# Karl Deeter "Some borrowers are going into arrears on purpose"



## livEwirE (2 Apr 2012)

This kind of thing REALLY infuriates me, it's shocking to think what some people will stoop to 

Karl Deeter: Up To 25% Of Those In Mortgage Arrears Are Lying

http://www.broadsheet.ie/2012/04/02/karl-deeter-up-to-25-in-mortgage-arrears-are-lying/



> Responding to today’s story about Permanent TSB’s bad loan provision, Karl Deeter, of [broken link removed] appeared on Newstalk at lunchtime with Jonathan Healy.
> 
> *Jonathan Healy: *“You mentioned Permanent TSB there.  They made a loss of, was it €424 million that was announced today? But  more significantly, in those figures, 12% of their mortgage book is more  than 90 days in arrears.  How much of a problem is that going to be for  PTSB? Because with the way the market is at the moment and the way  people’s pockets are at the moment, that’s not going to be going in the  opposite direction any time soon?”
> *
> ...


Listen[broken link removed]


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## The_Banker (2 Apr 2012)

Karl Deeter is believing the executives at banks and those involved in the collection teams that people are just not paying in the hope of getting a deal?

To quote Mandy Rice-Davies (someone I would hold in higher esteem and regard than bank executives) "Well, they would say that wouldnt they!"


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## Brendan Burgess (2 Apr 2012)

I have no idea what the figure is, but there are certainly some people who could pay their mortgages on time who are not doing so. 

I haven't heard any bankers say this, but I would know people who don't see why they should cut down on their second holiday or take their children out of private schools "just to pay the mortgage"

And I have spoken to people with investment properties who seem to think that the investment property income and expenditure is ring-fenced from their own lifestyle. If the rent does not cover the repayment, they say that is the bank's problem. They can only pay the rent and no more.


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## The_Banker (2 Apr 2012)

We must move in different circles Brendan. I cant speak for people with investment mortgages but I certainly know people who are struggling to pay mortgages.
People I know who have cut back everywhere just to ensure the mortgage is paid. While I cant say I know people who have cut back on food to pay the mortgage I certainly know plenty who have had to make savage cuts in their lifestyle spending and did so willingly.

I know none who are in arrears and still continue a lifestyle akin to Celtic Tiger years.


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## miriammary (2 Apr 2012)

I know people paying mortgages who are finding it tough to make ends meet and pay the mortgage on time even though they are managing to do so, however I know one person in my circle of friends who could pay her mortgage but openly says that she isn't paying the full amount  each month and has been doing this for some time in the hope that a deal will be made for those in arrears!


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## itsallwrong (2 Apr 2012)

I am sure there are people who are acting the maggot with investment homes. A fool would argue otherwise. But has he talked to people about why they are in arrears on such properties? Did it enter his mind they are paying the mortgage on their PPR out of fear of losing it!

Mr. Karl, people who are in family homes and in arrears, none of which is really in their control, it is highly unlikely if not reckless to suggest they are deliberately staying in arrears in the hope of a 'bank deal'.

Everyone knows there will be no bank deal, the numbers are too lethal to even contemplate.

Believe me, the fear of losing my home far outweighs any distant hope of a bank deal. My arrears are present and rising.
I don't want a deal for my arrears - I want a fair interest rate. Then my arrears go away over time - real basic stuff.

I doubt the customer would come off scott free in the event of a deal of sorts on any arrears. There is always a catch. Always.

And as usual there is fudging of the numbers. Bad loan provision - Is this 'loans' that have gone bad, commercial, personal and so on, or is the fact PTSB is owed a fortune in self generated arrears from mortgage hikes and they have been tagged onto the figures for padding out the story. Suggestion for you PTSB. 

Put the rates back down, factor in the reason for genuine arrears that you and your banks buddies caused then get your abacus out again.

I know people who don't eat properly or heat their home because of the fear of the 'bank' 

The utter cheek of you to suggest a percentage of people are deliberately in arrears and absolutely nothing to substantiate it.

Immature speculation in a time when people are suffering on all levels of their existence because of arrears. 

Yours sincerely, always suspicious.


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## MortgageGuy (2 Apr 2012)

As I'm being mentioned I thought I might reply. 

The interest in this area came from my work as a working financial advisor, people were coming to me for consultations and I quickly established that they could pay, but they didn't agree with (insert whatever reason you want here). 

Then I got information off the record from bank executives, granted, you can call 'vested interest' if you want, they had no reason to lie. 

Then there are the collectors who I double checked with - many of whom are friends and former brokers, they have no incentive to lie to me or to be dishonest. 

Last of all were banks talking off the record. 

I appreciate that the vast majority of people in financial trouble are genuine cases, I also know - without a shadow of a doubt - that there is a sizeable contingent who are intentionally managing their affairs to their own gain/the banks detriment, when they have the capacity to meet those repayments. Just because it's an uncomfortable topic doesn't mean it isn't true, and frankly I find it a real slap in the face to the genuine cases, the debate should perhaps focus on allowing banks to move quick on these cases while advanced forbearance is reserved for deserving cases. 

btw: Thanks D for pointing out the thread.


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## itsallwrong (2 Apr 2012)

I'm sorry MortgageGuy,
I find it impossible to believe anything out of the mouth of a banker or anyone linked to them. They have always been out for themselves and that hasn't changed even in light of the meltdown they played a large part in. They have contantly changed the goal posts.
But as I asked my bank manager, at what point does the bank stop being nice to you over arrears?
They are under vast pressure thanks to their stupidity and they are sure to move on investment portfolios first. I say first cautiously in the hope they will always have a level of forbearance to PPR's, but how long will that last?

I totally agree with any measure of severity a bank may enact on a customer who is deliberately 'defaulting' for any amount.

I understand you are on the front line to gather the facts. Since we are this far into the meltdown, surely mortgage providers would have sussed out the fibber from the ill fated by now. The financial means statement is fairly indepth and the bank can and do ask for supportive proof to the customers claim - I know. So anyone walking in saying they are poor, had better have a real good story and proof.

Do you have any approximate details of the amount of people who are acting the maggot or genuinely knee deep in it.?
1 in 4 arrears customers are possible messers?
I suppose it's like welfare cheats - there will always be some stretching the system


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## Dermot (2 Apr 2012)

I loathe what the banks done to this country and the vultures at the top of them in particular but I am well aware from personal knowledge of a small number of people who are "managing" their mortgage to give the impression to the financial institution whom they have borrowed from that they are in trouble paying their mortgage in the hope of getting a reprieve of some sort down the road.  The people I know are doing this with their home mortgage.  There are also other people I know who are having a very miserable life trying to make sure that they pay their mortgage.  I am not involved in the financial industry but I have to agree with the general trust of the last post of MortgageGuy.  My heart goes out to the people in genuine trouble.


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## thedaras (2 Apr 2012)

Plus one Dermot..I guarantee you all that I know people who are doing exactly the same as the poster above said..


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## The_Banker (2 Apr 2012)

MortgageGuy said:


> As I'm being mentioned I thought I might reply.
> 
> The interest in this area came from my work as a working financial advisor, people were coming to me for consultations and I quickly established that they could pay, but they didn't agree with (insert whatever reason you want here).
> 
> ...


 
Can you produce facts to back up your claims other than the opinions of vested interests?


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## MortgageGuy (2 Apr 2012)

itsallwrong said:


> I'm sorry MortgageGuy,
> I find it impossible to believe anything out of the mouth of a banker or anyone linked to them. They have always been out for themselves and that hasn't changed even in light of the meltdown they played a large part in. They have constantly changed the goal posts.



If your starting point is that due to the industry I work in I am incapable of telling the truth then there is little point in discussing this. I would also remind people that I represent clients (private people) not the bank, while we do make money from banks our ultimate customer is the borrower, not the lender.

That aside, much like any system open to abuse there are those who take advantage. 

I stumbled upon this as a financial advisor first, figured that the marginal case wanted somebody in their corner, but then I heard it more often from more sources.

The defence that a person fills in a Standard Financial Statement which catches everything is idealogical, lots of people can change how their incomes look - if this wasn't the case Revenue wouldn't release stats on the black economy showing that (for instance in the professions) that there is widespread underpayment of taxes, last time around Dentists and Accountants were particularly hit hard - and rightly so. 

There are a number of ways to do this, and the more you get into it the more you spot the loopholes in the system. 

Naturally, we should empathise with genuine cases, but perhaps not for those where abuse of the system is taking place. It is common on investment properties - often where a bank tries to go to capital and interest rather than interest only. 

If a business cost 10k per year but only earned 5k you'd close it down, that is what some people are doing, but they can't close down the debt at the same time. It's a highly uncomfortable topic, over on politics.ie it is being discussed and in the main a lot of people there are busy being insulting rather than furthering the debate. 

Everybody knows this is happening, we just can't talk about it - banks don't want to in case it sparks more moral hazard when people realise it is really easy to skip a few months payments and the repercussions are minimal (other than wreaked credit).

The banks won't comment publicly, some don't keep measurements of the size of this problem, others do and won't release the figures, but if you are tenacious and talk to enough people you get a general idea of the size of the problem and it's big.


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## Springsteen (3 Apr 2012)

The European Banks are borrowing money from the ECB at 1% and lending it at higher rates, i.e 4 and 5%. The profit allows the banks to recapitalise. As soon as the banks are recapitalised and healthy you can bet your bottom dollar they will pursue non performing loans vigourously and where appropriate pragmatically. 

I wonder if the Irish banks reluctance to act is financial ( under capitalised ) or political? Either way the inaction is creating a stasis in our economy. Moral hazard aside, debt forgiveness is a must to increase consumption and improve our domestic economy ( the export led recovery is not working ). If the banks cannot fund widespread debt forgiveness, then they must pursue non performing loans. Forebearance without any deleveraging is just prolonging the agony.

Whatever your opinion on default, strategic or otherwise, its the banks/ govt that are creating the stategic speculation through inaction.

Compulsive viewing, if it wasn't so serious it would be very entertaining.


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## Bronte (3 Apr 2012)

The_Banker said:


> I know none who are in arrears and still continue a lifestyle akin to Celtic Tiger years.


 
Oh yes you do. We all do. Simon Kelly, business man and son of developer. Despite being bust wasn't he able to go into court and the judge allowed extraordinary family expenses, including school fees to not be included when assessing his means to repay his mult million pound debts. 

But wait, he's different, he is an a different circle of friends to you so you wouldn't have met him or the rest of them. As he's different along with the boys in Nama, we can't be letting the little people have a Nama, or debt right down and then there's the moral hazzard to think about. Moral hazzard if you're a little guy of course, difference rules for different circles. Isn't Sean Quinn broke, able to go into court with less than 20K. Able to go to the Highest court in the land despite being broke. But hey he still lives in a mansion and lives a millionaires lifestyle. Sean Fitzpatrick, going bankrupt. Nope no change in lifestyle there either. etc etc etc.

So to the OP, you're shocked. How dare ordinary people do what they can to survive, how dare people priorites their home loans over their investment property. Banks have been hounding people, telling them what grocery shop they can go into (we had posters here on AAM on this) and people on here worried sick about whether to pay their utility bill or mortgage.

Are people not being smart not paying the investment and instead paying their home loan and family bills.  And how are they any different to the people I've mentioned on this thread, plus all the other guys in Nama.


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## ajapale (3 Apr 2012)

The_Banker said:


> Can you produce facts to back up your claims .....?



Is there anything wrong with Karl Deeter discussing anecdotal evidence  from clients, industry insiders and observers?

Did anyone hear the interview with Noeline Blackwell from Flac on RTE 1 this am? She offered some counter points.


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## Bronte (3 Apr 2012)

The_Banker said:


> To quote Mandy Rice-Davies (someone I would hold in higher esteem and regard than bank executives) "Well, they would say that wouldnt they!"


 

Let's think this thru, if the banks are saying this now, why now. What is their aim. They want to scupper or thward the new insolvency legislation. That's what they are at. I'm convinced of it.

Have the bank not already been paid for the defaulting loans?

If tracker mortgages are transferred to Anglo, will they be sold at a loss/write down. And wouldn't it be far better for banks to take hits on investment properties and put them at a level that borrowers could sustain. Instead of this absolutley idiotic interest only being rolled over, debt never reducing, and a false idea that somehow things will be solved when property rises again. 

Maybe if their are strategic defaulters they are doing the right thing as the banks are not ? (I wrote this before reading Springsteen).


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## Bronte (3 Apr 2012)

ajapale said:


> Did anyone hear the interview with Noeline Blackwell from Flac on RTE 1 this am? She offered some counter points.


 
Could you tell us what was said, it would help in debating the issue.


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## ajapale (3 Apr 2012)

I dont think that imputing motive (claims of "vested interest" or some "bank industry conspiracy") is helpful in this discussion.

Karl Deeter in the course of an interview about massive losses at PTSB stated that he suspects that there is some "strategic default" happening. Many people have challenged the assertion and Karl Deeter has defended the assertion.



Bronte said:


> Could you tell us what was said, it would help in debating the issue.


The Irish Times also had an interview with her.


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## Slim (3 Apr 2012)

*Karl Deeter on Pat kenny show now*

On now


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## dereko1969 (3 Apr 2012)

I'm sure that what Karl Deeter has said is correct, but I wonder if it's not counterbalanced by (as people on this thread have said) people paying their mortgage on time and in full and neglecting normal living expenses. 

There was the case of the guy in Kerry last year who claimed that his children were eating cardboard cereal boxes while he was paying the mortgage in full and he hadn't even bothered contacting the banks to re-arrange his finances.

There have also been many threads on here with people looking for deals with the banks without really explaining how or why they can't meet their mortgages and I'm sure a lot of that is down to exorbitant lifestyle expenditure and hoping for deals.


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## csirl (3 Apr 2012)

Based on anecdotal evidence, I'd have to say I agree with Karl.

However, I think that in the majority of such cases its not as sophisticated as people thinking they may get a deal down the road. I've come across a couple of cases of each of the following in my circle of acquaintances:

1. People who are over stretched on credit cards or personal loans making an executive decision to prioritise the payment of cc or pl over their mortgage because the cc or pl has a much higher interest rate than their mortgage and because e.g. credit card companies are more proactive and much quicker in pursuing debts than mortgage providers. These people take advantage of the fact that a bank is going to do very little over a few months arrears. In a way they are also taking the advice that a lot of people give on the "Money Makeover" thread of this forum i.e. pay your high interest debts before you pay your low interest ones. 

2. Those who take advantage of the fact that people who are only several months in arrears are not on the banks radar as the banks are dealing with bigger issues. They are also comforted by the recently introduced rules whereby a bank will do nothing for 12 months. They feel that they have the ability to go a few months into arrears without any major consequences. One classic example - acquaitance asked me where we went on holidays last summer. I replied we didnt have a family holiday because of pay cuts etc etc..His response was....".dont pay your mortgage for a couple of months and you can afford a holiday......I didnt pay my mortgage for 3 months last year....what are the bank going to do about it.....everyones in arrears.....they dont care if you miss the odd payment.......". These people prioritise the family holiday, daughters communion, new three piece suite etc. over their mortgage.


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## Brendan Burgess (3 Apr 2012)

Karl has been very clear every time I have heard him. 

The majority of people in arrears are doing their best and want to get out of arrears. 

There is a minority - between 10% and 25% who are strategically defaulting. 

That seems a fair estimate to me. 

Brendan


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## thedaras (3 Apr 2012)

The man from new beginnings even said there are some who are doing just this.As usual its the few who take advantage who make it difficult for those in real difficulty's.


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## 44brendan (3 Apr 2012)

> I'm sure that what Karl Deeter has said is correct, but I wonder if it's not counterbalanced by (as people on this thread have said) people paying their mortgage on time and in full and neglecting normal living expenses.


Yes there are an element of those who are in the "won't pay" rather than "can't pay" category. However, in my own experience they are in the minority. I also agree that there are probabaly as many sacrificing basic family essentials in order to meet their mortgage payments. 
Karl Deeter has a point, but in my view he is overstating the level of the problem.


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## RIAD_BSC (3 Apr 2012)

Karl's research is not evidence based or empirical. It is basically the opinion of executives at the banks: "In my opinion as a banker, I'd say x amount of people blah blah blah...."

Karl says that because defaults have shot up and unemployment hasn't, that that is proof they are strategically defaulting. Nonsense, in my opinion. Why would you choose to draw that conclusion, which suits the banks by the way, while refusing to draw the most obvious conclusion? - the default numbers have only shot up now because all the people who were made redundant at the height of the crash have now bled out their redundancy payments and savings, and are only running out of cash now.

With research of this kind, we should throw a very sceptical eye over it, especially when it is so unscientific, its findings are so surprising, and it suits the agenda of the banks so closely.

It is perfectly relevant to point out that Karl is a mortgage broker - he is paid through commissions from banks. This raises legitimate questions about the independence of his research.


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## Bronte (3 Apr 2012)

csirl said:


> 1. People who are over stretched on credit cards or personal loans making an executive decision to prioritise the payment of cc or pl over their mortgage .


 

And your argument is that you agree with Karl and the banks because people in this situation pay these debts first and therefore are strategically defaulting? But if they don't pay the credit card and personal loan what will happen to them?

In relation to point 2. Anyone who can pay a mortgage and go into debt to go on holiday is an idiot.  Or is the psychy of Irish people so tainted by the era of the Celtic tiger and the easy money that they do not see thing the way you or I would.  Or are people damaged.


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## Bronte (3 Apr 2012)

RIAD_BSC said:


> With research of this kind, we should throw a very sceptical eye over it, especially when it is so unscientific, its findings are so surprising, and it suits the agenda of the banks so closely.
> 
> .


 
If one believed Deeter and the banks then there are a whole heap of people well able to pay their mortgages.  So what is the actual banks problem, they have the power and the money to bring them to court and make them pay, they also have the power to take the investment properties and sell them.  But they are not doing that, why, because they know that however bad the property market is now it would be 10 times worse if they did, and that's without the Nama properties.  

So really Ireland isn't in recession, people are not unemployed for a couple of years now, they haven't spent all their savings paying off their debts, people are not taking massive pay cuts, people have no problem getting bank loans to start a business.  There are not small businesses closing down every day of the week, there are not thousands emigrating, there are not people committing suicide.  Restaurants brimming over, the whole country in party mood this weekend, not a room to be had in any hotel.


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## Bronte (3 Apr 2012)

Brendan Burgess said:


> There is a minority - between 10% and 25% who are strategically defaulting.


 
25% is not a minority.


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## orka (3 Apr 2012)

Bronte said:


> 25% is not a minority.


75% = majority, 25% = minority.


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## csirl (3 Apr 2012)

Bronte said:


> In relation to point 2. Anyone who can pay a mortgage and go into debt to go on holiday is an idiot. Or is the psychy of Irish people so tainted by the era of the Celtic tiger and the easy money that they do not see thing the way you or I would. Or are people damaged.


 
+1 re them being idiots.

Not sure its a celtic tiger thing. The person who told me they did this was from one of those families who, in the 80s and 90s used to borrow from their local unofficial 'money lender' twice a year - for summer holiday and for christmas - and end up spending the rest of the time paying back these debts at very high interest rates. There are whole sections of society where the summer holiday and spending loads at christmas is engrained to the extent that they believe the world will end if they dont go on holiday or dont buy their kids the latest expensive craze at christmas.


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## goingforgold (3 Apr 2012)

Bronte said:


> 25% is not a minority.


 I have mentioned this months ago and posted here that if there is an opportunity for people in this country to take advantage then they will. Look at our shambolic welfare system where people are milking it every day. And so it comes to pass that people are now deliberately not paying their mortgage...will we ever learn to deal with these type of situations properly?


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## RIAD_BSC (3 Apr 2012)

goingforgold said:


> I have mentioned this months ago and posted here that if there is an opportunity for people in this country to take advantage then they will. Look at our shambolic welfare system where people are milking it every day. And so it comes to pass that people are now deliberately not paying their mortgage...will we ever learn to deal with these type of situations properly?


 
No such thing has "come to pass". If you believe Deeter, you are taking the word of the banks at face value. Because he has no other source of information, other than the bankis that pay him. For me, Karl Deeter's research is potentially compromised.


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## DerKaiser (3 Apr 2012)

This is a weird thread.

"10% or more of people in arrears on their mortgages have not done as much as they could to contain their other costs"

Is anyone genuinely saying that this statement cannot be true?


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## Oscaresque (3 Apr 2012)

I spoke with my bank a year ago asking would they consider allowing me to sell my house and bring the negative equity into a new loan, or a new mortgage. Needless to say they said no but the nice ladies parting words were "You do not have financial problems as far as we are concerned. Until you stop paying your mortgage there is nothing we can do for you"

Not sure if we just got unlucky with the bank official we spoke to or if others were saying the same but it is a dangerous message for banks to be giving out.

Edited to add -  She wasn't suggesting that if we stopped paying they would offer us an NE mortgage, it was just a general statement she made while we were putting our coats on.


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## Bronte (3 Apr 2012)

DerKaiser said:


> "10% or more of people in arrears on their mortgages have not done as much as they could to contain their other costs"
> 
> ?


 
My understanding of what is being said is that 1 in 4 (and that's some minority) is deliberabely not paying their mortgage and they can afford to do so but will not do so as they are hoping the bank will cut them a deal.

Csirl, the people you mentioned, they probably should never have been given a loan in the first place.  People who cannot manage their money should not be given loans and if we didn't have the tiger would they have been able to get a mortgage?  I don't think this comes under strategic default but more fecklessness and insane lending.


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## Sunny (3 Apr 2012)

Bronte said:


> If one believed Deeter and the banks then there are a whole heap of people well able to pay their mortgages. So what is the actual banks problem, they have the power and the money to bring them to court and make them pay, they also have the power to take the investment properties and sell them. But they are not doing that, why, because they know that however bad the property market is now it would be 10 times worse if they did, and that's without the Nama properties.


 
That's not really true. The banks are operating with one hand tied behind their banks hence they want the Central Bank to revisit the code of conduct when it comes to dealing with people in arrears. For example, they are severly limited in the amount of contact they can have with the borrower. 

The investment property issue is being held up because of a High Court judgement showed that there was an issue with legislation and the banks have been asking the Government to ammend it.

As for people being able to pay deciding not to pay, it is hardly shocking news.


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## 44brendan (3 Apr 2012)

> You do not have financial problems as far as we are concerned. Until you stop paying your mortgage there is nothing we can do for you"


Absolutely true. Until the loan goes into arrears the Bank will not address any solution other than full repayment.


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## DerKaiser (3 Apr 2012)

Bronte said:


> My understanding of what is being said is that 1 in 4 (and that's some minority) is deliberabely not paying their mortgage and they can afford to do so but will not do so as they are hoping the bank will cut them a deal..


 
I think the national average for arrears is 9%, there is anecdotal evidence to suggest a range of 12% to 25% of this number are not fully engaging with cutting discretionary spending.



So what we potentailly have is:

91% of mortgageholders are sticking to agreed payments, which might be very tough in many cases
7-8% of mortgageholders are in arrears but are doing their best to engage with the banks in tough circumstances
1-2% of mortgageholders are in arrears and not doing their best to engage with the banks
So 98-99% are doing their best.

I don't know if this is true, but how is this not believable?


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## Bronte (3 Apr 2012)

DerKaiser said:


> I
> 
> 1-2% of mortgageholders are in arrears and not doing their best to engage with the banks
> 
> So 98-99% are doing their best.


 
So out of the 9% of people in arrears about 2% are deliberately not paying their mortgage. And if that's all that is at issue why is this newsworthy. Even in a fully performing economy 2% of the mortgage book not paying would be normal? There are always bad debts. Anyone know the stats with a fully functioning economy of bad debt write down?

If one is part of the 7% in arrears but struggling, say with interest only mortgages etc, would they not be better off going into the 2% bracket and strategy to get the banks to get real.  Keeping people on interest only indefinitely is pointless.  That is where the problem is.


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## Sunny (3 Apr 2012)

Bronte said:


> So out of the 9% of people in arrears about 2% are deliberately not paying their mortgage. And if that's all that is at issue why is this newsworthy. Even in a fully performing economy 2% of the mortgage book not paying would be normal? There are always bad debts. Anyone know the stats with a fully functioning economy of bad debt write down?


 
This report might be of interest. Page 19 might have the figure you are looking for.

[broken link removed]


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## Bronte (3 Apr 2012)

Sunny that seems to show there were no arrears in 2004, but I suppose that there were no arrears because in the past if you defaulted the bank took the house and then some. So the game has changed because the bank cannot take the house now. They actually cannot, they can huff and puff but they don't want to take it. Would that be a fair assessment?

What the banks are doing is scaring people into taking interest only etc, but some people have realised that even if they play ball with the bank, then the minute they are in the clear the bank will swoop with penalties and interest, and back dated interest. So maybe those 2% have copped this and said to hell with it?

As an aside and an investor/landlord myself, the figures are frightening on rent reductions, value of property, NPPR and househhold charge and USC etc. I could see why people are going to sit down and say, these figures don't make sense, damned if they are going to throw good money after bad and just pay the home loan and living expenses.

Just another thought, maybe these people have outsmarted the bankers and that's why the banks are mad.  Or maybe the 'attitude' inside in the collection teams is that all borrowers in arrears are losers and we're going to screw them for everything we can.  A certain bank culture maybe.  What kind of bank culture rings up a person and asks where do you grocery shop and what do you buy etc.


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## 44brendan (3 Apr 2012)

> What the banks are doing is scaring people into taking interest only, but some people have realised that even if they play ball with the bank, then the minute they are in the clear the bank will swoop with penalties and interest, and back dated interest. So maybe those 2% have copped this and said to hell with it


Per MARP agreement Bank's are not allowed to impose interest increase or penalties on those in arrears. This is not fair comment. bank's have no interest in scaring people into taking interest only or doing anything other than repaying their mortgage in compliance with the original agreements.


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## Bronte (3 Apr 2012)

Marp does not apply to investment properties. They were specifically mentioned on this thread as the main point at issue I thought.  And people are scared.


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## demoivre (3 Apr 2012)

csirl said:


> 2. Those who take advantage of the fact that people who are only several months in arrears are not on the banks radar as the banks are dealing with bigger issues. They are also comforted by the recently introduced rules whereby a bank will do nothing for 12 months. They feel that they have the ability to go a few months into arrears without any major consequences. One classic example - acquaitance asked me where we went on holidays last summer. I replied we didnt have a family holiday because of pay cuts etc etc..His response was....".dont pay your mortgage for a couple of months and you can afford a holiday......I didnt pay my mortgage for 3 months last year....what are the bank going to do about it.....everyones in arrears.....they dont care if you miss the odd payment.......". These people prioritise the family holiday, daughters communion, new three piece suite etc. over their mortgage.



No loan approval needed and cheaper than the credit union.


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## DerKaiser (3 Apr 2012)

Bronte said:


> So out of the 9% of people in arrears about 2% are deliberately not paying their mortgage. And if that's all that is at issue why is this newsworthy. Even in a fully performing economy 2% of the mortgage book not paying would be normal? There are always bad debts. Anyone know the stats with a fully functioning economy of bad debt write down?
> 
> If one is part of the 7% in arrears but struggling, say with interest only mortgages etc, would they not be better off going into the 2% bracket and strategy to get the banks to get real. Keeping people on interest only indefinitely is pointless. That is where the problem is.


 
The banks have been capitalised (*by us*) for the inevitable level of defaults. This means that they will just about need all the money (that the state has borrowed to give them) if they are quite strict in only writing off debt where there is no chance of recovery. 

It is important to understand that the banks need to be disciplined in this task, as unnecessary writedowns will only lead to the taxpayer being hit for another round of bailouts.

That's why this is newsworthy. If there are 1-2% of people *choosing* not to pay, that's an additional cost to the taxpayer. If that number were to get out of hand, we'd be in chaos. 

People on interest only are in the 91% of performing loans. Would they be better off going into the 1-2% who can pay but don't? 
In the short term, yes - They'll have a better standard of living. 
In the long term, no - They'll almost certainly be in serious financial trouble when the moratorium on house repossessions ends.

We have to keep as many people aspossible out of the 1-2% because:
a) Their debts will fall back on the banks and ultimately us as taxpayers
b) The people in this bracket are foolish as they are sacrificing long term security for short term consumption


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## 44brendan (3 Apr 2012)

> No loan approval needed and cheaper than the credit union.


This is actually quite an astute comment. If you take a HL with P&I repayments of 2K pm, you can miss 2 months repayments and then advise the Bank that you are now back on track & resume the repayments. Rsult will be that you have 4K to finance a holiday etc. & because the Bank cannot impose penalties, the borrowing is at a low tracker rate. Interesting!


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## Sunny (3 Apr 2012)

44brendan said:


> This is actually quite an astute comment. If you take a HL with P&I repayments of 2K pm, you can miss 2 months repayments and then advise the Bank that you are now back on track & resume the repayments. Rsult will be that you have 4K to finance a holiday etc. & because the Bank cannot impose penalties, the borrowing is at a low tracker rate. Interesting!


 
You would still have to find the cash to clear the 2 months arrears after your holiday. Otherwise you are going to damage your credit record so you can enjoy a trip away. Hardly worth it.


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## 44brendan (3 Apr 2012)

Sunny, I have my doubts as to whether the ICB is being updated in respect of small mortgage arrears. I suspect that the main Banks are not doing this, but I'm open to contradiction.


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## Sunny (3 Apr 2012)

44brendan said:


> Sunny, I have my doubts as to whether the ICB is being updated in respect of small mortgage arrears. I suspect that the main Banks are not doing this, but I'm open to contradiction.


 
They will if your account is in arrears for longer than 3 months (usually but does depend). Happens automatically in most banks.


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## Dermot (3 Apr 2012)

I am aware of two bank officials and for the past 4 years the two of them and their partners have made arrangements with their bank to have one and two months repayment holidays on their house load for the purpose of funding a life style.  They and their partners would be well able to repay their mortgage in full and still have a life.  I am very friendly with their parents who are furious with them. They have stated to the parents that they will get a write off on their mortgage if they do this in a planned way.  This is the type of behaviour that generates the "moral hazard" fear


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## micheller (3 Apr 2012)

Dermot said:


> They have stated to the parents that they will get a write off on their mortgage if they do this in a planned way.  This is the type of behaviour that generates the "moral hazard" fear



And the trough gets troughier.
Seriously if you have any evidence of this it should be investigated. It's disgraceful when so many are pumping as much as they can into mortgages inflated by the celtic tiger era, to try to stay on track and insulate against the future.


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## Sunny (3 Apr 2012)

Taking a payment holiday is not the same as going into arrears. Can't believe that any sane couple, never mind two couples who work in banks believe that by taking a payment holiday that this could lead to debt forgiveness.


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## Bronte (4 Apr 2012)

MortgageGuy said:


> The defence that a person fills in a Standard Financial Statement which catches everything is idealogical, lots of people can change how their incomes look (for instance in the professions)
> 
> There are a number of ways to do this, and the more you get into it the more you spot the loopholes in the system.
> 
> ...


 
As you do I had a think about this last night.  

What you are saying is that people are deliberately lying on their SFS, but the only people who can do this is self employed people. Professionals such as doctors dentists etc.  But that can be easily checked by asking for the professionals annual tax return (even if that too is a lie it would give a clearer picture of the income) These people have bought some investment properties, and they have decided not to repay the mortgages on them.  A deliberate action.  They can afford to pay but they don't.  So are they pocketing the rent?  What is the benefit to the owner of this strategy.  The debt is getting higher and higher.  Because they are good earners the bank can go after that income.  They are paying their home loan.  The bank can go after that too.  So what is the issue that the banks have?


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## Bronte (4 Apr 2012)

Dermot said:


> I am aware of two bank officials and for the past 4 years the two of them and their partners have made arrangements with their bank to have one and two months repayment holidays on their house load for the purpose of funding a life style.


 
You have said they have made an arrangement with the bank to have payment holidays.  It is not at all the same as the OP posted.  

How exactly do two people in presumably permanent pensionable employment think the bank will give them a write down, have they seen the bank do this for other people?  Why for these two would the bank do it.  They have an income.  The more payment breaks they take the better, they pay more interest, the bank wins?  I do not understand their 'strategy'.


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## 44brendan (4 Apr 2012)

_



			I am aware of two bank officials and for the past 4 years the two of them and their partners have made arrangements with their bank to have one and two months repayment holidays on their house load for the purpose of funding a life style
		
Click to expand...

_ 
_I would question the veracity of this statement! There is flexibility in place for loans to be repaid over 10 rather than 12 months of the year. However, there is no Bank (to my knowledge) who will approve regular breaks, in that manner where arrears are allowed to build up for either staff or clients. _


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## elcato (4 Apr 2012)

> What you are saying is that people are deliberately lying on their SFS,  but the only people who can do this is self employed people.


Didn't people lie about their earnings when looking for inflated mortgages prior to the bust ? I'd suggest that people are saying they owe moneylenders, family members money or education costs for the kids etc. What amazes me here is that people are either so naive that they don't think this is going on or they attack the messanger for actually pointing it out by saying its the bankers/government/developers attempting to somehow deflect attention away. Get over the oirish begrudgery and accept it is happening as some very public cases highlighted by a previous poster.


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## Kerrigan (4 Apr 2012)

*Let's think this thru, if the banks are saying this now, why now. What is their aim. They want to scupper or thward the new insolvency legislation. That's what they are at. I'm convinced of it.*

You have hit the nail on the head. Once insolvency legislation comes into fruition the ball will then be in the mortgage holders court.

I worked for a debt management company in the earlier days of the downturn. I no longer work there but my partner still does. From experience, there are very few going out of their way to default on mortgages.


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## Latrade (4 Apr 2012)

Kerrigan said:


> I worked for a debt management company in the earlier days of the downturn. I no longer work there but my partner still does. From experience, there are very few going out of their way to default on mortgages.


 
I'm sceptical too, more of the figure being as high as 25%. And I think we need to explore more anyone's motivation for going into arrears rather thhan an assumption its because they want extra holidays and won't make any lifestyle adjustment.

A counter example is that there are people who over the last few years where because of increased charges and taxes, interest rates, pay cuts, job losses, etc have found that they are at the tipping point of being able to afford all their commitments. We can moralise on how they got those committments at some other stage and whether or not they over stretched themselves.

However, many of those have no intention of defaulting and want to keep paying off their debt. What they are looking for is some form of debt restructuring to lower the current burden of the repayment. I don't think that unreasonable and many just want restructuring for a temporary period, i.e. until work is found or situation improves. However, they face a situation where the banks will not negotiate with them on this _unless _they are in default. Rather than avoid a default and affect their credit record, the only way they can even get a meeting is to be in arrears. 

I'd love to say they all just wanted a break in the South of France while it was a bit chilly or that they really can't downgrade from the SLK, while that might be true in a couple of extreme examples, let's not demeen just how close people are to losing everything.


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## itsallwrong (4 Apr 2012)

Are people not being very dangerous messing with a mortgage on purpose? 
Stealth defaulters will not get what they think they might get. Instead it just earns them black marks with their credit and bank. Something most people try and avoid given the noose around your neck for years to come, like looking for a loan.


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## fobs (4 Apr 2012)

itsallwrong said:


> Are people not being very dangerous messing with a mortgage on purpose?
> Stealth defaulters will not get what they think they might get. Instead it just earns them black marks with their credit and bank. Something most people try and avoid given the noose around your neck for years to come, like looking for a loan.


 
but if people have unsustainable borrowings they will not get another loan anyway so figure what the hell. Some investers will never repay their debt. Wonder why the banks are not going after the invester type mortgage holders as yet. By right there should be a lot more repossessions than at present.


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## 44brendan (4 Apr 2012)

> By right there should be a lot more repossessions than at present.


 
Not a lot to be gained by a re-posession. Bank strategy in most cases is to obtain co-operation from clients by placing the units on the market as a "voluntary" sale. Rental income is frequently sufficcient to cover the interest on the loan & some small principal reductions. Re-posession is only a last resort and benefits neither the Bank nor the client.


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## DerKaiser (4 Apr 2012)

44brendan said:


> Not a lot to be gained by a re-posession. Bank strategy in most cases is to obtain co-operation from clients by placing the units on the market as a "voluntary" sale. Rental income is frequently sufficcient to cover the interest on the loan & some small principal reductions. Re-posession is only a last resort and benefits neither the Bank nor the client.


 
You've raised a very interesting point in my mind.

Is the property more valuable in the hands of the bank, as they do not have to pay tax on the rental income?

Is it possible that reposession could be a better option for both the bank _and_ the owner with the state losing rental tax revenue?


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## Bronte (4 Apr 2012)

Kerrigan said:


> I worked for a debt management company in the earlier days of the downturn. I no longer work there but my partner still does. From experience, there are very few going out of their way to default on mortgages.


 
You are the first person with direct experience.  And of those who default on mortgages could you give us an idea of the situations these people are in.  Can they afford to pay and are they hiding their income.


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## Bronte (4 Apr 2012)

elcato said:


> Didn't people lie about their earnings when looking for inflated mortgages prior to the bust ? I'd suggest that people are saying they owe moneylenders, family members money or education costs for the kids etc.


 
When people lied about their income to get mortgages the banks knew full well they did. But that was to get a mortgage. What is the point of an investor lying about income to not pay all of the mortgage, there is no gain to the borrower as they will lose in the long run?

You mentioned 3 areas of lying

Moneylenders

I don't think people who bought investment properties go to moneylenders.

Family loans

Banks would not accept this as a valid expense

School fees

Well it's legit for Simon Kelly and for any other parent that pays them so why not?

For all three of the above the borrower would have to supply proof of the loans/outgoings?

And yes of course ordinary people are going to pad out their day to day living expense, but that's not going to amount to much.  Groceries at 220 instead of 200, you're not going to be able to put down groceries at 500 a week.


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## jonocon (4 Apr 2012)

And I have spoken to people with investment properties who seem to think that the investment property income and expenditure is ring-fenced from their own lifestyle. If the rent does not cover the repayment, they say that is the bank's problem. They can only pay the rent and no more.[/QUOTE]

I know this to be true as I have 4 Business acquaintances who haved stopped paying, I also know it to be true because I have considered it myself. I'm not saying its right but I have considered it. My moral compass tells me to pay it if I have it, when the day comes that I don't have it I'll deal with that then


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## elcato (4 Apr 2012)

> When people lied about their income to get mortgages the banks knew full well they did. But that was to get a mortgage.


So when the banks make the same assumption here they are wrong ?


> I don't think people who bought investment properties go to moneylenders.


But people who want the bank to believe they are broke will say this. Same for the family member and the school lunches. Do you really think that people who engage in pretending that they cannot pay will actually tell the truth when asked to ? Just to be clear here, the genuine people (i.e. the majority of those in arrears) would not be resorting to this.


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## Kerrigan (5 Apr 2012)

Bronte said:


> You are the first person with direct experience. And of those who default on mortgages could you give us an idea of the situations these people are in. Can they afford to pay and are they hiding their income.


 
My thoughts are; that the few who are purposely defaulting will quadruple when the personal insolvency trustees are appointed to deal with the new insolvency bill. Only at that point do I believe the banks have an argument.

While working in debt management we would have customers call us, looking to put their loans into one affordable payment plan. We would take their details over the phone, but never ask them to prove their income or what they were spending their salaries on, all we got was their word with no proof.
All we heard was a voice at the other end of the phone telling us what their income and expenditure was, for all I knew I could have been talking to a multi millionaire down the phone who was well capable of paying their debts.

I made my feelings clear that there may be a percentage who was taking advantage of the service but my thoughts fell on deaf ears. As you can gather debt management is big business and is yet to expand triple-fold when the insolvency act comes into the equation. Already some facilitators of the boom are steadying up to become trustees.

Lots of customers back in the earlier days preferred we sent somebody out to their home. Yes, I saw the plasma screen, two family cars etc. but all items would be on hire purchase. 
My better half still works for the same company and says they cannot keep up with the level of telephone calls and expect to expand business.
I’m guessing around 10% to 15% are trying their luck but this will surge when the insolvency bill is formally on the table.


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## moycullen14 (10 Apr 2012)

There are two issues at play here.

First there is the grading of debt. A lot of people have mortgages, investment properties, CC, car loans, etc. When things get tough, it is sensible to rank these debts in terms of importance AND urgency. Mortgage might be the most important but it is not the most urgent - as said above missing 3 months payments is not going to be terminal. 

The second issue is how to deal with investment property - specifically BTL - loans that have gone south. In my own case it is an apartment that is unsellable at any price and likely to remain so. The gross rent covers about 90% of the mortgage interest. Take off NPPR, voids, household charge, maintenance fee, tax and it is costing me about 3-4K pa. As someone said above, if this was a business you'd shut it down - but you can't. And like any business, conditions have changed, assumptions that were made 5 years ago no longer hold. There is no way I can afford to pay off capital now or in the future. So what to do? Morally and legally I accept that I am liable for the debt but I have to put my own and families interests first. I know that as long as I keep paying the bank interest, they will be 'happy'. I also know that it doesn't solve the problem. 

I also know that the bank are scared witless that me and countless like me will just say 'To hell with it' at some stage and default. The bank will then repossess the property, realise that it is unsellable (ironically because their mortgage department won't give mortgages on apartments outside the main urban centres) and then they have to come after me. They may or may not be able to get me to sell my PPR - but that is in NE too - so no solution there. Once they have a judgement on my PPR, i'll stop paying that mortgage too. The nett effect is that the bank know only too well that defaulting is contagious and solves no problem. 

What are the banks hoping for? 3 things, as far as I can see. First, is government help to stabilise their balance sheets - this has largely been done. Next, they absolutely do NOT want the proposed insolvency legislation - as that makes defaulting at least more attractive. Finally, the only long term solution for the banks is long-term inflation reducing the debt effect. 

Make no mistake about it, when the day comes that you have a penny of nett positive worth, the banks will swoop and take all you have if you have defaulted. They're just waiting, knowing that the government will keep bailing them out. They're is no long term risk for the banks. 

For the mortgage holder, in the present legislative environment, there is no benefit to defaulting. The banks WILL NOT cut a deal. They will just wait...and wait. The only risk for then is the new insolvency legislation which completely scuppers their wait and see 'strategy'.

As an individual, you can forget about the moral hazard and 'greater good' argument. You have a loyalty to yourself and family, period. Whatever course is best for you, do it. Unfortunately, without cash or assets, you're only codding yourself that there is anything you can do.


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## Bronte (16 Apr 2012)

Moycullen you have a very good summary of where things look like they are going.  I have one relation doing the exact scenario you outlined.  They tried to deal with the bank but the bank would only speak about the mortgage and would not talk about the other debt (with the same bank) so they see the situation as pointless and are defaulting on investment property and PPR.  They don't care any more as they have nothing to lose.  

I read about a new mad scheme yesterday.  Whereby if you owed 300K on your PPR but could only afford repayments on 200K that an arrangment could be made on this, and when eventually the property was sold you pay back the 100K out of the equity.  What about banks wiping off 100K of debt and letting people off that giving them an incentive to continue trying.   

As an aside, it is most annoying not being able to edit and correct my spelling.


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## elcato (16 Apr 2012)

> I read about a new mad scheme yesterday.  Whereby if you owed 300K on  your PPR but could only afford repayments on 200K that an arrangment  could be made on this, and when eventually the property was sold you pay  back the 100K out of the equity.  What about banks wiping off 100K of  debt and letting people off that giving them an incentive to continue  trying.


From the small bit I read, it's a case of a private company buying a third of your house and lessening the risk, bit like the Affordable Housing scheme but without having to pay rent on the third you don't own. I think what they are propsong is that they get a third of the house on sale.


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## orka (16 Apr 2012)

elcato said:


> From the small bit I read, it's a case of a private company buying a third of your house and lessening the risk, bit like the Affordable Housing scheme but without having to pay rent on the third you don't own. I think what they are propsong is that they get a third of the house on sale.


Do you have a link to this? It seems weird as it could only really work where there is positive equity (of at least the amount of the loan/buyout share) unless the banks agree to a write-off if the house is sold before the mortgage is repaid and why would they do that? 





Bronte said:


> What about banks wiping off 100K of debt and letting people off that giving them an incentive to continue trying.


Debt forgiveness while allowing the borrower to retain ownership of the asset would be incredibly unpopular and would have major moral hazard issues. The only debt forgiveness that has a chance of being acceptable is if the asset is forfeit - even then there is some moral hazard but not as much.


Bronte said:


> As an aside, it is most annoying not being able to edit and correct my spelling.


Why can't you edit? The function was working fine this morning. And I just edited this...


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## Bronte (17 Apr 2012)

orka said:


> The only debt forgiveness that has a chance of being acceptable is if the asset is forfeit - even then there is some moral hazard but not as much.


 
I think we are beyond that Orka, taking all the houses off everybody in arrears doesn't make sense.  And who is going to buy them.  A partial write down of their mortgages where people can afford to repay a certain percentgage makes more sense.  No legal costs to the banks, no evictions, people stay where they like, no sale costs a more stable society.  Keeping people on interest only and 70% of mortgage repayments long term will not work.  Massive arrears are being built up.    

If they keep backing people into corners and not deal with the problems then people will start defaulting on a massive scale.  That's my personal opinion.  

Re editing, I wanted to fix spelling on posts that are older than a couple of days, it used to be possible but no longer. 

Elcato, with this scheme there is no benefit to the homeowner.  Take a house with 300K mortgage and 100K does not have to be repaid.  They continue to repay the 200K for the next 30 years.  They are now 60 years of age and house is worth 100K, maybe 150K/200K.  They will still owe the 100K and if they sell for 200K will have to hand over 100K. And without a house but have 100K to purchase something.  Also I'm sure there is some money changing hands somewhere when the bank hands over the 100K to the new company.  It's very messy.


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## elcato (17 Apr 2012)

> Elcato, with this scheme there is no benefit to the homeowner.  Take a  house with 300K mortgage and 100K does not have to be repaid.  They  continue to repay the 200K for the next 30 years.  They are now 60 years  of age and house is worth 100K, maybe 150K/200K.


I've no silver ball but you are assuming the house is only worth at best the same price as today in 30 years time. As I understand it they are not liable for the 100k (using your example), the company that buys out the 100k have a 33% share in the property. So in order to but the 33% back they would pay the market price whatever that may be.

*Disclaimer: I just read/scanned the article in one of the Sunday papers and didn't see the details.


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## monagt (17 Apr 2012)

Eddie Hobbs tweeted an apt description of the people who are determined that their fellow citizens must suffer (while we pay all the debts of others back)

"Let Them Drown brigade agenda for consumer insolvency"


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## monagt (18 Apr 2012)

It has to be debt forgiveness or we all drown..........we cannot cut our way out of this despite what the Let Them Drown brigade say.

http://brianmlucey.wordpress.com/2012/04/18/bundes-boobery/


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## orka (18 Apr 2012)

Bronte said:


> I think we are beyond that Orka, taking all the houses off everybody in arrears doesn't make sense. And who is going to buy them. A partial write down of their mortgages where people can afford to repay a certain percentgage makes more sense.


I’m sure it makes lovely sense to those who would benefit but it makes no sense to me. For a start, there would be massive issues about who decides what’s ‘affordable’? Is it ‘affordable so you’ve enough left to eat and live frugally’ or is it ‘affordable while having a nice standard of living’? 



monagt said:


> Eddie Hobbs tweeted an apt description of the people who are determined that their fellow citizens must suffer (while we pay all the debts of others back)





monagt said:


> "Let Them Drown brigade agenda for consumer insolvency"


Another inane soundbite from Eddie... Who are the ‘Let them drown brigade’? I don’t hear any clamouring to hang people out to dry or leave them in permanent misery. Not wanting to give some individual citizens free assets at a cost to other individual citizens doesn’t mean not wanting to find fair and decent ways of helping people in financial distress.





monagt said:


> It has to be debt forgiveness or we all drown..........we cannot cut our way out of this despite what the Let Them Drown brigade say.


Debt forgiveness for Ireland Inc. will come when we sort out our current account spending. 

Debt forgiveness (write-off of debt after assets are sold, leaving a clean sheet) should be available for those with unsustainable mortgages (unable to pay even interest only).

Debt forgiveness (partial write-off while retaining 100% of the asset) for those able to pay interest only would be very unfair and would be unpopular with probably all except those benefitting. At 4%-5% interest rates, interest only costs about the same as a 25 year repayment mortgage of 2/3rds of the mortgage amount – so why should the taxpayer (via the state-owned banks) pay off one-third of someone’s mortgage when they can keep it going on their own with no arrears building up? What’s wrong with interest-only? It has the benefits bronte describes “No legal costs to the banks, no evictions, people stay where they like, no sale costs a more stable society”. Sure, you don’t own the house after 25 years but neither do renters – and if the house is repossessed, the owners would have to become renters anyway so they are in no worse a position (probably better off as rent will gradually increase with inflation over 25 years while the mortgage payer’s principal remains the same on a gradually increasing asset value). 

And back to the original point of this thread, can you imagine the extra number of people who would develop 'financial problems' to get a big chunk off their mortgage? A 100K ‘gift’ is quite an incentive.


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## monagt (18 Apr 2012)

> And back to the original point of this thread, can you imagine the extra number of people who would develop 'financial problems' to get a big chunk off their mortgage? A 100K ‘gift’ is quite an incentive.



And this is the crux of the problem. Perhaps the parable of the Prodigal Son should be read by one and all.

And for the record, I personally do not need Debt Forgiveness but I think that those who do should get it. (and probably some will get it when they should not but thats a different matter). And yes, perhaps limit it to normal 3/4 bed housing values. 

But Debt Forgiveness is the way to go.


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