Walking away, whistling.
Once again the issue of ‘duties of care’ of lenders to borrowers has been raised. As usual, it is in the USA where people are both more aware of and assertive of their rights.
In what passes for ‘culture’ in Ireland we have the opposite. In every sphere of our lives (save one) we are craven, supine and accepting of the mores of those in authority. Even though it was an Irishman who gave the world the maxim about “all professions being a conspiracy against the laity”, we have not taken this to heart and are mainly content to grumble and indulge in petty ‘strokery’ in a self-damaging prophecy-fulfilling manner.
Politician, bankers, accountants, solicitors, priests, planners, builders and developers have all been found wanting, corporately and personally, as we come to the end of this benighted decade. Yet still the Irish people can do no more than take to the streets and complain only about how it is hurting their bank balances. I am constantly amazed that they are not actually seeking revolution.
On the issue of ‘duties of care’, in this article the splendid Mike Shedlock points out once again that staying on in a property with negative equity is often not either the moral, financial or political correct thing to do.
The situation in the USA differs from Ireland, in that, the lender has NO recourse on a principal primary residence. There, they can’t come after you for the negative equity, they can only choose not to do any more business with you and damage the credit score. But credit scores are a measure of recent status and so are self-healing.
But the reality is that in many cases it is a safe bet that the house will not recover its value faster than the borrower can repair their balance sheet and credit score after defaulting.
The banks have no interest in foreclosing on a property and thereby locking in and having to show a loss on any property. Their interest is served by having you repay it all. NAMA is an effort to prop up short term prices in the hope of a long term recovery either through inflation or growth. The banks don’t care which.
The threat of legal action only works as a deterrent in the case where only a small minority misbehave. If the majority come to the conclusion that the negative equity is never going away and that in the meantime they can save money by renting, then game will be up and there will be a forced devaluation of assets that will allow for everything else to be marked down.
That way we could re-establish the competitiveness of the Irish economy and get back to where we want to be, i.e. 2001.
Soon I expect to see the same calculation being done by Irish consumers. I may even take a hand in helping them do so.
