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Russian borrowers money woes include their home mortgages
Posted on 12/13/14 at 11:48 am
Posted on 12/13/14 at 11:48 am
quote:
MOSCOW, Dec 12 (Reuters) - About 100 Russians who have seen their mortgage payments rocket due to the plunge in the value of the rouble took to the streets of central Moscow on Friday to demand state help.
It was one of the first significant protests over the currency, which has fallen more than 40 percent against the U.S. dollar this year, pushing up the cost not only of imported goods but also of the low-interest foreign-currency mortgages that the protesters had taken out.
"We want to pay loans based on the exchange rate at the time we signed the papers. The authorities, our government, must see to that."
"Since I took my mortgage, my salary has remained at 70,000 roubles but my monthly payment now is 85,000 a month," said Irina, a woman in her 30s who works in an advertising firm.
"I want justice. They should not only help the banks but people like me ... I've already borrowed from all my friends. They're not taking my calls any more."
4
Posted on 12/13/14 at 11:54 am to LSURussian
Are they paying their mortgages in dollars or rubles? The bank should be the one taking the hit, not the borrower.
Posted on 12/13/14 at 12:00 pm to Layabout
quote:Why?
The bank should be the one taking the hit, not the borrower.
They borrowed a foreign currency to buy their house. They have to repay the foreign currency using rubles to buy that currency.
The reason they borrowed the foreign currency was the interest rate on foreign currency loans was MUCH less than if they had borrowed rubles, something like 5% annual interest versus 10% for rubles.
If the ruble devalues, as it has, they have to come up with more rubles to pay their loan back.
So they took a chance, assumed the foreign exchange risk and they lost their bet that the ruble would remain relatively stable versus the currency they borrowed.
Posted on 12/13/14 at 1:09 pm to LSURussian
They shouldn't worry, they can pay for it out of all the money they put into bitcoins. Amirite?
Posted on 12/13/14 at 5:08 pm to Layabout
The banks likely will take the hit. If the average Russian is like the average American they wont be able to foot the bill. This would be like someones note in the US going from 1500 to 3000 per month.
Posted on 12/13/14 at 11:34 pm to LSURussian
quote:
The reason they borrowed the foreign currency was the interest rate on foreign currency loans was MUCH less than if they had borrowed rubles, something like 5% annual interest versus 10% for rubles.
I didn't realize that this was an accepted way of financing. An ARM is looking mighty good compared to this arrangement.
Posted on 12/14/14 at 3:43 am to Layabout
quote:
I didn't realize that this was an accepted way of financing.
I'm actually curious how foreign banks can foreclose on a delinquent loan. Will Russian law allow for this?
Posted on 12/14/14 at 9:02 am to foshizzle
quote:I doubt the mortgage loans are being made by foreign banks. They are from Russian banks but just denominated in a foreign currency.
I'm actually curious how foreign banks can foreclose on a delinquent loan. Will Russian law allow for this?
I just realized I didn't include a link for the quote I provided in the OP. Here it is:
LINK
Posted on 12/14/14 at 9:19 am to Layabout
quote:That's because most typical Americans only think in terms of U.S. dollars. Countries with developing economies have to use a variety of currencies.
I didn't realize that this was an accepted way of financing.
When I was working in Moscow, I'd see Russians get their pay in rubles and as soon as they got paid, they would rush out to the closest currency exchange kiosk on the street and sell their rubles for dollars. Dollars were king.
Posted on 12/14/14 at 10:26 am to LSURussian
I suppose they borrowed in dollars because a loan in rubles would have cost a lot more??
Pretty risky it seems to me if all your income is in rubles.
Borrowers should have to take the hit.
I suspect those houses that secure those mortgages in dollar terms have collapsed in price but in rubles have sky rocketed in price. Wonder how the mortgage holders are going to come out?
Pretty risky it seems to me if all your income is in rubles.
Borrowers should have to take the hit.
I suspect those houses that secure those mortgages in dollar terms have collapsed in price but in rubles have sky rocketed in price. Wonder how the mortgage holders are going to come out?
This post was edited on 12/14/14 at 10:26 am
Posted on 12/14/14 at 12:45 pm to LSURussian
quote:
They are from Russian banks but just denominated in a foreign currency.
Ah, that makes more sense then.
That is, it makes sense that the banks are Russian, not that one would borrow such a large sum and not hedge the currency risk. TANSTAAFL.
Posted on 12/14/14 at 3:38 pm to I B Freeman
quote:
I suppose they borrowed in dollars because a loan in rubles would have cost a lot more??
You're very astute....especially since I already posted:
quote:
The reason they borrowed the foreign currency was the interest rate on foreign currency loans was MUCH less than if they had borrowed rubles, something like 5% annual interest versus 10% for rubles.
Posted on 12/14/14 at 4:07 pm to LSURussian
And the banks offered the different rates because they saw foreign currency as less of a threat of devaluing than the ruble, right?
Posted on 12/14/14 at 4:08 pm to LSURussian
quote:
When I was working in Moscow, I'd see Russians get their pay in rubles and as soon as they got paid, they would rush out to the closest currency exchange kiosk on the street and sell their rubles for dollars. Dollars were king.
How common was attempts to "market time" this, saving as much as they could to look for a more favorable rate than current with the dollar.
Or was there no confidence at the time and they exchanged as soon as possible because they assumed it was all downhill.
Posted on 12/14/14 at 7:02 pm to Volvagia
The Russians I worked with kept their money in dollars all the time except when they needed to convert a few dollars for rubles to buy something.
Posted on 12/14/14 at 8:37 pm to LSURussian
Yeah I guess when you live in a country which has a functional currency the same as the global reserve currency, you don't think about these issues.
Interesting story.
Interesting story.
Posted on 12/14/14 at 8:40 pm to LSURussian
Is a 10 percent mortgage rate normal over there?
I'm sure soon we will hear stories about how these borrowers didn't understand what they were signing, etc.
I'm sure soon we will hear stories about how these borrowers didn't understand what they were signing, etc.
Posted on 12/14/14 at 8:43 pm to LSUFanHouston
I'd imagine that 10% rate reflects the risk the buyer will default and the risk the transactional currency will devalue. Based on the percentages posted, it seems the ruble devaluing is just as risky as the individual buyer defaulting.
Speaking to your other post, that is another interesting variable that we Americans don't have to take into account when obtaining credit.
Speaking to your other post, that is another interesting variable that we Americans don't have to take into account when obtaining credit.
This post was edited on 12/14/14 at 8:45 pm
Posted on 12/14/14 at 9:02 pm to LSUFanHouston
quote:
Is a 10 percent mortgage rate normal over there? .
Not any more. The Central Bank of Russia just last week raised its overnight rate to charge banks to 10.5% annualized on ruble loans.
I'd be surprised if any bank is making any loan longer than 90 days right now.
Posted on 12/14/14 at 9:27 pm to LSURussian
Damn isn't the U.S. overnight rate something like 0.02%?
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