# 70 year old couple, can afford only interest, BoI threatening 6% penalty interest



## North Star (20 Oct 2015)

I have elderly clients age 76 and 72, who have some health issues.  They have a mortgage on  the PPR on which they are paying Interest and a small amount of capital but well below the full P+I amount. They have made all payments of this smaller amount each month without fail.

The LTV is less than 18% and the lender will have more than enough assets to fully discharge the loan 

They have guaranteed pension income which should enable them to continue to make the monthly payments for the rest of their lives.

The lender however has recently said that they consider the mortgage not to be sustainable  and said " For a mortgage to be sustainable, you have to be able to make all of your mortgage repayments in full and on time so that you pay off the full mortgage by the end of the mortgage term".
They are now saying that the  mortgage is  outside of the MARP and they will be charging an additional 0.5% per month  i.e 6% per annum on the full amount of the outstanding mortgage.

The 6% extra interest only makes it harder for the interest to be paid each month, and the threat of repossession is causing unnecessary stress.

I am looking at helping them appeal this decision so  any clarification re the CBI sustainability issue or any other relevant points would be  much appreciated. Many thanks Vincent


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## Brendan Burgess (21 Oct 2015)

Hi North Star

1) Are they on a cheap tracker? If so, an increase in the interest rate would be fair. 

2) Check their contract. I think that it will allow the lender to charge additional interest on the arrears only. Of course, if they should have paid off the mortgage in full 10 years ago, then the entire balance does represent arrears. 

You should bring this to the immediate attention of the new Governor of the Central Bank. 

If your two clients would be prepared to talk to the media, a case like this could get the rules changed. 

Brendan


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## Brendan Burgess (21 Oct 2015)

Here are the Central Bank Guidelines and the relevant section:

2.8 Mortgage Solutions beyond retirement (updated 13 June 2014)
On 13 June 2014 the Central Bank provided a clarification to the banks covered by the Mortgage Arrears Resolution Targets that there are instances in which sustainable mortgage arrears solutions may extend into the borrower’s retirement. 

Furthermore, borrowers and banks may agree, on a case by case basis, to lifetime tenure of the home in instances in which the anticipated proceeds from the estate are sufficient to pay off the outstanding debt.

In recent audits of banks mortgage restructuring solutions, the Central Bank noted variations in the interpretation of the guidelines provided by the Central Bank insofar as:

1. Most banks apply an upper age limit ‘rule’ of 70 on term extensions in accordance with guidelines published by the Central Bank.  The guidelines set out the circumstances in which evidence of affordability to service repayments to maturity will be considered sustainable.  An older age limit can apply to restructure arrangements in cases where there is appropriate evidence to support it ( In cases where both the borrower and the bank are in agreement, a borrower may continue to make payments from on-going pension benefits.)

2.Banks have been reluctant to consider solutions which involve recovery of residual loan balances after the death of a borrower from his/ her estate.  The Central Bank is of the view that, where the borrower wishes to remain in his/ her home, long-term payment arrangements with lifetime tenure may be sustainable where the sale of the property provides sufficient surplus funds on death to redeem the outstanding mortgage balance
. 

This guidance is issued in the limited context of the resolution of distressed loans, where the Central Bank recognises that, in many instances, banks and borrowers are striving to solve very difficult situations.  Moreover, the Central Bank considers that, even in that context, these solutions will apply only in limited circumstances.  

The Central Bank requires transparency to be provided to the borrower in relation to the terms and conditions at the outset of any such solutions and borrowers must be treated in accordance with the Central Bank’s Consumer Protection Code and the Code of Conduct on Mortgage Arrears where applicable.  The implications of the solution in terms of payment schedules, stressed interest rate increases, additional interest and charges (above the original loan terms) and future
redemption obligations must be clearly communicated in a new contract with the borrower in order for it to be considered sustainable. The lender must also explain the advantages and disadvantages of the offer made by reference to the circumstances of the individual borrower


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## North Star (21 Oct 2015)

Thanks Brendan,

They are paying  SVR rates and have been all along ( like you I could understand the rationale of re pricing their loan if it were on a tracker ). Additionally they have fully engaged and been co-operative with the bank in their on going discussions. In our second from last correspondence with the bank I pointed out that with that level of security, good payment record and positive engagement with the bank - they should be low risk and ideal customers, as opposed to offerring 2% cash back to build up new business. Commercially the domestic banks need to re grow their balance sheets to increase profitability ( for dividends to recommence and  also possible sale for AIB).  

I will recheck the contract, but for now am working on the assumption that it allows them to charge additional interest on arrears. 

I will check but I feel that they will not be prepared to speak publicly re their situation.
Any other experiences  or precedents much appreciated, especially re the 6% interest surcharge - which seems opportunistic given the facts of this case and could push a sustainable situation into an unsustainable situation to the benefit of neither party.


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## Brendan Burgess (21 Oct 2015)

First, you can absolutely assure them that they will not lose their family home.  The courts are only ordering repossessions in cases where nothing is being paid and the borrower is not showing up in court. If they are paying the interest in full, the bank will not get an order. 

They should write to the bank and enclose the above CB Guideline. 

They should appeal the decision not to offer them interest only. 

If they lose that, they could appeal to the Financial Services Ombudsman that the lender did not consider all options. 

They should buy a couple of shares in Bank of Ireland and attend and speak at the AGM in April. 

If they are paying 4.5% APR and they are charged 6% on top of that, I think it could be challenged legally. Or maybe to the Ombudsman. 


They should also send a copy of their file to the Central Bank as this is crazy behaviour by the Bank. 

Some of the staff in the banks make crazy decisions which their superiors overturn. I think that might happen in this case.

Brendan


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## 44brendan (21 Oct 2015)

Absolutely agree that this decision should be appealed. It is definitely outside of the spirit of MARP as given their age and repayment capacity the only feasible long term solution for these people would be an ultimate clearance of the core balance from sale/transfer of the property post their demise. Given their age and reticence to take action themselves I would urge you as their advisor to strongly protest this decision by the bank and threaten CB/Press unless the decision is amended.
Generally ASU departments tend to take a reasonable approach to cases such as this and I suspect that this one might be a "maverick" type approach by a specific underwriter rather than a policy decision.
Fully agree with BB re some crazy decisions which should be overturned.


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## North Star (21 Oct 2015)

Many thanks for all comments,
I will update on the situation post the appeal and any other material developments.

Thanks Vincent


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## Brendan Burgess (21 Oct 2015)

Vincent 

Are they actually charging the 6% interest? I understood that none of the banks charge penalty interest even if their mortgage contract allows them.

Brendan


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## North Star (21 Oct 2015)

The communication was dated Sep 29th  where it stated that the  lender "May charge extra interest at the rate of 0.5% per month or part of (equal to 6% a year) on any amount you do not pay by its due date". So at the moment its a threat of a 6% extra interest and they havent started to charge it.


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## 44brendan (21 Oct 2015)

Brendan Burgess said:


> Are they actually charging the 6% interest? I understood that none of the banks charge penalty interest even if their mortgage contract allows them.


This is all changing now Brendan. Exclusion from MARP will automatically lead to a resumption of penalty interest charges on arrears element. It is written into MARP exclusion documentation.
Vincent:- The terminology of the correspondence is standard. It doesn't necessarily follow that the surcharge rate will be applied. However you would still need to submit an appeal as the potential is there if MARP exclusion progresses.


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## Rebuttal (21 Oct 2015)

Now is a good time to send in a written complaint to the consumer protection section of the Central Bank of Ireland, as they are looking at a plethora of unfair practices by the banks, not just tracker issues.


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## lolasue (24 Apr 2016)

Brendan Burgess said:


> First, you can absolutely assure them that they will not lose their family home.  The courts are only ordering repossessions in cases where nothing is being paid and the borrower is not showing up in court. If they are paying the interest in full, the bank will not get an order.]



Is that still the case if their mortgage has been taken over by a vulture fund? Are the vulture funds bound to the same code?


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## moneybox (24 Apr 2016)

lolasue said:


> Is that still the case if their mortgage has been taken over by a vulture fund? Are the vulture funds bound to the same code?



According to the following link they lack the regulation of the banking sector. 
http://www.irishtimes.com/news/irel...-they-can-act-with-virtual-impunity-1.2571689


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## TLO (25 Apr 2016)

Stall the wall. 6% penalty interest may be unlawful following the "Sheehan v Breccia and others" case in the High Court.  Jim Stafford comments on it here:  http://www.askaboutmoney.com/thread...charge-interest-and-enforcement-costs.197905/


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