# If you are wondering why lenders don't do Life Loans anymore...



## Brendan Burgess (12 Oct 2020)

Limerick family forced to sleep under bridge after eviction | BreakingNews.ie
					

John Johnson and his family were forced to sleep under Sarsfield Bridge in the city on Saturday and Sunday night




					www.breakingnews.ie
				




_Last February the High Court ruled that a financial fund was entitled to possession of the Johnson’s home under a “lifetime” mortgage obtained by Mr Johnson’s father Larry, eight years before his death in 2015.

Mr Johnson’s late father had taken out a 'lifetime' or 'reverse' mortgage in 2007 as a condition for getting a loan of €52,700._


The guy died 5 years ago, and the lender had to go to the High Court to get the son out. 

It's not clear who the original lender was as they gave up trying to recover the money and sold the loan to a vulture fund.

Brendan


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## Leper (13 Oct 2020)

My take on this- The financial institution were uncaring/stupid in supplying such a loan to anybody. It was a recipe for disaster. Anybody with a minimum of common sense could see the pitfalls. And a family was forced to sleep under a bridge having been evicted - Wondetrful, just Wonderful, I think not!


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## Brendan Burgess (13 Oct 2020)

The Irish Times puts the story on the front page:









						Family say they slept under bridge after Limerick eviction
					

‘The bailiffs came Saturday morning and told us to get out of the house’




					www.irishtimes.com


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## Brendan Burgess (13 Oct 2020)

Leper said:


> The financial institution were uncaring/stupid in supplying such a loan to anybody. It was a recipe for disaster. Anybody with a minimum of common sense could see the pitfalls



Could you explain why? 

There are lots of people who own houses but who have little income and they would love one of these loans.

I know quite a few people who benefited from them when they were available.  

Brendan


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## LS400 (13 Oct 2020)

Im not an uncaring person, but I completely agree with the possession of the property. What is it that some people take out a loan, and then its someone else`s problem when you find yourself in difficulty.

The person had possession of €50k for to do as he wished. I hope he enjoyed it, but pay it back, and stop looking for excuses to shirk the responsibility.


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## Leper (13 Oct 2020)

Brendan Burgess said:


> Could you explain why?
> 
> There are lots of people who own houses but who have little income and they would love one of these loans.
> 
> ...



1. The age of the person getting such a large loan, for a start is detrimental to the repaying of the loan and most likely guaranteed to provide some kind of hardship.
2. I don't know how you can say "There are lots of people who own houses but who have little income and they would love one of these loans." But, you are entitled to your opinion.  But, if they squandered their money instead, of course, they benefitted.
3. Like me, there are people who will repay everything borrowed. I bet there are many who won't.
4. A relatively high percentage (my opinion) of such loans never had a chance of being repaid.
5. As I said in another thread "The Eighties Were Better" the financial institutions screwed honest people with mortgage rates reaching 19.75%*.
6. Yes, I agree loans must be repaid - but what criteria did the person authorising the loan use.
7. I wonder how money the Lender paid for representation in the High Court. Would it be more than the outstanding amount of the loan?
8. Was any such loan ever worth forcing a family to live rough?
9. Has anybody here any experience of the bailiffs calling to evict?

* I note some people do not believe this figure on the thread. I remember back then screaming at trade unions for national representation for mortgage rate to be capped at 11% pa. If I did that now, I'd be facing a firing squad of some of AAM's contributors.


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## LS400 (13 Oct 2020)

He/ the family enjoyed €50k for eight years, put any slant you like on it, Pay it Back.


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## elcato (13 Oct 2020)

There is a lot missing from the story too. Did they bypass probate in order to avoid selling the house ? Did he always live with his father or did he just move in afterwards ? How much is the house worth ? Could he sell and get somewhere else (probably not) ?


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## Leper (13 Oct 2020)

Like Elcato said there's more to the story that we don't know. LS400 wants all loans repaid; fair enough, but how? Obviously, not all the circumstances were considered by the lender and the borrower.

(Again, what legal costs? what bailiffs costs? what clerical costs?)

Can anybody forward a considerate solution to such cases?


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## twofor1 (13 Oct 2020)

Leper said:


> 1. The age of the person getting such a large loan, for a start is detrimental to the repaying of the loan and most likely guaranteed to provide some kind of hardship.



It would never cost the person who took the loan any hardship, as it is only repayable on his death, or if he sells or moves into permanent care.

The deceased owners' family aged in their 30’s - 50’s have had  at least 5 years to find alternative accommodation.


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## LS400 (13 Oct 2020)

elcato said:


> Could he sell and get somewhere else (probably not




But why would he want to. The person died 5 years ago... How long should the banks leave it to enforce recovery of debt so as not to be seen as an uncaring institution?


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## Brendan Burgess (13 Oct 2020)

Leper said:


> 1. The age of the person getting such a large loan, for a start is detrimental to the repaying of the loan and most likely guaranteed to provide some kind of hardship.



Hi Leper

I think you have misunderstood what this is?  It was a Life Loan.  Not intended to be paid back until the death of the borrower or until they had moved into a nursing home. 

The BoI one was the most popular and the interest rate was fixed at 6% for something like 15 years.  A bit high but for the type of loan it was, not unreasonable. 

And they guaranteed that there would not be a shortfall. 

So they typically lent only about 20% or 30% of the value of the property. 

All in all, it's a very useful product.   

I do remember at the time when I was encouraging another mainstream lender to enter this market they said that the negative publicity after the person died would just not be worth it. 

Brendan


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## Leper (13 Oct 2020)

LS400 said:


> But why would he want to. The person died 5 years ago... How long should the banks leave it to enforce recovery of debt so as not to be seen as an uncaring institution?


Thats the question. It's the answer is the problem. But, the answer is in there. And the answer is not forcing people to be homeless.

And . . . . . . . if Free Legal Aid is required in such circumstances, how much does it cost the Irish taxpayer?

I'm only asking simple questions e.g. Was every circumstance considered by the Lender?


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## Leper (13 Oct 2020)

Brendan Burgess said:


> Hi Leper
> 
> I think you have misunderstood what this is?  It was a Life Loan.  Not intended to be paid back until the death of the borrower or until they had moved into a nursing home.
> 
> ...



Hi Brendan,

I don't misunderstand what this is; I know full well the results. No matter what spin you put on the subject it is was a cavalier money making effort by the lending institution with dreadful results.

The product is useful to the lending institution, not to most people receiving the loan. This kind of loan is a little short of giving sweets to a two year old. The newspaper drift that the banks are now getting out of this type of loan suggests the product is not good.


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## LS400 (13 Oct 2020)

There is a market for these type of loans, and they should be available. They're not for everyone.

But this is the other end of the spectrum then...its almost impossible to obtain a loan these days due to the red tape, criteria and acrobatics you have to perform to the banks these days such is the outcry from the public when they are seen to recover bad debts.


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## The Horseman (13 Oct 2020)

Leper said:


> Thats the question. It's the answer is the problem. But, the answer is in there. And the answer is not forcing people to be homeless.
> 
> And . . . . . . . if Free Legal Aid is required in such circumstances, how much does it cost the Irish taxpayer?
> 
> I'm only asking simple questions e.g. Was every circumstance considered by the Lender?


Lets put a different slant on this. What if the lender looked at the "every circumstance" and refused the loan? I suspect a claim to the onbudsman would be made. 

The providers of the loans are damned if they do and damned if they don't. 

There are four adults who had 5 yrs to deal with this situation. I don't think it is unrealistic to think four adults could muster together €50k over a five year period. All of which are of working age.


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## DublinHead54 (13 Oct 2020)

I can't find the exact article, but reverse mortgages are popular in the US and now in Canada. The article I am referring to was quite morbid as it was from the perspective of actuary / quants trying to predict when a person will die and trying to arbitrage i.e. you give them a reverse mortgage for 20 years but have predicted they will die in 15. 

Morally it is a product that benefits on early death, so it will never be popular in the media. 









						Don’t-Pay-Til-You-Die Reverse Mortgages Are Booming in Canada
					

Don’t-Pay-Til-You-Die Reverse Mortgages Are Booming in Canada




					www.bloombergquint.com


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## elcato (13 Oct 2020)

Leper said:


> The product is useful to the lending institution, not to most people receiving the loan. This kind of loan is a little short of giving sweets to a two year old


Ah here. My understanding of this is that his father wanted money to enjoy life and took out the loan. When he died the son came out of nowhere and demanded his inheritance and just moved in. The courts nowadays would not make a family homeless unless they felt there was something underhand happening. This is why I stated that we would need to know the full circumstances. I don't believe it was as simple as the banks saying 'Legally we own the house now so get out'.


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## WizardDr (13 Oct 2020)

It is important to have the facts.

First there were four types of products for Seniors - not all were offered in Ireland.  And there are fundamental difference between them. 

1. Reversion - this was where an interest in the property was 'sold' with a life  interest. To make the complex simple and to also explain why it was not adopted by Bank of Ireland - say market value of €100k.  Full interest sold for €43,000 with right to remain in property. In simple terms the €43,000 became €100,000 or more if the value of the house went up.  Do calculations on implied interest rate or the APR equivalent and it was a minimum of 20%+ with a flat property market over 15 years,  Was still a positive return until house price fell to €43,000.   This was not the Bank of Ireland product.

2.  Life Loan - as BB pointed out about 30% of property was lent out. Fixed interest rate (customers did not want variable) rolled up fixed interest rate.
No negative equity guarantee.  No bank benefit on any increased equity and if house price inflation was at about 4% the amount to be paid back remained at 30% because the loan was increasing at 6% on the 30% loan  but the property was increasing on 100%.

3. Nobody offered the Reverse Mortgage though it was planned. 

As elacto said what are the facts?


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## Early Riser (13 Oct 2020)

Leper said:


> The product is useful to the lending institution, not to most people receiving the loan. This kind of loan is a little short of giving sweets to a two year old. The newspaper drift that the banks are now getting out of this type of loan suggests the product is not good.



It is a minority, but still a proportion of people who would like to avail of this type of loan. And why shouldn't they? There are probably all sorts of reasons - some to enjoy holidays, some to install home comforts for their old age, some to socialise freely with friends, etc. Are you suggesting that these people are so stupid that they need to be protected from themselves? 

I agree that people taking out these loans should be required to avail of independent legal advise. I may be wrong but I think this was a requirement. Once this is done they should be free to do as they please. What if the parent had made a will instead leaving the property to, say, the Irish Cancer Society? Should this also be disregarded?


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## WizardDr (13 Oct 2020)

In the Bank of Ireland case customer was obliged to take independent legal advice and have a will.

The Law Society blew a head gasket about the insistence of the Will (see Law Society article) and overlooked the fact that the Executor would have to
know in advance what the person was doing.

Family members are such that when their father or mother were obviously in need they were often blind to it.


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## Brendan Burgess (13 Oct 2020)

Leper said:


> The product is useful to the lending institution, not to most people receiving the loan.



Hi Leper 

That is a strange take. Most lending is supposed to be profitable for the lending institutions including ordinary mortgages. 

These loans are available in many countries.  They are used for many good purposes e.g. to adapt the home to the elderly person's needs.  They are used to help a child get on the housing ladder.  And occasionally they are used for holidays. 

There is nothing at all wrong with the product. 

It's a shame that they are not available here because of the difficulty in collecting at the other end.

Brendan


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## NoRegretsCoyote (13 Oct 2020)

I have a very elderly relative receiving 24-hour home care in a very valuable house. He's paying for it from savings but that will run out.

At that point incentives push him toward into a nursing home due to the Fair Deal scheme, but what he'd really like is to live out his days in his own home if possible.

A life loan would be absolutely perfect for him.

It's his wealth, but he's not really allowed to access it which seems a pity.


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## WizardDr (13 Oct 2020)

I would think the Reversion product as it was structured and called was a ripoff.


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## NoRegretsCoyote (13 Oct 2020)

Brendan Burgess said:


> The BoI one was the most popular and the interest rate was fixed at 6% for something like 15 years.



Back when base rates were a lot higher too!

If I were a bank and had people literally lending me billions at 0% I think I could make a profitable life loan at 3% today.


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## Brendan Burgess (13 Oct 2020)

WizardDr said:


> I would think the Reversion product as it was structured and called was a ripoff.



I didn't like them at the time and much preferred the Life Loan. 

But with the collapse in house prices, the Reversion product looked like a good deal for many customers. 

Brendan


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## Zebedee (13 Oct 2020)

There was a report in the Sunday times a couple of weeks ago that Seniors Money had now got funding (from Deutsche bank) and were preparing to re enter the market early next year.


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## Thirsty (13 Oct 2020)

It's not clear from the newspaper report, how much the loan + interest due would have been? 

Loan taken out in 2007 (52k) and death in 2015.  

Can anyone do the sums and give a rough estimate?

The 'sleeping under a bridge' makes great headlines, but you do wonder what they expected to happen after the father / grandfather died. They must have known the loan was due?


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## NoRegretsCoyote (13 Oct 2020)

Thirsty said:


> Can anyone do the sums and give a rough estimate?



If no interest was paid €52k in 2007 at 6% turns into €83k in 2015 and €111k in 2020.

Compound interest is a powerful force.


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## so-crates (13 Oct 2020)

Thirsty said:


> It's not clear from the newspaper report, how much the loan + interest due would have been?
> 
> Loan taken out in 2007 (52k) and death in 2015.
> 
> ...


I understand that Covid has made most things a little more difficult for everyone, especially where people have lost jobs etc. and I am not discounting that it may not have been possible for the family to source alternative accommodation since February when the court clearly told them that they had no right to the house. However, it does seem as if there is a bit of a bias in how this is coming across. The story is only being told by the family and what has been told has been dressed with pathetic touches designed to elicit sympathy (Dad had Alzheimer's, brother, mother, nephew all committed suicide in the river close to where they've had to huddle for warmth, only option is to "walk the streets", etc). The honest truth is probably far more kind to the lender. The house should have been sold when the father died in order to pay off the debt, it doesn't matter if it had been occupied by the family for 60 years, the asset was the father's to dispose of as he wished and he decided in 2007 that he wanted or needed money and agreed to allow the bank to have his house as security. I don't get the feeling that they ever attempted to honour that agreement, it seems that they expected to get the house. They've had 5 years rent-free accommodation, have they made any efforts to actually source alternative accommodation? I can't but be suspicious of their motives.


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## Thirsty (13 Oct 2020)

So based on @so-crates figures.

Let's say that the house sale in 2015 might have cleared the debt but left nothing else.

If, as a family, they were unable to raise a mortgage in their own name to clear the debt, then from their perspective their best outcome was to live rent-free for the past 5 years.

Also, now that they are homeless, having been evicted, they are on a priority list for housing.

I'm not condoning their actions, but if this is the system we design, we can't complain when these are the outcomes.


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## Leper (13 Oct 2020)

We don't know all the personal facts in the case. This is not the only case either.  The product stinks from the very start i.e. giving large amounts on loan to somebody who is going to die sooner than later who likely isn't capable (my opinion) of calculating the full consequences of such a loan. The lending institutions are no longer giving out such loans - Good! - This alone shows that the product isn't good.

Off the point but somewhat relevant, back in the late 1970's there had been plenty of industrial strikes where management refused to talk with unions while the strike was ongoing. Management wanted the strike to end before talks could take place. The unions wanted talks during the strike. Charles Haughey (to his credit) advised employers/management/unions to do business differently and civilly to ensure long industrial disputes were a thing of the past. In this instance the financial institutions must do business in a different way and if this means never giving out such loans again, so be it. But handing out large amounts of cash to people who might not be fully aware of the total implications involved is crazy.

. . . and if anybody thinks I think that loans should not be repaid, they are wrong. But, the financial institutions must do business differently.


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## NoRegretsCoyote (13 Oct 2020)

so-crates said:


> he story is only being told by the family and what has been told has been dressed with pathetic touches designed to elicit sympathy



Are you suggesting local papers don't have teams of fact-checkers to follow up every detail in what the journalists turn in?


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## Early Riser (13 Oct 2020)

Leper said:


> The lending institutions are no longer giving out such loans - Good! - This alone shows that the product isn't good.



Does it? Or does it show the difficulty in exercising security makes such loans more troublesome than they are worth? Does it show one of the reasons why mortgatge interest in Ireland is higher than elsewhere in Europe?



Leper said:


> But handing out large amounts of cash to people who might not be fully aware of the total implications involved is crazy.



Why ? Because of age? If this person had decided instead to sell his house should it have been allowed or disallowed ? Should a different test of capacity apply in situations like this as opposed to, say, a will?

Why should older people not be enabled to use the value of their assets to their own benefit (as they see it) in their remaining years - rather than being trapped into preserving it for their estate?


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## LS400 (13 Oct 2020)

Leper said:


> The lending institutions are no longer giving out such loans - Good



Good for who?
Not good for the Folk who have value in their property and want to avail of it!


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## NoRegretsCoyote (13 Oct 2020)

Early Riser said:


> Does it? *Or does it show the difficulty in exercising security makes such loans more troublesome than they are worth? *Does it show one of the reasons why mortgatge interest in Ireland is higher than elsewhere in Europe?



Yes.

These loans will only ever by a fraction of one per cent of profits of a big lender like AIB or BoI.

Meanwhile a single case makes national news. These have turned upon Liveline before as well I believe.

*Big banks care more about their reputation than the small profits that these products generate.*

This is why specialised lenders (maybe with non-bank funding) will be the only ones who get back in the market.


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## WizardDr (16 Oct 2020)

Brendan Burgess said:


> I didn't like them at the time and much preferred the Life Loan.
> 
> But with the collapse in house prices, the Reversion product looked like a good deal for many customers.
> 
> Brendan


The maths with the REversion product:

Say full value of property was €100k
Say you sold full interest and received €42k. - bear in mind you had a life interest.
Property prices would have to FALL 58% (and not recover) to be 'out of the money' at the date property was sold.

The key aspect was the % in the € they offered at the start.
This was an extremely expensive product and Bank of Ireland did not provide it itself for that reason.


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## mtk (20 Oct 2020)

I remember having a conversation with a bank exec. in the 2000s as to why they weren't doing them as it was an obvious enough gap in the market and yes some banks were very  scared of these lifetime loans because of the risk of this type of dispute/ messing around afterwards.


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## NoRegretsCoyote (20 Oct 2020)

mtk said:


> some banks were very scared of these lifetime loans because of the risk of this type of dispute/ messing around afterwards.



And even though they are profitable it is tiny in the scheme of a bank's total operations.

That's why they won't bother.


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## Branz (20 Oct 2020)

NoRegretsCoyote said:


> I have a very elderly relative receiving 24-hour home care in a very valuable house. He's paying for it from savings but that will run out.
> 
> At that point incentives push him toward into a nursing home due to the Fair Deal scheme, but what he'd really like is to live out his days in his own home if possible.
> 
> ...


I did one of these for my parents in law, structured as follows:
1: Look at what the monthly cash requirements are for the relative.
2: Agree a loan with the bank on the basis that the loan increase every month by the monthly cash required, max of 100K in capital at year 20 .
3: Being a loan it did not impact on SW payments means test etc.
4: It was secured by mortgage on the house and I personally g/teed it.
Both died, house sold, job done


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## Brendan Burgess (20 Oct 2020)

Hi Branz

Are you saying that they had a sort of reverse mortgage?

The bank lent them €500 every month and so their mortgage increased by that amount plus interest. 

There was no initial large loan given? 

I have suggested that before but I understood that it was very difficult for the banks to do this. 

Brendan


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