Difficult beginnings for the rechargeable mortgage

A statement in the spring of 2004 by Nicolas Sarkozy, then Minister of Economy and Finance, to revive consumption, the rechargeable mortgage is just beginning to materialize.

Since the end of September, three banks, the Crédit Foncier, the UCB and the Savings Bank of Auvergne and Limousin, offer this mortgage secured by a mortgage taken on the financed property and which can be recharged. Clearly, it allows reopening a line of credit within the limit of capital already repaid.

This type of loan can be of service to those who, a few years after buying their home, intend to do work, expand or finance any new needs, not necessarily related to real estate elsewhere, for example, studies of children.

At the time of reloading the loan, the borrower is not required to call on the bank which has granted the initial credit and may apply to the bank of his choice. He then subscribes to a new credit.

The formula is based on a practice widely used in the United States, the “mortgage withdrawal”, where the amount lent also takes into account the market value of the property on which it is pledged.

In times of rising real estate prices, each homeowner can claim a credit commensurate with this increase. Consumption is thus encouraged but also weakened in the event of falling or stagnant real estate prices. The French formula, which is limited to the initial amount borrowed, is more cautious.

This new banking tool has required a fairly deep mortgage reform, a good result of which is the lowering of warranty costs, by an average of 30%. This represents a saving of 590 million to 660 million euros per year for the benefit of borrowers.

Remember that there are three types of guarantees: the guarantee, issued by specialized organizations such as Crédit Logement or Saccef (Caisses d’Épargne group); the lender’s lien, which is similar to a mortgage but is reserved for the financier and attached to the deed of purchase; and the conventional mortgage, which can be registered at any time, for the benefit of all kinds of creditors, for example a syndicate of co-ownership in case of unpaid charges.

According to the new law, only the conventional mortgage is rechargeable, the lender’s privilege having been removed from the device.

But one of the major obstacles to the development of the rechargeable mortgage remains its cost: although having decreased by 16%, it remains the highest of the three formulas.

In order not to lose their share of the market – which accounts for half of the real estate loans – financial surety organizations reacted very quickly and lowered their rates from 30% to 40%.

Thus, for a loan of 100,000 euros, the cost of the conventional rechargeable mortgage is 1,750 euros, that of the guarantee issued by Crédit Logement is 1,300 euros (including 550 euros recoverable at the end of the loan if There was no incident) and that of the lender’s lien is 800 euros.

“We always advise our borrowers to opt for the least expensive formula, which can go up to free for officials supported by their mutuals,” said Catherine Patin, UCB.

The rechargeable mortgage may, therefore, be slowed down in its development because of its cost. It can, on the other hand, be of service to persons who are already owners, having repaid all or part of their home loan and that some reason (age, irregular income) deprives of an easy access to payday loan to the consumption.

These can transform a conventional mortgage into a rechargeable mortgage, or even take out a new mortgage loan, as proposed by the Land Credit. It suffices to add an amendment to the initial mortgage deed, which, according to the simulations of the Crédit Foncier, for a recharge of 40 000 euros, causes costs still high, of 1 175 euros, or 2, 9% of the amount of the recharge.


The European Central Bank perpetuates negative interest rates and plays with fire

GECO 21-1 The announcements of this December 3rd are worrying.

The European Central Bank reduced its deposit rate from -0.20% to -0.30%. In doing so, it discourages short-term deposits of banks that are too happy to use its balance sheet to ensure a total capital weighting. But she needs bank deposits to finance her massive purchases of the quantitative easing program. That same day Belgium borrows at six months at -0.40%.

In writing this, I measure the absurdity and especially the dangers of the Bermuda triangle constituted by the European banks, the ECB and the Eurozone states. This objective and unhealthy alliance between the three components of Eurozone finance contains a systemic risk that, in the next crisis, will simultaneously explode the three components.

The ECB’s balance sheet continues to grow.

With 2.273 billion euros of assets on its balance sheet, the ECB continues to increase it thanks to a purchase program of 60 billion euros per year whose impact on the real economy is zero. His German colleague, Sabine Lautenschlaeger, has made it clear that there is no longer any need for stimuli. Fortunately, the ECB has resisted the temptation to put a layer on it again. Every $ 60 billion decreases the ability of the ECB to intervene in the event of a sovereign or banking crisis. It is weakening day by day.

The ECB is making the situation of savers more and more catastrophic.

If the leaders of the ECB had the least consideration for savers that would be known. Their expropriation continues. It is no longer possible in the Eurozone of the solid countries (not the southern countries) to obtain the least remuneration for the risk taken by the investor. At the same time, the Federal Reserve will raise interest rates. Investors seeking returns have three choices: investing in the very long term, investing in risk assets, or investing in US securities. Each of these options contains unnecessary risks for the European economy.

Today, the Federal Reserve will dare (finally) to increase its rates by 0.25%. US government bonds offer 2.55% for ten years, against 0.50% for Germany! Does the ECB want to encourage the flight of capital to the United States?

Fiscal discipline is disadvantaged by sovereign bonds at zero rates.

France, which exceeds 100% of GDP worries slightly less than Italy with 132%, going to join Greece. But the amounts are unbearable for these two countries: more than two trillion euros each. The situation in Belgium is worse than that of Portugal, Spain or Ireland. Germany has negative interests and only gives a positive rate for ten years or more! Why reduce debt? In a system of negative interests, borrowers take advantage of their loans. Sooner or later this bomb will burst.

The health of European banks is precarious.

It is Washington and the International Monetary Fund that came to the warning: With nearly 1,000 billion euros of bad credit, European banks are summoned to take urgent action. This represents almost 50% of their equity. This is essential for financing any recovery.

Here again, the lack of interest rate discipline facilitates the banks’ lack of discipline in the amortization of these loans. When borrowing on the interbank market at negative rates, why ask yourself problems?

I do not know if the next crisis will come from the bad assets of the ECB, the tumble of Italy and France or a massive need for bank credit write-downs. This is of little importance.

If banks have to write off their loans and borrow more, the states and the ECB will suffer.

If the ECB sees mistrust on the banks or the states to grow, it will not have the means to intervene and its balance sheet will become wobbly.

If governments continue to over-indebt themselves and investors decide to be wary, the ECB and banks are bogging down.


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