
Payments on mortgages to be suspended across Italy after coronavirus outbreak - DyslexicAtheist
https://in.reuters.com/article/health-coronavirus-italy-mortgages/payments-on-mortgages-to-be-suspended-across-italy-after-coronavirus-outbreak-idINR1N2A900G
======
nabla9
It seems like obvious decision during national emergency. The whole country is
in quarantine. You can't expect household and small companies to pay interest
like nothing has changed.

~~~
101404
I just wonder how this works upstream. Don't the banks also owe that money to
somebody? After all, value isn't just money, it's money plus time.

~~~
Phenix88be
I think banks "create" (out of "no where" I mean) the money they loan. So they
don't owe anyone.

~~~
Scarblac
Not quite. They get money from somewhere, that they loan out.

But because much of the money they got from somewhere can be requested at will
(people can still remove money from their accounts), it is still liquid and
still counts as money. So money is "created" this way.

That is how they create money. They don't _literally_ just create whatever
they need, only central banks can do that.

~~~
yrro
Please see [https://www.bankofengland.co.uk/quarterly-
bulletin/2014/q1/m...](https://www.bankofengland.co.uk/quarterly-
bulletin/2014/q1/money-creation-in-the-modern-economy)

> In the modern economy, most money takes the form of bank deposits. But how
> those bank deposits are created is often misunderstood: the principal way is
> through commercial banks making loans.

> Whenever a bank makes a loan, it simultaneously creates a matching deposit
> in the borrower’s bank account, thereby creating new money. The reality of
> how money is created today differs from the description found in some
> economics textbooks:

> • Rather than banks receiving deposits when households save and then lending
> them out, bank lending creates deposits. > • In normal times, the central
> bank does not fix the amount of money in circulation, nor is central bank
> money ‘multiplied up’ into more loans and deposits

~~~
afiori
What this mean is that banks can go in credit of others and then sell that
credit as money; they cannot just say "now I am a billion dollar richer" they
have to find someone that promises to cover that billion dollar.

------
dillonmckay
So, not sure if this is the same, but in Florida, after one of the more recent
hurricanes, I was given the option to suspend mortgage payments.

All it does is suspend payments, not reduce the amount of payments.

So, once payment resumes, you still owe at least the same amount of debt.

[edit] As another poster mentioned, interest still accrues.

~~~
dkdbejwi383
I think it's pretty clear what suspension means in this context. I can't
imagine anyone is thinking that the government is making the payment for them
in this time or something like that.

~~~
creaghpatr
Why though? People suspend rational thinking to believe they're getting free
stuff all the time.

~~~
nabla9
Sharing the burden does not mean free. It's like ad hoc insurance or freezing
the situation.

~~~
salawat
It isn't really freezing if interest is still compounding. It's just reeling
out more rope to fiscally hang someone with.

------
killjoywashere
Never EVER take this sort of offer. Banks made similar offers after Katrina.
We seriously considered it, having just bought a house in New Orleans which we
could no longer occupy. A quick call with the bank made it clear they weren't
forgiving anything. Interest would continue to accrue and recapitalize. Four
years later, we had made all our payments and sold at the expected profit. The
lender then admitted many people had taken the offer and now found themselves
with significant negative value on their homes simply through compound
interest.

Avoid these offers like the plague.

~~~
Mvandenbergh
It is bad advice to simply say, "never take a repayment moratorium" based on
anecdotal advice from one very particular set of circumstances.

First of all, many people simply do not have the liquid assets (or any assets)
to pay their mortgage while not receiving income. Many Italians who are not
able to earn money during this period simply would not have been paying their
mortgage regardless of a repayment suspension. So banks may as well get out in
front of that rather than waste time sending hundreds of thousands of notices
to people who are not able to pay. This is not a choice. Obviously if you can
continue to pay your mortgage you should do so.

Second, there is a big difference between temporarily suspending repayment for
2? 3? months and what happened after Katrina where many people had stopped
paying for many months or years. There is no way that a few months repayment
holiday, even if interest does accrue during that period is going to push many
mortgages into negative equity.

Third, Italian mortgages are absolutely capped at 80% LTV and many banks are
more comfortable at 60% or even less. This is unheard of by American or UK
standards but a consequence is that it would take years of repayment
suspension and interest accrual to push into negative equity.

Fourth, negative equity is only relevant if you want to sell. Italians tend
not to be super mobile anyway, so even if some people do spend some time in
negative equity, only a subset of those people will be "stuck" and prevented
from making a move they would otherwise make.

~~~
tialaramex
The UK essentially got rid of crazy 100% mortgages. You can still get a 95%
mortgage, which is pretty desperate, but the rates on them are punishing, I
haven't seen anybody say "Oh I saved 5% for my deposit now I can buy a house".

If you need a 100% mortgage now, all the big banks will tell you either to go
away or talk to a specialist. The specialist will explain that there's
basically no legal way to sell you a product on which obviously if anything
goes wrong you default and lose everything _but_ if you can find a guarantor
that'll eat the risk that's an option. The guarantor puts up capital (maybe
your parents offer the home they've paid off) and if the mortgage fails that
capital will pay for it. So you essentially don't have a 100% mortgage, you've
got an 80% (or better) mortgage against two properties, but if things do go
badly wrong you aren't going to ever talk to your parents again.

75% mortgages are pretty common here. 80% is definitely more common than 60%
but things are much better than they were when idiots thought prices could
only go up.

~~~
siquick
> The UK essentially got rid of crazy 100% mortgages. You can still get a 95%
> mortgage, which is pretty desperate, but the rates on them are punishing, I
> haven't seen anybody say "Oh I saved 5% for my deposit now I can buy a
> house".

I can think of 3 people off the top of my head who have a 95% mortgage.

It's far more common than you think, especially in areas in the North where
you can get a decent property for less than £200k (95% loans are capped at
£400k)

------
crispyporkbites
Well I for one am glad my mortgage isn't a smart contract on a blockchain
right now.

~~~
arnoooooo
I'm not a fan of blockchains either, but to be fair, they could issue a
compensating smart contract for the duration of the suspension.

~~~
vsareto
Can't wait until someone fucks up the code because there was a quick deadline
and suddenly all of the bank's money is gone.

~~~
6510
the flash crash?

------
esotericn
Won't this result in new mortgage rates spiking massively (not only now, but
after the crisis is resolved, because it's a newly identified form of tail
risk?)

Not that it's important right now, but it seems like an interesting side-
effect.

~~~
sp332
It looks like this was done by the banks voluntarily. So it doesn't increase
the risk of this happening again in the future as a surprise. Secondly, this
probably reduces the amount of defaults, liens, foreclosures etc. happening
all at once that a bank really would rather not deal with.

Edit: according to [https://www.bloomberg.com/news/articles/2020-03-10/italy-
neg...](https://www.bloomberg.com/news/articles/2020-03-10/italy-negotiating-
with-banks-for-mortgage-relief-in-virus-crisis) the government negotiated this
with the banks, and TFA says that not all banks took the deal. So whatever it
was, it probably softened the blow a lot.

~~~
raducu
Surely not as a surprise, this thing will be back next fall.

------
igravious
And renters?

~~~
caymanjim
Your landlord has bills to pay too.

~~~
igravious
Clearly – but if homeowners get mortgage relief why shouldn't tenants get rent
relief? Covid-19 doesn't distinguish between homeowner and tenant. Seems kind
of two-tiered to me.

~~~
gshdg
Of course, hopefully mortgage relief will make it possible for more landlords
to offer rent relief.

------
orangepanda
Although not quite the same, ironic how Rome does have a _long_ history of
debt forgiveness during times of crisis [0]

[0] [https://fee.org/articles/the-slow-motion-financial-
suicide-o...](https://fee.org/articles/the-slow-motion-financial-suicide-of-
the-roman-empire)

~~~
lifeisstillgood
Wow there is an article with it's agenda clearly emblazoned on its sleeve. No
messing :-)

The Roman Empire's collapse had dozens of interacting causes, from slavery and
expansionism-collapse to leadership failures that make any corrupt politician
today seem laughable.

To boil it all down to "Welfare" seems, disingenuous at best, and hopelessly
partisan at the midpoint.

That said, yes, many societies have tried to make up for their systemic
unfairness with debt forgiveness. Unless you fix the underlying causes
however, the debt comes back.

~~~
6510
Then you just jubilee again. Its a lot less complex/fuzzy if the king or
church are the major lender.

