A lot has been done for struggling mortgage holders

Brendan Burgess

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I was invited to address the Oireachtas Justice Committee yesterday on the Personal Insolvency Bill. This is an extract from my presentation

[FONT=&quot]2. It is important to recognise what has been done so far for struggling home owners [/FONT]
[FONT=&quot]There is a public misconception that we have bailed out the banks but nothing has been done for home owners in difficulty. This is simply not true. [/FONT]

  • [FONT=&quot]54,700 mortgages worth €12 billion have been restructured [/FONT]
  • [FONT=&quot]While around 50,000 mortgages are in arrears, only 275 homes have been repossessed against their owners’ wishes in the last 2 years. [/FONT]
  • [FONT=&quot]The Central Bank’s Mortgage Arrears Code
    [/FONT][FONT=&quot]Protects struggling borrowers from losing their cheap trackers
    [/FONT][FONT=&quot]Bans penalty interest and charges on arrears
    [/FONT][FONT=&quot]Obliges borrowers to engage with people before they go into arrears
    [/FONT][FONT=&quot]Prevents lenders from taking legal action for one year – although in practice it’s a lot longer[/FONT]
  • [FONT=&quot]The Mortgage Arrears Resolution Process( MARP) lays down the ground rules for borrowers and lenders. It’s not perfect, but it is a major step forward.[/FONT]
  • [FONT=&quot]18,000 borrowers are receiving Mortgage Interest Supplement which pays almost all their mortgage interest [/FONT]
  • [FONT=&quot]Those who bought between 2004 and 2008 are getting enhanced Mortgage Interest Relief as a result of the recent budget.[/FONT]

[FONT=&quot]These measures do not solve the problem, but they alleviate it dramatically and give the vast majority of borrowers an opportunity to recover.[/FONT]
[FONT=&quot]
[/FONT]
[FONT=&quot]3. The value of the Deferred Interest Scheme has not been fully appreciated[/FONT]
[FONT=&quot]The Cooney Report proposed a Deferred Interest Scheme and this has been accepted by almost all lenders.[/FONT][FONT=&quot]Where a borrower can only pay 66% of the interest, the balance is deferred for at least 5 years. [/FONT]

  • [FONT=&quot]Gives a useful definition of what a sustainable mortgage is [/FONT]
  • [FONT=&quot]Protects borrowers from repossession or legal action while they have a chance of recovering [/FONT]
  • [FONT=&quot]Sets a good criterion for what an unsustainable mortgage is. Most people would agree, that if someone can’t pay 66% of their interest, their mortgage is not sustainable. [/FONT]
 
In my opinion, these measures give struggling borrowers a great chance of recovering.

They do not need debt forgiveness and the taxpayer and/or lenders should not be blackmailed into giving it to them.

They do not need a Personal Insolvency Arrangement

There are around 10,000 borrowers with unsustainable mortgages who will never recover. They need the right to surrender their home and to have their mortgage shortfall dealt with under the Debt Settlement Arrangement for unsecured creditors.
 
Why is the view that nothing has been done for the struggling borrowers so widespread?

The TDs and Senators on the Committee kept coming back to their experience in their clinics. But, as I pointed out, the 60,000 borrowers who have been able to reach agreement with their banks won't drop into the clinics or get onto the Joe Duffy Show to complain. They are seeing only the people who have either not approached their banks or who have approached their banks and who have not been able to reach agreement on rescheduling.

We like soundbytes. It sounds great to say "We bailed out the banks but we have done nothing for the borrowers". It sounds great to say "The banks are letting the property developers off the hook but hounding the small mortgage holder". The facts simply don't support these statements, yet people continue to trot them out.
 
Brendan Burgess said:
Why is the view that nothing has been done for the struggling borrowers so widespread?
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I think it's the fact that the pain isn't being shared by the bank when a borrower is struggling that causes concern. How do any of the measures you outline in Post 1 penalise the bank for idiotic lending practices? Extending the term of a mortgage for a borrower who foolishly borrowed too much actually rewards the imprudent lender in that more interest will be paid back.
 

Hi demoivre

Of course the pain is being shared - by the banks and by the taxpayer.

Where a bank has a tracker mortgage in particular, it would be hugely in their interest to repossess homes. Around 30% of those in arrears have positive equity and the banks would make huge gains from these.

Even for most SVR loans, the banks would be far better off repossessing the homes and relending the money to someone who is servicing the loan and who has a lower loan to value.

That is why the sub-primes repossess houses. The mainstream banks don't.

The Deferred Interest Scheme forces the banks to defer up to 1/3rd of the interest every year for five years. This increases the banks' losses. That is why Ulster Bank and KBC could not be encouraged to participate in the system - although they do have their own version of it.

The state is paying some or most of the interest on 18,000 mortgages. That is the taxpayer is paying the interest for 18,000 people who can't afford it. I think that the cost is around €70m a year.

Likewise, the state will be paying out around €56m in the increased Mortgage Interest Relief.

So a lot has been done. The borrowers have taken a lot of pain, but when people lose their jobs and pay increased taxes, of course, they are going to take a lot of pain.

I understand the frustration of struggling borrowers who see the taxpayers including themselves bailing out the depositors back in 2008 with a retrospective guarantee. But that does not mean that nothing has been done for the borrowers.

Brendan
 
Is it cynical to think that whatever they give back as in the points above, they take back in other ways.
They have to balance the books after all!
 
Is there not quite a number of households on interest only payments, either receiving MIS or not, who have no real prospect of returning to full payments or even partial repayment.

Some people either because of age or il health are unlikely to work again or to work at a level and for long enough to allow them to repay their mortgages.

For many restructuring is only a temporary solution with no real prospect of a real solution. I think banks are not deeming these unsustainable because they are getting in test payments and that is better than nothing for now.
 

I agree that quite a bit has been done to help struggling mortgage holders. Any one measure or combination of measures that helps financially is important to anyone struggling.

I havn't needed to restructure or avail of the deferred interest scheme yet, but at least they are options if my situation worsens.
The small extra FTB 2004/2008 MIR is helpful to me.
Due to illness, I have been in receipt of MIS for a while and this is helpful. I don't know whether MIS pays most of the MI for a lot of the 18,000 recipients, certainly for my own annual MI of about €8k the annual MIS payment is ~ €2.5k or about €200 a month supplement on a €1,300 monthly principal & interest repayment.
 

This is an interesting point. The cost of a mortgage is the interest payment. The capital element of the monthly repayment goes to reducing the outstanding balance.

The ideal situation is that a person repays all the capital over 25 years or so and owns their home mortgage free.

If they can't repay the capital, but they can pay the interest, it's not ideal, but it's a good benchmark for a sustainable mortgage, especially if there is equity in the house. The bank will not attempt to repurchase a home in this situation although they will try to get capital repayments if the believe that the borrower can afford them.

The objection to this is that the borrower will never own the house outright. But so what? If they can afford to pay the interest, then things might happen in time. The borrower may get a retirement or redundancy lump sum. The value of the house may rise. The person's income may rise due to salary inflation. That may all seem unlikely now in the depths of a depression, but in time, things will improve.

But even if they don't improve. It is better that the borrower retains the house than become homeless and dependent on the state.
 
STEINER said:
certainly for my own annual MI of about €8k the annual MIS payment is ~ €2.5k or about €200 a month supplement on a €1,300 monthly principal & interest repayment.
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The idea of MIS is that it helps people who cannot pay the interest on the mortgage. If you can afford to make capital repayments, you should not be getting MIS. Quite a few people have reported that they are getting MIS and paying their full capital and interest repayment.

Brendan
 

How does that work though when income reduces due to retirement or when an earner dies after their fixed term life policy expires. Will all these people who are on interest only for their working lives have to get MIS for their retirement which could be 20 or 30 years or will they be forced to sell up then?
 
Hi Claire

It works the same way as it works for a person who retires at 65 now who has been renting all their life. They can either sell the house and pay off the mortgage or as much as possible of it, or else continue to pay the interest on it.

Either way it's a better option than being repossessed now and being dependent now on the state for their accommodation needs.
 

Personally I do not agree. A restructuring is in whose intrest, is it the borrower or the bank. The reality is a restructuring for a couple of years can make sense, how does a continuing restructuring help a borrower, where there is no hope of them every repaying? It would be better to take the hit of losing the home and the debt and beginning again. The only reason banks are not taking homes to sell is that they are so afraid of the property market, right now it's so bad that people cannot sell anything, imagine if it were flooded with repossessed homes. You cannot give away apartments, Nama is full of unsaleable apartments.

For those whose homes are being paid for by mortgage interest relief, win win for bank, they don't have to sell the property and crystalise the loss, the mortgage is being paid for by the taxpayers (so it costs us all) and borrower in 20 years will see home repossessed and have nothing (that's what I believe will happen). Only gain for borrower is that they are kinda staying rent/mortgage free in their own home.

For those who are in appartments who want a family, has anything been done for them? How about a scheme to allow them to sell, and go and rent somewhere suitable and pay back the negative equity over time at a mortgage rate of interest.

Who will be better off, the people with Start mortgages et al who have their homes repossessed, debt written off and can make a new life, or those stuck in places that are unsuitable that they cannot ever repay and will never own?
 
Brendan Burgess said:
54,700 mortgages worth €12 billion have been restructured
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This has been achieved by the individual mortgage holders coming to agreements with their banks. Its not something that has been done for mortgage holders at a government level. It may have been partially facilitated by some of the other measures introduced, but you've listed those separately.

In fact this highlights the most toxic policy at the heart of every attempt to address the mortgage-debt problem in this country, the bankers charter that is "case by case basis".

A lot of mortgage holders are totally lost when dealing with their banks - take the issue of trackers incorrectly withdrawn discussed elsewhere on this site - only the most clued in and persistent will force the banks to re-instate their trackers. For the majority, it seems they will accept what the banks tell them, and this case-by-case basis policy means that the banks can pick them off one by one.
 
Booter said:
In fact this highlights the most toxic policy at the heart of every attempt to address the mortgage-debt problem in this country, the bankers charter that is "case by case basis".
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Can I address all of the points made by poster while only quoting a section of the post.
Yes the individual mortgage holders did come to agreements with the Banks on a case by case basis. However, a majority of these agreements were not based on commercial reality and with focus on maximising debt recovery. The Banks were obliged to deal with clients seeking restructure using MARP restrictions. this means that they could not apply charges/penalties for arrears or work done in addressing arrears, could not re-posess the property, where this would have been the only realistic commercial solution, and as a result funds were and are being lost by the banks. This process is costing the Banks (and the State) money. MARP is a Government imposition.
The MARP process is not necessarily utilised fairly across all financial institutions. I have heard of some cases where it would appear that Bank's have treated customers rudely and have dismissed claims for payment reductions where it would appear that the client/s were open and honest with the Bank.
However, the bottom line is that the Banks are restricted by Government intervention in what they would see as a standard debt recovery process. In line with the tenet of Brendan B's OP the Government have done a lot for struggling mortgage holders to date. attitudes of individual Banks to the process cannot be blamed on the Government!
 

I agree to a certain extent. It isn;t the same as renting though because you have a large debt that isn't being paid and can have a huge impact om access to credit. This can mean not starting up a business, not sending children to college and other life choices being limited.

Also a family who are renting for 20 years may eventually get local authority or RAS housing. As their income decreases because of retirement, ill health or the death of one earner their rent reduces and they remain in their home. For someone who is paying interest only mortgage indefinitely as income reduces they are more likely to become depend on the state for MIS payments and then to be considered "over accomodated" as children leave home or spouses dies and losing the MIS and then losing their home and still having a debt when they are old, bereaved and most vulnerable.

I am not sure if the 40 and 50 somethings on interest only payments are thinking of these possible futures.

They may be better taking the hit now, having their home repossessed, getting to start again in a few years with no debt.
 
ClaireM said:
They may be better taking the hit now, having their home repossessed, getting to start again in a few years with no debt.
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Very good point & one that is not being addressed in current legislation. keeping people in their houses at all costs is not an optimum solution. i.e. For some it is the correct solution but others will need to offload the significant overhang of debt and move to accomodation that is better suited to their income/family size etc. This needs to be incorporated into any new Insolvency legislation.
 

Brendan,

I'm not sure I understand the point you are trying to make; or maybe I haven't been entirely clear myself. The point I am making is that the re-structuring of these 57000 mortgages should not be included in the OPs list of "things that have been done for struggling mortgage holders", as these have been achieved between mortgage holders and banks on a case by case basis. Where government policy has assisted this, the OP has listed those policies separately. I am making the further point that the "case by case" policy which has been at the heart of every attempt to address the issue by government to date, is flawed and leaves all of the power in the hands of the banks.
 
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