up to €10,000), Anglo Premium Demand 3.1% – no restrictions

Best 7 day notice: Anglo 7 Day Notice 1.6%

Best 1 Month/30 Day: PTsb 30 Day Notice 3.25% (min. €10,000)

Best 3 Month: Ptsb 90 Day Fixed 3.25% & Investec 3 Month Fixed 3.25% (min. €20,000)

Best 6 Month: Investec 3.25%

Best 9 Month: Investec 3.5%

Best 1 Year Fixed : Anglo 3.6%

If you want to consider your deposit options you can contact us on 01 679 0990, we don’t have deposit agencies with every lender listed in the top position, so in some cases we’ll have to send you direct but in any case we can still help you choose the best deal on the market. All rates are up to date as 9th November 09′ and are subject to change.

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What did bankers do wrong exactly?

Sometimes I have to wonder where the blame-game changed course and the organisations with no commitment to societal well-being were burdened with that responsibility, while those with an inherent responsibility then moved into the realms of innocence in the whole fiasco.

Imagine if you will, a bold child being held responsible for eating all the cookies and spilling all the milk, that of itself is easy, and when you go to met out ‘blame’ you might focus on the child, but if this all happened while their parents stood idly by do you still focus on the child or do you apportion significant blame to those who have the responsibility of guidance and direction? Indeed, any person who understand the nature of a child will realise that they don’t really consider the wider costs of eating all the cookies and spilling the milk (such as depriving their siblings of same, no milk for the tea etc.).

So with this in mind I’ll turn to banking, commercial banks don’t have a moral code …

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Forensic Underwriting, when is it 'too much'?

Lenders will underwrite loans. That is part of the process, it is a natural and normal occurrence in finance, to underwrite, to ensure that you are researching the proposed deal to the extent that you can be sure that you are not taking a pointless risk, but when is it ‘too much’?

Traditionally an employee would be asked to give several forms of documentation as evidence of their position so that they could be considered for a loan. Normally this would have been a straight forward process, and one that generally works.

However, as of late we are seeing ‘forensic underwriting’ becoming more prevalent. The degree to which a lender wants to delve into a persons situation is rising beyond the traditional norms and in some cases we believe it is going well beyond the call of duty.

Let’s be frank, we need banks, who else will lend money to a stranger to buy an asset? Without banks it would only occur between people who have a lot of money personally …

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Forensic Underwriting, when is it ‘too much’?

Lenders will underwrite loans. That is part of the process, it is a natural and normal occurrence in finance, to underwrite, to ensure that you are researching the proposed deal to the extent that you can be sure that you are not taking a pointless risk, but when is it ‘too much’?

Traditionally an employee would be asked to give several forms of documentation as evidence of their position so that they could be considered for a loan. Normally this would have been a straight forward process, and one that generally works.

However, as of late we are seeing ‘forensic underwriting’ becoming more prevalent. The degree to which a lender wants to delve into a persons situation is rising beyond the traditional norms and in some cases we believe it is going well beyond the call of duty.

Let’s be frank, we need banks, who else will lend money to a stranger to buy an asset? Without banks it would only occur between people who have a lot of money personally …

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Irish Government bonds, what is happening?

Governments often have to raise money to achieve their objectives over the short and medium term, in Ireland we do this by raising bonds which is basically where a buyer (private or institutional) acts as the ‘bank’ for the state. The creditworthiness of our nation is currently the lowest in the Eurozone, below that of countries like Greece and Portugal. This means that we have to pay more interest to attract a buyer.

Today Moody’s (a rating agency) has put Ireland on watch for a debt rating downgrade (it means our debt will be considered less secure), and that means that we will have to pay even more in order to attract new investors for bonds. How this trickles down to the person on the street is simple, we’ll have to foot the bill eventually because the ultimate guarantor of state borrowing are the people in that country. The tools to achieve this with are higher taxes and less public spending, both equally unpopular.

For now we …

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Housing dysfunction

There are some who are saying that there are amazing deals to be found in the current market and if you consider price only then you may be tempted to believe this. Yields could also present a strong argument for property investment if yields stay at historic levels, however yields are likely to fall in 2009 and will remain stagnant until at least 2011/12 for several reasons which we will outline, we will also look at some of the current dysfunction in the market by examining a few types of sellers and how their personal situations express themselves in their selling behaviour.

The first group bought in the last days of the boom, they likely used minimal deposits (or even 100% finance) in order to purchase and they are in deep negative equity, they are now no longer on fixed rates – which tended to be 1/2/3yr fixed- and may have moved into the variable market which revises their payments upwards. One can be forgiven for thinking they may be a ‘distressed seller’ – the distress …

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First Active set to close.

It was announced yesterday that First Active is going to close operations in Ireland. This will start with 750 job losses coming into effect via voluntary redundancies, 550 of which will be in the Republic. Unions in Ulsterbank/First Active have said that bank workers are ‘scapegoats’, we spoke about the coming job losses in April of 2008 here.

RBS have made record losses, this lead to their bailout by the UK government. On the ground here it means that at 45 locations First Active will merge with Ulsterbank branches. The removal of First Active from the market will mean there is less competition in Irish lending, this will set the basis for increased margins on lending – at a time when the ECB is dropping rates. Having said that, First Active and Ulsterbank prices are amongst the most expensive in the market with variable rates of over 6% when market leading rates are under 4%.

In …

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Beware the Contract/Valuation trap

Our firm has seen a rise in what we describe as the Contract/Valuation trap, so we will tell you what it is and how to avoid it as well as steps you can take should you find yourself in this position. The contract-valuation trap is one that occurs when the price of a property being purchased drops significantly between the time the contract is signed and the property is closed. All lending is generally based on LTV (loan to value – see our jargon page for a description of that), however, a valuation which sets the market price in the banks eyes is what the loan is based on, it is not based on what a person was willing to pay for it and this helps to give an independent opinion of the worth of a property.

Another issue is that in a falling market sellers become more ‘motivated’ and by that we mean that they will more readily accept a lower than asking price offer, …

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How to rescue the financial system

I found this clip today, it is talking about some of the issues I mentioned in the post ‘Survival of the Weakest’ and it talks about the need to save healthy banks in favour of saving weaker banks. The common sense approach would be that you don’t privatise profits and socialise all losses and that you focus on saving firms (albeit banks) that are entities worth saving to begin with.

“A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him” – John Maynard Keynes.

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