Via the rentier headquarters at the AFR comes Kevin Davis, Professor of Ponzi-Finance at The University of Melbourne:
“For sale by mortgagee” signs sprouting around the country is not something anyone wants to see happening. But there is a risk of that – and home owners being evicted on to the streets – once the mortgage repayment deferrals afforded to borrowers by Australian banks cease to operate.
…Innovative mortgage arrangements, involving a debt for equity swap could help resolve this problem for borrowers with some equity in their house (where the loan to valuation ratio is not too high). For the remainder, the banks will need (and will no doubt try hard) to find alternative ways of avoiding the stigma of being heartless debt collectors.
…One, undesirable, solution would be for the house to be sold, and the mortgage repaid. Yes, they have $300,000 cash – but no place to live. Whether that cash (and any government benefits) will meet their lifetime rental and living expense needs is problematic. And let’s not forget the emotional trauma and distress.
Instead, why not convert the debt owed to the bank into a bank equity share in the house? The borrower sacrifices some part of future capital gains on eventual sale of the house but no longer needs to make mortgage principal repayments.
Somehow this entire piece is written without once mentioning the words “moral” or “hazard”. Why wouldn’t anyone and everyone leverage to the whazoo into housing and then convert the debt to equity whenever there’s a problem. I’d do it!
This goes against the entire reason for having a private banking system. You know, the productive distribution of capital.
Just let prices fall.
