What is the definition of a non-performing loan?

Discussion in 'Mortgage arrears & negative equity case studies' started by Brendan Burgess, 12 Dec 2018.

  1. Brendan Burgess

    Brendan Burgess Founder

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    Every time I get an understanding of this, I hear another case which confuses me.

    I spoke to someone today who took out a buy to let, 1.1% tracker mortgage with KBC in 2006 which was interest only for the first five years. At the end of the 5 years, they went on to capital and interest for the remaining 20 years. They rang KBC who agreed to extend the remaining term to 25 years.

    They have never missed a revised repayment.
    They were never in arrears.
    They have loads of equity in the property.
    The loan will be paid off in full in about 17 years from now.

    But KBC has now sold the loan on the grounds that it is an NPL.

    That makes no sense to me.

    Brendan
     
  2. RETIRED2017

    RETIRED2017 Frequent Poster

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    It is not Performing to the original contract full stop, It is non performing no matter how you look at it, The bank is at a loss when you compare it to the original contract,
    I thought this was already pointed out on askaboutmoney,
     
  3. Brendan Burgess

    Brendan Burgess Founder

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    I have pointed that out already, but then it was pointed out to me that if it is a simple extension of the term, then after a year of meeting the repayments, it is classified as performing.

    Brendan
     
  4. RETIRED2017

    RETIRED2017 Frequent Poster

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    Last edited: 12 Dec 2018
    I was thinking it was yourself who pointed it out on this forum in reply to a poster, I thought it was correct when you said it was not preforming to original contract in reply,
    The bank would not have given someone a rate of 1.1% on a loan sometime after 2011 unless it looked to be in trouble if they did not do so,

    It may not be in trouble but if left with the bank people taking out loans today will finish off having to pay for extra years at 1.1%

    Better to take the hit up front and not have people taking out loans today paying for it in 14 years time it is not simple when it finishes up being paid for by others paying higher rates today,
    It makes no sense to me letting people like this push up Interest rates on others,
     
    Last edited: 12 Dec 2018
  5. RedOnion

    RedOnion Frequent Poster

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    Was this the only borrowing from KBC, or were there connected BTLs?
     
  6. Palerider

    Palerider Frequent Poster

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    If the original loan t/c's were met with no lapsed payments and the Bank agreed to revise the contract adding five years to the original term and there are no lapses since well this is a performing loan by any measure.

    I cannot see how it can be classified as anything else based upon the above.
     
  7. Brendan Burgess

    Brendan Burgess Founder

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    Hi Red
    Good point.

    I had assumed it was the only loan with KBC, but I will check.

    Actually, it must be because they didn't mention that another loan had been sold which they would have done in the course of a long conversation.

    Brendan
     
  8. kaza

    kaza Frequent Poster

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    Last edited: 12 Dec 2018
    To add some additional details to clarify things:
    • Loan was taken out in 2006 at ECB + 1.1% with first 5 years interest only
    • In summer of 2011, capital & Interest payments were due, with the remaining term was 20 years
    • Rent was low and payment was high, so we asked KBC could we extend the loan by 5 years and keep our tracker in Nov 2011
    • They agreed and a 5 year extension was added in Dec 2011
    • Since then (as before), we paid on time - never any arrears/missed payments etc..
    • Current LTV is approx. 65% with 18 years remaining
    • Informed it was sold recently because it was non-performing
    • I rang and asked why was it non-performing and was told it was due to the fact we restructured and that any restructure at all will result in it been classed as non-performing (for the remaining term of the mortgage), and that this was central banks rules.
    This is our only BTL. Home loan is with PTSB

    I was chatting to Brendan inquiring about whether they could remove our tracker for any reason and we got talking about why it was non-performing and hence this post.
     
    Last edited: 12 Dec 2018
  9. RETIRED2017

    RETIRED2017 Frequent Poster

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    Is restructured the same as extended I don't think so,
    I think the got a very good deal back in 2011,
    The post Details of ptsb sales of mortgages 22 of mar 2018 covered some of the above ,
     
  10. RETIRED2017

    RETIRED2017 Frequent Poster

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    just saying you got a very good deal from kbc ,Hope everything goes ok for you,
     
  11. kaza

    kaza Frequent Poster

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    Yes we did get a good deal when they agreed to extend the loan, and to be honest would not have extended in if it meant loosing the tracker.

    Moving to Goldman Sachs (through Pepper) is done and I have accepted that. I will continue paying the mortgage and hopefully all will be ok.

    However, it seems like (from what I have been told) that this agreement to extend the terms back in 2011 means the loan is classed as NP for the remaining term - which is what I am wondering about now.

    Based off the post in March and looking at section 5.3 in https://www.bankingsupervision.europa.eu/ecb/pub/pdf/guidance_on_npl.en.pdf this seems to contradict what I have been told, or am I missing something?
     
  12. kaza

    kaza Frequent Poster

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    I would have thought it was restructuring because by extending the term you are restructuring your original contract, no? She specifically said to me on the phone we had restructured
     
  13. RedOnion

    RedOnion Frequent Poster

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  14. kaza

    kaza Frequent Poster

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    It was in negative equity - probably about 120% LTV
    - About €77K paid off the capital in the last 7 years and it has gone up in value - hence the current LTV of about 65%
     
  15. RedOnion

    RedOnion Frequent Poster

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    This might be key to it.

    You have to look at the assessment they would have made as at that point in time. Was it 'performing forborne' or 'non-performing' as at the date they agreed to the extension. If they classed it as NPL as at that date, it's a longer path to get back to performing; it's more complicated than the 1 year assessment with a performing forbearance.

    But in any case, it looks like it should be back to performing now, but there are a number of criteria to assess against.
     
  16. Brendan Burgess

    Brendan Burgess Founder

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    This is a profitable loan for KBC and it is very low risk.
    Kaza has substantial equity.
    She hasn't missed a payment in 10 years.
    They are getting 1.1% interest on it.

    Of course, if the purchaser pays 100% for the loan, then KBC would be right to sell it as they may be able to re-lend the money at 2.5% or higher.

    So maybe it should be worth around 90% in their books.

    upload_2018-12-13_10-6-49.png



    If the purchaser got a discount of over 10%, then they got a good deal.

    Even if KBC could re-lend the money at the same very low risk level at 4.5%, the discount should have been a maximum of 25%.

    And, of course, if Kaza repays the loan early for any reason, the purchaser has got a great deal.

    Brendan
     

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  17. RedOnion

    RedOnion Frequent Poster

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    Just remember, whether something is profitable or not has to be assessed based on the amount of capital KBC have to hold against it. They look at ROE, not absolute profit figures.
     
  18. Brendan Burgess

    Brendan Burgess Founder

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    Yes, but that is part of the problem.

    The Central Bank has probably decided that they need to allocate a lot of capital against this loan as it's "non-performing".

    This loan should have a very low capital requirement as it's profitable and low risk. I would probably make a provision of 10% against it to reflect the fact that it is a tracker.

    Brendan
     
  19. Bronte

    Bronte Frequent Poster

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    This doesn't look like a normal extension to me. It looks you you were unable to repay the capital and interest. Because of that you knew you wouldn't be able to make the repayments so you asked for a restructure. In this case it was an extension. And that bank would have looked at it at the time as a loan that was not going to perform and of you forcing them into an extension.
     
  20. kaza

    kaza Frequent Poster

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    So what is the difference between an extension and a restructure?