Generation X still suffering the consequences of the housing crash

A mortgage lender offers 100 percent mortgage and a little extra for furnishing the home, why not take it? This before the housing crash seemed like a fool-proof idea. House prices were continuously rising and real estate looked like a safe investment.

Then the housing market crashed. House prices dramatically dropped while unemployment rate was rising. Suddenly Generation X now has negative equity on a home. They’re owing more on a home than it’s actually worth. What do you do?

Generation Xers, classified being born between 1965 through 1984, had a majority out of a job or have had a huge pay cut and having negative equity on a home. Massive tax cuts and the expense of childcare has taken over the disposable income.

Living in a generation of spending culture, during the time of economic growth they did not think to save for retirement. Now …

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Zombie Banks acting like Zombies

I wrote a piece in today’s Irish Sun about our banks and that the state owned operations are showing a decided lack of inventiveness when it comes to helping existing borrowers.

This may be down to disincentives, issues with management or the Department of Finance, but suffice to say, it doesn’t make sense that non-state owned banks and foreign banks are innovating in potentially beneficial ways for their customers and the banks we paid to save are not.

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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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If you didn’t like 100% mortgages you’ll loathe negative equity mortgages

I was interested in the front page of today’s Independent in which Charlie Weston broke a really big story about Irish banks being in advanced stages of designing ‘Negative Equity Mortgages’ (this is vastly different than the Negative Equity Loan/Short Sale Loan we have discussed previously). Essentially the bank will allow an individual to carry negative equity out of one property and move that onto another one within certain parameters.

This practice has already existed in the UK and is offered by Nationwide, Coventry and RBS, the schemes have not proved to be very popular, in part because of the stringent underwriting required. It is one thing for a client to fall into negative equity but another to actually facilitate them in compounding that fact and taking a further bet on their ability to repay. What do I mean by that?

First Loan: €200,000 Value: €150,000 Neg/Eq: €50,000

Then the €50,000 shortfall is passed into a second loan of (for example) €200,000 …

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If we must have a banking enquiry then make it cheap and fast.

I should state from the outset that I am against a banking enquiry if it is the ‘9/11 style public enquiry‘ it was originally billed by Patrick Honohan as (pic related). I also believe the primary failure in Ireland was one firstly of regulation and governance over and above what went on within the banking system, it is after all, the responsibility of regulators to exert their control over the systemic aspects of banking rather than vice versa, however, it seems to be the popular choice to have an enquiry and thus I have outlined how a relatively cheap investigation might be set up.

The people of Ireland are calling for blood and it is no surprise that various powers now want to deliver on it, they join other leaders from antiquity such as Titus, Nero and Caesar in wanting to please the masses with blood-letting, sadly, we have a history of making any investigation extremely …

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Where are interest rates headed?

While we often see opinions about interest rates given by various commentators, I think the most telling indication is often that of the market, the point at which rates are settling at in prices is available at any time by looking at the Euribor Yield Curve, below is the chart for today.

The idea that rates will probably stay c. 1% until well into 2010 is only partially priced in, you can see the yield curve crossing the 1% mark at 6 months (which would be May 2010) – this however, is the Euribor and does have margin factored in, currently the margin over ECB is c. 25 basis points so the 1% base would cross when the graph above is at c. 1.25%. and that is the part that brings us to the latter half of 2010. The yield curve is live and dynamic so it could change at any time, either flattening or inverting. The reasoning behind where interest rates are going is a science in itself, and one that …

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