68 year old gets PIA involving tracker rate for life

[NoRegretsCoyote]

Why is it so bad for the bank?

Because they have regulatory obligations to hold a lot of expensive capital for this kind of asset. There is risk of re-default, and they have to hold it for an indefinite period before being able to realise the principal. 1% or whatever he is on is far below what it costs the bank to maintain the loan.

And if it is, why aren't they offering me a hefty discount to buy out my 1% interest only tracker taken out in 2005?

Because you can afford to pay it back to them

 

[Baby boomer]

Because they have regulatory obligations to hold a lot of expensive capital for this kind of asset. There is risk of re-default, and they have to hold it for an indefinite period before being able to realise the principal. 1% or whatever he is on is far below what it costs the bank to maintain the loan.


Because you can afford to pay it back to them

Me and the guy from the case are both paying 1%. Presumably, he can afford that! If the 1% really is far below what it costs the bank to maintain the loan, they should be offering me a deal. They're not, so I suspect the loan is still profitable, even at that interest rate.

 

[NoRegretsCoyote]

@Baby boomer

Do you have a tracker for life like this guy? I suspect not!

Something can be "profitable" in the sense that interest payments exceed the bank's funding costs. The issue is the regulatory capital associated with this kind of loan (which is not cheap).

 

[ClubMan]

Repaying a mortgage into your 90s one option to fix arrears, says Central Bank

Deputy governor urges lenders to ‘think more imaginatively’ to resolve Celtic Tiger-era debt cases

www.irishtimes.com

 

[Baby boomer]

@Baby boomer

Do you have a tracker for life like this guy? I suspect not!

Something can be "profitable" in the sense that interest payments exceed the bank's funding costs. The issue is the regulatory capital associated with this kind of loan (which is not cheap).

Yeah, I get that. But, again, if regulatory capital is so onerous for the bank, wouldn't they be offering to buy me out? Then they could lend out that capital to another borrower at current (semi-monopolistic) market rates.

 

[DublinHead54]

Because they have regulatory obligations to hold a lot of expensive capital for this kind of asset. There is risk of re-default, and they have to hold it for an indefinite period before being able to realise the principal. 1% or whatever he is on is far below what it costs the bank to maintain the loan.

The link I posted to the RTE article addresses how BOI of Ireland are working around the expensive capital requirements.

Instead of trying to resolve the underlying issue, they have passed the risk of default onto another entity, in this case pension funds are amongst the purchasers. BOI are paying the pension fund to take the risk. This is a common activity in banks known as credit risk mitigation, it's essentially insurance and works to reduce the riskiness of the balance sheet without shedding the assets/liabilities whilst reducing capital requirements.

In practice if the bulk of the underlying mortgages default the purchasers will pay out the equivalent back to BOI

 

[DublinHead54]

Yeah, I get that. But, again, if regulatory capital is so onerous for the bank, wouldn't they be offering to buy me out? Then they could lend out that capital to another borrower at current (semi-monopolistic) market rates.

The people managing the Regulatory capital are operating at a portfolio level and not an individual mortgage account level. It is cheaper in their eyes to do a bulk credit risk mitigation deal (link posted earlier) than solve at the individual account level.

 

[NoRegretsCoyote]

The link I posted to the RTE article addresses how BOI of Ireland are working around the expensive capital requirements.

I get the concept

It's cheaper than holding capital I presume but still a lot more expensive than a fully performing portfolio.

The people managing the Regulatory capital are operating at a portfolio level and not an individual mortgage account level.

This is an important point. Individual deals are very labour intensive for the bank.

There is also the adverse selection problem - if you can afford to make a deal then you can afford to make your contractual interest payments too!

 

[time to plan]

This is absolutely crazy and explains why other borrowers are paying the highest mortgage rates in the EU.

To be a bit picky, you probably mean the Eurozone, and even then I believe Greece and Malta are higher.

 

[Brendan Burgess]

Thanks I do mean the eurozone.

And we have been pretty consistently the highest for some time, with occasionally being relegated to second or third place.

Brendan

 

[Sarenco]

When you factor in cashbacks and the extra fee income that most European banks generate through set-up and administration fees, Irish mortgage rates on new home loans, although still high, are much closer to the Eurozone average than the headline figures suggest.

And when you include trackers on exiting home loans, Irish mortgage rates overall are pretty much bang in line with the Eurozone average.

I think that's pretty incredible when you consider all the difficulties with enforcing security in Ireland.

 

[NoRegretsCoyote]

When you factor in cashbacks and the extra fee income that most European banks generate through set-up and administration fees, Irish mortgage rates on new home loans, although still high, are much closer to the Eurozone average than the headline figures suggest.

Am aware that most EU banks can charge one-off origination fees (usually loaned upfront) and ongoing fees on mortgage accounts.

But enough to close most of the gap?

Take for example a 300k mortgage over 25 years. In Ireland at 2.5% it's €105k in total interest. In the Netherlands at 1.5% it's €60k in total interest, or a €45k difference over the life of the mortgage.

I don't think origination fees (let's be generous and say €8k) and ongoing charges (again a generous €25 a month) will eat much into the benefit of being able to borrow 100bp lower.

 

[ClubMan]

Appeal can proceed against insolvency plan that allows man to pay €93 towards mortgage each month

Judge says it was ‘misconceived’ to argue the issues between the parties had become moot

www.irishtimes.com

 

[Paul O Mahoney]

Hypothetical Q. Put aside the wrongs(and silliness) of it for a minute ..
If everybody in the country decided to stop paying their mortgage from today onwards. What would happen?

That would be so fun....I say that having spent the day talking to the bank about a hack on our account. They couldn't care less, as " the fraud department controlled the situation ".

 

[Paul O Mahoney]

The person in question doesn't have means the property is valued more than the outstanding loan , where is the issue here.

Make him homeless and it'll cost more than €93 a month and to find him alternative accommodation the €93 will need to be increased factor of 10.

The bank isn't going to lose a dime on this, the taxpayer will however save a considerable amount of money.

 

[skrooge]

The person in question doesn't have means the property is valued more than the outstanding loan , where is the issue here.

He's illiquid but not insolvent. There is equity of €100k in his property. The bank could argue that based on average rents in Waterford that could cover close to a decade of renting.

The bank isn't going to lose a dime on this, the taxpayer will however save a considerable amount of money.

Except it does cost the bank. The bank expected €100k plus interest over the next 5 years instead it's been offered €33k spread over 30 years.

The taxpayer only saves if they don't have a loan/current account with the bank. Otherwise that taxpayer is footing the bill through higher interest rates or bank charges.

It's not the banks job to provide social housing.

 

[NoRegretsCoyote]

He's illiquid but not insolvent. There is equity of €100k in his property. The bank could argue that based on average rents in Waterford that could cover close to a decade of renting.

His net wealth is €100k if he sold the house, no more income than a state pension, and has nowhere to live.

He's not insolvent but has a housing need. Leaving him in his house with no fear of eviction will see him maintain the house so the bank can maximise value in due course.

I believe these kind of solutions are best for retired people on low incomes as otherwise the state pays via social housing, and at a much higher cost.

 

[skrooge]

The bank is not a substitute for social housing. Regardless I'm not sure he'd qualify €100k is a sizable some of money. A quick look on daft and there are places available in Waterford for €100k.

He gets a mortgage free home and the bank gets it's collateral.

 

[Paul O Mahoney]

The bank is not a substitute for social housing. Regardless I'm not sure he'd qualify €100k is a sizable some of money. A quick look on daft and there are places available in Waterford for €100k.

He gets a mortgage free home and the bank gets it's collateral.

But you nor anyone has an idea of his capabilities or otherwise, perhaps his present home is fitted out specifically for him, or it has been a significant part of his life.

Banks make plenty of money on loans to housing Associations with one large one securing €350m in development loans from AIB, so when you say banks aren't substitutes for social housing isn't as black and white as you say.

The bank will get its money back plus lower interest and one less person will be either homeless or getting Rent subsidies which already cost the state €1bn a year.

 

[skrooge]

But you nor anyone has an idea of his capabilities or otherwise, perhaps his present home is fitted out specifically for him, or it has been a significant part of his life.

There can of course be mitigating circumstances but like you say no one knows. In saying all that emotional attachment is a stretch. Just because I love my wallpaper doesn't mean I shouldn't have foreclosure on a contract I willingly entered into.

We can only work of the facts presented , as difficult as it would be to have your home repossessed today, he could be a cash buyer tomorrow. Let's not forget 68 is not that old in the greater scheme of thing. I'm sure age action would happily point out many are in great health.

Banks make plenty of money on loans to housing Associations with one large one securing €350m in development loans from AIB, so when you say banks aren't substitutes for social housing isn't as black and white as you say.

I'm sorry just because AIB, or any other bank, lend to housing associations doesn't make them responsible for provision of social housing... Banks are not responsible for providing social housing.

The bank will get its money back plus lower interest and one less person will be either homeless or getting Rent subsidies which already cost the state €1bn a year.

The bank will get some money at some stage but this is a loss for the bank.

The State gets away with not providing a service it should and bank customers pay a higher price then they should have to.

It's easy to see the €1bn the state is paying but the rest of us are paying for this approach through higher bank rates and fee's and less choice when it comes to financial services.