Foreign currency loans sold for a fraction of their real value

When the crisis hit and the banks went bust the loans of the public, who took them to pay for houses, cars and other things people need loans for, went into limbo for a while. The old banks had given people two choices, take the madness of price-indexed loans or foreign currency loans that looked more appealing, but never sounded that good either.  The banks sold the foreign currency loans on a massive scale, to the public and the corporate world.

Then the ISK came crashing down, and the foreign currency loans skyrocketed and in many cases more than doubled the monthly payments. Read this article here to see more about that. Then the lone collections got transferred to the new banks, Kaupthing is now New Kaupthing, Glitnir is not Íslandsbanki and Landsbanki still has not been restored from the ruins. Most likely, according to rumours, the old Landsbanki was in such as mess and its assets based on air, that the grounds for a new bank are hard to see at the moment.

The public’s loans were not transferred in the tradtional sense, they were bought by the new banks  for a discount price.

I have not written about this before because I needed more confirmations from various sources. I have them now, and the numbers are scary.

The foreign loans people took for houses and cases got sold for various prices, the most common numbers are that loans got sold for 5-7%, other loans for 9-13% and in some cases, the very reliable loans got sold for 65% of the real value. This means that if a loan for 10 million ISK in foreign currency was sold from the bankrupt bank to the new bank for one million. But… the loan taker, the person who used it to pay for her house needs to pay not just the 10 million ISK, instead the person has to pay for the collapse of the currency as well. The loan has doubled, but the bank got it for 10% or it initial value.

This means that 90% of the loan has been written off by the banks (sometimes more, sometimes less, see numbers above), but the person who got the loan has to pay the bank in full, and then some. This is to me nothing more than theft. The majority of the money has already been written off but the bank still takes the money with interests and threats of legal actions.

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