Frontline programme on mortgage arrears and negative equity

Last night's Fronline programme fell way below its normal standards of objectivity and Pat Kenny's normal standards. It was very onesided.

The Panel
The Panel consisted of
Ciarán Lynch - Labour TD
Ross Maguire - New Beginnings
Constantin Gurdgiev
Ronan Lyons - Daft.ie

No Irish TD has the backbone to point out to consumers that they have made mistakes and that they have to pay for them. Ciarán who is genuinely interested in the housing issue is no exception.

New Beginnings spend their time defending people trying to counter bank repossessions.

Both Ronan Lyons and Constantin Gurdgiev have called for widespread debt forgiveness which would cost the taxpayer, according to their calculations, up to €49 billion

Why was there no one on the panel who opposed widespread debt forgiveness? Declan Jordan of UCC, Séamus Coffey of UCC, Professor Gregory Connor of Maynooth, myself? Even a three to one against panel would have been unbalanced, but at least it would have been less unbalanced.

The case studies were simply not probed at all

The Clonee couple who featured in the programme. They had bought a two bedroom apartment a few years ago. They were worried about the future. They were meeting their repayments but what if one of them lost their job? But bizarrely, two years ago they had applied to the bank to trade up with a negative equity mortgage. The bank had laughed at them. They were critical of the bank. But they should be grateful to the bank. If they had traded up , they would be in much more severe negative equity and their repayments would be much higher. Their worry about losing their job would be far worse.

Ken bought an apartment "with his father on the deeds" a few years ago for €300k and it's now worth €90k. He is working in sales and has never missed a repayment. The bank won't do anything for him. What does he want the bank to do? Reduce the repayments which he and his father can well afford? Ken has a Facebook page mortgagedebtforgiveness

I am sorry for people in negative equity, but if they can pay their mortgage, then they must do so.

The €1m mortgage woman bought a house with a €1m mortgage a few years ago and got an offer of €500k last year for it. The bank refused to let her sell it. Again, I have sympathy but there was no personal background given. She was wealthy enough to borrow €1m a few years ago and now the house is rented. It's likely that the rent received and her own income is easily enough to cover the repayments. Why should the bank let her sell?

The public servant who has not paid her mortgage since December 2010. She was in her early fifties and put all her savings into a house. She could not get the bank to agree anything and her income has reduced as a "professional public servant". So her response has been to put €1,000 a month into a separate bank account until the bank agrees. Every option that the bank discusses involves repossession. It is very unusual for a bank to suggest repossession, so we were not getting the full story. Mind you, if she has not paid anything towards her mortgage for 10 months, then there should be a fast-track court procedure to repossess her house.
Update: This case is discussed in detail in this thread : Caroline Lennon Henry Posterwoman for Mortgage Arrears

For comparison - The Cork couple who featured on Richard Curran's programme before Frontline
A couple with three young children. He lost his job. She had a part-time job so she increased her hours and he minds the kids combined with a Social Employment Scheme. Things got to breaking point and they could not afford the €600 monthly mortgage payment. What happened? They went into Ulster Bank who assessed their position and reduced their repayments to €200 per month for 12 months. This is exactly how it is working in reality. A borrower gets into trouble. They cut back. They act responsibly. They talk to their bank who assesses their needs and the bank facilitates them.

Pat Kenny's approach
was extraordinarily one sided. He accused the bank who had lent to Ken and his father of wanting to "grab his father's pension, although he had signed the paperwork".

He never pointed out how lucky the Clonee couple were that the bank had not allowed them to trade up.

He told the woman who had borrowed €1m whose house was worth only €500k that the banks were not paying for their mistakes. They were professionals who were used to valuing houses. She had bought only one house and had made a mistake and she was carring the can for their joint mistake.

He kept repeating that the banks had made "300,000 mistakes" i.e. the number of people in negative equity.

He referred sarcastically to "the wonderful code of conduct on mortgage arrears"

He said "I have a difficulty with this blanket rejection of the blanket rejection of debt forgiveness..."

He never put any difficult questions to those seeking debt forgiveness, in fact he puts his words into their mouths. By contrast, he badgered Ciarán Lynch who tried to explain the government's position.

I was so annoyed at the programme that I had to switch it off half way through. I knew that The Property Pin contributors would be going absolutely mad and indeed they were. See here They were throwing stuff at the television.

The last Frontline programme on the topic showed the other side of the argument
One of the panel, Declan Jordan, effectively challenged Brian Lucey's proposals on Debt Forgiveness.
I was in the audience and was able to explain why the Expert Group had recommended against it.
There was a German(?) who had a high mortgage and was very opposed to debt forgiveness.

We were in an unpopular minority, but at least, the view was heard.

OK, I have watched the second half of the programme.

How can a serious current affairs programme give such publicity to the New Beginnings proposal?

Ken can pay his mortgage in full and still have €1,000 a month to live on. He appears to be a single guy.

The best solution for Ken is to repay the capital as quickly as possible. Not to pay less than the interest on the mortgage and so watch the balance outstanding rising.

This was greeted enthusiastically by Pat Kenny as Win, Win, Win.

It's actually Lose, Lose, Lose.

It's lose for Ken as the balance will continue to rise on his mortgage.
It's lose for the bank as the negative equity will continue to rise and their chance of a write-off will continue.
It's lose for the tax payer if we own the mortgage.

Let's remember a key fact, Ken has a joint mortgage with his father. If Ken can't pay the mortgage, then his father should as this is what he agreed to do. The lender would not have given him the mortgage without the father's name on it.

This type of programme does enormous damage to people who are struggling with their mortgage.

The biggest mistake that people make is that they bury their head in the sand. They don't talk to their lender or they leave it very late to talk to their lender. The Frontline programme last night would discourage people from talking to their lenders because anyone watching the programme would simply assume that there was no point.

The reality is that 70,000 (check number?) borrowers have successfully rescheduled their mortgages. 70,000 people have reduced their monthly payments with the agreement of their lenders. The Cork couple in Richard Curran's programme suffered unnecessarily because they didn't approach Ulster Bank early enough. The guy from Tralee who refused to feed his children so that he could pay the mortgage is another example. He had probably watched a programme similar to The Frontline.

I have not seen the programme, but a few weeks ago there was another programme on this topic and no full background was given to the stories on offer. I mentioned it on here at the time.

In relation to the Cork couple, who are reduced to 200 Euro monthly mortgage repayments for one year. After that year or two a decision should be made by the bank to write off part of the mortgage. There is no point people being long term on reduced mortgages as the costs and arrears are building up to an unsustainable level.

There seems to be a public mood that one cannot say actually the bank are treating you ok, you signed for this, what do you expect, but we are all supposed to be sympathic, depending on the circumstances one can be sympathetic, but the belief that everybody in negative equity should have their debt forgiven is a growing belief. We have a thread on here on this and woe betide any of us who don't agree with it.

(nods)

I wholeheartedly endorse your comments Brendan.

The only positive point I took from the problem was that in comparison to Japan, our government moved relatively swiftly and decisively to address our crisis.
I felt that talk of 2015 was unduly negative - we're seeing signs of life even this year, and I would hope that 2013 will see us well on the way to recovery.

The image presented of the mortgage provider was that of an institution that would not listen to people's problems. I have found this is not the case.
In particular the rescheduling of the mortgage was presented in a manner that did not reflect what I know of the way such things are addressed.

Re-scheduling a mortgage is done on a year-by-year basis, there is no automatic roll-over effect and it requires a form of means testing.
The fact that the couple had had their mortgage re-scheduled should have been a far greater cause for positivity for mortgage holders.

Yet the presentation in the documentary was one of doom-and-gloom "all our hopes dashed" and "we're living on top of each other".
Few people are in a place they would like to remain in at the moment, with a hard budget looming, but let's all try to be positive.

Declan Jordan of UCC, Séamus Coffey of UCC, Professor Gregory Connor of Maynooth, myself.
3/4 in feather bedded civil service jobs.

I am sorry for people in negative equity, but if they can pay their mortgage, then they must do so.

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I dont think you are Brendan, what if they can pay the mortgage and little else? Impoverished but in a home.

The Icelandic option of reducing all the mortgages on homes to 110% was an interesting point. (case by case and not for mansions)

Its basically Have vs Have Nots, those that took too big a chance to a get a home and those who waited and now have Schadenfruede.

A Lost Generation was mentioned by Ronan (I think), Is this what we are, a community that saves the banks and won't save our young families.

No comment on the cases raised.

@ monagt

That seems to be an unfair comment on Brendan and unnecessary.

I do not habitually defend Brendan's position on financial issues.
However there are very some basic rules on debating.
"Attack the man's reasoning, not the man" is one.

Brendan used the term "if they can pay".
This implies a test whether this is so.
Ability to pay bills would be a factor.

I watched the programme before Frontline but make a habit of never watching Pat Kenny, mostly for the reasons outlined above

I do wonder if there will be a case for mis-selling mortgages in Ireland in the near future. This happened in the UK with endownment mortgages in the past and when you hear of cases like Smart Mortgages giving 30 year mortgages to people in their 40s, then you have to wonder if the banks exercised their legal duty of care. Industry sources that I know also indicate there is a huge issue with incomplete paperwork in the banks for loans and mortgages and this would also undermine any defense they may have. If they cut corners to get commisions, they should pay a price, regretably, it may be the taxpayer that pays the price for them

On your comments on the couples in neg equity and those who had approached and been granted some leeway by the banks, a year is not going to be long enough for most people. It could take some people 3-5 years to get back to work, and given the increase in taxes and decreases in salaries, it may take them some time to get back to a stage where they can afford their repayments.

I'm probably in neg equity but am in full time employment and can afford the mortgage. I don't expect anyone to cut my mortgage, but, touch wood, this is the last home I'll be buying anyway. There needs to be a long term solution for those who want to move and cant. Take that couple in Meath, were they to buy a house, the likihood is that the value of their house + neg mortgage balance would equal the value of their current mortgage (which they can afford).

That seems to be an unfair comment on Brendan and unnecessary.
I do not habitually defend Brendan's position on financial issues.

However there are very some basic rules on debating.
"Attack the man's reasoning, not the man" is one.

Brendan used the term "if they can pay".
This implies a test whether this is so.

Affording food would be a factor.

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Not meant as an attack on Brendan but on his consistent point of view which I feel is not balanced.
I think there is more than just money involved, there are many people in misery, most are young people & couples & couples with children.

I only watched a bit of the programme - I've taped it so will watch later - I agree that the backgrounds given were not the full story. While I also feel sorry for people in negative equity (I'm in the same position with a rented house I bought, but luckily it is rented out at the moment), if you can pay your mortgage then why wouldn't you? The young couple in the apartment - ok it's not ideal - but many people brought up families in conditions & houses which were not a patch on their apartment. I didn't see the woman who had a 1m€ mortgage, but I did see a similar programme which featured a woman who hadn't paid her mortgage for a year & she had a huge mortgage - she was still taking her kids to horse-riding lessons! Now I'm not an expert, but if I was in dire financial straits I'd prioritize my spending & that certainly wouldn't even come into it. When people look at their outgoing when trying to balance their budgets, a lot of them include things like Sky! There has to be some sense of personal responsibility here.

monagt said:

Not meant as an attack on Brendan but on his consistent point of view which I feel is not balanced.
I think there is more than just money involved, there are many people in misery, most are young people & couples & couples with children.

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I would have to agree with Monagt here on both counts. The fact that Brendan wanted to give his view to counterbalance the 'biased' view on the show sounds a bit like two wrongs...

I would have been more in the 'people take responsibility camp' before, but I do now feel that society is becoming damaged through the massive weight on peoples heads, and even though they got into the mess themselves as adults, do we as a civilised society just tell them to suck it up and get on with things?
The New Beginnings solution seemed like a good approach, but I have yet to hear it being dissected.

monagt said:

I dont think you are Brendan, what if they can pay the mortgage and little else? Impoverished but in a home.

.

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Aren't most people who start out with a mortgage generally only able to pay the mortgage and little else. It is a normal way to be?

A big +1 to your first post Brendan.

That young couple from Clonee....they have no garden...big deal! Get on with it and make the most of what you have. Plenty families reared in apartments all over the world. It may not be ideal, but hardly the end of the world.

The "professional" civil servant really got on my nerves. Just because a "substantial" amount of her savings into doing up her house (which I'm sure she bored her dinner guests with) and her income (which I'm sure is still pretty decent) has been reduced, she has decided not to pay her mortgage. If her salary had not been cut but instead interest rates went up, would she have stopped paying her mortgage also? It's people like her IMO who are not helping those in real need here....if someone like her were to get a writeoff then every Tom, Dick and Harry would stop repaying their mortgage.

I feel a bit sorry for the family from Cobh..it looks like they are doing what they can and the bank in fairness have responded. It was clear to me that if they were put back on the original repayments they would probably just emigrate and take their chances, so it's in the banks interest to get something rather than nothing.

The salesman made me laugh I must say. He basically made a poor financial investment (it doesn't sound like he bought a home for life) and now wants you and I to pay for it.

Having said all of that I thought the New Beginnings idea had a major flaw....the repayments are limited to 35% of disposable income. Sounds like a poverty trap to me....the more I earn the more I pay the bank for something that I already have the full use of? It becomes another tax and will further promote the black economy. I also think this option will be unworkable from am admin perspective...who will monitor if the repayments are really 35% of income? I think the bank taking an equity stake in the property for a corresponding write-off of the mortage would be more equitable and more easily implemented. The mortgage holder could have the option of buying back this equity stake at any time for an agreed premium.

Having said all of that I thought the New Beginnings idea had a major flaw....the repayments are limited to 35% of disposable income. Sounds like a poverty trap to me....the more I earn the more I pay the bank for something that I already have the full use of? It becomes another tax and will further promote the black economy. I also think this option will be unworkable from am admin perspective...who will monitor if the repayments are really 35% of income? I think the bank taking an equity stake in the property for a corresponding write-off of the mortage would be more equitable and more easily implemented. The mortgage holder could have the option of buying back this equity stake at any time for an agreed premium.

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Sounds like a poverty trap to me.

+1

http://www.independent.ie/opinion/editorial/plan-wont-cure-mortgage-woes-2901595.html

Interesting when Irish establishment is dismissing debt forgivness, Clinton on Sat said without forgiveness, no recovery! Wasn't reported!

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David McWilliams

The Clonee couple who featured in the programme. They had bought a two bedroom apartment a few years ago. They were worried about the future. They were meeting their repayments but what if one of them lost their job? But bizarrely, two years ago they had applied to the bank to trade up with a negative equity mortgage. The bank had laughed at them. They were critical of the bank. But they should be grateful to the bank. If they had traded up , they would be in much more severe negative equity and their repayments would be much higher. Their worry about losing their job would be far worse.

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This couple bought an apartment that they knew was not suited to their family situation with the intention of selling it at profit after c.2 years. They are pure speculators who've got caught out by the market. They should have bought something more suitable (though possibly in a less desireable location) or rented until they could afford a house. They cannot be compared to someone who bought a property for the right reasons and is now stuck.

Mortgage€340kcurrent monthly repayment€1450Interest element€917Monthly disposable income€2400Mortgage switched to interest free€80kProposed repayment€840

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The 50 billion dollor (or euro!!) question is who is going to pay the interest on the "Mortgage switched to interest free" portion of the mortgage? The bank has borrowed this and will be paying it during the 10 year period.

MrMan said:

The New Beginnings solution seemed like a good approach, but I have yet to hear it being dissected.

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Hey Man

I have analysed it in this post which you might have missed.

Paul Cullen of the Irish Times explained that Icelandic mortgages were capped at 110% of the value of the home.

But he didn't explain that they had develued their currency and that a lot of Icelandic mortgages were denominated in foreign currencies.

As they had a spike in inflation, I presume that their interest rates skyrocketed as well?

I just don't think that the comparison of Iceland to Ireland stands up.

Hey Man, I have analysed it in this post which you might have missed.

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Analysis is correct but what about looking at the possible effects of Inflation and rising property rises in 10 years?

csirl said:

This couple bought an apartment that they knew was not suited to their family situation with the intention of selling it at profit after c.2 years. They are pure speculators who've got caught out by the market. They should have bought something more suitable (though possibly in a less desireable location) or rented until they could afford a house. They cannot be compared to someone who bought a property for the right reasons and is now stuck

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Not true.

They bought the apartment because they wanted a home and wanted to get on the property ladder.

In a rising market their next home (a house) would obviously have been more expensive and would have risen more than the apartment in the intervening 2 year period.

I'm sure that they bought the apartment because they couldn't afford a house.

I fully support government intervention to assist people like the Clonee couple because in their case negative equity is causing social problems (i.e. they can't exapnd their family).

I disagree with Brendan's point regarding this couple. The key point is that they're stuck in an unsuitable property. Negative equity is (relatively) okay if you're in a property that's suitable in the long term and you haven't lost your job or had your earnings devastated.

It was like a re-run of the programme they did on debt forgiveness but with only one side invited back.
The “professional” civil servant didn’t do herself, civil servants in general or people in negative equity in general any favours. She “only” allowed €50 a week for personal grooming and clothes. My wife wouldn’t spend that and we’re not in financial trouble.