If you are wondering why lenders don't do Life Loans anymore...

Last February the High Court ruled that a financial fund was entitled to possession of the Johnson’s home under a “lifetime” mortgage obtained by Mr Johnson’s father Larry, eight years before his death in 2015.

Mr Johnson’s late father had taken out a 'lifetime' or 'reverse' mortgage in 2007 as a condition for getting a loan of €52,700.


The guy died 5 years ago, and the lender had to go to the High Court to get the son out.

It's not clear who the original lender was as they gave up trying to recover the money and sold the loan to a vulture fund.

Brendan

My take on this- The financial institution were uncaring/stupid in supplying such a loan to anybody. It was a recipe for disaster. Anybody with a minimum of common sense could see the pitfalls. And a family was forced to sleep under a bridge having been evicted - Wondetrful, just Wonderful, I think not!

The Irish Times puts the story on the front page:

Leper said:

The financial institution were uncaring/stupid in supplying such a loan to anybody. It was a recipe for disaster. Anybody with a minimum of common sense could see the pitfalls

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Could you explain why?

There are lots of people who own houses but who have little income and they would love one of these loans.

I know quite a few people who benefited from them when they were available.

Brendan

Im not an uncaring person, but I completely agree with the possession of the property. What is it that some people take out a loan, and then its someone else`s problem when you find yourself in difficulty.

The person had possession of €50k for to do as he wished. I hope he enjoyed it, but pay it back, and stop looking for excuses to shirk the responsibility.

Brendan Burgess said:

Could you explain why?

There are lots of people who own houses but who have little income and they would love one of these loans.

I know quite a few people who benefited from them when they were available.

Brendan

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1. The age of the person getting such a large loan, for a start is detrimental to the repaying of the loan and most likely guaranteed to provide some kind of hardship.
2. I don't know how you can say "There are lots of people who own houses but who have little income and they would love one of these loans." But, you are entitled to your opinion. But, if they squandered their money instead, of course, they benefitted.
3. Like me, there are people who will repay everything borrowed. I bet there are many who won't.
4. A relatively high percentage (my opinion) of such loans never had a chance of being repaid.
5. As I said in another thread "The Eighties Were Better" the financial institutions screwed honest people with mortgage rates reaching 19.75%*.
6. Yes, I agree loans must be repaid - but what criteria did the person authorising the loan use.
7. I wonder how money the Lender paid for representation in the High Court. Would it be more than the outstanding amount of the loan?
8. Was any such loan ever worth forcing a family to live rough?
9. Has anybody here any experience of the bailiffs calling to evict?

* I note some people do not believe this figure on the thread. I remember back then screaming at trade unions for national representation for mortgage rate to be capped at 11% pa. If I did that now, I'd be facing a firing squad of some of AAM's contributors.

He/ the family enjoyed €50k for eight years, put any slant you like on it, Pay it Back.

There is a lot missing from the story too. Did they bypass probate in order to avoid selling the house ? Did he always live with his father or did he just move in afterwards ? How much is the house worth ? Could he sell and get somewhere else (probably not) ?

Like Elcato said there's more to the story that we don't know. LS400 wants all loans repaid; fair enough, but how? Obviously, not all the circumstances were considered by the lender and the borrower.

(Again, what legal costs? what bailiffs costs? what clerical costs?)

Can anybody forward a considerate solution to such cases?

Leper said:

1. The age of the person getting such a large loan, for a start is detrimental to the repaying of the loan and most likely guaranteed to provide some kind of hardship.

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It would never cost the person who took the loan any hardship, as it is only repayable on his death, or if he sells or moves into permanent care.

The deceased owners' family aged in their 30’s - 50’s have had at least 5 years to find alternative accommodation.

elcato said:

Could he sell and get somewhere else (probably not

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But why would he want to. The person died 5 years ago... How long should the banks leave it to enforce recovery of debt so as not to be seen as an uncaring institution?

Leper said:

1. The age of the person getting such a large loan, for a start is detrimental to the repaying of the loan and most likely guaranteed to provide some kind of hardship.

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Hi Leper

I think you have misunderstood what this is? It was a Life Loan. Not intended to be paid back until the death of the borrower or until they had moved into a nursing home.

The BoI one was the most popular and the interest rate was fixed at 6% for something like 15 years. A bit high but for the type of loan it was, not unreasonable.

And they guaranteed that there would not be a shortfall.

So they typically lent only about 20% or 30% of the value of the property.

All in all, it's a very useful product.

I do remember at the time when I was encouraging another mainstream lender to enter this market they said that the negative publicity after the person died would just not be worth it.

Brendan

LS400 said:

But why would he want to. The person died 5 years ago... How long should the banks leave it to enforce recovery of debt so as not to be seen as an uncaring institution?

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Thats the question. It's the answer is the problem. But, the answer is in there. And the answer is not forcing people to be homeless.

And . . . . . . . if Free Legal Aid is required in such circumstances, how much does it cost the Irish taxpayer?

I'm only asking simple questions e.g. Was every circumstance considered by the Lender?

Brendan Burgess said:

Hi Leper

I think you have misunderstood what this is? It was a Life Loan. Not intended to be paid back until the death of the borrower or until they had moved into a nursing home.

The BoI one was the most popular and the interest rate was fixed at 6% for something like 15 years. A bit high but for the type of loan it was, not unreasonable.

And they guaranteed that there would not be a shortfall.

So they typically lent only about 20% or 30% of the value of the property.

All in all, it's a very useful product.

I do remember at the time when I was encouraging another mainstream lender to enter this market they said that the negative publicity after the person died would just not be worth it.

Brendan

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Hi Brendan,

I don't misunderstand what this is; I know full well the results. No matter what spin you put on the subject it is was a cavalier money making effort by the lending institution with dreadful results.

The product is useful to the lending institution, not to most people receiving the loan. This kind of loan is a little short of giving sweets to a two year old. The newspaper drift that the banks are now getting out of this type of loan suggests the product is not good.

There is a market for these type of loans, and they should be available. They're not for everyone.

But this is the other end of the spectrum then...its almost impossible to obtain a loan these days due to the red tape, criteria and acrobatics you have to perform to the banks these days such is the outcry from the public when they are seen to recover bad debts.

Leper said:

Thats the question. It's the answer is the problem. But, the answer is in there. And the answer is not forcing people to be homeless.

And . . . . . . . if Free Legal Aid is required in such circumstances, how much does it cost the Irish taxpayer?

I'm only asking simple questions e.g. Was every circumstance considered by the Lender?

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Lets put a different slant on this. What if the lender looked at the "every circumstance" and refused the loan? I suspect a claim to the onbudsman would be made.

The providers of the loans are damned if they do and damned if they don't.

There are four adults who had 5 yrs to deal with this situation. I don't think it is unrealistic to think four adults could muster together €50k over a five year period. All of which are of working age.

I can't find the exact article, but reverse mortgages are popular in the US and now in Canada. The article I am referring to was quite morbid as it was from the perspective of actuary / quants trying to predict when a person will die and trying to arbitrage i.e. you give them a reverse mortgage for 20 years but have predicted they will die in 15.

Morally it is a product that benefits on early death, so it will never be popular in the media.

Leper said:

The product is useful to the lending institution, not to most people receiving the loan. This kind of loan is a little short of giving sweets to a two year old

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Ah here. My understanding of this is that his father wanted money to enjoy life and took out the loan. When he died the son came out of nowhere and demanded his inheritance and just moved in. The courts nowadays would not make a family homeless unless they felt there was something underhand happening. This is why I stated that we would need to know the full circumstances. I don't believe it was as simple as the banks saying 'Legally we own the house now so get out'.

It is important to have the facts.

First there were four types of products for Seniors - not all were offered in Ireland. And there are fundamental difference between them.

1. Reversion - this was where an interest in the property was 'sold' with a life interest. To make the complex simple and to also explain why it was not adopted by Bank of Ireland - say market value of €100k. Full interest sold for €43,000 with right to remain in property. In simple terms the €43,000 became €100,000 or more if the value of the house went up. Do calculations on implied interest rate or the APR equivalent and it was a minimum of 20%+ with a flat property market over 15 years, Was still a positive return until house price fell to €43,000. This was not the Bank of Ireland product.

2. Life Loan - as BB pointed out about 30% of property was lent out. Fixed interest rate (customers did not want variable) rolled up fixed interest rate.
No negative equity guarantee. No bank benefit on any increased equity and if house price inflation was at about 4% the amount to be paid back remained at 30% because the loan was increasing at 6% on the 30% loan but the property was increasing on 100%.

3. Nobody offered the Reverse Mortgage though it was planned.

As elacto said what are the facts?

Leper said:

The product is useful to the lending institution, not to most people receiving the loan. This kind of loan is a little short of giving sweets to a two year old. The newspaper drift that the banks are now getting out of this type of loan suggests the product is not good.

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It is a minority, but still a proportion of people who would like to avail of this type of loan. And why shouldn't they? There are probably all sorts of reasons - some to enjoy holidays, some to install home comforts for their old age, some to socialise freely with friends, etc. Are you suggesting that these people are so stupid that they need to be protected from themselves?

I agree that people taking out these loans should be required to avail of independent legal advise. I may be wrong but I think this was a requirement. Once this is done they should be free to do as they please. What if the parent had made a will instead leaving the property to, say, the Irish Cancer Society? Should this also be disregarded?