# AIB:" 5,500 borrowers  have paid nothing at all in over two years"



## Brendan Burgess (25 Apr 2015)

Very interesting comments from Brendan O'Connor Head of Arrears  of AIB to the Oireachtas Finance Committee 

Mr. Brendan O'Connor: We make our decisions based on affordability. The only criterion we use is how much somebody can pay. Is there enough there to structure a sustainable mortgage solution? We do not go into matters of policy but affordability for the individual in question. There is always an individual set of circumstances in such cases.

If somebody has some level of affordability that allows for a mortgage restructure, we have a product to allow that to happen. Where someone does not have it, we have a process which allows a voluntary sale for loss and will not pursue the residual debt. The only way we can sustain a restructure is if we have the customer’s information, that they are willing to talk to us and willing to make a payment in line with affordability.

Those with mortgages over 720 days in arrears represent a large cohort. In AIB, 60% of those have made no payment at all, which represents 7,000 accounts. If that is their maximum affordability, it will not be possible for us to restructure the mortgage. Our responsibility is to help the customer exit the property and we will not go after the residual debt if it is not there. We actually can do nothing unless we have that level of engagement.

All of the statistics for mortgage arrears relate to accounts. When one sees 10,000 accounts, this is most typically 8,000 properties. It is usually 1.25 to 1.5 accounts per property due to top-up loans on mortgages.


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## Brendan Burgess (25 Apr 2015)

So 7,000 accounts is around 5,500 borrowers. 
If AIB and EBS accounts for around 40% of the market, that is around 14,000 borrowers for all the banks.

So my estimate of around 20,000 deliberate defaulters is in the right ballpark.


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## epicaricacy (25 Apr 2015)

Hi Brendan

Even if one were to conclude that all of the people who haven't made any payment in 2 years are strategic defaulters - which is highly improbable - you've still overestimated the figure by 30%.

The likelihood is that a substantial percentage of the 5500 borrowers who haven't paid anything, are can't pay as opposed to won't pay. Even if one were to be conservative and suggest a 50% can't pay 50% won't pay divide (as was suggested by Duffy himself) - that would equate to 2750 won't pay AIB / EBS. This would lead to a grand total of 6875 strategic defaulters - which is a third of what you've being suggesting.


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## Sarenco (25 Apr 2015)

I'm intrigued why people feel the need to quantify the number of loan defaults that are strategic in nature.  Does it really matter?

I think we can all agree that a significant proportion of defaults will, in all probability, be strategic in nature.  It would be extraordinary if the position was otherwise.  

Do we really need to know anything else in formulating policies and practices in dealing with mortgage arrears?


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## Brendan Burgess (25 Apr 2015)

Hi Epi

As I have pointed out elsewhere, the term "strategic" is not really appropriate as it attributes some complex strategic thinking to them. The term "deliberate defaulters"  is much better as these 5,500 borrowers have chosen to pay absolutely nothing in over two years.  They have told AIB that they want to live rent free and mortgage free. That is unacceptable. 

No one should be paying nothing.  Most of these can't pay their full mortgage repayment, but they call can pay something. And they should do so. 

There are about 14,000 who have paid nothing at all for over 2 years.
There would be  a further 4,000 or so who are over two years in arrears,who are paying something. Some of these are deliberate defaulters as well.
And of course, there are many borrowers who are over 1 year in arrears who are deliberate defaulters. 

My estimate is 3% of the 600,000 borrowers which is around 20,000. 

Brendan


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## Brendan Burgess (25 Apr 2015)

Sarenco said:


> I'm intrigued why people feel the need to quantify the number of loan defaults that are strategic in nature. Does it really matter?



I think it does.

If someone is paying nothing at all, they are a deliberate defaulter and there should be a fast-track repossession process for them. 
If someone is paying something but not the full repayment, they could be deliberate defaulters or they could be responsible borrowers. They need to be treated differently. Where someone is living in a modest house and prioritising their mortgage, it's not going to be in anyone's interest for them to lose their family home.  

Brendan


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## Sarenco (25 Apr 2015)

I really don't see what difference it makes whether a loan default is deliberate or accidental, strategic or unplanned.  The bottom line is that the borrower has breached the terms of his/her loan agreement, as originated or as modified, and the lender should be entitled (and IMO encouraged) to enforce their security interest.

Whether or not a borrower has made partial or no repayments at all is, frankly, irrelevant.

If the original terms of the mortgage can be modified so that it becomes sustainable on a long-term basis then that should obviously be facilitated.  If a mortgage is simply unsustainable then, in the absence of a voluntary sale coupled with a pre-agreed write-down of the outstanding balance, the lender must be allowed (and IMO encouraged) to repossess the property after an appropriate grace period so that somebody else that is able and willing to fund the purchase of the property will be given an opportunity to do so. In this regard, an appropriate grace period should be measured in weeks - not years.


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## Delboy (25 Apr 2015)

epicaricacy said:


> The likelihood is that a substantial percentage of the 5500 borrowers who haven't paid anything, are can't pay as opposed to won't pay. Even if one were to be conservative and suggest a 50% can't pay 50% won't pay divide - that would equate to 2750 won't pay AIB / EBS. This would lead to a grand total of 6875 strategic defaulters - which is a third of what you've being suggesting.



Everyone pays something towards their accomm...even in Social Housing. I believe your being, how can I put this, very 'christian' in your belief that as many as 50% cannot afford to pay as much as 1e a month towards their accommodation.
You seem determined to keep this line going, that so many out there cannot pay anything...at all. If that is the case for some, then they need to give up these houses in question, and move into state provided accomm as handed to them...not in accomm of their own choosing, following non-fulfillment of freely entered into contracts


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## epicaricacy (25 Apr 2015)

Delboy said:


> Everyone pays something towards their accomm...even in Social Housing. I believe your being, how can I put this, very 'christian' in your belief that as many as 50% cannot afford to pay as much as 1e a month towards their accommodation.
> You seem determined to keep this line going, that so many out there cannot pay anything...at all. If that is the case for some, then they need to give up these houses in question, and move into state provided accomm as handed to them...not in accomm of their own choosing, following non-fulfillment of freely entered into contracts



I'm not sure what good would arise from paying 1 euro per month. An acquintance of mine pays 140 euros per month for a social house in Mahon in Cork. What would be the point in paying 140 euros towards a mortgage of say 1400 euros - when the bank would not consider a 10% monthly contribution to be a 'sustainable solution'? 

Do you believe that 140 euros - that equates to a social housing / rent allowance contribution - is sufficient to keep someone in a house they can't afford? Is this something you'd support? If not - as I suspect - why bother making the point?


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## Delboy (25 Apr 2015)

So the forecast 20,000 'strategic' defaulters most likely could all contribute something towards their accommodation but have 'chosen' not to and are riding this out in the hope of a write down to something they find suitable or until the day of reckoning, when the bank finally forecloses?


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## epicaricacy (26 Apr 2015)

Delboy

The specific questions I asked you are  'What would be the point in paying 140 euros towards a mortgage of say 1400 euros - when the bank would not consider a 10% monthly contribution to be a 'sustainable solution'? and 'Do you believe that 140 euros - that equates to a social housing / rent allowance contribution - is sufficient to keep someone in a house they can't afford? Is this something you'd support? If not - as I suspect - why bother making the point? 

After all, it was you who made the point that people in mortage distress should be paying something.

Continually venting spleen against people in mortgage distress is hardly constructive. The people in mortage distress are not to blame for your difficulties in trading up.


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## Delboy (26 Apr 2015)

epicaricacy said:


> Delboy
> 
> The specific questions I asked you are  'What would be the point in paying 140 euros towards a mortgage of say 1400 euros - when the bank would not consider a 10% monthly contribution to be a 'sustainable solution'? and 'Do you believe that 140 euros - that equates to a social housing / rent allowance contribution - is sufficient to keep someone in a house they can't afford? Is this something you'd support? If not - as I suspect - why bother making the point?
> 
> ...



You believe there's no point in making a contribution of any sort if the end result might go against you....and you also don't believe in the existence of Strategic Defaulters. Contradictory to me, but hey, thats what you believe.

I believe anyone 6 months+ without paying should have the house seized. The house should be put on the market, and depending on that persons 'true' circumstances, a deal done on the balance outstanding ...including possible full write off over a short period of time.
I think that is a just and generous solution.

Thats where I stand and thats where you stand. And never the twain shall meet!


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## epicaricacy (27 Apr 2015)

Delboy - I'm wondering if you would allow a homeowner to remain in their home if they pay the Social Housing rate - 35 euro per week? Even if their mortage was ten times that amount.

You seem to be caught up in the 'paying nothing' argument - without answering the above question, which I've now asked you 3 times without an appropriate response. 

We paid over 4500 in the 12 month MARP period out of our meagre Social Welfare payment after initially paying our full mortgage for a 16 month period out of our redundancy.

In effect, we never missed a payment - neither the full mortage payment for 6 years nor for the 12 month restructure amount.

We were told our mortgage was unsustainable anyway. 

Our personal experience illustrates that the 'paying something' argument doesn't hold any water and is, as such, a red herring.


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## Brendan Burgess (27 Apr 2015)

epicaricacy said:


> Our personal experience illustrates that the 'paying something' argument doesn't hold any water and is, as such, a red herring.



Hi epi

You agreed to the sale of your home, so you haven't actually tested the "paying something" argument.  We have seen no case of an order for possession being granted against anyone who was paying anything meaningful.  

I have highlighted cases where the lenders are inappropriately classifying mortgages as unsustainable where the borrowers are able to pay the interest.  If these borrowers listened to you and some other commentators, they would stop paying completely and would eventually lose their home.  If they listen to what I am saying, they will actually pay as much as they can, and I believe that they will not lose their home. The lender may be forced by the Central Bank to take legal action against them, but the judge will not grant an order.


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## epicaricacy (27 Apr 2015)

'Paying anything meaningful' are key words that others are ignoring.

In your research - what percentage of the full mortgage payment was considered 'meaningful' - 10%, 20%, 30%, 40% 50%?

People need actual figures to make an informed decision. There is little point in paying from a limited 'bankruptcy survival fund' if there is no guarantee of success.

Furthermore, Karl, Seamus and you have already stated that even 'non payers' get an adjournment - so does any strategic advantage actually accrue to the 'meaningul payer' over the tokenistic payer and the non-payer? In other words is the 'meaningful payer' making  a strategic error by paying when he could be putting the money towards a 'survival fund'? 

From your research, what duration of time will this 'meaningful' payment be acceptable to both the bank and the courts? - One year, two years, 5 years, indefinitely? Again - people need time frames.


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## ashambles (27 Apr 2015)

There's meaningful to the bank, and meaningful to some employee of the court service. Currently it seems the latter is more important.

But if a home owner is hoping to get back to fully repaying a mortgage then any payment helps to stop the interest mounting up, it's not wasted resources if they recover.


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## epicaricacy (27 Apr 2015)

ashambles said:


> There's meaningful to the bank, and meaningful to some employee of the court service. Currently it seems the latter is more important.
> 
> But if a home owner is hoping to get back to fully repaying a mortgage then any payment helps to stop the interest mounting up, it's not wasted resources if they recover.



Of course - but the crux of the matter is how much exactly is 'meaningful' in practical terms?

One must also be dispassionate in attempting to predict 'if' they will really ever be in a position again to make the full repayments on a consistent basis over the lifetime of the mortgage. In other words - they will have to consider if they are fighting a losing battle and is it worth the risk and the money involved if the asset is in serious negative equity?


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## Sarenco (27 Apr 2015)

epicaricacy said:


> Of course - but the crux of the matter is how much exactly is 'meaningful' in practical terms?
> 
> One must also be dispassionate in attempting to predict 'if' they will really ever be in a position again to make the full repayments on a consistent basis over the lifetime of the mortgage. In other words - they will have to consider if they are fighting a losing battle and is it worth the risk and the money involved if the asset is in serious negative equity?


 
I would certainly agree with that.  There is no point making any payments (whether meaningful or tokenistic) if a borrower determines that it is no longer in their long-term financial interests to discharge (or attempt to discharge) the loan.


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