The Hidden Mess

March 14, 2013

Irish mortgage arrears situation is turning into an awful mess. It’s been ignored, hidden away but head-in-the-sand people eyes fixed on ‘The Gathering’, are now being forced to take propertyValuenotice. There’s a lot of toxic waste post Ireland’s meltdown ready to take Ireland down more.

A lot of it is in the mortgage arrears area and even zombies can’t hide it.

Government led by Professor Honahan tearing his hair out, now Kenny and Noonan errant school boys in his wake, have decided to do something about this, clean up and throw out the trash, Homer Simpson has some experience of this, see later:

Enda Kenny is turning into Homer Simpson who, aided by the ECB and the troika, is turning Ireland into an old abandoned mine into which hidden away and deposited into the arms of children and grandchildren is the debt of Irish and European banks.

Losses in the form of mortgage default, negative equity, cannot be hidden away in three card trick bonds dropped into the arms of future generations.

If the analogy is lost on you, enjoy this episode of The Simpsons, ‘Trash of the Titans’,

Increasingly Irish mortgage default cannot be hidden away and serious business is afoot set to cripple those in arrears with draconian debt extraction devices set to worsen the current crisis.

Government is dealing with this crisis with incompetence and betrayal of the electorate to the banks. It’s fitting to quote the following in full, it is serious business and is not a cartoon.

“Dublin, March 13th 2013

Today’s announcement that the Central Bank of Ireland will set targets for six major banks in relation to restructuring of mortgages in arrears is a sad extension of the failed policies of the past that have allowed Irish mortgages crisis to spin out of control and have resulted in total mortgages arrears of unprecedented proportions.

The latest plan lacks any prescriptive solutions and allows banks to determine the nature, the extent and the application of all solutions while setting the terms and conditions without any supervision. The plan delivers no improvement in transparency of solutions to be offered to borrowers by the lenders and provides no protection for borrowers against potential abuses by the lenders of their powers.

While the review of the code of conduct is to be welcomed the review fails to deliver a meaningful improvement to the previous practices and does not allow for an effective protections for borrowers.

Mr Elderfield’s statement claiming that the regulator intends to remove the current cap on number of times a bank is allowed to contact or call or visit a borrower ahead of the review of the code of conduct is very concerning. In our view, the central bank is underestimating the extent to which the banks are willing to go to pressure borrowers. It also pre-empts the actual review of the code of conduct for mortgage arrears.

The borrower is exposed and has been afforded no protection in this plan. The lenders are incentivized to maximize the rate of extraction of savings and income from the already distressed borrowers prior to completion of any long-term forbearance or restructuring agreements, thus reducing the effective relief that can be accorded the borrower in the end.

The net effect of this plan will be additional stress on mortgage holders and more power to banks without an appropriate safety net or independent arbitration for mortgage holders.

The Irish mortgages crisis, now into its sixth year, is still raging beyond any control of the authorities. Per latest figures from the Central Bank of Ireland, 186,785 mortgages (including BTL) in Ireland are at risk (in arrears, restructured or in repossession), accounting for an unprecedented 25.3% of all mortgage accounts still outstanding. The balance of mortgages at risk, relative to the total balance of all mortgages outstanding has reached a catastrophic figure of 31.9%. With some 650,000-750,000 estimated people residing in the households with the principal residence in mortgages difficulties, we are witnessing a wholesale destruction of savings, pensions and wealth of several generations of Irish people.

State response to this crisis to-date has been woefully inadequate and erring on the side of the financial institutions. Today’s announcement offers no hope for any meaningful change in the ways Irish authorities treat ordinary borrowers in distress.

David Hall
Director, Irish Mortgage Holders Organisation

Dr. Constantin Gurdgiev
Director, Irish Mortgage Holders Organisation”

Issue of Bonds 10 yr propaganda continues.

The truth is, Ireland is not returning to the markets, it still carries junk bond status with Moody’s.

Markets are looking at Ireland’s sugar daddy ECB that has protected bondholders, parked Irish bond maturities beyond the 10yr and ensures  bondholders get their money back. Ireland has a delinquent debt profile but markets hope this will be sorted by the ECB. This is the meaning of ‘stable’ used by S&P.

This is a long cry from sovereign, market driven capitalism, more like a reawakened USSR satellite transylvanian vampire economic disaster zone, hidden away as one of the new EMU’s debt mines, the social implications of which for Ireland over 2013, when the comets of new property taxes, increasing taxation, falling salaries, unemployment, emigration, poor public services in health and education, will hit every home.

Ireland is not a sovereign, independent, market driven economy, its a new banking entity, run by the banks, for the banks and of the banks. As in Homer’s Odyssey, the laws of gravity will win out in the end.

Part 11 Property Taxes (5)

Its another fine mess. Leaving aside the argument that the poor of Dublin will pay tax on their properties to pay for the taxes that ought to fall on the property of their rich country cousins, the subject in Ireland’s case is a rather blunt instrument unfair in the extreme.

The problem with a market driven approach as is Ireland’s is that the property market is Ireland is extremely volatile with prices falling sometimes as far as 90% in extreme cases. Estimations of the value of property without a stable base are a gamble. Added to the complexity is the property tax itself. Such property taxes, municipal or otherwise, are factored by the buyer into affordability and so effect the purchase price. Attaching estimations to historic property values free of such taxes is unfair. Readers can make up their own mind on the question of municipal taxes going to the state or to local services in a given municipality.

Notice below “After a decision made by the Federal Constitutional Court in June 1995 the use of historical values is no longer allowed for purposes…”


The property tax in Germany is levied on agricultural land, forest land and built and unbuilt sites. There are about 35 Million tax objects. The property tax is stable revenue for municipalities with yearly tax revenue of about 10.7 Billion Euros. The current property tax system uses standard assessment values, assessment factors and rates of assessment.

The standard assessment value (Einheitswert) was formally used for many different taxes, e.g.
inheritance and gift tax and property tax. It is defined in the German tax valuation act. After a
decision made by the Federal Constitutional Court in June 1995 the use of historical values is
not longer allowed for purposes, which taxes different kind of goods. Immovable property had
been taxed on a standard assessment value while shares and money were taxed on market values.

The decision also said that the standard assessment value is not a market value. Nowadays,the standard assessment value is only used for the property tax. By law, the tax administration sought to declare the standard assessment value every six years. So the assessment value should approximate the market value. But, the last declaration of market values was in 1964 for Western Germany and in 1935 in Eastern Germany; besides this there are some more dates, which are subject for assessment. At the moment, the standard assessment value is a historical value and is discussed to be reformed. The standard assessment value is the basis of assessment (for property tax) in Germany.”

More next time on this important subject….No Ólafur Ragnar Grímsson Icelandic type debt write-down to 110% of current market value for Irish people in mortgage arrears…..ork debt extractor/collectors for these unfortunates, lame government instead…

As for debt for equity swaps with banks taking a 50% stake in a property worth €400k the owner can’t pay back due to high taxes including property taxes and falling or no salary, it doesn’t ring my bell. The owner only owns 50% stake in his her/own house, who gets paid first on the sale of the house, bank or seller; with property taxes and awareness of these ballooned expected values, who’s expected to pay such prices for toxic property? Future sellers get burned by toxic loans.

There  ought to be laws preventing the export of loans to future victims of such loans.

One is reminded of similar practices in relation to notorious CDO’s that bundled thousands of such mortgages into toxic credit default swaps. In the film “Margin Call” the inner management core is given the directive to sell off in one day the full toxic portfolio of the bank in order to save itself.

The toxic portfolio is not broken down to its toxic content, but one is left with the distinct feeling the buyers were European banks. With these ‘toxic assets’ comprising a major part of the portfolio of many European banks, its doubtful whether they would like to go twice to Irish banks hoping to get themselves on the hook for similar toxic tranches of mortgage loans wrapped in new linen.

Any solution where complexity makes a worse mess is a fools mess.

A simple solution such as the Grimsson solution has great merit.

More about Iceland and debt writedown next time…

Back to Homer:-)



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