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

[Bronte]

Sunny that seems to show there were no arrears in 2004, but I suppose that there were no arrears because in the past if you defaulted the bank took the house and then some. So the game has changed because the bank cannot take the house now. They actually cannot, they can huff and puff but they don't want to take it. Would that be a fair assessment?

What the banks are doing is scaring people into taking interest only etc, but some people have realised that even if they play ball with the bank, then the minute they are in the clear the bank will swoop with penalties and interest, and back dated interest. So maybe those 2% have copped this and said to hell with it?

As an aside and an investor/landlord myself, the figures are frightening on rent reductions, value of property, NPPR and househhold charge and USC etc. I could see why people are going to sit down and say, these figures don't make sense, damned if they are going to throw good money after bad and just pay the home loan and living expenses.

Just another thought, maybe these people have outsmarted the bankers and that's why the banks are mad. Or maybe the 'attitude' inside in the collection teams is that all borrowers in arrears are losers and we're going to screw them for everything we can. A certain bank culture maybe. What kind of bank culture rings up a person and asks where do you grocery shop and what do you buy etc.

 

[44brendan]

What the banks are doing is scaring people into taking interest only, but some people have realised that even if they play ball with the bank, then the minute they are in the clear the bank will swoop with penalties and interest, and back dated interest. So maybe those 2% have copped this and said to hell with it

Per MARP agreement Bank's are not allowed to impose interest increase or penalties on those in arrears. This is not fair comment. bank's have no interest in scaring people into taking interest only or doing anything other than repaying their mortgage in compliance with the original agreements.

 

[Bronte]

Marp does not apply to investment properties. They were specifically mentioned on this thread as the main point at issue I thought. And people are scared.

 

[demoivre]

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.

No loan approval needed and cheaper than the credit union.

 

[DerKaiser]

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.

The banks have been capitalised (by us) for the inevitable level of defaults. This means that they will just about need all the money (that the state has borrowed to give them) if they are quite strict in only writing off debt where there is no chance of recovery.

It is important to understand that the banks need to be disciplined in this task, as unnecessary writedowns will only lead to the taxpayer being hit for another round of bailouts.

That's why this is newsworthy. If there are 1-2% of people choosing not to pay, that's an additional cost to the taxpayer. If that number were to get out of hand, we'd be in chaos.

People on interest only are in the 91% of performing loans. Would they be better off going into the 1-2% who can pay but don't?
In the short term, yes - They'll have a better standard of living.
In the long term, no - They'll almost certainly be in serious financial trouble when the moratorium on house repossessions ends.

We have to keep as many people aspossible out of the 1-2% because:
a) Their debts will fall back on the banks and ultimately us as taxpayers
b) The people in this bracket are foolish as they are sacrificing long term security for short term consumption

 

[44brendan]

No loan approval needed and cheaper than the credit union.

This is actually quite an astute comment. If you take a HL with P&I repayments of 2K pm, you can miss 2 months repayments and then advise the Bank that you are now back on track & resume the repayments. Rsult will be that you have 4K to finance a holiday etc. & because the Bank cannot impose penalties, the borrowing is at a low tracker rate. Interesting!

 

[Sunny]

This is actually quite an astute comment. If you take a HL with P&I repayments of 2K pm, you can miss 2 months repayments and then advise the Bank that you are now back on track & resume the repayments. Rsult will be that you have 4K to finance a holiday etc. & because the Bank cannot impose penalties, the borrowing is at a low tracker rate. Interesting!

You would still have to find the cash to clear the 2 months arrears after your holiday. Otherwise you are going to damage your credit record so you can enjoy a trip away. Hardly worth it.

 

[44brendan]

Sunny, I have my doubts as to whether the ICB is being updated in respect of small mortgage arrears. I suspect that the main Banks are not doing this, but I'm open to contradiction.

 

[Sunny]

Sunny, I have my doubts as to whether the ICB is being updated in respect of small mortgage arrears. I suspect that the main Banks are not doing this, but I'm open to contradiction.

They will if your account is in arrears for longer than 3 months (usually but does depend). Happens automatically in most banks.

 

[Dermot]

I am aware of two bank officials and for the past 4 years the two of them and their partners have made arrangements with their bank to have one and two months repayment holidays on their house load for the purpose of funding a life style. They and their partners would be well able to repay their mortgage in full and still have a life. I am very friendly with their parents who are furious with them. They have stated to the parents that they will get a write off on their mortgage if they do this in a planned way. This is the type of behaviour that generates the "moral hazard" fear

 

[micheller]

They have stated to the parents that they will get a write off on their mortgage if they do this in a planned way. This is the type of behaviour that generates the "moral hazard" fear

And the trough gets troughier.
Seriously if you have any evidence of this it should be investigated. It's disgraceful when so many are pumping as much as they can into mortgages inflated by the celtic tiger era, to try to stay on track and insulate against the future.

 

[Sunny]

Taking a payment holiday is not the same as going into arrears. Can't believe that any sane couple, never mind two couples who work in banks believe that by taking a payment holiday that this could lead to debt forgiveness.

 

[Bronte]

The defence that a person fills in a Standard Financial Statement which catches everything is idealogical, lots of people can change how their incomes look (for instance in the professions)

There are a number of ways to do this, and the more you get into it the more you spot the loopholes in the system.

Naturally, we should empathise with genuine cases, but perhaps not for those where abuse of the system is taking place. It is common on investment properties - often where a bank tries to go to capital and interest rather than interest only.

If a business cost 10k per year but only earned 5k you'd close it down, that is what some people are doing, but they can't close down the debt at the same time.

.

As you do I had a think about this last night.

What you are saying is that people are deliberately lying on their SFS, but the only people who can do this is self employed people. Professionals such as doctors dentists etc. But that can be easily checked by asking for the professionals annual tax return (even if that too is a lie it would give a clearer picture of the income) These people have bought some investment properties, and they have decided not to repay the mortgages on them. A deliberate action. They can afford to pay but they don't. So are they pocketing the rent? What is the benefit to the owner of this strategy. The debt is getting higher and higher. Because they are good earners the bank can go after that income. They are paying their home loan. The bank can go after that too. So what is the issue that the banks have?

 

[Bronte]

I am aware of two bank officials and for the past 4 years the two of them and their partners have made arrangements with their bank to have one and two months repayment holidays on their house load for the purpose of funding a life style.

You have said they have made an arrangement with the bank to have payment holidays. It is not at all the same as the OP posted.

How exactly do two people in presumably permanent pensionable employment think the bank will give them a write down, have they seen the bank do this for other people? Why for these two would the bank do it. They have an income. The more payment breaks they take the better, they pay more interest, the bank wins? I do not understand their 'strategy'.

 

[44brendan]

I am aware of two bank officials and for the past 4 years the two of them and their partners have made arrangements with their bank to have one and two months repayment holidays on their house load for the purpose of funding a life style

I would question the veracity of this statement! There is flexibility in place for loans to be repaid over 10 rather than 12 months of the year. However, there is no Bank (to my knowledge) who will approve regular breaks, in that manner where arrears are allowed to build up for either staff or clients.

 

[elcato]

What you are saying is that people are deliberately lying on their SFS, but the only people who can do this is self employed people.

Didn't people lie about their earnings when looking for inflated mortgages prior to the bust ? I'd suggest that people are saying they owe moneylenders, family members money or education costs for the kids etc. What amazes me here is that people are either so naive that they don't think this is going on or they attack the messanger for actually pointing it out by saying its the bankers/government/developers attempting to somehow deflect attention away. Get over the oirish begrudgery and accept it is happening as some very public cases highlighted by a previous poster.

 

[Kerrigan]

Let's think this thru, if the banks are saying this now, why now. What is their aim. They want to scupper or thward the new insolvency legislation. That's what they are at. I'm convinced of it.

You have hit the nail on the head. Once insolvency legislation comes into fruition the ball will then be in the mortgage holders court.

I worked for a debt management company in the earlier days of the downturn. I no longer work there but my partner still does. From experience, there are very few going out of their way to default on mortgages.

 

[Latrade]

I worked for a debt management company in the earlier days of the downturn. I no longer work there but my partner still does. From experience, there are very few going out of their way to default on mortgages.

I'm sceptical too, more of the figure being as high as 25%. And I think we need to explore more anyone's motivation for going into arrears rather thhan an assumption its because they want extra holidays and won't make any lifestyle adjustment.

A counter example is that there are people who over the last few years where because of increased charges and taxes, interest rates, pay cuts, job losses, etc have found that they are at the tipping point of being able to afford all their commitments. We can moralise on how they got those committments at some other stage and whether or not they over stretched themselves.

However, many of those have no intention of defaulting and want to keep paying off their debt. What they are looking for is some form of debt restructuring to lower the current burden of the repayment. I don't think that unreasonable and many just want restructuring for a temporary period, i.e. until work is found or situation improves. However, they face a situation where the banks will not negotiate with them on this unless they are in default. Rather than avoid a default and affect their credit record, the only way they can even get a meeting is to be in arrears.

I'd love to say they all just wanted a break in the South of France while it was a bit chilly or that they really can't downgrade from the SLK, while that might be true in a couple of extreme examples, let's not demeen just how close people are to losing everything.

 

[itsallwrong]

Are people not being very dangerous messing with a mortgage on purpose?
Stealth defaulters will not get what they think they might get. Instead it just earns them black marks with their credit and bank. Something most people try and avoid given the noose around your neck for years to come, like looking for a loan.

 

[fobs]

Are people not being very dangerous messing with a mortgage on purpose?
Stealth defaulters will not get what they think they might get. Instead it just earns them black marks with their credit and bank. Something most people try and avoid given the noose around your neck for years to come, like looking for a loan.

but if people have unsustainable borrowings they will not get another loan anyway so figure what the hell. Some investers will never repay their debt. Wonder why the banks are not going after the invester type mortgage holders as yet. By right there should be a lot more repossessions than at present.