S&P downgrades Ireland's AAA credit rating - The Irish Times - Mon, Mar 30, 2009


De AAA a AA+, con outlook (?Cómo leches se dice eso en castellano?) negativo.
No es que la noticia sea particularmente importante ni sorprendente, pero sí lo es lo suficiente como para aparecer en el foro (que tal vez se estudie un día en las clases de historia)...

Con pronóstico negativo. También vale 'expectativas'.

A ver si Fitch, S&P y demás malandrines se empiezan a meter sus letritas mentirosas por el orto.

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Government can defuse negative equity time bomb - Analysis, Opinion - Independent.ie

Government can defuse negative equity time bomb

A friend of mine in America told me a story about a couple in California who bought a house in Phase One of a development. Phase Two came online as the market was headed down. Phase One had sold for €600,000. The developer was dumping Phase Two for €350,000. The owners of the Phase One property bought a second house with a mortgage in Phase Two, moved across the street and mailed the keys of the Phase One house to the bank -- Jingle Mail, as it's known. The bank got possession of house one but couldn't touch house two as long as the payments were made on it. These people were in steady jobs with a good income. They ruined their credit rating but they essentially saved themselves a quarter of a million to live in the same house. This represents, my friend tells me, "rational exercise of the default option".

In Ireland, our credit and bankruptcy laws are much more draconian than in the States. While this prevents most of us from casually and rationally exercising the default option, it tends to make life a bit more difficult here for genuine defaulters.

The phrase negative equity is being bandied around a lot these days, and we see various figures for the number of people who are in negative equity. Daft.ie's economist Ronan Lyons suggested earlier this year that 320,000 households, or one-fifth of Irish households, were in negative equity. In his report for the ESRI, published in October, David Duffy was more conservative, reckoning about 60,000 households were in negative equity by the end of last year, that about twice that many will have entered negative equity by the end of this year, and that 200,000 households will be in negative equity by the end of 2010.

However, Duffy's figures are based on certain assumptions about the property market. He also presented an alternative scenario whereby house prices were by the end of 2010 down 50 per cent from their peak. This would put, according to him, 350,000 households in negative equity. But many people would argue that prices are down by 50 per cent from the peak right now, which would suggest we could be looking at in excess of 300,000 households in negative equity this Christmas.

Anecdotally, we know that the levels of negative equity on some normal-enough properties are enormous. Say you bought a house in Dublin for half a million at the peak of the boom -- which could be quite a modest house, depending on where it is. Now say at best that you stumped up a 10 per cent deposit for this house and you got 90 per cent of a mortgage, then your mortgage now is still around €450,000 and your house could be worth €250,000.
. The bottom line is that a fairly average person is going to spend the rest of their lives trying to get out of that hole. And in this country, it's not so easy to move across the road into Phase Two.

As the plague of negative equity becomes more widespread and more talked about, we are starting to hear experts pooh-pooh the problem and suggest that people should be happy to live with their negative equity. After all, they explain condescendingly, your house is your home and it was viewing our homes as investments that got us in this mess in the first place. Which is one way of looking at it. If you are happy in your house and intend to live there forever and you have a secure job and are able to pay your mortgage, then your negative equity will straighten itself out some day.

But if any of the above factors are not present, then negative equity can become a nightmare, for it is not in itself, but in conjunction with one or another of the current harsh facts of life, that negative equity becomes poisonous.

[COLOR="red"]There are a few things about Ireland 2010 that make negative equity particularly toxic right now. The main one, of course, is the number of people facing pay cuts or job losses. As much as for example, public-sector pay cuts were unavoidable to save the economy as a whole, we have to remember, too, that many public servants who got [/COLOR]mortgages, and were able to pay those mortgages based on their salaries previously, could now find themselves in trouble with their mortgages. Equally, this will apply to those in the private sector who took pay cuts. And then there are, obviously, the unemployed. The Government cannot turn its back on these people now.

The social and economic cost of a whole swathe of our society losing their homes because they can no longer pay their mortgages and because they would end up in crippling, lifelong personal debt if they sold for less than they owe on the house, is an appalling vista.

There are other ways in which negative equity will impede the country over the next few years as well. To say that someone should just sit tight and love their home does not take into account the Irish way of buying houses -- the so-called property ladder. The property ladder philosophy is that people started out by buying a small apartment or tiny starter home and then traded their way up as their needs changed. It was a system that worked well for us for many years. But negative equity threatens to destroy that system by destroying mobility. The couple expecting a baby are stuck in the fifth-floor one-bedroom apartment. The couple expecting their third child are stuck in a two-bed starter home with no garden. Unless we come up with a system whereby they can roll their negative equity onto another, more suitable, house, a house they are happy to stay in for life so negative equity is not an issue, then such couples have fairly miserable lives in prospect -- working forever more to pay off debts on houses they increasingly hate.

That's a recipe for a lot of Jingle Mail right there. And the last thing we want is for the banks to end up owning half the small houses and apartments in the country and competing with each other to sell them off in fire sales.

There is another aspect to the mobility issue as well. As Ireland begins to pick up again -- which it will -- it will not happen in a geographically uniform manner. So as certain areas pick up faster than others, we are going to want people to move to these areas. But if they're stuck in an economic blackspot with a house that's worth half what their mortgage is they're not going to be able to move, because to sell their own house will be to crystallise unthinkable losses and debt. And there is something manageable about being in the hole for tens or hundreds of thousands in a mortgage situation, but convert that into just owing a hundred thousand as a personal loan, and trying to get a new mortgage on a new house, and you've got a complete disaster.

The negative equity/repossessions issue has been flagged for over a year now as the next Big Thing. The Government, for its part, has claimed it is looking into it. One wonders if it realises the urgency of it. One wonders if it has realised that if more and more decent ordinary people start losing their houses while we are simultaneously bailing out the very banks that are squeezing these people dry, then there will finally be riots on the streets.

There are a various models to be looked at. While inflation would traditionally have dealt with reducing the real value of people's debts, it would seem that that's not happening any time in the near future. One reasonable option would be for the banks, which became so flexible and innovative with their mortgage offerings when they were encouraging all the young people now in negative equity to buy expensive houses, to demonstrate some creativity. The Nationwide Building Society in the UK, and now the Coventry Building Society, too, has been offering 125 per cent mortgages which essentially allow people to take their negative equity with them to a new house, a suitable house, where negative equity is only all in the mind because they hopefully won't need to sell again. The OECD has recommended strongly that banks should be encouraged to allow portability of mortgages in order to help people remain mobile while in negative equity.

Alternatively, there is the notion of 50-year mortgages, which might allow people in trouble to hold onto their own houses. The Government needs to prod the banks to start offering some mortgage-based solutions to the problem. It is in no one's interest, including that of the banks, for defaulting to reach epidemic proportions.

The Government needs to look at offering its own support systems as well. The more people the Government can keep in private accommodation during this crisis the better. The cost of helping someone get over the next few years without losing their home will be much less than the cost of keeping people in State housing forever if they don't get over the next few years. The Government needs to consider having local authorities take a stake in people's property, payable back at a later date or on the sale of the house. The OECD has also recommended that support for unemployed people to meet mortgage repayments should be more effective. If this can be done in cases of genuine hardship, then the dividends to the State in the long term will more than pay for it.

There are lots of other mechanisms to be examined, and the Government needs to get on with doing it as a matter of urgency. In the meantime, it could consider one very simple thing: Irish people like buying and selling houses, they like trading up and aspiring. One of the major barriers to that is stamp duty -- a tax that is taking in a negligible amount of money but that is acting as a huge disincentive to people buying or moving house. Property prices have now effectively halved. Interest rates are at historic lows. There are huge incentives there for people to buy houses. But the Government is standing in the way of the market taking its natural course. We need a one-year stamp duty holiday for the new year. At the very least, we need to let people in negative equity write off their losses against stamp duty.

If the State got out of the way, there is small chance that this problem might go some small way to righting itself, at least for some of the 300,000-plus households potentially in negative equity now. That would be a start, and then we could start looking at the real, hard cases in this ticking time bomb, a time bomb that could undo all the hard work this country has done this past 12 months.

- Brendan O'Connor

Sunday Independent