Karl Deeter "Some borrowers are going into arrears on purpose"

Based on anecdotal evidence, I'd have to say I agree with Karl.

However, I think that in the majority of such cases its not as sophisticated as people thinking they may get a deal down the road. I've come across a couple of cases of each of the following in my circle of acquaintances:

1. People who are over stretched on credit cards or personal loans making an executive decision to prioritise the payment of cc or pl over their mortgage because the cc or pl has a much higher interest rate than their mortgage and because e.g. credit card companies are more proactive and much quicker in pursuing debts than mortgage providers. These people take advantage of the fact that a bank is going to do very little over a few months arrears. In a way they are also taking the advice that a lot of people give on the "Money Makeover" thread of this forum i.e. pay your high interest debts before you pay your low interest ones.

2. Those who take advantage of the fact that people who are only several months in arrears are not on the banks radar as the banks are dealing with bigger issues. They are also comforted by the recently introduced rules whereby a bank will do nothing for 12 months. They feel that they have the ability to go a few months into arrears without any major consequences. One classic example - acquaitance asked me where we went on holidays last summer. I replied we didnt have a family holiday because of pay cuts etc etc..His response was....".dont pay your mortgage for a couple of months and you can afford a holiday......I didnt pay my mortgage for 3 months last year....what are the bank going to do about it.....everyones in arrears.....they dont care if you miss the odd payment.......". These people prioritise the family holiday, daughters communion, new three piece suite etc. over their mortgage.
 
Karl has been very clear every time I have heard him.

The majority of people in arrears are doing their best and want to get out of arrears.

There is a minority - between 10% and 25% who are strategically defaulting.

That seems a fair estimate to me.

Brendan
 
The man from new beginnings even said there are some who are doing just this.As usual its the few who take advantage who make it difficult for those in real difficulty's.
 
I'm sure that what Karl Deeter has said is correct, but I wonder if it's not counterbalanced by (as people on this thread have said) people paying their mortgage on time and in full and neglecting normal living expenses.
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Yes there are an element of those who are in the "won't pay" rather than "can't pay" category. However, in my own experience they are in the minority. I also agree that there are probabaly as many sacrificing basic family essentials in order to meet their mortgage payments.
Karl Deeter has a point, but in my view he is overstating the level of the problem.
 
Karl's research is not evidence based or empirical. It is basically the opinion of executives at the banks: "In my opinion as a banker, I'd say x amount of people blah blah blah...."

Karl says that because defaults have shot up and unemployment hasn't, that that is proof they are strategically defaulting. Nonsense, in my opinion. Why would you choose to draw that conclusion, which suits the banks by the way, while refusing to draw the most obvious conclusion? - the default numbers have only shot up now because all the people who were made redundant at the height of the crash have now bled out their redundancy payments and savings, and are only running out of cash now.

With research of this kind, we should throw a very sceptical eye over it, especially when it is so unscientific, its findings are so surprising, and it suits the agenda of the banks so closely.

It is perfectly relevant to point out that Karl is a mortgage broker - he is paid through commissions from banks. This raises legitimate questions about the independence of his research.
 
csirl said:
1. People who are over stretched on credit cards or personal loans making an executive decision to prioritise the payment of cc or pl over their mortgage .
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And your argument is that you agree with Karl and the banks because people in this situation pay these debts first and therefore are strategically defaulting? But if they don't pay the credit card and personal loan what will happen to them?

In relation to point 2. Anyone who can pay a mortgage and go into debt to go on holiday is an idiot. Or is the psychy of Irish people so tainted by the era of the Celtic tiger and the easy money that they do not see thing the way you or I would. Or are people damaged.
 
RIAD_BSC said:
With research of this kind, we should throw a very sceptical eye over it, especially when it is so unscientific, its findings are so surprising, and it suits the agenda of the banks so closely.

.
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If one believed Deeter and the banks then there are a whole heap of people well able to pay their mortgages. So what is the actual banks problem, they have the power and the money to bring them to court and make them pay, they also have the power to take the investment properties and sell them. But they are not doing that, why, because they know that however bad the property market is now it would be 10 times worse if they did, and that's without the Nama properties.

So really Ireland isn't in recession, people are not unemployed for a couple of years now, they haven't spent all their savings paying off their debts, people are not taking massive pay cuts, people have no problem getting bank loans to start a business. There are not small businesses closing down every day of the week, there are not thousands emigrating, there are not people committing suicide. Restaurants brimming over, the whole country in party mood this weekend, not a room to be had in any hotel.
 
Bronte said:
In relation to point 2. Anyone who can pay a mortgage and go into debt to go on holiday is an idiot. Or is the psychy of Irish people so tainted by the era of the Celtic tiger and the easy money that they do not see thing the way you or I would. Or are people damaged.
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+1 re them being idiots.

Not sure its a celtic tiger thing. The person who told me they did this was from one of those families who, in the 80s and 90s used to borrow from their local unofficial 'money lender' twice a year - for summer holiday and for christmas - and end up spending the rest of the time paying back these debts at very high interest rates. There are whole sections of society where the summer holiday and spending loads at christmas is engrained to the extent that they believe the world will end if they dont go on holiday or dont buy their kids the latest expensive craze at christmas.
 
Bronte said:
25% is not a minority.
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I have mentioned this months ago and posted here that if there is an opportunity for people in this country to take advantage then they will. Look at our shambolic welfare system where people are milking it every day. And so it comes to pass that people are now deliberately not paying their mortgage...will we ever learn to deal with these type of situations properly?
 
goingforgold said:
I have mentioned this months ago and posted here that if there is an opportunity for people in this country to take advantage then they will. Look at our shambolic welfare system where people are milking it every day. And so it comes to pass that people are now deliberately not paying their mortgage...will we ever learn to deal with these type of situations properly?
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No such thing has "come to pass". If you believe Deeter, you are taking the word of the banks at face value. Because he has no other source of information, other than the bankis that pay him. For me, Karl Deeter's research is potentially compromised.
 
This is a weird thread.

"10% or more of people in arrears on their mortgages have not done as much as they could to contain their other costs"

Is anyone genuinely saying that this statement cannot be true?
 
I spoke with my bank a year ago asking would they consider allowing me to sell my house and bring the negative equity into a new loan, or a new mortgage. Needless to say they said no but the nice ladies parting words were "You do not have financial problems as far as we are concerned. Until you stop paying your mortgage there is nothing we can do for you"

Not sure if we just got unlucky with the bank official we spoke to or if others were saying the same but it is a dangerous message for banks to be giving out.

Edited to add - She wasn't suggesting that if we stopped paying they would offer us an NE mortgage, it was just a general statement she made while we were putting our coats on.
 
DerKaiser said:
"10% or more of people in arrears on their mortgages have not done as much as they could to contain their other costs"

?
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My understanding of what is being said is that 1 in 4 (and that's some minority) is deliberabely not paying their mortgage and they can afford to do so but will not do so as they are hoping the bank will cut them a deal.

Csirl, the people you mentioned, they probably should never have been given a loan in the first place. People who cannot manage their money should not be given loans and if we didn't have the tiger would they have been able to get a mortgage? I don't think this comes under strategic default but more fecklessness and insane lending.
 
Bronte said:
If one believed Deeter and the banks then there are a whole heap of people well able to pay their mortgages. So what is the actual banks problem, they have the power and the money to bring them to court and make them pay, they also have the power to take the investment properties and sell them. But they are not doing that, why, because they know that however bad the property market is now it would be 10 times worse if they did, and that's without the Nama properties.
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That's not really true. The banks are operating with one hand tied behind their banks hence they want the Central Bank to revisit the code of conduct when it comes to dealing with people in arrears. For example, they are severly limited in the amount of contact they can have with the borrower.

The investment property issue is being held up because of a High Court judgement showed that there was an issue with legislation and the banks have been asking the Government to ammend it.

As for people being able to pay deciding not to pay, it is hardly shocking news.
 
You do not have financial problems as far as we are concerned. Until you stop paying your mortgage there is nothing we can do for you"
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Absolutely true. Until the loan goes into arrears the Bank will not address any solution other than full repayment.
 
Bronte said:
My understanding of what is being said is that 1 in 4 (and that's some minority) is deliberabely not paying their mortgage and they can afford to do so but will not do so as they are hoping the bank will cut them a deal..
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I think the national average for arrears is 9%, there is anecdotal evidence to suggest a range of 12% to 25% of this number are not fully engaging with cutting discretionary spending.



So what we potentailly have is:
  • 91% of mortgageholders are sticking to agreed payments, which might be very tough in many cases
  • 7-8% of mortgageholders are in arrears but are doing their best to engage with the banks in tough circumstances
  • 1-2% of mortgageholders are in arrears and not doing their best to engage with the banks
So 98-99% are doing their best.

I don't know if this is true, but how is this not believable?
 
DerKaiser said:
I

1-2% of mortgageholders are in arrears and not doing their best to engage with the banks

So 98-99% are doing their best.
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So out of the 9% of people in arrears about 2% are deliberately not paying their mortgage. And if that's all that is at issue why is this newsworthy. Even in a fully performing economy 2% of the mortgage book not paying would be normal? There are always bad debts. Anyone know the stats with a fully functioning economy of bad debt write down?

If one is part of the 7% in arrears but struggling, say with interest only mortgages etc, would they not be better off going into the 2% bracket and strategy to get the banks to get real. Keeping people on interest only indefinitely is pointless. That is where the problem is.
 
Bronte said:
So out of the 9% of people in arrears about 2% are deliberately not paying their mortgage. And if that's all that is at issue why is this newsworthy. Even in a fully performing economy 2% of the mortgage book not paying would be normal? There are always bad debts. Anyone know the stats with a fully functioning economy of bad debt write down?
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This report might be of interest. Page 19 might have the figure you are looking for.

[broken link removed]
 
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