Calling Tamas - What's all this shit about CHF mortgage loans?

[Martinus]

I just read that the Hungarian government is considering a forced conversion of all CHF mortgage loans taken by Hungarian citizens into Hungarian forint loans at an exchange rate that is 30% lower than the market exchange rate "to help Hungarian people against the conspiracy of international banks".

Is any of this true? If so, you are becoming Venezuela. Congrats. 

[Martinus]

I just hope none of this shit rubs off negatively on Poland's reputation in the international financial markets.

[Martinus]

Incidentally, the same shit about "poor CHF borrowers" is also en vogue in Poland, which is a fucking disgrace. This is moral hazard, pure and simple. People took loans denominated in CHF when CHF was depreciating for years against other currencies, because they saved money that way. However now that their gamble did not pay off (anyone who takes a loan in another currency than he is earning is effectively gambling on FX rates) they are crying for help.

[Zanza]

I guess that most or all of Hungary's banks are foreign-owned (mostly from the western European countries). Inflicting a loss on foreign banks while doing your constituents a big favor might be a good populist policy.

Except that it will mean that foreign banks will withdraw from doing business in Hungary and thus Hungary will be starved for capital. So long-term this will hurt Hungarians a lot.

[Admiral Yi]

Incidentally, the same shit about "poor CHF borrowers" is also en vogue in Poland, which is a fucking disgrace. This is moral hazard, pure and simple. People took loans denominated in CHF when CHF was depreciating for years against other currencies, because they saved money that way. However now that their gamble did not pay off (anyone who takes a loan in another currency than he is earning is effectively gambling on FX rates) they are crying for help.

I'd be very surprised if borrowing in Swiss Francs had anything to do with CHF depreciation against the local currency.  Rather the opposite.  What made/makes CHF loans attractive is the low inflation expectation and hence he low nominal interest rate.

But agree with your main point that this is purest Banana Republic economics.

[Tamas]

Here is the situation:

-government is planning to force banks to let people pay back their CHF debts, in HUF, at the 180HUF/1CHF exchange rate. That's indeed roughly 30% below what is now. You can do this, if you took your loan below the 180HUF exchange rate, ie. before mid-2009

-we have a lot of foreign banks here, but supposedly, their added market share is dwarfed compared to OTP, which was The Bank during communism, and has been for 20 years in the ownership of our current PM's main current sponsor. It has actually grown out to be a regional bank power, having child banks all over the Balkans and Ukraine

-the Prime Minister, when announcing this, made comments regarding the potential financial reprecutions. He outlined, that according to their research "foreign owned banks are in a retreat from the country's debt market anyway" and there "should be no doubt" that the government "is behind" OTP, and the other big Hungarian bank FHB or KHB or whatever.

-when later bein interviewed about the very questionable legality of the action, even under their very own new constitution, due to come into effect next year, the PM said that he thinks it is legal, and regardless, it won't be found illegal for years to come. In other words, while he is loudly in fight against national debt, he has no troubles with potentially creating a budget-killing obligation down the road in a few years

Needless to say, analysts and the bank sector has been in total panic mode ever since the announcement. Except for OTP's owner. But it's okay, judging by the above, I think his losses will be covered by the state.

[Tamas]

Incidentally, the same shit about "poor CHF borrowers" is also en vogue in Poland, which is a fucking disgrace. This is moral hazard, pure and simple. People took loans denominated in CHF when CHF was depreciating for years against other currencies, because they saved money that way. However now that their gamble did not pay off (anyone who takes a loan in another currency than he is earning is effectively gambling on FX rates) they are crying for help.

Well yeah. Now, that this is handled as a national tragedy, most people are still paying less monthly than they would have been paying if they have taken a loan in HUF.

Of course, a lot of people stretched their financials thin when taking the CHF loan, so of course they are now in deep shit.

[Zanza]

They will use your pension fund to pay for it.

[Tamas]

They will use your pension fund to pay for it.

haha, well yes, what remains of it.

They did some taxcuts at the start of their reign, most notably the flattification of the income tax. Which costed like 500 billion forints, which was about 2 billion euros back then.
They forgot two things however: they did not cut spendind with it, and, they did this menacing unpredictable moron act in the economy, so consumption and investment failed to raise due to the tax decrease.
So they started raising various other taxes, and introducing new ones.

Still, with the pension money mostly gone (took them a year to spend most of the 12 years old savings of 3 million people - gotta appreciate the effort), supposedly they have a 1000 billion forints hole in next year's budget they have to fill somehow.

[Sheilbh]

Dare I ask if you've a decent opposition yet? 

[DGuller]

I guess Tamas shouldn't have gotten offended after all when I implied that his country is an uncivilized hellhole. 

[Martinus]

Incidentally, the same shit about "poor CHF borrowers" is also en vogue in Poland, which is a fucking disgrace. This is moral hazard, pure and simple. People took loans denominated in CHF when CHF was depreciating for years against other currencies, because they saved money that way. However now that their gamble did not pay off (anyone who takes a loan in another currency than he is earning is effectively gambling on FX rates) they are crying for help.

Well yeah. Now, that this is handled as a national tragedy, most people are still paying less monthly than they would have been paying if they have taken a loan in HUF.

Of course, a lot of people stretched their financials thin when taking the CHF loan, so of course they are now in deep shit.

Yeah it's the same here. I was responsible and took my mortgage loan in PLN, and my interest rates are pretty high compared to the fuckers who took it in CHF. Their problem, however, is negative equity - the ratio of CHF to PLN nearly doubled in the last 3 years or so (now it's back to around 150% of what it was at the lowest point) and the prices of flats decreased by 10% on average since the beginning of the financial crisis. It's not hard to see that anyone who took a loan at the height of a real estate bubble (where the price of CHF was the lowest, as well), and did not put in any (or very little) of own equity into it, may have a loan which has a nominal value significantly higher than the value of their flat.

Now, Polish banking law does not allow for "walk away" mortgage arrangements (meaning, a bank can reposition your house, sell it on an auction and still go after you for the missing money) so the banks are at least cushioned somewhat from some massive problems (and right now noone gives CHF loans anymore and they are slowly being phased out) but once people start defaulting it may turn nasty.

[HVC]

I guess Tamas shouldn't have gotten offended after all when I implied that his country is an uncivilized hellhole. 

We should give it back to austria.

[Martinus]

Actually, from what I read, the brunt of this measure is anti-Austrian, since the majority of foreign banks in Hungary are Austrian-owned (Reifeissen and Erste, I think). So it is the brave Magyars throwing off the Austrian yoke and their outdated concepts such as "ownership is not theft" and "pacta sunt servanda".

[Martinus]

Incidentally, the same shit about "poor CHF borrowers" is also en vogue in Poland, which is a fucking disgrace. This is moral hazard, pure and simple. People took loans denominated in CHF when CHF was depreciating for years against other currencies, because they saved money that way. However now that their gamble did not pay off (anyone who takes a loan in another currency than he is earning is effectively gambling on FX rates) they are crying for help.

I'd be very surprised if borrowing in Swiss Francs had anything to do with CHF depreciation against the local currency.  Rather the opposite.  What made/makes CHF loans attractive is the low inflation expectation and hence he low nominal interest rate.

But agree with your main point that this is purest Banana Republic economics.

Well, it's a bit of both. Sure, the CHF loans have always been very cheap, but also CHF kept depreciating against PLN, meaning the principal of the loan decreased too.

For example, go here and check out the 10 y.o. exchange rates chart:

http://stooq.com/q/?s=chfpln&c=10y&t=l&a=lg&b=0

My old flat's mortgage was taken in CHF in 2003 and repaid in 2008 - as you can see, I made quite a lot of money on this. If someone took a loan in 2008, they are screwed.