# "Responsible majority shouldn't pay for the irresponsible minority"



## Brendan Burgess (4 Mar 2018)

I have an article in today's Sunday Independent. It doesn't seem to be online yet, so here it is.  I have highlighted a few bits. 




The great majority of mortgage holders act responsibly and pay their mortgages.  A few are still in arrears, but they are doing their best to pay their mortgage.

These responsible borrowers are paying the highest mortgage rates in the eurozone, because they are paying not just their own mortgage, but they are also paying the mortgages of the 20,000 or so people who have chosen not to pay their mortgages.

It’s time for the government to take action to stop the responsible majority from being forced to pay the mortgages of the irresponsible minority.

Here are a few steps the government could take which would reduce the arrears and make it unnecessary for the lenders to sell their mortgages to vulture funds.

*First, the government should speed up repossessions of family homes where the borrowers have paid nothing in years.* If we won’t allow repossessions, we should not complain that we still have 25,000 people in deep arrears and we should not criticise permanent tsb and Ulster Bank for selling loans to vulture funds.

Borrowers in difficulty have been shown enormous forbearance over the past 10 years. Most have responded well to this and have agreed a restructuring with their lender. But we should call time on the remainder. If people have paid little or nothing on their mortgage in over two years, the lender should be able to fast-track the repossession process. We should make it clear to these borrowers that non-payment will no longer be tolerated.

*In particular, it is a national scandal that we have around 11,000 buy to let properties in arrears over two years*.  In the current market, these landlords are getting huge rents which in many cases would cover their entire mortgage payments. Yet, the legal system is so complex and the courts are so lenient that it’s very difficult for the banks to repossess these properties.

*Second, the government should increase the protection for those who despite genuinely doing their best, are still in arrears.*  Lenders should be banned from taking legal action when the borrower is paying at least the full interest on their mortgage. If a borrower is paying the full interest on their mortgage, the balance owing to the lender is not increasing. The mortgage is profitable for the bank and sustainable for the borrower.

But lenders are forced to classify such profitable sustainable loans as non-performing due to outdated Central Bank and ECB rules on the classification of non-performing loans. Lenders should be stopped from initiating legal action against any borrower who is paying the full interest on their mortgage, unless the lender can show that the borrower can afford to make higher payments.


*Third, for those who genuinely can’t meet their mortgage payments, the government should bring back the Mortgage Interest Supplement scheme. *

Take, for example, a family home worth €200,000 with a mortgage of €200,000.  A borrower in trouble with this mortgage will not qualify for any government help with the mortgage interest of €6,000. Yet, if the borrower sells the house to a  private landlord who rents it back to him at €18,000 a year, the state will happily subsidise his rent through the HAP or Rent Supplement scheme. This makes absolutely no financial or other sense.

It would be much cheaper for the government to pay the interest on the mortgage than to pay rent to a new landlord. Why do we spend €1.5 billion a year helping those who can’t afford their rent while paying nothing at all to those who genuinely can’t afford their mortgage interest? The Mortgage Interest Supplement is much cheaper for the taxpayer than the Mortgage to Rent scheme and much easier to set up and administer than Mortgage to Rent. And if the borrower has a cheap tracker mortgage, the cost to the government will be even lower again.

One of the objections to the old Mortgage Interest Supplement scheme was that it was only a short term solution.  But Rent Supplement and Housing Assistance Payment and Social Housing are provided on a long-term basis. Why should Mortgage Interest Supplement not be paid on a long-term basis? And why not do as they are doing in the UK and make the Mortgage Interest Supplement a loan secured on the property? In that way, when the home is eventually sold, the Exchequer will have the Mortgage Interest Supplement refunded.

In summary, the government should stop the lenders from taking legal action against those who are paying at least the interest on their mortgage while allowing the lenders to fast-track repossessions against those who are paying nothing. If they did this, we would have no need for vulture funds.



Brendan Burgess is a consumer advocate and founder of the consumer forum Askaboutmoney.com. He was a member of the government’s Expert Group on Mortgage Arrears.


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## noproblem (4 Mar 2018)

Read your article today, argument is put very well and is sadly very true. Unfortunately, there's Irish people, a lot very well educated at enormous cost and pain to their parents who live in the distant past who reckon the banks will never get away with acting like the British agents years ago. They should learn honesty, morals, fairness, and get a sense of what they want to teach their children. Instead they're (a lot of them) making noise, go on marches, rubbish politicians, banks and others who pay their dues. Well done you on highlighting the issues. Sadly Brendan, don't expect lots of praise from certain quarters as those type read only what suits their purpose but i've no doubt that they'll pay the piper in some way or other in the not distant future. Comeuppance and Karma it's called and has a good memory. Knows what's right and wrong and will be commonplace soon. People are beginning to see through the supposed "won't pay clique"


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## TheBigShort (4 Mar 2018)

Brendan Burgess said:


> the 20,000 or so people who have chosen not to pay their mortgages.



Is there factual evidence for this? If someone chooses not to pay, when they are capable of doing so, I agree the property should be repossessed.



Brendan Burgess said:


> First, the government should speed up repossessions of family homes where the borrowers have paid nothing in years



Assuming you are still talking about the ones who have chosen not to pay as distinct from those who cannot pay?




Brendan Burgess said:


> we should not criticise permanent tsb and Ulster Bank for selling loans to vulture funds.



Except, perhaps,  where those loans are being repaid? I think Charlie Weston raised this issue last week.



Brendan Burgess said:


> Borrowers in difficulty have been shown enormous forbearance over the past 10 years.



As have lenders, lest we forget.



Brendan Burgess said:


> If people have paid little or nothing on their mortgage in over two years, the lender should be able to fast-track the repossession process.



And then what happens? More hotel rooms for homeless families?



Brendan Burgess said:


> We should make it clear to these borrowers that non-payment will no longer be tolerated.



We still talking about those who _choose _not to pay, yes?



Brendan Burgess said:


> *In particular, it is a national scandal that we have around 11,000 buy to let properties in arrears over two years*. In the current market, these landlords are getting huge rents which in many cases would cover their entire mortgage payments.



Is there any factual evidence to back this up? I find it odd that landlords who 'are getting huge rents' would jeopardise this cash cow by not paying their mortgage.



Brendan Burgess said:


> *Second, the government should increase the protection for those who despite genuinely doing their best, are still in arrears.* Lenders should be banned from taking legal action when the borrower is paying at least the full interest on their mortgage.



Agreed.




Brendan Burgess said:


> Why do we spend €1.5 billion a year helping those who can’t afford their rent while paying nothing at all to those who genuinely can’t afford their mortgage interest? The Mortgage Interest Supplement is much cheaper for the taxpayer than the Mortgage to Rent scheme and much easier to set up and administer than Mortgage to Rent.



I have a theory on this, admittedly without substantive evidence. But if those struggling to pay rent did not get help, then we could be looking at mass evictions, exacerbating the homeless problem. As well as that, landlords (not able to get tenants to repay their mortgages) will end up on the list of mortgage arrears. 
In reality rent supplements are helping to keep landlords from defaulting on their buy to lets, in turn servicing the mortgages. Without it, the banks would be facing greater amounts of non-performing loans.


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## Dazzler123 (4 Mar 2018)

It's unfortunate, but there are a lot of people out there that are of the "won't pay" variety but many of those believe that they "can't pay".  There are no figures as to how many people are of the won't pay variety as the vast majority of the won't pay group will allege that the Bank did this or that or weren't fair, etc.  

In terms of vulture funds purchasing loans, unfortunately, in the case of most every mortgage, you agree to the mortgage being transferred to anyone the Bank wants as part of the mortgage documentation.  As a matter of contract law, the Bank is entitled to do this regardless of the arrears position of the mortgage.  If the new owner is bound by the terms and conditions of the original loan, I wouldn't have an issue with this particularly. 

Easier repossessions means more homes released to the market, means that there are consequences for not paying a mortgage and it means that pressure on house prices should ease also.  It will in the short term add pressure on local authorities to rehouse people, but that is a matter for the State to resolve, by putting in a proper system for social housing in the State.

I agree with the point about 11,000 buy to lets being in long term arrears.  These need to be resolved as a matter of urgency by the Banks.  Receiving rent while not repaying the mortgage on the same property is ridiculously lenient by the Banks.


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## Brendan Burgess (5 Mar 2018)

Hi Shortie 



TheBigShort said:


> Is there factual evidence for this? If someone chooses not to pay, when they are capable of doing so, I agree the property should be repossessed.



Discussed in detail here. 20,000 Deliberate Defaulters.   But even if it's only 5,000 they should be repossessed. 




TheBigShort said:


> Except, perhaps, where those loans are being repaid? I think Charlie Weston raised this issue last week.



We can't criticise ptsb in these cases either. This is a stupid Central Bank/ECB direction which is a disaster for ptsb. 


As I have pointed out, if someone would qualify for HAP, then the state should pay the interest on their mortgage which would be a lot cheaper than HAP or the Mortgage to Rent Scheme. 

By fast-tracking the repossession process, those who can pay, would start paying which solves the problem for everyone.  

We assume that every house is occupied by a couple with three children. Many of these houses are empty and many are three bed houses occupied by one person.  They would not qualify for social housing. They would go onto the private rental market themselves. 


The Quarterly Arrears returns from the Central Bank



13,591 accounts refers to about 11,000 borrowers as some have more than one account on their property. The arrears represents 42% of the balance outstanding. (The equivalent for owner occupied loans over two years is 27%) 

I would say that most of these have paid nothing for years. They were in deep negative equity and reckoned that they were going to lose them anyway, so why pay the mortgage?  As a result, due to arrears, they are probably still in negative equity, despite the increase in property prices. 

Some of them may actually be cheap trackers.  So the balance on the mortgage is not rising very much when they pay nothing. 

But your overall point is correct. The best strategy for most of these would be to pay at least the rent and they would probably keep the property. 



TheBigShort said:


> But if those struggling to pay rent did not get help, then we could be looking at mass evictions, exacerbating the homeless problem.



This is a common misconception. Evictions and repossessions do not exacerbate the homelessness problem.  The houses are not knocked down. They are sold or let to other people. 

Brendan


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## cremeegg (5 Mar 2018)

Excellent article Brendan.



Brendan Burgess said:


> These responsible borrowers are paying the highest mortgage rates in the eurozone, because they are paying not just their own mortgage, but they are also paying the mortgages of the 20,000 or so people who have chosen not to pay their mortgages.



In fact its just responsible borrowers, who do not have trackers, who are paying the mortgages of those who are not paying. It would be interesting to know what the ratio of SVRs not in arrears, to all mortgages in arrears is. Tell people just how many mortgages they are paying for.

I especially like your distinction between "those who are genuinely doing their best" and "deliberate defaulters". I have always thought that at an individual level it is impossible to distinguish between these. Your idea of those who are paying their interest and those who are not is good. Although I would move the goal post somewhat to those who are paying interest and reducing capital by at least 1% each year.


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## TheBigShort (5 Mar 2018)

Brendan Burgess said:


> 13,591 accounts refers to about 11,000 borrowers as some have more than one account on their property. The arrears represents 42% of the balance outstanding. (The equivalent for owner occupied loans over two years is 27%)
> 
> I would say that most of these have paid nothing for years. They were in deep negative equity and reckoned that they were going to lose them anyway, so why pay the mortgage? As a result, due to arrears, they are probably still in negative equity, despite the increase in property prices.
> 
> Some of them may actually be cheap trackers. So the balance on the mortgage is not rising very much when they pay nothing.



While I agree that those who can pay, but have not paid could have the property repossessed, I would caution against doing so without a breakdown of those 13,591 accounts.
If the property is repossessed with amounts outstanding, presumably this bad debt needs to be written off by the bank? My understanding is that figure for those 13,591 accounts represents about a €4bn write-down? Who will suck this up? Shareholders, taxpayers?

The other side of the issue is that I suspect one of the primary reasons that people who can pay, are not repaying, is that the property is effectively junk. As you say, they are in deep negative equity and the property will never (or within next 20-40yrs) return to the price at which it was bought.
A lot of these properties, formerly known as 'ghost estates' are effectively zombie estates and apartment blocks. Yes, people live there, but the quality of the estates and properties are so run down, mismanaged, as to effectively render them near worthless. It would require huge investment to bring them up to scratch, in which case you have to consider why they lost so much value in the first place - basically they should never have been built.

So you end up back to the crux of the problem. Writing down huge debt, for property that is worth a fraction of that debt. And my guess is that the banks are not interested in managing these properties, that would cost more money.


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## Brendan Burgess (5 Mar 2018)

TheBigShort said:


> My understanding is that figure for those 13,591 accounts represents about a €4bn write-down?



The balance owed on these accounts is €4 billion.  So if they are all repossessed and sold, the bank will recover most of it, but at least 50% of it. 

But the key point is that if repossession is a realistic threat, people will start prioritising their mortgage payments. 

Brendan


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## TheBigShort (5 Mar 2018)

Brendan Burgess said:


> The balance owed on these accounts is €4 billion. So if they are all repossessed and sold, the bank will recover most of it, but at least 50% of it.



I suspect a lot of these properties involved in the 13,591 category wouldn't even sell for 25% if put up for sale. So of them are in ruins, or close to it now.

https://www.irishtimes.com/life-and...st-estates-that-still-haunt-ireland-1.3181498

I suspect that properties in the above article relate to people who bought, who could afford to pay (even partial amounts), but realize that what they have to pay back will be way over what the value of the property will ever be.
In the interests of fairness, they should be repossessed. I suspect, understandably, that the banks don't want the headache of becoming effective landlords of these properties, as in all likely hood the best thing to do with them is knock them.


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## Brendan Burgess (5 Mar 2018)

Hi Shortie 

Certainly some of them would be in this category, but not very many. Most of the ghost estates have cured naturally. 

Brendan


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## TheBigShort (5 Mar 2018)

According to article there are still some 420 'ghost' estates, down from a peak of 3,000 in 2012.

Of those 420;

_"there are 8,651 dwellings that are complete and occupied; 1,121 are complete and vacant; 4,987 units are in various stages of completion; and 10,075 units have not been started." 
_
Its not clear that how many of the 4,987 and 10,075 units have mortgages attached to them, but back in the height of things it wasn't unusual for buyers to buy 'off the plans'?

As well as that a lot of the 2,780 former 'ghost estates' are still in a desperate way. The roads, sewerage and street lighting may be working, but the estates still have lots of unoccupied housing and apartments that are simply not marketable with the condition they are in.
Unoccupied one off houses also dot the landscape if you spend much time travelling outside Dublin and the commuter belt.


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## Firefly (5 Mar 2018)

Brendan Burgess said:


> *First, the government should speed up repossessions of family homes where the borrowers have paid nothing in years.* If we won’t allow repossessions, we should not complain that we still have 25,000 people in deep arrears and we should not criticise permanent tsb and Ulster Bank for selling loans to vulture funds.



I think this has a greater effect on pushing up interest rates than the level of defaulters....since it is so difficult for a bank to repossess a house, most of the foreign banks have left, resulting in scant competition, which in turn always leads to higher prices....


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## llgon (5 Mar 2018)

TheBigShort said:


> _"there are 8,651 dwellings that are complete and occupied; 1,121 are complete and vacant; 4,987 units are in various stages of completion; and 10,075 units have not been started."
> _
> Its not clear that how many of the 4,987 and 10,075 units have mortgages attached to them, but back in the height of things it wasn't unusual for buyers to buy 'off the plans'?



I would say that very few if any of these have mortgages attached. When buying off the plans the mortgage would be unlikely to be drawn down until the build is complete.


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## TheBigShort (5 Mar 2018)

llgon said:


> I would say that very few if any of these have mortgages attached. When buying off the plans the mortgage would be unlikely to be drawn down until the build is complete.



Fair point. 

I still think the guts of the issue of those who can afford to pay, but won't pay, are people dealing with properties that are deep in negative equity with very little prospect of ever providing a return. The banks would be entitled to repossess, but considering the jumps and the hoops to do so, it makes no sense to pursue properties that will probably never provide any significant return.


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## Brendan Burgess (5 Mar 2018)

Hi Shortie

I am surprised at how many but to lets there are over two years in arrears. 

I suspect that some are in deep negative equity and it might be that the banks are waiting for them to recover before attempting to possess them.  But I am only speculating. 

Whatever the reason, there should be a fast track process for repossessing them.  Then the bank has the option of seizing them and selling them on. 

As I write this, I realise that in some of these cases, the banks may have already appointed a receiver. 

The Central Bank should be able to tell us that. 

Brendan


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## TheBigShort (5 Mar 2018)

Brendan Burgess said:


> there should be a fast track process for repossessing them. Then the bank has the option of seizing them and selling them on.



I agree. After two years of non-payment, and where it is shown that the buyer has the capability to pay all or some of the repayments but isn't doing so, then an order to seize the property would be reasonable. Don't the banks hold the deeds to the property?


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## Delboy (7 Mar 2018)

On the topic of interest rates being high to pay for those in arrears, the ECB have today spoken out about an FF bill on mortgage arrears. That bill is similar in some ways to one written recently by Master of the High Court, Ed Honohan on how to deal with mortgage arrears

*ECB critical of FF-sponsored mortgage arrears Bill*
*Draft legislation would introduce Mortgage Resolution Office with wide powers*
https://www.irishtimes.com/business...-ff-sponsored-mortgage-arrears-bill-1.3418426


> The ECB warns that “the draft law introduces changes that may affect the ability of lenders to give effect to the agreed terms of secured credit, which could undermine legal certainty and the adequate management of credit risk in financial institutions”.
> 
> Given the importance of mortgage lending to Irish banks, this could negatively affect the sector and “ultimately have implications for financial stability.”
> 
> It could also *affect the supply of credit and push up interest rates*, it warned.


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