What if bank adds 60k to borrowers salary on loan application?

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usernameinuse

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Supposing a borrower, an ordinary single worker without a partner, applied for a mortgage, in the boom times. She supplied the bank with the normal written evidence and verification of her income. Her income was relatively low, so the bank, unknown to her at the time, inflated her income on paper by over €60,000 per year, so she would then meet the then lending criteria by the bank. She only discovered that after she obtained internal loan report documentation from the bank, following a data access request. The file she got from the bank shows that the bank was aware of her actual income and had documents from her employer proving same, but someone in the bank inflated it, in writing on the internal bank report, to a figure over €60,000 per year higher so they could lend the money. The loan was to be interest only for the first ten years: the borrower was not told what monthly capital and interest repayments would be, and has always paid interest only up until now. The bank now wants capital and interest, which the borrower cannot afford.

Should the bank have had a duty of care to behave honestly to its customers?
 
Sounds like a horrendous situation. Of course the bank should not have acted this way. Whether one could prove they should be liable is a different matter.

Something that always intrigues me -- presumably even the most financially naive person knows what the term "interest only" means. What did they think was going to happen after ten years? Did they think the property was going to have made them a gazillionaire (but that would be of no use unless they stopped needing somewhere to live). Or did they think their wages were going to increase dramatically so they could afford the capital repayments? Did they realise that by keeping the repayments a measly couple of hundred lower for the ten years, they would pay tens or even hundreds of thousands extra in interest? Or was ten years just too far in the future to be worried about?
 
Sounds like very dodgy practice, several people in bank would have to have passed the file through so all would have to be been in on it as such. Also if the person ever got an actual loan offer did it not give on that some indication of what capital and interest payments could be on ending of fixed rate?
 
Did she buy a house?

Did she borrow the money?

She knew she was on a salary of €30k and borrowed €300k. So what?

If she is in Negative Equity, she could use this to negotiate a voluntary sale with the shortfall written off.

Otherwise, if she can't afford her mortgage, she should thank whoever forged her salary for providing her with cheap accommodation for the last ten years.

Brendan
 
Monbretia: "Also if the person ever got an actual loan offer did it not give on that some indication of what capital and interest payments could be on ending of fixed rate?"

No, there was no indication of what monthly capital and interest payments would be. Should she have been told? If she was, it is unlikely she would have borrowed the money. She asked and was told not to worry, they would be affordable, they got her figures, the bank were the experts. Her area of expertise was and is nursing, she worked then as a nurse, is still working full time as a nurse. She is on variable interest rates since 2007, but the bank wants to put her on capital and interest repayments, which would be more than her take home pay now.

I agree with you the file shows "very dodgy practice, several people in bank would have to have passed the file through so all would have to be been in on it as such", but what can she do now? She has paid a fortune to live in a decent 3 bedroom property, albeit in a scenic rural part of south-west Ireland, after borrowing money she should not have got, and would not have got if the bank wrote the correct figures honestly.

Incidentally the valuer for the house at the time, who was appointed by the bank and coincidentally a relation of the banker, made the property seem better security by describing it as a 5 bedroom with double glazed windows, when the property was and is a 3 bedroom with only one double glazed window, the rest are single glazed. Would head office have lent the money if it knew what the property was really like? The property is still in approx €180,000 negative equity and is unlikely to reach its 2007 value.
 
Brendan Burgess said:
Sounds as if she should go for a PIA.

She stupidly borrowed this amount of money. The bank stupidly lent her.

The PIA will fix that.

Brendan
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With respect, I am not sure that a PIA would fix that, as according to PIA guidelines : " The types of debt that are excluded and cannot be covered by a PIA are:
  • Debts arising from a loan (or forbearance of a loan) obtained through fraud or similar wrongdoing"
Surely the fact the bank, unknown to her at the time, inflated her income on paper by over €60,000 per year, so she would then meet the then lending criteria by the bank, show the loan was obtained
"through fraud or similar wrongdoing" on the part of the bank?


She is happy to surrender the property and walk away. However the bank says it wants the residual debt. The Bank is still active in the Irish market although the individual banker concerned with the loan and valuer have long since resigned or left. The borrower does not want the stress or stigma of going through a PIA when the banker and valuer got away with it, and when the borrower has proof of wrongdoing.
 
It's odd it was never queried by anyone in the bank, what nurse was earning even 60k not to mind 60k plus whatever the proper salary was, a loan application goes through so many hands in head office it's hard to believe it could get through without query as obviously p60 and payslips did not match the employers form. It's not that I doubt you but there must have been a serious lot of people prepared to overlook this in the bank and also risk it being audited.

Was it a bank with only one person in charge or what :)
 
usernameinuse said:
I am not sure that a PIA would fix that, as according to PIA guidelines : " The types of debt that are excluded and cannot be covered by a PIA are:
  • Debts arising from a loan (or forbearance of a loan) obtained through fraud or similar wrongdoing"
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I expect that this refers to wrongdoing on the part of the borrower, which is not, on the face of it, the case here.
 
Monbretia, there are plenty of nurses earning 60k plus, although the majority are not. It doesn't seem right to me that a nurse with more than ten years experience could be working full-time and have take-home pay less than that needed to cover the mortgage payments.
 
It does not seem right to me that a banker or bankers, unknown to the borrower at the time, inflated her income on paper by over €60,000 per year, so she would then meet the then lending criteria by the bank head office. The house was bought in 2007 in a nice scenic area, at the top of the market. The valuer described the house incorrectly for the bank head office too. Repayments were variable interest only for the first 10 years. That is all in the file.

The borrower is single, part of the reason she never married or had kids or even socialised much was because of financial worries as a result of the loan. Should the borrower have been told what a typical "interest and capital" monthly repayment would be, after she requested that information? For example if interest rates were 3 or 5%? She was not, no mention of that figure in the file obtained under a data access request.
 
llgon said:
Monbretia, there are plenty of nurses earning 60k plus, although the majority are not. It doesn't seem right to me that a nurse with more than ten years experience could be working full-time and have take-home pay less than that needed to cover the mortgage payments.
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Yes I'm sure there are some but this was 11 yrs ago and assuming her correct salary was 30k then her stated salary was 90k with the extra added. This would be a mighty fine salary in the south west of Ireland, I was a lender in that area at that time and I certainly would have looked twice and three times at a salary like that even if just in envy!
 
Usernameinuse - I presume she had a solicitor, did they bring anything in the loan offer to her attention regarding the repayments etc or the interest only term? I presume she also got a copy of the valuation report, did she query the discrepancies in it?

Have you seen the actual loan offer? I can't remember what they said at this stage re the repayments at end of interest only terms, definitely on fixed rate ones it gave an indication of what repayments might be depending on changes in interest rates at the end of the fixed term.

The initial change must have happened in branch rather than head office I assume or it wouldn't have got past the branch checks, I know strange stuff went on back in those days but in my experience it came in wrong to the branch usually having been altered before getting to application stage by one person or another!

Not saying no one in a bank ever changed anything as obviously time has told us that did happen but I never came across it in the bank itself but did see stuff come in wrong.
 
Monbretia said:
Usernameinuse - I presume she had a solicitor, did they bring anything in the loan offer to her attention regarding the repayments etc or the interest only term?
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She asked her solicitor what the monthly repayments (interest and capital) would be but the solicitor did not know, she said to ask the bank. She asked the bank and was fobbed off, it would depend on future interest rates. She asked again and was told not to worry, they would be affordable, they got her figures, the bank were the experts, they had decades of experience, sure was property not going up in value all the time and wouldn't her wages increase during the ten years too and anyway the banker said (verbally) she could maybe extend the interest only period at the end of 10 years if she wanted to etc. She was told the most important thing was for her to get her foot on the ladder, it was a great investment etc.

Monbretia said:
I presume she also got a copy of the valuation report, did she query the discrepancies in it?
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No she did not get a copy of the valuation report until many years later when she obtained it in her file, after paying €6.35. Should she have got a copy of the valuation report at the time? Anyway the €6.35 was the best money she says she ever spent, to see what went on.There were two loan reports in the file. The first one was for her correct income, and the bank did not approve the loan. The second loan report shows the bank, unknown to her at the time, inflated her income on paper by over €60,000 per year, presumably so she would then meet the lending criteria by the bank.

Monbretia said:
Have you seen the actual loan offer?
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Yes. No mention of what monthly repayments (interest and capital) would be.
I wonder if anyone would know if the bank was supposed to indicate what they would be likely to be in 10 years time if interest rates were eg 3%, 6% or whatever.

Monbretia said:
Not saying no one in a bank ever changed anything as obviously time has told us that did happen but I never came across it in the bank itself but did see stuff come in wrong.
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I suppose back in the day bankers were expected to grow their loan books and perhaps sometimes got bonuses for reaching targets. I guess 99% of bankers behaved properly but as in some other professions and trades during the boom a few obviously did not.

Going forward, the PIA guidelines are quite clear, and state the types of debt that are excluded and cannot be covered by a PIA include "Debts arising from a loan (or forbearance of a loan) obtained through fraud or similar wrongdoing". The borrower says that if there was not "fraud or similar wrongdoing" on the part of the banker and his relation, the valuer, she would not have obtained the loan, and her life would have been much better.
 
Yes but as previously pointed out that 'fraud or wrongdoing' referred to applies to the person applying for the PIA and as she seems to be unaware of the 'fraud' then I doubt that is relevant in this situation.

Re valuation reports, they were normally sent out with the loan offer, not sure when that regulation came in but it was there for a good while before I left. Does she actually have her original copy of her own loan offer?

Interestingly when I finished in the bank I worked briefly for another company where I came in contact with mortgages as well, I came across several properties also in the scenic south west that had what I considered ridiculously inflated valuations used for the mortgages, while I have no qualifications in that area it was obvious that those in Head Office clearly were not local as not a hope were those valuations in any way accurate even in boom times.
 
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Monbretia said:
It's odd it was never queried by anyone in the bank, what nurse was earning even 60k not to mind 60k plus whatever the proper salary was, a loan application goes through so many hands in head office it's hard to believe it could get through without query as obviously p60 and payslips did not match the employers form.
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Thats why the borrower does not want the stress or stigma of going through a PIA when the banker and valuer got away with it, and when the borrower has proof of wrongdoing. It was in the file the bank sent to her, along with copies of her payslips and P60 etc.

According to the PIA guidelines debts arising from a loan obtained through fraud or similar wrongdoing cannot be covered by a PIA anyway. It does not specify if the fraud refers to wrongdoing on the part of the borrower or the lender, but the borrower has paid dearly over the last decade and would not risk doing 5 years time in a PIA only to be told just before the PIA is up that she is back at square one. Perhaps if the banker and valuer were prosecuted, then she may consider a PIA.

Monbretia said:
and as she seems to be unaware of the 'fraud' then...
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The borrower is well aware of the fraud and wrongdoing by the bank since she obtained the file.

Monbretia said:
Re valuation reports, they were normally sent out with the loan offer, not sure when that regulation came in but it was there for a good while before I left.
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Would that regulation have been there during the later years of the celtic tiger do you think? It definitely was not sent in this case, the borrower got a shock many years later when it mentioned the extra bedrooms, double glazing etc. Different type of house, but the house address was the same.

Monbretia said:
Does she actually have her original copy of her own loan offer?
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Yes.

Monbretia said:
I came across several properties also in the scenic south west that had what I considered ridiculously inflated valuations used for the mortgages
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Ever come across a valuation where for example major mistakes were made in factual matters eg describing it as a 5 bedroom with double glazed windows, when the property was and is a 3 bedroom with only one double glazed window, the rest are single glazed?
 
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I meant she was unaware of the fraud when it happened, yes she knows now but she didn't know or go along with it at the time.

No never saw the actual valuation forms just the amount of valuation.

Yes I would say that requirement to send out the valuation report with loan offer was there during celtic tiger, maybe not necessarily sent with loan offer but definitely given to client at some stage.
 
Monbretia said:
Yes I would say that requirement to send out the valuation report with loan offer was there during celtic tiger, maybe not necessarily sent with loan offer but definitely given to client at some stage.
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Thanks for all the information. She definitely never got a copy of the valuation or saw a copy, until it came many years later in the file obtained for the €6.35 under the data act. That despite the fact she paid for the valuation, as requested by the banker. The valuation was not mentioned as being sent or included in any correspondence at the time of the mortgage. She queried the bank relatively recently about the valuation and she was told the valuation was for bank use only. Maybe that is one reason she was never given a copy, the other reason being more obvious!
 
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