# Details of ptsb sale of mortgages



## Brendan Burgess (22 Mar 2018)

ptsb gave more information today. There was a submission and I will try to get a copy of that. But I picked this up through watching it. 

1,300 Buy to Lets have been surrendered recently and the shortfalls written off.  Of these, 2/3rds are still occupied by the tenants. 400 are empty and are for sale.

Up to 1,000 borrowers may benefit from Mortgage to Rent with iCare and Home for Life.

There are 10,400 untreated and non-performing loans (which are being sold?) 
4,900 did not meet the revised arrangements 
1700 refused the treatmentoffered
1100 no sustainable treatment possible 
2700 no engagement at all  ( Average for this group 5 years or €50,000) 

The average arrears for the 10,400 is €30,000 or the equivalent of 3 years
 30%(?) paid nothing at all in 2017. Not sure 30% of what? 

Total NPLs - €5.3 billion - 
*Mortgages to be sold:  €3.7 billion about 50% provision made 
*
4,300 performing splits will be sold (despite ptsb not wanting to sell them.)
1,000 (?) non peforming splits being sold 
1,000 splits not being sold (eligible for MTR, tracker reviews,insolvency, deaths.) 

6,279 splits in total 

Average warehouse on a split mortgage: 51%  [ By comparison AIB warehoused 50% maximum] 


It takes 32 attempts on average to get a non-engaging customer to take a call. 

10,000 properties - not engaged or failed treatment


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## Brendan Burgess (22 Mar 2018)

I prepared this table  from the original press statement






“good” non performing loans

Project Glas also includes some loans which are currently subject to agreed forbearance measures,

but which remain categorised as NPLs and which, therefore, we are required to address.


*Ulster Bank *

Selling 7,000 out of 20,000


Sold 3,000 back in 2016 - €600m - €400m buy to let- €200m home loans or 1,000


Total mortgages over 2 years in arrears: 26,000  - ptsb seems to have 40% of them.


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## Brendan Burgess (22 Mar 2018)

A very interesting table from their opening statement


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## Andy836 (22 Mar 2018)

I presume the 81% still considered NPLs are mostly split mortgages?


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## Brendan Burgess (22 Mar 2018)

No. 

The EBA's stupid rule is that a loan which is not adhering to its original loan terms is non-performing.  It's madness.

So if you have a mortgage of €200k remaining on a house worth €400k and the term was extended 5 years ago, it's an NPL. 

Brendan


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## RedOnion (22 Mar 2018)

Brendan Burgess said:


> So if you have a mortgage of €200k remaining on a house worth €400k and the term was extended 5 years ago, it's an NPL


That's not entirely correct Brendan. An NPE loan can be 'cured' and can exit NPE status after 12 months if it's performing to new agreement and is not otherwise impaired.


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## Brendan Burgess (22 Mar 2018)




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## Brendan Burgess (22 Mar 2018)

RedOnion said:


> An NPE loan can be 'cured' and can exit NPE status after 12 months if it's performing to new agreement and is not otherwise impaired.



Red Onion

That makes a lot more sense. Have you a link to the rules? 

Brendan


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## RedOnion (22 Mar 2018)

Hope this works (on phone and links can be dodgy!).

https://www.bankingsupervision.europa.eu/ecb/pub/pdf/guidance_on_npl.en.pdf

It's a long document, but head to section 5.3 or there abouts.

Figure 3 on page 56 is a good starting point.


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## Brendan Burgess (22 Mar 2018)

Thanks Red. 

A bit of light reading


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## RedOnion (22 Mar 2018)

Brendan Burgess said:


> A bit of light reading


Indeed. Luckily it's not my area, so I only need to know a few key terms from it.


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## RedOnion (26 Mar 2018)

Hi @Brendan Burgess 

In terms of loans which are classified as NPLs indefinitely, in the case of PTSB this includes those loans which have a portion warehoused, regardless of how the 'good' portion performs.

PTSB has sought regulatory approval from ECB for a proposal that if they write off the warehoused portion, and the remaining loan is performing to agreement, that these can reclassified as performing loans. 

As it currently stands, PTSB could sell these loans to a fund, the fund agree a debt forgiveness with the borrower's writing off the warehoused portion, and then sell the loans back to a bank as performing loans. But PTSB can't just do this themselves, which is what they want to do.

https://www.irishtimes.com/business...eprieve-for-thousands-of-homeowners-1.3426878


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## Brendan Burgess (16 May 2018)

PTSB has announces that they are not selling the split mortgages 

PTSB will confirm at 7am this morning that it is withdrawing approx. 4,300 PDH homes linked to performing Split Mortgages from the Project Glas Loan Sale and that the number of properties now included in the sale is approximately 11,200 – down from 18,000 originally.

Here is a link to a  short audio clip of Jeremy Masding commenting on the decision to remove the split mortgages from the loan sale....no restrictions on use.

https://soundcloud.com/gordon_mrm/ptsb-ceo-jeremy-masding-on-removal-of-splits-from-loan-salemp3



Quote from Jeremy Masding below.


Speaking today Jeremy Masding, CEO of Permanent TSB said: “Since the launch of Project Glas there have been some developments including engagement with the Regulatory Authorities on the treatment of Split Mortgages and the emergence of solutions which could enable us to maintain the day-to-day relationship with the account holders. Therefore, we have decided to withdraw mortgages linked to about 4,300 homes (par value of approximately €0.9 billion) from the Project Glas sale process.  We will continue our engagement on the regulatory classification of these mortgages and, at the same time, we will explore different options including ones that enable us to maintain the day-to-day relationship with the account holders.”

“The particular make up of loans included in portfolio sales like Glas always evolves as the process moves forward.  As a result of the removal of PDH3 Split Mortgages and other decisions we have taken, the number of properties linked to loans remaining in Project Glas has reduced from an initial 18,000 properties to approximately 11,200 properties.  The value of the loans remaining in Project Glas is approximately €2.2 billion and we believe it will complete in the current year”.


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## Duff123 (16 May 2018)

Delighted to read this today Brendan. Thank you for the update.


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## Carrot/stick (15 Aug 2018)

Would I be right in thinking that a split mortgage with a regular/even one off review clause would be deemed a npl as it is essentially set up to be restructured on a regular basis triggering a possible npl classification each time the loan is modified?


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## RedOnion (15 Aug 2018)

No.
The review clause doesn't make it an NPL. The fact that they don't really expect the warehoused part to be repaid does.
Split mortgages are all NPLs.


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## Brendan Burgess (15 Aug 2018)

But ptsb did not sell any split mortgage which was performing in line with the split agreement.  So the classification as NPL does not affect the borrower. 

Brendan


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## RedOnion (15 Aug 2018)

Correct, unless they were also classed as NPLs for another reason, split mortgages were not sold.
It's interesting to see the political reactions to these sales after the fact. The sales have all been long flagged, so reactions at this stage are no more than attention seeking.

PTSB are seeking to have ECB rules changed since that they can put real solutions in place for split mortgages - write off the warehoused loan, and treat the balance as performing. @Brendan Burgess  has long highlighted that these are profitable for the bank to keep. They want to keep them, but they can't. 

If any politicians actually wanted to make a difference, it's at ECB level they need to focus their attentions.


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## Carrot/stick (15 Aug 2018)

Ok. I thought the ecb/cbi commented on this at the start of the week stating that they could be considered pl's once the active part of the loan would be paid down first. Ie. The law of unintended consequences from the review is the loan gets knocked back to npl. I don't see how they don't expect warehoused portion of the loan to get paid back as it's still secured against an asset. I think if these loans get sorted within the main banks the political hand grenade will be well on the way to been diffused.


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## Brendan Burgess (15 Aug 2018)

Carrot/stick said:


> I think if these loans get sorted within the main banks the political hand grenade will be well on the way to been diffused.



They are sorted in that they are not being sold. They are still classified stupidly as non performing loans. 

Brendan


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## Carrot/stick (15 Aug 2018)

Did Aib not get there splits classed as performing because there is no review and they are expecting to get the warehoused portion paid back as it is still secured against the asset. I would consider the issue to be sorted for now with ptsb but i do think this will raise its head again through other lenders in the near future.Thanks. If the review clauses were taken out/modified in the splits to get them classed as performing as aib have done the knock on effects of this could be quite positive.


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## Carrot/stick (15 Aug 2018)

Or maybe I just have it completely wrong!! Also very possible.


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## RedOnion (15 Aug 2018)

Ah, yes I understand now what you're asking.

So with AIB a split is 2 separate contracts. There's a 'good' portion and a warehoused portion. Legally there are 2 separate loans, and AIB generally can't move amounts between the 2. 
It doesn't actually matter if AIB ever expect to receive any of the warehoused amount back, as it's now a completely separate contract that just happens to be secured against the same asset. Typically there are 100% provisions against the warehoused balance as the good portion is written down to the asset value. But they have a good loan that's performing once it goes through 'curing' phase.
The customer is still legally obliged to repay the full amount.

In the case of PTSB, legally there is a single contract with a senior / junior debt part. The review clause allows PTSB to move amounts between the 2. Because it's a single contract, the entire is non-performing.

In substance, both are trying to achieve the same thing, but because of the legal contracts they are treated differently.

What PTSB have proposed is better for customers - they want to write off completely the warehoused portion. But because of the above,  the remaining part would be classed as non-performing, so there's no benefit to bank.

AIB could in certain circumstances write off without impacting classification.


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## Carrot/stick (15 Aug 2018)

Deadly, thanks. Personally I think all the split mortgages should be put on a definitive footing like aib. Although I'm pretty sure the other banks are working behind the scenes to achieve this. I had a very bizzare experience almost 3 weeks ago that would kind of back this up.


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## Andy836 (15 Aug 2018)

RedOnion said:


> Ah, yes I understand now what you're asking.
> 
> So with AIB a split is 2 separate contracts. There's a 'good' portion and a warehoused portion. Legally there are 2 separate loans, and AIB generally can't move amounts between the 2.
> It doesn't actually matter if AIB ever expect to receive any of the warehoused amount back, as it's now a completely separate contract that just happens to be secured against the same asset. Typically there are 100% provisions against the warehoused balance as the good portion is written down to the asset value. But they have a good loan that's performing once it goes through 'curing' phase.
> ...



PTSB want to write off the warehoused portion? That would eat up a a massive chunk of their capital. 

AIB's problem is they'll eventually sell all the junk that's not capable of being restructured until they're left with the split mortgages. They'll then be under pressure to sell the warehoused portions. 
Who's going to buy zero coupon 2nd lien debt from them?


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## RedOnion (15 Aug 2018)

Andy836 said:


> PTSB want to write off the warehoused portion? That would eat up a a massive chunk of their capital.


That's my understanding - if the rest of it is performing! They've asked the ECB to change rules so that if they write off warehoused portion, where the remainder is performing, that they can treat is as a performing loan. 
It would counter-intuitively release capital; They've already taken a hit through P&L for the warehoused part where it's written to zero, but because the remaining is treated as non-performing they have to hold excess capital for future losses on them.
The other option is to sell them, which is the same write-off, or possibly more.


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## Andy836 (15 Aug 2018)

RedOnion said:


> That's my understanding - if the rest of it is performing! They've asked the ECB to change rules so that if they write off warehoused portion, where the remainder is performing, that they can treat is as a performing loan.
> It would counter-intuitively release capital; They've already taken a hit through P&L for the warehoused part where it's written to zero, but because the remaining is treated as non-performing they have to hold excess capital for future losses on them.
> The other option is to sell them, which is the same write-off, or possibly more.



But that's the question, has the "warehoused part....been written to zero"?

They don't need ECB approval. All they'd have to do is change the Borrower contracts. Refinance the current loans with two new loans under separate loan contracts. I don't see why ECB would need to be involved.


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## RedOnion (15 Aug 2018)

@Andy836 

Apologies, I'm completely wrong!

The write-off that PTSB proposed was an accounting write-off. The customer would still remain liable for full amount.

So customers might have been in a better position to get a write-off if they had been sold.


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## Carrot/stick (15 Aug 2018)

Not sure about this but I would imagine at a heavy discount there would be a que to buy this debt. If there is positive equity in the property and you can only afford the mortgage I'd imagine the new creditor could simply bankrupt you and get a good return for their buck in an extreme case scenario. Again not sure but I'd certainly be looking more at the unintended consequences of trying to do something good as oppose to looking at a writedown scenario with the blinkers on. Remember if it looks too good to be true then it generally is.


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## Carrot/stick (15 Aug 2018)

Accounting write off makes more sense


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