Stephen Donnelly: "Banks make more out of restructured mortgages"

[Brendan Burgess]

4. Repossession when positive equity, with legal costs charged to borrowers, with full arrears and charges included, increases the NPV of the loan;

I can't see how it does?

If a bank has a loan of €200k on an SVR, let's say it has an NPV of €250k assuming it goes to the end of its mortgage term.

If the bank repossesses, it gets €200k, so it misses out on the €50k it could have earned if the mortgage had not defaulted.

I watched a number of repossession cases in the Circuit Court last week, and, to my surprise, costs were refused in every case.

Repossessions increase the losses for the banks. I want to say in all cases, but there might be some technical situation I have not thought of.

 

[Brendan Burgess]

5. Repossession with negative equity, when bank successfully seeks full repayment of residual, when arrears have been incurred (which they almost always have), increases the NPV of the loan;

No, such a repossession doesn't.

It's the same as repossessing a house in positive equity. If the loan is a profitable SVR, the lender would much prefer it to run its full term.

 

[Brendan Burgess]

6. Interest-only periods increase the NPV of the loan;

7. Reduced capital payments for a period increase the NPV of the loan;

8. Deferred interest restructures increase the NPV of the loan;

9. Payment moratoriums increase the NPV of the loan.

All of these are variations of "1) Where the term of a Standard Variable Rate loan is rescheduled without any write-off, the lender will indeed earn more interest from that loan."

 

[Brendan Burgess]

we STILL get nearly 40% of all restructures leading to higher profitability to the lender.

Let's assume your figure of 40% is correct. What does it mean?

In these cases the lenders will make more profit from that particular customer than it would otherwise have made. Had the borrower repaid their loan without rescheduling, the lender would simply have lent the money to someone else. So the lender is not making any additional profits, overall.

Just like a landlord might well be pleased if a good tenant renews a lease for an additional year. If the tenant does not renew the lease, the landlord doesn't just leave the flat lying idle. He lets it to someone else at a higher or lower rent.

And if a landlord evicts a tenant who is not paying the rent, he does not make more money than he would have made if the tenant had paid the rent on schedule.

 

[trasneoir]

All of these arguments seem to assume that bankers' time is free. They aren't civil servants- if they weren't busy administering/harassing/holding-upside-down-and-shaking distressed borrowers, they could be doing something else, or be off the payroll entirely.

Bankers love borrowers who pay in full and on time, for the same reasons that insurers like little old ladies who pay tiny premiums and never cause claims: they provide reliable income and cost next to nothing to administer.

 

[Brendan Burgess]

All of these arguments seem to assume that bankers' time is free.

Hi transeoir

Stephen may have ignored it, but I certainly didn't.

But what about the costs of the arrears crisis generally

The lenders have huge expenses in complying with the Code of Conduct on Mortgage Arrears. They have vast teams of people dealing with mortgage arrears and they are constantly reporting to the Central Bank and the Department of Finance. And how does Stephen deal with it?

Let us ignore the CCMA and other such considerations,