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  • #46
    Originally posted by Austrokiwi View Post
    I just glanced through the thing so I can’t answer for sure. Interesting stuff, to be sure.

    At the time, pre 2005 I was spending huge amounts of money in NZ. I think the most likely answer was he who spends more gets more. Also, from being on this web board, I’ve learned that it is more common for New Zealanders to enter into interest only loans than conventional loans. We did use a pretty crappy solicitor to make a house purchase at that time – so the resultant lending may have been a result of his (the solicitors') ineptitude and the banks eagerness to lend us more money. Remember, as far as the bank is concerned our debt is their asset.

    Which brings us back to my original point: what happens when market value falls below your mortgage note? Or you just can’t pay?
    Erewhon is still erehwon, I don’t see it changing anytime soon.

    http://exnzpat.blogspot.com/

    Comment


    • #47
      What happens?

      Originally posted by exnzpat View Post
      Which brings us back to my original point: what happens when market value falls below your mortgage note? Or you just can’t pay?
      The Banks have several options. They can -

      A Ask you to put money onto the mortgage, to keep it 80% of market value.
      B If you can't do A, then the bank can force you to a mortgagee sale (becoming more and more common)
      C They can "re-bundle" (not the right terminology, I think) the mortgage, so that the outstanding portion is added to the debt and ask you to pay a higher weekly/fortnightly mortgage payment. This is pretty pointless because if you're already defaulting on the mortgage, you're not going to be able to pay a higher payment.
      D Give you a mortgage break period, so that you have breathing space and then they do C.

      In the USA, Option D is becoming more and more favourable. The Banks know they're not going to get any money from the owners but they're also not going to get any money from non-existent buyers. The Bank then try and mitigate their risk, however they can do it.

      They don't care what you're financial position will be like in 5-10 years, they don't give a rats patootie. It's just what their books will look like.
      Patience is a virtue.

      Comment


      • #48
        Originally posted by Austrokiwi View Post
        These deals: were these enabled by Basel II ( though I didn't think its been fully implemented yet) ?
        I believe it was adopted in Jan 08 in NZ.
        Find The Trend Whose Premise Is False - Then Bet Against It

        Comment


        • #49
          http://www.bloomberg.com/apps/news?p...d=a0SE24WXEk5U



          World Faces `Oil Crisis;' IEA Ready to Tap Reserves



          June 11 (Bloomberg) -- The world faces an ``oil crisis,'' and the International Energy Agency stands ready to release emergency stockpiles even as the biggest consumers discuss measures to contain spiraling demand, the agency's chief said.



          ``Any major oil-plant accident can cause a supply disruption,'' Executive Director Nobuo Tanaka said in an interview in Tokyo. ``We at the IEA are monitoring the oil market and preparing ourselves to call for the release of strategic petroleum reserves at any time in the event of a major disruption.''



          Consumption in China and India, the world's fastest-growing major economies, has helped drive crude oil prices to ``abnormally high'' levels above $130 a barrel, Tanaka said. The U.S., Japan, and 25 other rich countries advised by the IEA have discussed stop-gap measures to reduce consumption, including lowering speed limits and restricting cars in cities, he said.



          ``We can call it an `oil crisis' given the current price, and that it continues to climb even after global efforts to cut consumption,'' Tanaka said. ``We see a critical, structural issue in the global oil market, where supply growth isn't catching up with demand.''



          Unlike the oil crisis in the 1970s, which was driven by supply restraints from the Middle East, the current situation is fueled by soaring demand, the IEA chief said. Speculative investment in commodities is also a driving force behind record prices, he said.
          So why do I believe this market will stay stagnant for decades?
          It's all very well to guess but let's discuss the mechanics behind it.
          The above article confirms what I've been thinking, oil supply is shrinking.
          Unlike the 70's where oil supply was a political issue (the embargo), we now face reduced supply, which will keep reducing slowly over many decades.
          We are in no position to fill the gap with alternatives.

          This will lead to stagflation, no growth. The whole world runs on energy and the biggest contributor is oil.

          The financial system runs on debt and funny money, which must have growth to function and pay the interest on the debt.

          So we have less energy and a financial system that no longer functions worldwide. Property investing will be the least of our worries.

          Would be interested to know what people think.
          Back in 2004 when i first joined this forum, that was my question.
          How will the energy peak affect property investing?
          I got no answers or even an understanding of the question.

          Would be interesting to see now how thinking has developed on this.

          Cheers.
          Find The Trend Whose Premise Is False - Then Bet Against It

          Comment


          • #50
            Destroys?

            Originally posted by tricky View Post
            Good point, Monid.
            And that neatly destroys the argument about houses are now un-affordable and will have to drop in price.
            Just because houses were four times the average wage (or whatever) once upon a time is no reason why houses will return to be four times the average wage.
            No, they won't have to drop in price.

            They can stay high in price and the dollar can become absolutely worthless.

            Actually the prices can nominally stay very high and the salaries can multiply by a factor of X (because it's inherently worthless, physically or electronically "printable" token money anyway) and they can still go below four times the average wage.

            Fewer jobs = less money to pay high rents + less money to pay expensive mortgages.

            Only 5% really have to sell. It's about how desperate the 5% are. "The majority" mean nothing and count for nothing. They do not even participate in the market. If they appear there, they just create clutter and do next to nothing. And if they become 8 or 10% at any point of time due to duress (prolonged recession, temporary crisis, changed demographics, you name it) all hell breaks loose and the prices literally have no bottom.

            The "x times median wage" stats are also valueless. A house worth 3 times average wage with interest rates in 30s and 40s is totally unaffordable. The same one worth 8 times average wage on 2% interest is really cheap to finance.

            There's never been such a property hype as the latest one. Dotcom mutated into Propertycom. Every T, D & H wanted to jump in, and the banks were happy to oblige. That is the ONLY reason the prices went this far up this time. Once evaporated, the hype will take many years to recover and regrow. And it might never reappear in the same way during our lifetimes.

            The only sure thing about this time is the uncertainty. But if there is no fundamental reason for the houses to continue be extremely expensive (NZ only has a fraction of average european population density after all so it's not quite running out of residential land yet), there are plenty of other more fundamental things competing for a finite pocket. More likely than not, something else may soon be the next "extremely expensive" thing at the expense of housing.

            Try petrol and bread.
            Last edited by 67910241; 12-06-2008, 10:46 AM.

            Comment


            • #51
              Yeah I dunno GK, apparently they were talking about peak oil in th 1940s.

              What I would like to know though is why NZ exports oil? Seems like total stupidity to me. Can we not refine it and use it?

              David
              Squadly dinky do!

              Comment


              • #52
                From what I can make out it's a very fine oil, so not the right type (?)
                Find The Trend Whose Premise Is False - Then Bet Against It

                Comment


                • #53
                  Originally posted by exnzpat View Post
                  ARE YOU SERIOUS?
                  No need to shout.
                  Why don't you do some homework?
                  I think you'll find I'm right.
                  (does this make you wrong again?)

                  Comment


                  • #54
                    Originally posted by Davo36 View Post
                    Yeah I dunno GK, apparently they were talking about peak oil in th 1940s.

                    What I would like to know though is why NZ exports oil? Seems like total stupidity to me. Can we not refine it and use it?

                    David
                    Actually 'NZ' doesnt export oil, the companies that own the rights to the oil fields export the oil. And why wouldnt they? They are in the business of making money.

                    I guess the govt could put an embargo on oil exports, but that would backfire as that would then undermine the hard won free trade agreements.

                    Comment


                    • #55
                      Originally posted by tricky View Post
                      No need to shout.
                      Why don't you do some homework?
                      I think you'll find I'm right.
                      (does this make you wrong again?)
                      Yes!

                      If you are correct then I am completely wrong -- I have no problem admitting that.


                      Originally posted by tricky View Post
                      Nonsense.
                      The majority of home owners have no mortgage or very small mortgages.
                      But…

                      If you are correct then there will be no drop in market value.

                      If you are correct then New Zealand home prices are not slipping nor will ever slip.

                      If you are correct then New Zealand is immune to the credit crunch.

                      If you are correct New Zealand will not suffer massive job loss.

                      And, If you are correct New Zealand will not slide into recession.


                      You tell me: of four million people, what percentage of New Zealanders does actually have a mortgage?
                      Last edited by exnzpat; 12-06-2008, 06:28 PM.
                      Erewhon is still erehwon, I don’t see it changing anytime soon.

                      http://exnzpat.blogspot.com/

                      Comment


                      • #56
                        Originally posted by Davo36 View Post
                        What I would like to know though is why NZ exports oil? Seems like total stupidity to me. Can we not refine it and use it?

                        David
                        I could be wrong ( aging brain!!!) but I recall once reading that some of NZ's oil is of a type that Marsden point doesn't handle well. I think it was something about being waxy....perhaps too much Dinosaur ear-wax ?
                        The mission of any business enterprise should include the aim to develop economic conditions rather than simply react to them.

                        Comment


                        • #57
                          Originally posted by exnzpat View Post
                          . . . call your friendly bank manager today and ask
                          him what the bank does when the market value of
                          your home falls below your mortgage note value
                          i.e. the amount you owe.
                          If the mortgage payments are coming in as the current
                          agreement requires, why would the bank seek trouble?
                          An increase in the repayment amount to cover higher
                          charges when floating interest rates change is about
                          the only action I can see most of them taking.
                          Want a great looking concrete swimming pool in Hawke's Bay? Designer Pools will do the job for you!

                          Comment


                          • #58
                            Originally posted by Perry View Post
                            If the mortgage payments are coming in as the current
                            agreement requires, why would the bank seek trouble?
                            An increase in the repayment amount to cover higher
                            charges when floating interest rates change is about
                            the only action I can see most of them taking.

                            Banks are also required to meet financial security requirements ( thats what Basel II is about) also their credit ratings are assessed on their risk profile. If a property ends up being worth less than its original valuation and moves into a higher Risk profile banks have little option but to ask, for funds to return the property back to the correct financial security level or alternately foreclose. Obviously if they have been very conservative in their lending they have more flexibility.........the problem is they may have been more exuberant in their lending recently than prudence might dictate.
                            The mission of any business enterprise should include the aim to develop economic conditions rather than simply react to them.

                            Comment


                            • #59
                              Originally posted by Austrokiwi View Post
                              Banks are also required to meet financial security requirements ( thats what Basel II is about) also their credit ratings are assessed on their risk profile. If a property ends up being worth less than its original valuation and moves into a higher Risk profile banks have little option but to ask, for funds to return the property back to the correct financial security level or alternately foreclose. Obviously if they have been very conservative in their lending they have more flexibility.........the problem is they may have been more exuberant in their lending recently than prudence might dictate.

                              Yes. Exactly. This is how people who are negatively geared, or who have borrowed 100%, or who have very little equity in their portfolio or home, lose them.

                              Once the bank recognizes that the asset (the home or the portfolio) has fallen in value in its relationship to the mortgage note then the bank will ask mortgage holder to make up the difference. This difference is then applied to the note, pulling it back inline with the originally agreed upon difference. The process is ongoing, and will continue throughout the life of the note.

                              This is why I have consistently argued that the first place start protecting your portfolio is to buy back debt. It creates a buffer to market downswings.

                              Lastly, I should note – we are still a long way from this point. But, I have no doubt that we will get there.
                              Last edited by exnzpat; 13-06-2008, 05:46 AM.
                              Erewhon is still erehwon, I don’t see it changing anytime soon.

                              http://exnzpat.blogspot.com/

                              Comment


                              • #60
                                Originally posted by essence View Post
                                The Banks have several options. They can -

                                A Ask you to put money onto the mortgage, to keep it 80% of market value.
                                B If you can't do A, then the bank can force you to a mortgagee sale (becoming more and more common)
                                C They can "re-bundle" (not the right terminology, I think) the mortgage, so that the outstanding portion is added to the debt and ask you to pay a higher weekly/fortnightly mortgage payment. This is pretty pointless because if you're already defaulting on the mortgage, you're not going to be able to pay a higher payment.
                                D Give you a mortgage break period, so that you have breathing space and then they do C.

                                In the USA, Option D is becoming more and more favourable. The Banks know they're not going to get any money from the owners but they're also not going to get any money from non-existent buyers. The Bank then try and mitigate their risk, however they can do it.

                                They don't care what you're financial position will be like in 5-10 years, they don't give a rats patootie. It's just what their books will look like.
                                Again, Yes.

                                When one considers their (banks) lax and irresponsible fiscal policy (the world over) over the last five years – it can only mean one thing – a return to better managed, more conservative lending policies, and strict recovery processes.

                                Banks are not running a some kind of social program – they are trying to make a buck like everyone else!
                                Erewhon is still erehwon, I don’t see it changing anytime soon.

                                http://exnzpat.blogspot.com/

                                Comment

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