"AIB may write off debt on some troubled mortgages"

Irish Times [broken link removed]

AIB would consider writing off debts for some mortgage holders who cannot repay loans as a long-term way of resolving problem cases, the bank’s executive chairman David Hodgkinson said.


Debt forgiveness was one option being considered, the bank said, as it posted a record loss of €10.4 billion for 2010 and unveiled plans to shed more than 2,000 staff – one in seven jobs at the bank.


Mr Hodgkinson said there was a range of possibilities for distressed borrowers, including a reduction on repayments by extending a loan period or writing off some debt.


“That is one of the possibilities we will actively consider,” he said. “But it does depend on the situation of the customer, how transparent they are with us on their financial affairs and how deep a hole they are in.”


In hardship cases where there is no prospect of borrowers repaying mortgages, AIB is exploring possible “intergenerational” mortgages and debt forgiveness where part of the loan is written off in return for the bank taking a share of the home.

Click to expand...

Very interesting.

What is an "intergenerational mortgage"? I assume that it's an interest only mortgage where the home and the attached mortgage goes to the beneficiary on death.

I only see debt forgiveness as being relevant where the house is sold.

Intergenerational mortgages are just very long term mortgages Brendan. 50 or 60 years and they are interest only as you say and the beneficiary gets the property and attached mortgage. They are used in some Countries like Japan and I think Switzerland uses them as well.

The debt forgiveness thing to me smacks a PR move when they facing the press after receiving 13 billion of taxpayers money. I am sure they would like to do something but wanting to do something and being able to do something are different things.

Sunny said:

They are used in some Countries like Japan and I think Switzerland uses them as well.

Click to expand...

Thay are indeed used in Switzerland. Essentially there is BIK on owning a house outritght. Therefore very long terms ot longterm interest only mortgages are used to defer the BIK implications. Its no wonder 80% of the population rent for life-its less risky, and more flexible to rent.

I assume AIB as a nationalised bank would need permission from the MOF to proceed with debt forgiveness?
Could be a potential banana skin for the new government.
Debt forgiveness might be seen as a populist idea but a lot of people that were prudent during the 'boom' would be against the idea.

'Debt forgiveness' has become shorthand for people being allowed to walk away from their debt. It could also encompass a moratorium, extending the term, or even an intergenerational mortgage.

Like in Las Vegas, the house always wins.

There's a lot of ifs, buts and maybe about it.
I think it would be hard to implement as debt been written off. If it was being restructured to make the term longer or part of it paid at a later date maybe it would work.

Shawady said:

I assume AIB as a nationalised bank would need permission from the MOF to proceed with debt forgiveness?
Could be a potential banana skin for the new government.
Debt forgiveness might be seen as a populist idea but a lot of people that were prudent during the 'boom' would be against the idea.

Click to expand...

I'm not sure they would. I was prudent during the boom and I wouldn't be against debt forgiveness (as long as it was reasonable).
I would be against the idea of letting someone off 1 million on their mortgage so they could hold onto their mansion. But in the case of a 3 bed semi up to maybe 250/300K I wouldn't object.

I do not agree with debt "forgiveness".
I do think that banks should be entitled to repossess the family home and all assets and set that off against a person’s debts. Once that is done the balance should have to be written off. If banks knew this would happen they would take more care when lending and if borrowers knew it would happen then they would take more care when borrowing.

Debt should be taken seriously by all concerned. There was an attitude of "sure it'll be alright somehow" from all sides over the last 15 years and that's a major contributing factor to our current problems.

I'm in favour if it's debt forgiveness for all and not just those who overstretched. Why should my neighbour have €100K w/off his mortgage because he can't pay it and I don't because I can pay mine.

If this is what is being suggested then I am going to stop paying my mortgage, put the repayments into an a/c in my parents name and wait for the bank to w/off a chunk of the loan.

And I won't be the only one either.

DB74 said:

If this is what is being suggested then I am going to stop paying my mortgage, put the repayments into an a/c in my parents name and wait for the bank to w/off a chunk of the loan.

Click to expand...

It's not going to be that easy IF it happens at all. You would have to prove you are overstretched using bank statements, payslips, tax returns etc.

I've always disliked the attitude that those present homeowners in difficulty were either greedy or stupid and that they should pay up or get out.

But neither does the idea of "debt foregiveness" appeal. It will create divisions in society where the majority who have/are paying will feel greatly miffed. It will mean that many who can afford to pay the loans will play the poor mouth and just stop paying altogether.

There are so many ways of helping people in trouble - 50yr loans, interest-only,
shared-ownership schemes; writing off debts must be the worst idea that should be opposed from now.

I agree with consensus view, debt should not be relieved in view of the moral hazrad involved. And if more conservative lending policies arise, all the better. I do beleive we need to urgently upgrade bankrupcy legislation tho. Having said all that, there is little doubt that banks encouraged wreckless borrowing, and probably should be sanctioned for that. But I don't feel debt forgiveness is the answer.

I would have no problem with this if AIB were a wholly privately owned company.
However, they are not.

This, in effect, means that the tax payers will be paying for these mortgages. AIB are proposing that not only should I pay my own mortgage off, but also other people's mortgages.

Ireland has a history of rewarding irresponsibility - particularly in more recent times. Banks, politicians, regulators, government departments - from the top to the bottom of the chain. People who behave responsibly are considered - responsible, and thus end up paying for everything -and not just in monetary terms. A society such as ours, which rewards irresponsibility and punishes responsibility is destined to claim victimhood forever, and destined also for the begging bowl.
Someone always pays, and 'debt forgiveness' is just another way of taking money from one part of society and giving it to another. People who bought within their means, and people who rent would be paying for those who bought big houses and borrowed more than 4-5 times their income.
That said, I do feel bad for those who are in a bad situation with regards to their finances. But I also feel sorry for all of us, for living in such a badly run country.

What about people that bought in 2008?
I know a couple fo people in this boat. House prices had started to go down and they thought they were getting a bargain but it turns out they are in negative equity now.
Houses near me were fetching 400K at the peak but only 350K in 2008. They are now only worth 200K so anyone that thought they were getting a bargain then were wrong.
But no one forced them to buy at this time when house prices were falling. They could have held off for another couple of years.

Debt forgiveness has always been available here in Ireland. Garrett Fitzgerald got it in the 80s and so did Charlie Haughey.
The developers here in Ireland who owe billions will never be able to pay even if all their assets are liquidated.
So in this instance when AIB talk about debt forgiveness they are talking about mortgage holders.
What is good for the goose....

Shawady said:

What about people that bought in 2008 .. but it turns out they are in negative equity now.

Click to expand...

If you're still in employment and can continue make your repayments, the fact that the market value of your home has declined is irrelevant. It only becomes relevant if you want to or have to sell and cannot subsequently pay off the mortgage.

Negative equity is not, of itself, justification for any change in policy.

If I heard it correctly, AIB are calling loans that have not been repaid for 90 days as being in distress. 3 payments missed over a 20 year (240 repayments) loan seems premature to have to do something different.

Per the above posting by Brendan debt forgiveness by the bank will be offered in exchange for a share in the property. It is not writing off the loan. The bank will expect a share in the proceeds when it comes to disposal of the property.

Per the Irish Independent:

DEBT forgiveness, or the writing off of debt for struggling borrowers, might sound like manna from Heaven. But anyone hoping for a no-strings-attached write-off from the banks could end up disappointed.

• How would this debt forgiveness actually work?

The reality is we don't know, but you could be looking at something like the following scenario: you owe €300,000 on a property that's now worth just €150,000, and you're struggling to meet mortgage repayments of €1,100 a month.
The temptation in that hopeless scenario is to give up, stop paying the mortgage, and wait for the case to work its way through the long repossession process.
Under debt forgiveness, the bank would agree to "forgive" a portion of your loan, say €150,000, so that you now only owed €150,000 and your monthly repayments fell to an affordable €550.

• Sounds great for me, but what's in it for the bank?

Instead of getting nothing from you every month, or having to go through a lengthy and costly battle to repossess your home, the bank gets €550 a month. And the "forgiven" debt could be recovered down the line.

• You mean 'forgiven' debt isn't forgiven forever?

Probably not. A scheme is likely to include a clause that would see your mortgage increase again if things picked up. If your property was worth €250,000 in 10 years' time, your mortgage might then increase to that level.
If you got a new job and or a pay rise, your mortgage might go up too. Or if you later sell your home at a profit, you might have to share some of the money with the bank.

How many people "struggling" with their mortgage are genuinely struggling?

A friend of mine is struggling because his wife doesn't want to work. Another friend of mine is struggling because of her lifestyle.