Today's news that we are now over the 100,000 mark in terms of troubled mortgages is shocking but expected. We are often presented with the news and then told that there are 'no easy solutions', but is that really the case?
In the USA there is a transaction called 'moving paper', and it is where a person sells their house by having another person take over the mortgage. It isn't very common, but when it occurs the new 'buyer' goes onto the mortgage deed with the lenders' consent and in effect takes over the debt.
In the past this might be done because there was a favourable rate on the mortgage or because the seller had marginal equity and threw it in as part of the sale, or the buyer had a preference for the term or structure of the loan securing the property.
Could we use something like this in Ireland to help out people in negative equity? Or people who are in arrears and want out?
If a person has €10,000 negative equity and can't fund the difference and they are trying to sell, or if they were unable to pay their mortgage and wanted out, would making it possible for a new buyer to 'take over' the mortgage be a solution? The seller wins, clearing negative equity or arrears, and the buyer wins by getting a great mortgage. The bank wins by having a loan that is performing instead of being impaired? Naturally this should work in that case right?
In theory it does, in practice it doesn't. Banks don't want to know – we have even seen where a couple break up and one person wants off the deed and they won't do it without issuing an entirely new mortgage (normally they are doing this to ensure you legally lose your tracker – there is no regulatory protection in this instance).
Where there is a deep level of negative equity this may not be practical, but if you were buying a house and were told you could pay €10,000 over the odds for it and have a tracker mortgage in return would you take it?
Do you have any other ideas that might help make transactions possible? The hard part is to come up with one that doesn't involve using government money! Do your best readers, we are looking forward to some creative input!
Karl Deeter (@karldeeter on Twitter)
Karl Deeter is the operations manager with the Irish Mortgage Brokers
