Tracker Appeal - Observations

TomTron

Registered User
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I thought it may be helpful to share some observations I had whilst going through the Tracker Appeal process:

1. Financial Engineering Part 1
The Bank will likely issue you a schedule of (over)charges in a letter. This will list the date, interest rate, interest charged, correct interest rate and over charged interest.
Look carefully at the date particularly if your schedule covers a number of pages (mine was over 5 pages both sides). The Bank will likely list the overcharge, one month per line at the start of the schedule and then split one month overcharge, over several lines later on in the schedule.
This makes the column showing overcharge interest stay at roughly the same amount - but in fact the overcharge is likely to have gone up considerably, as each line is no longer showing one month, but multiple lines must be added to show the total per month.

Example

Month Overcharge
Aug 2012 33.17
Sept 2012 48.32
------
Jan 2015 82.19
Jan 2015 92.11
Jan 2015 36.22
Feb 2015 76.99

Usually when the overcharge went over 300 EUR per month, the bank starts splitting payments out.

2. Financial Engineering Part 2
The Bank may present arrears on the account in a manner that is deliberately engineered to mislead (example used below);
'If the account was reconstructed to take account of arrears at that time EUR15,000 and redress due EUR 11,000' the customers repayment would have been EUR 975.'

Arrears:
This engineering of the numbers will lead the appeal Panel to decide that the arrears (EUR15,000) were greater than the overcharge (EUR11,000) and so the Bank overcharging was not material.
In fact, the overcharge was EUR 11,000 and the customer arrears were EUR 4,000 - giving a total of EUR 15,000 in arrears.
The overcharge tripled the arrears.

Capitalisation:
This engineering of the numbers also enables the bank to inflate the repayment cost 'on the correct rate' by adding the arrears to the mortgage balance. This method is not accepted by the Central Bank. More information here.
This is used to demonstrate the borrower 'couldnt afford the tracker mortgage'.
Arrears capitalisation is a 'treatment' for arrears that has legal implications and must be agreed to by the borrower.
If the arrears were caused by Bank overcharging - clearly this is not an appropriate 'treatment'.

2. Regulatory Breaches
The Appeal Panel will not consider Regulatory Breaches carried out by the Bank as material to the Appeal - not adhering to 'wait periods ' as required under MARP, CCMA etc.

3. Legal Demand for Possession
If the Borrower was in arrears solely due to tracker overcharging and surrendered the home on foot of a Legal Demand for Possession from the Bank.
The Appeal Panel will not consider this evidence that the Bank caused the loss of the home.

4. Principles for Tracker Redress
Its worth reading these from the Central Bank.
The Appeal Panel will not consider this as part of the Appeal.

5. Credit Review
The Bank will likely provide a 'Credit Review' establishing a potted history of the account and why their actions were appropraite to the Panel. This should be a historic document (i.e dated prior to the issuance of the Redress Letter you got).
The Appeal Panel will accept draft, undated, unsigned Credit Reviews from the Bank and will permit the Bank to rewrite these documents in response to any evidences you submit to the Panel.

These Reviews should in fact be based on a complete financial 'reconstitution' of the account. That is to say, had the overcharging not occured, what were the true arrears at each point the Bank / Customer took action, and was that action still valid in light of the 'true arrears'.
This will not be done by the Bank, and it should be, based on how the UK banks addressed similar issues. Instead you should do it.

6. Interest Refund / Amortisation
The Bank will have calculated the interest overcharged and will have refunded this to you, together with a payment for 'time value of money' / 'interest' and possibly some money for 'compensation'.
This is the biggest con foisted on the Irish Public throughout this matter.
Overcharged interest should instead be applied to the account as part of the 'reconsititution' - as overpayments.
Over time, the amortisation of these payments means a significnat reduction in both the capital and interest on your mortgage.
This does not mean you should not get your money back, or that it should be put toward your mortgage.
It means that the method used to calculate your refund does not take account of how mortgages work, but does take account of how the Bank can 'return' the overpayment and ignore the true cost to their customers.

This can mean the difference between a 30,000EUR 'interest refund' and a 70,000EUR amortisation value.
The Appeal Panel will not accept this method of calculation, despite this being the correct treatment for monies 'over paid' to any mortgage account.

Thats all for now

Any questions or comments, I'll do my best to respond.
 
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Brendan Burgess

Founder
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Hi Tom

Did you submit an appeal to one bank or is this based on a few banks?

If it's one bank, perhaps you could say which one?

Brendan
 

TomTron

Registered User
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Hello Brendan

I personally submitted one appeal to Bank of Ireland.

The comments are based on direct observations of that, and also my experience of the FS industry in and outside of Ireland.

I was very struck by a comment that the Banks have the benefit of reviewing and learning from many claims and claimaints do not (subject to Ombudsman rulings published).
 

haveaniceday

Frequent Poster
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143
Hi Tomtron
Thanks for posting this.
I have to say I don't 100% follow what you are saying but it sounds like more fraud visted by the banks on their customers?
This is something I would never know to understand or look for when accepting the repayments back for overpayment on a tracker. However, I am sure it is something the Central Bank of Ireland would be very aware of, as well as an appeals panel?
- is this another scandal on top of what the bankers have already done....
 

TomTron

Registered User
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Hello there,

Can you tell me what parts you dont follow? I'd like to make it as clear as possible for people to understand this.

This is not 'another scandal' this is in fact the Tracker Scandal - but the Bank(s) have been deflecting the true cost, in my opinion.
 

haveaniceday

Frequent Poster
Messages
143
ok so I will do it step by step - I think i Get it but maybe not!
6. Interest Refund / Amortisation
say we have total interest 'overcharged' of 80K
the 80K should be returned to you but also
The mortgage value yet to be repaid should also be reduced significantly to take account of what is almost like a compund interest
then also the compensation amount and the time value of the money.
 

TomTron

Registered User
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16
Correct. There are three elements - the a) overcharge (or as I call it overpayment), the b) compensation and the c) value of money over time. I wont talk about b)compensation for now.

The a) overcharge is the difference between the correct rate and the rate actually charged, shown in EUR. Lets say thats been calculated as 35,000EUR.

There is no such thing as 'overcharge' in the operation of a mortgage. There is overpayment and underpayment and arrears.

Inflated interest costs charged by the banks resulted in thousands of Irish households overpaying their mortgages. Overpayment leads to a reduction in the term and interest due on the mortgage, as a result of amortisation (the mathematics of mortgages).

The Bank is giving you the c) ‘time value of money’, instead of ‘amortisation value’ on the overpaid monies. The difference is significant.
In our 35,000EUR example, the time value offer would be c.1600EUR. The amortisation value would be c.34,000EUR.
I estimate that most refunds have been as much as half of what customers should be getting back.

I’m not aware that the ‘time value of money’ method has been mandated or agreed by the Central Bank. The banks are deciding to apply this method, as it is the cheapest method available.

If someone owes you money in the Irish state, there is a legally mandated 8% annual interest rate, which reduced to 2% in 2017. The banks owe you this money back, and have not applied this method, because it would cost them more.

Importantly your mortgage contract and indeed the operation of the mortgage will likely not allow for the time value of money calculation for the treatment of any monies. It only allows for amortisation, which is even more costly for the banks than statutory interest.
 
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RedOnion

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4,458
The Bank is giving you the c) ‘time value of money’, instead of ‘amortisation value’ on the overpaid monies. The difference is significant.
In our 35,000EUR example, the time value offer would be c.1600EUR. The amortisation value would be c.34,000EUR
I doubt many people will understand fully how you arrive at the numbers of 1,600 Vs 34,000 here, but it's clearly a significant difference.
If there any chance you could explain it out for people, in simple terms, so they can understand how the financial engineering of banks is completely screwing them?
 
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TomTron

Registered User
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I will do my best!

Bear in mind that these calculations are usually done by actuaries or specialist accountants.

Lets take this scenario:
Customer borrows 250,000EUR for their home, over 35 years at an interest rate of 3.25%.
The customer is denied a tracker 4 years into their mortgage, and the customer moves home 7 years later - 11 years into their mortgage. The customer is 'overcharged' for 7 years.

> On the 'Overcharge' the Bank will state the customer owes c. 283,000EUR when they move home.
> On the 'Correct Rate' the Bank will calculate the customer owes c.250,000EUR when they moved home.

Here the Bank will offer the customer c.33,000EUR 'interest refund' plus the time value of money of c.1600EUR, plus say, 6,000EUR compensation.
(The time value of money is a standard accounting method and I've linked to the Wikipedia page already in this thread.)

However

If the 'overcharged interest' - identified as 33,000EUR in this example, is applied instead each month as an overpayment, amortisation kicks in. That is to say, the capital and interest charge reduces significantly each month.

Taking our example, if the overpayments are applied each month they are incurred during the years the customer was 'overcharged':

> The customer would owe c. 214,000EUR when they move home.

This means the customer should in fact recieve 69,000EUR refund (made up of 33,000EUR interest and 36,000EUR amortisation value) plus say, 6,000EUR compensation.

This, in my opinion is how the Banks are denying significant compensation to their customers throughout this scandal.
 

Brendan Burgess

Founder
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Hi Tom

Sorry, but I don't know where to start to correct all this.

Do you have any professional experience in the area at all? I suspect not.

The banks have come up with schemes.
They have been verified by independent auditors and I suspect, corrected in some cases.
They have been checked by the Central Bank.
They have been checked by many professionals on behalf of the borrowers.

I have seen various criticisms of the calculations similar to yours and they are all based on misunderstandings of how mortgages are calculated.

But it's fairly simple.

As it happens, BoI has made a small error in its calculations, but it's not hugely significant.

But you have a fairly simple choice.

You got redress from BoI.
You think that they calculated it incorrectly.
Go right ahead and complain to the Ombudsman.

I have no doubt that he will uphold your complaint.

Brendan
 

Brendan Burgess

Founder
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40,707
The Appeal Panel will not accept this method of calculation, despite this being the correct treatment for monies 'over paid' to any mortgage account.
Hi TomTom

Don't waste too much time on the Appeals Panel. If they are anything like the AIB Appeals Panel they know even less about mortgages than you do.

I assume that they have rejected your appeal, so go to the Ombudsman.

Brendan
 

RedOnion

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This, in my opinion is how the Banks are denying significant compensation to their customers throughout this scandal.
Ah, just what I thought.

You're including the entire overcharge amount as being a repayment at the start, and working out the interest savings for the entire remaining life of the mortgage. So you want the money back now, as well as the interest you'd save for the next 20 years if you treated it as a repayment.

Bear in mind that these calculations are usually done by actuaries or specialist accountants
In my experience in preparing these calculations for High Court cases, actuaries are very rarely used. Instead it's usually 'specialist accountants' (if that's what I'm being called now).
 

TomTron

Registered User
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Hello RedOnion,

For the calculation leading to c.214,000 the overcharge each month from year 5 to 11 (totalling 33,000EUR in Year 11) - was applied as an overpayment.
So, where there was an 'overcharge' of 250EUR in a month, this is calculated as an overpayment by the borrower in that month.
I've not forecast the savings for the remaining term of the mortgage, only that when the house was sold in the example used.

I believe this is is standard for monies allocated to a mortgage account in excess of that in the amortisation schedule.

Do you have recent High Court experience analysing annuities / amortisation schedules?
 

TomTron

Registered User
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16
Hello Brendan,

My appeal was upheld by the Panel. I would agree there are serious questions on the competency of those making up the Panel.

Monies paid/allocated to a mortgage account should be treated the same - why should some monies be amortised and other monies (those overcharged) not be amortised?

The only answer is that it saves the banks significant costs / the Central Bank Tracker Redress Principles set the 'time value of money' method out.

None of this has been tested in Court as yet.

I am unsure about third party review / auditors effectiveness. In my situation the Bank stated they had their work reviewed by third parties - this turned out to be their own internal Group Risk department.
 

RedOnion

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4,458
Ah, I see what you're doing now. It's worse than I thought. You're calculating the 'amortisation impact', along with the overcharge plus time value of money, and saying you should get both, without realising they're actually the same thing. There's a bit of 'smoke & mirrors' in your scenario because it looks like you've used an interest only mortgage where there was significant arrears, but the same calculations work. You can't 'amortise' a payment that was never made.

The danger with threads like this is that to some people, coming here looking for advice, it looks like the OP knows what they're talking about.

Unfortunately they don't, despite the carefully chosen language and links to Wikipedia. I'm sure your post is well meaning, and I think you believe you are correct, but unfortunately you're not.
 

TomTron

Registered User
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16
Hello RedOnion (and Brendan),

I've not included the time value of money in the calculation, that would be to mix to two methods. I've also not tried to fiddle or mask the reality of the differnce between the methods because that is misleading. The mortgage is a repayment , not interest only. Arrears were generated solely due to overcharging and the arrears attracted an interest of 0%

You say the borrower cant amortise a payment that was never made - in many cases the overcharged interest was paid by the borrower. In others, people fell into arrears and the overcharge was used to instigate legal possession proceedings.

For all intents and purposes the money is 'real', it certainly is real when it forms a refund cheque from the bank or when someone goes bankrupt.

I'm not here to mislead, my scenario calculations are correct and not misleading.It may be helpful for people to know the scenario was based on a model I co-developed with a Partner in a well known accountanting firm to analyse this.

The model was checked for accuracy by entering in the banks own numbers for an account. We found a variance of less than 1%. So the model which I used to generate the above scenario accurately reflects the operation of that banks mortgage platform.

I've worked on the design of mortgage platforms and their calculation of interest and spent 15 years in financial services. I am not an expert in the tracker mortgage issue in Ireland but have learned a lot that I wanted to share.

I dont believe people are being mislead by the post, my observations are correct and factual. You and Brendan have focused on the last point of interest calculation.

On this, in my opinion, the 'treatment' of the overcharged / overpiad moneys remains a con - where the vast majority of people will never be given the true value of their loss. This is the design of the Central Bank rules - where borrowers get 'time value of money' instead of allowing the monies to be amortised in line with the mortgage.

I dont believe it fair to dismiss the post, and so deter people from reviewing their own situation and ask questions about this. But as with life and certainly on the internet, you have to make your own mind up.
 
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RedOnion

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I'm not here to mislead, my scenario calculations are correct and not misleading.
It may be helpful for people to know the scenario was based on a model I co-developed with a Partner in a well known accountanting firm to analyse this.
Basic maths. See if you, and the 'partner in a well known accounting firm', can follow.

Overcharge of 250 per month, for 7 years is how much?

Let's see. 250 * 12 * 7 = 21,000

Following so far?

But, wait a minute. You said the Bank offered 33,000 for the overcharge? What's the extra 12,000 for? Oh, that's right. If I had overpaid mortgage by 250 per month for 7 years, the balance would be 33,000 lower ('amortisation' as you refer to it).

You're double counting the impact.

I've worked on the design of mortgage platforms and their calculation of interest
No you haven't.

This is very basic stuff that you'd know if you had done that.

The mortgage is a repayment , not interest only.
Why is the reconstituted ending balance the same as the starting balance so?

I dont believe it fair to dismiss the post
Most of it is utter nonsense, and distracts from the few helpful points in your post.
 

TomTron

Registered User
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16
I know forums and the internet are places where people get heated - and I dont want that to happen to me.

>You asked about basic maths! I think this is the key point to address in your post?

The total overcharge /overpaid was 33,000EUR. This excludes amortisation effect as the bank are using 'time value of money' which is set at 1600EUR in the example. So there is no double counting on that point.

You will be aware that the ECB rate progressively reduced between 2008 and 2017. Typically a 0.15% difference became a 2.5% difference for those denied a tracker mortgage. This means that the overcharge went up over time as the difference between the tracker cost and the (usually standard variable rate) grew larger.

At the start of the scenario the monthly overcharge would have been around 65EUR, and toward the end the overcharge would be over 800EUR per month. I didn't list out the monthly charges or post the calculations because you'd suggested keep things simple for people to understand.

You have multiplied the same 250EUR over the 84 month period, this is not correct as it does not take account of rate changes driving up the monthly overcharge and so leaves a 12,000EUR of overcharged interest unaccounted for. I think you allocate this unaccounted 12,000 to an amortisation effect? The 12,000EUR you have calculated is not the amortiation effect in the scenario, it is part of the overcharged (overpaid) interest.

Due to the reducing ECB rate, the overcharge increased during the period. As the borrower got closer to selling their home, in the scenario more and more of the mortgage charge was in fact overchaged interest.

The mortgage would not be 33,000EUR lower, it would be 69,000EUR lower in the scenario - this is due to the lower tracker mortgage in this scenario having the overcharge payments applied as overpayments. We know that when you overpay the mortgage you significantly reduce (the term and) cost of your mortgage.


I dont think I can add any more to your other comments !
 
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Brendan Burgess

Founder
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40,707
Well Tom

We look forward to you convincing the Ombudsman.

Do let us know when he publishes his decision in your case.

Or if you go directly to the High Court, let us know when it's up as I would definitely attend the hearing.

Brendan
 
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