Summary of the Bank of Ireland write-off case

The facts of this case are vague and so it's difficult to conclude what the implications are. I will try to summarise them from the bits I have read.

Sources:
Irish Times [broken link removed]and video report by Simon Carswell
This post by bugler on Askaboutmoney
Laura White's [broken link removed]with Newstalk
You can watch her being interviewed on the Six One News. It starts at 4.21
Ross Maguire discusses the case on Drivetime

(In the interview, she attributes her success to the power of prayer and the intervention of God. "I had to trust God for three years. He listened to me")


Lender Bank of Ireland
Borrower Laura White , nurse, aged 35
Purchased a house in Coolock in 2005 with a mortgage of €245,000. She worked in a nursing home with a basic salary of €50k and overtime of €20k.
In 2009 she wanted to move to the West of Ireland for personal reasons. She took a job in the Prison Service on €40k
She appears to have handed the keys back - It seems that she did not have the permission of the bank to do this.
Bank of Ireland sold the property - date and sum not specified

Bank of Ireland sued her for the balance due of €170,000 which is now an unsecured debt.

New Beginnings negotiated a deal with the Bank as follows:

If she pays €250 per month for 6 years or €18,000 in total, the bank will write off the balance of €152,000.

If she doesn't keep up her payments, then she will have a judgment of €120,000 registered against her. Not sure why the default judgment is €120,000 and not €152,000.

The argument
There was a dispute between the Bank and the borrower over when she handed back the house
The borrower argued that Bank of Ireland should have sold the house sooner and they would not have lost so much

The figures

Purchased a house for €250,000 with a loan of €245,000 in 2005.
Proceeds of sale €70,000
Shortfall on loan after house sold €170,000 (She had no other debts)
Percentage fall 72%

People have said that these numbers don't look right. But they probably are.

70% is a big price drop for a house between 2005 and 2010, but as it was a forced sale, the price fall could easily have been 70%. It could also explain why BoI offered this deal. It may be a recognition that they handled the sales process badly.

As she was probably in arrears before selling it, the balance outstanding could have been higher than the amount borrowed.

Add in the costs of the repossession and the security on the property and the costs of the later legal action, then the figures are easy enough to understand

I have been pushing hard for the government and banks to recognize that there are 10,000 unsustainable mortgages. A protocol needs to be agreed whereby these people can sell their house without the stigma of repossession. They Dept of the Environment needs to assess their housing needs, if appropriate. And the banks need to agree a settlement of the shortfall. My view is that it should be written off over 5 years, but with the 5 years beginning when they entered the MARP.

But , this does not seem to be a deserving case

Listen to the Newstalk [broken link removed]

She borrowed €245k when she was earning around €70k. 5 times basic salary and 3.5 times her total salary. (This will discourage banks from taking overtime into account in future when deciding how much to lend - not necessarily a bad thing)

She did not lose her job. As a nurse, she is very employable. She is now a public servant.

She did not have children or other dependants.

She voluntarily changed job and took a €30k cut in salary because she wanted to work in the Prison Service.

She seems to have handed back the keys without the consent of the bank. Maybe she tried to get their permission to sell?

She had let the apartment at some stage. She did not need to surrender it. The rental income would have exceeded the interest paid. She could have made up any shortfall in the repayments from her salary.

"I could not afford a solicitor and I earn too much to qualify for free legal aid"

This boosts the case for those who are worried about moral hazard and strategic default.

This has been trumpeted as mortgage write-down. It's not.
This case has no implications for people who want to keep their family home and have their debt reduced.

This woman surrendered her home.

This is the write-down of unsecured debt.
After the home was sold, the balance of €170,000 was unsecured debt.

Banks will often accept a settlement figure in full and final settlement of unsecured debt.

Why did the bank do this?
The bank could have applied for a judgment for the €170,000, which they would probably have got.
They would then have had to apply for an instalment order. The judge would probably have given them an instalment order to pay something every month.

I suspect that there was some weakness in the bank's case. Her barrister argued that the loss should have been a lot less if the Bank had sold the property earlier.

Of course, the bank may also have just realised that they can't get blood from a stone and have reached an agreement to get as much as possible.

Or there may have been some other issue involved which we know nothing about.

What are the lessons to be learnt from this?

Where a mortgage is unsustainable, the banks should agree a protocol for the surrender and sale of the property
Some people with unsustainable mortgages are not being allowed by their lenders to sell their homes. The banks will do better by allowing such sales. The proceeds will be higher and it will avoid people just handing back the keys. The borrower will not be able to claim that the bank did not get the best price.

But the odd thing is that there is no evidence that this mortgage was unsustainable?
She borrowed €245,000. It is reported that she had a salary of €70,000. She should have been able to meet her repayments.

But she relocated to the West of Ireland for personal reasons. These are not specified but it has been reported that she took a reduction in salary to €40,000.

If she had rented her apartment, the rental income would have covered most of the interest paid, so it's very odd that she has got such publicity.

I would have more sympathy for someone who has lost their job or their business and simply can't afford to pay the mortgage.

The banks should agree more quickly to giving people a fresh start.
Where a mortgage is unsustainable and the property is sold, the lenders should do a deal on the shortfall depending on the amount of the shortfall and the borrower's capacity to repay. I would have thought that 10% is fair enough, so €18k on €170k seems about right.


Borrowers who strategically default should not be protected by the legislation
We don't know enough about White's personal financial position. It has been claimed that she made a voluntary career change which reduced her salary from €70k to €40k. If this is correct, she should not have got such a deal. But then again, what could the Bank of Ireland do? They could have got a judgment for €170,000 and an instalment order but it would be very difficult to enforce.

"The bank has refused me permission to sell my house, should I just hand back the keys?"


I would always encourage the bank and the customer to reach an agreement to sell the house. But if you are in a hopeless position, and you can't get the bank to agree or to make a decision, then maybe this is what you have to do.

It's a very risky strategy for the borrower but it may be the only option in the last resort. The bank will sell the house in a forced sale. You will owe the balance. But maybe under the new legislation, you will be able to get it written off.

It's not clear if this case has any implications for this decision. I suspect that the Bank agreed to take the house back. Bank of Ireland obviously felt that there was some weakness in their case. They can't comment on an individual customer, so we won't get their side of the story.

Does anyone know what a nurse could earn in Ireland in about 2005 ?

I thought ,with some overtime ,it would exceed € 50.000 p.a.
By the standards of many other loans at this time this lady's loan was not excessively big. Put in one or two living-in tenants -other nurses -and this lady had one of the easiest loans ever to pay off.

Something very weird here.

I don't know what the salary of a nurse would have been in 2005, but it most certainly would not have exceeded 70k. I wonder was there another named borrower on the loan that we have not heard about, and the 70k is made up of two salaries??

She was interviewed on newstalk last week. It would be good to re-listen to the interview again, but am unable to find link.

The media are using this case as the poster boy for debt forgiveness. This is not debt forgiveness.

It is also weird, that this lady has been named in the press. I thought there may have been a clause in the agreement, she signed with the bank, from discussing the case.

It seems that Ross Maguire is urging people to hand back their keys in this article in the Irish Independent.

Ross Maguire, a founder of the group, said the group was urging homeowners in difficulty to hand back house keys as a "strategic move" to force banks to the table.

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This would suggest that White simply handed the keys back without the agreement of the bank. They had made no effort to repossess the house.

Brendan

Have now been told by nurse friend that depending on seniority, shifts, speciality and overtime a nurse could actually have exceeded 70k p.a.
Plus, from my own experience of letting to nurses, there were many many nurses - Phillipino,Indian -wanting accommodation and this lady could have had no trouble letting one or two rooms.

Of all the people to whom BOI could have forgiven the debt this seems the least likely candidate.

Until recently I thought Brendan was too harsh on New Beginnings. Am now revising my opinion.

oldnick said:

Have now been told by nurse friend that depending on seniority, shifts, speciality and overtime a nurse could actually have exceeded 70k p.a.
Plus, from my own experience of letting to nurses, there were many many nurses - Phillipino,Indian -wanting accommodation and this lady could have had no trouble letting one or two rooms.

Of all the people to whom BOI could have forgiven the debt this seems the least likely candidate.

Until recently I thought Brendan was too harsh on New Beginnings. Am now revising my opinion.

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Have a listen to her [broken link removed]on Newstalk.

She was working in a nursing home and said that she was earning €70k.

She also says that she let a room first, and later that she let the house.

I just relistened to the RTE interview there - it's worse than useless. No pertinent questions asked at all.

Here is newstalk's interview: [broken link removed]

Just to clarify, the property in question is a house, not apartment, it has been referred to as both in the media.

The newstalk interview confirms that the house was at different times rented out fully, or had a room rented out. Which makes the arrears all the stranger.

oldnick said:

Until recently I thought Brendan was too harsh on New Beginnings. Am now revising my opinion.

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+1

Am even more shocked that the property in question is a house. I had origionally read it was an apartment, which had me thinking there was not much hope in selling it anyway.

Brendan, thank you for clarifying that the bank did not try and repossess the property. My partner (works for debt management comp.) had been inundated with calls from frightened home owners under the illusion the bank had tried for repossession.

Just to add to my last post - it would be interesting to know when this lady approached N.B. for their help?

Kerrigan said:

Brendan, thank you for clarifying that the bank did not try and repossess the property.

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Just to clarify further. This is my understanding of the position.

A powerful lobby group that shows its priority is securing debt writedowns in undeserving cases is the last thing we need.

I would have two issues with what has happened here.
1) No matter what way I look at the sums, I don't see why the bank has locked in on a €152k loss. The rental income would have serviced the interest.
2) How is someone living in the west of Ireland with no dependents only able to contribute €250pm out of a net wage of €2500pm?

The bank have to make it very clear that people can't just hand back keys. The borrower should effectively act as rent receivers to maximise the return to the bank where a reasonable rental market exists.

I'd have no trouble with a individual with no possible employment prospects and a massive mortgage in the back end of leitrim handing back keys as there is absolutely zero economic value to be had from the house or the individual's future earning prospects.

Where the property is worth something in terms of rental income and the individual has reasonable earning prospects, however, writedowns of the magnitude in this case are highly questionable.

cashier said:

In other words, she basically lived the high life, a single lady earning €70,000 being let off the hook. When I read Coleman's heart rendering post it makes me feel very angry, a young woman with three small children nearly driven to the edge of despair over the last couple of years for a much lesser amount.

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Fair point, which proves the current pretend debt settlement "case by case basis" is not working.

Brendan Burgess said:

If she doesn't keep up her payments, then she will have a judgment of €120,000 registered against her. Not sure why the default judgment is €120,000 and not €152,000.

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Its possible the bank was already carrying a bad debt provision on this loan, and took this into consideration when agreeing terms

there is way more to this story i believe.

why there was no confidentiality order on her im not sure. im sensing some wrong doing on the banks fault which meant they wanted shot of this fast. New Beginiings needed a poster child and she was perfect. I believe there other success stories where gagged.

pure specualtion by me, BTW! one day we'll find out!

New Beginiings needed a poster child and she was perfect.

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I don't think that she is perfect in any way. She was not an unemployed person who couldn't afford their mortgage who was facing repossession.

She deliberately took a cut in her salary from €70,000 to €40,000 and gave back the keys without the bank's agreement.

New Beginnings should have had the moral courage to tell her to get lost.

I faced this when dealing with Irish Nationwide borrowers who were in trouble who wanted me to help them. Around half of them were chancers looking to escape their loans. I showed them the door. I focussed my attention on the deserving cases.

Brendan