How are tracker mortgages treated in No Veto PIAs?

Brendan Burgess

Brendan Burgess

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I am helping someone on a low income who is struggling with a €200k mortgage. But it's a cheap tracker of ECB +1%, so the repayments are "only" €800 a month.

The house is worth only €120k.

He is not in arrears now, although he has been in the past during a period of unemployment.

It would be great if he could have the Negative Equity written down to €120k and retain his tracker. :)

But it would also be great, if he could have the NE written down to €120k and move to ECB +4%.

Brendan
 
With trackers being so cheap there may be little scope for an interest rate reduction as part of a PIA. There may be scope to extend the term which might help. For a "no veto" PIA, a key requirement is that the mortgage was in arrears on 1 January 2015. Does your client have paperwork that indicates an arrears situation on 1 January 2015?

It would appear that the courts are quite strict on this. The High Court recently rejected a "no veto" PIA (on appeal from the Circuit Court) after finding that the borrower, although making ad hoc payments during 2014, was not in arrears on 1 January 2015. The Irish Times report on the case can be found here:

http://www.irishtimes.com/news/crim...ter-face-losing-55-000-munster-home-1.2945620
 
Thanks TLO

I appreciate that the rate could not be reduced.

But could the balance owing be reduced and the rate retained?

Brendan
 
When composing a PIA a PIP needs to balance the interests of the borrower and the lender. In this instance the PIA could recite:

1) no changes to the agreed interest rate of ECB plus margin.
2) the mortgage balance should be written down to the value of the lenders security. (€120k in this case).
3) the monthly payment comes down in proportion.
4) the term remains the same.

If the borrower is currently living below RLEs then there is a reasonable basis for the above approach.
 
Thanks TLO

How could it be a fair balance of the lender's interests to write down a tracker mortgage to the value of the property and leave it at the tracker rate?

With a mortgage of €200k , the repayments are about €9,600 a year, of which, €7,600 is capital. So they will be balance sheet solvent anyway in about 10 years.

If the mortgage were to be written down to €120k under a PIA, the repayments would drop from €800 to around €500. So they would be paying down €400 a month in capital. After ten years, they would have a very valuable asset. A house worth €120k and a mortgage of €60k.

But it's not my opinion which counts. If the judge doesn't understand mortgages, and forces a write-down, then the borrower should probably go for it.

A fair balance might be to write down the mortgage to €120k and increase the interest rate to ECB +3%, so at least, the lender is not losing money on the mortgage. This would bring the mortgage repayments down to €600 a month.

Brendan
 
If the lender wants to increase the interest rate, to ECB +3% in the above example, then they should signal that to the PIP during informal negotiations. The back and forth that takes place before things get formal with PIAs, creditors meetings, Circuit Court reviews etc. The PIP can then include that in the PIA in exchange for the lenders support. If the lender chooses not to engage it leaves it open for the "PIP to propose and the judge to decide".

It will vary from lender to lender as to whether they make or lose money in the ongoing arrangement after write-down. This is because the cost of funds varies from lender to lender. BOI for example, has deposits of over €75billion, on which it is paying little if any interest. Indeed, as CiaranT pointed out elsewhere on this forum, it is advertising negative deposit interest rates for some customers. With so much cash on hand it is probably still able to make money on tracker mortgages. Funds which bought loans at a discount might also be able to make money.
 
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