Housing Finance Agency Loans in 1980's

[valc]

Hi there – looking for some advice.

My parents took a Housing Finance Agency Loan back in 1983 to purchase a house. This was operated via Cork City Council (Cork Corporation at that time). The amount borrowed was approx £22k. They had been renting for many years before that. My father was an employee of Ford Motors at the time and even though they were debt free, they were unable to get a mortgage from banks.

Part of the monthly repayment to Cork City Council included an element for life insurance/mortgage protection; whereby the outstanding loan would be cleared should the sole income earner (i.e. my father) pass away. That was always my understanding but admittedly I did not review the policies. I was 14 at the time! And being honest, neither of my parents would have been financially literate.

The loan repayments were linked to income earned. When Ford Motors closed in the mid 80’s, my father was in his 50’s and unable to get another job. The, loan repayment amount dropped subsequently as it were linked to his income (i.e. unemployment benefit).

My parents did not miss any repayments, nor were they ever late in making monthly repayment.

My Father who has been in serious ill health with emphysema for the last 5 years sadly passed away in December 2009 – aged 75 years. My Mum phoned Cork City Council and asked what was to be done regarding the loan. She got got all the necessary forms, completed these and specifically hand-delivered these to Cork City Council on Jan 4th last. These were to be signed by City council staff & forwarded to Marsh Insurances in Galway who took over the Insurance / Assurance element a few years previously.

The first communication she had from Cork City Council was at the end of June 2010 where she was asked why her house loan was now in arrears and why she had not made a payment since Dec 2009. She explained to the staff member how she had delivered forms to Cork City Council in Jan 2010 & had not heard anything. She assumed the process was under way and the house loan would be cleared.

Eventually two days later the City Council rang to say they “found the documents on someone’s desk” and apologised as these should have been forwarded to Marsh insurances five months earlier.

Just last week Marsh Insurances wrote to my Mum to say – sorry but the Loan is not covered. Apparently my Father’s cover expired when he reached 70 years of age.

The concern I have is that Cork City Council continued to accept the life assurance element of the monthly repayment right up to the day my father passed away i.e. exactly 5 years & 11 months after he reached 70 years. They apologised for this and said they will reimburse the full amount taken in error. But do thy have any other liability?


It’s all very well reimbursing but my Mum now has an outstanding loan of €33k. Her only income is the Old Age Pension. If she was to continue paying a % of the Pension to clear the loan, it will hardly satisfy the interest element.

Is my best option to remortgage my own house and pay off the Council completely? The interest rates accruing on those HFA loans is approx 12%.

Any advice would be greatly appreciated

Tnx

valc

 

[Mpsox]

I'm a bit confused how a loan of £22k (approx €28k) in 1980 has now turned into €33k almost 30 years later, even allowing for the drop in payments. In effect it suggests that no capital at all was being paid off.

The problem you have is that it's unlikely that your Mother will get a mortgage given her age and income. Hence, one of the family may have to take the mortgage out on the house and you need to take good legal and potentially tax advice on the implications of doing that and the best process of going about it

Given that the Corpo haven't covered themselves in glory on this one, I'd also suggest getting in touch with your local counciler to see, in the circumstances, would the councel be prepared to write off the outstanding amount. If you don't ask, you don't get.

Marsh Insurance should also be told to reimburse the money + any interest that could have accrued on it.

 

[Howitzer]

I'm a bit confused how a loan of £22k (approx €28k) in for the drop in payments. In effect it suggests that no capital at all was being paid off.

These deals are pretty notorious. As the OP states the interest rate is 12%. This was set in the 80s and was never changed. In effect the OPs parents got a loan from the Council with an indefinate term at an exhorbitant (though normal at the time) rate which was fixed for the length of the mortgage - indefinately. Negative amoritzation was allowed, whereby the amount paid bore no relation to the amount owed - effectively pay what you can and the difference is placed back on the Principle.

If someone dreamed up a product like that during the boom they'd would have been arrested, even by our useless Regulator.

The problem you have is that it's unlikely that your Mother will get a mortgage given her age and income. Hence, one of the family may have to take the mortgage out on the house and you need to take good legal and potentially tax advice on the implications of doing that and the best process of going about it

Given that the Corpo haven't covered themselves in glory on this one, I'd also suggest getting in touch with your local counciler to see, in the circumstances, would the councel be prepared to write off the outstanding amount. If you don't ask, you don't get.

Marsh Insurance should also be told to reimburse the money + any interest that could have accrued on it.

To be honest I'd go further. The OPs parents were paying an insurance premium to the Council in good faith - that's the important thing - it's up to them to now resolve the situation.

The whole thing stinks as far as I'm concerned. The intial product, the insurance premium, the mismanagement of the documentation since. I'd make a formal complaint to the Council. Find what their complaints procedure is and follow it with certified letters. Give them dates to get back to you by - don't wait for them to do it whenever they feel like. Then make a complaint to the Financial Ombudsman if, and when, they fail to resolve the situation to your satisfaction.

Also, I would not request or accept a reimbursal of the insurance premiums, I would want the policy honoured as payments were made and accepted in good faith.

 

[jhegarty]

Ask the council for a copy of the original signed loan/insurance papers.

Make sure that term was in there, and not added after.

 

[Brendan Burgess]

The original product was ok at the time, but became expensive as interest rates dropped. Most people moved from these products to cheaper lenders.

Your father was unemployed. If he had the loan with another financial institution, the house would have been repossessed as he would have been unable to make the repayments. The advantage of this loan is that the repayments were a percentage of the income, even if that was not sufficient to pay capital off the loan.

Mortgage Protection policies are of a fixed term. Cover expires on the date that is planned for the mortgage to be paid off. This was obviously a few years ago.

It's not the fault of either the City Council or of Marsh's that your father was unemployed and unable to pay off the mortgage on schedule.

The only issue is that the system did not have a trigger to stop charging the premium. This is a minor issue and is rectified by repaying the premium and interest.

Is my best option to remortgage my own house and pay off the Council completely? The interest rates accruing on those HFA loans is approx 12%.

Valc, this is the right thing to do.

I am surprised that the issue of 12% mortgages does not come up more often. Though I suppose that most of them are paid off by now.

Brendan

 

[Brendan Burgess]

There was a Parliamentary Question on the topic in 2009

"Deputy Ciarán Lynch asked the Minister for the Environment, Heritage and Local Government if his attention has been drawn to the fact that the Housing Finance Agency is applying interest rates of the order of 11% to local authority loans despite the reductions in European Central Bank interest rates; and if he will make a statement on the matter. [28833/09]

Minister of State at the Department of the Environment, Heritage and
Local Government (Deputy Michael Finneran): The applicable interest
rate paid by local authority borrowers on fixed rates is set by reference to prevailing fixed interest rates at the time of loan draw down. Loans in respect of which interest rates in excess of 10% apply were issued by local authorities prior to 1991 and reflect the long-term costs of the funds to the Housing Finance Agency (the Agency) prevailing at the time these loans were advanced. Rates were fixed for the life of the loan (generally 25-30 years). The introduction of variable interest rates for local authority mortgages provided borrowers with increased flexibility and choice.

Borrowers with these long term fixed rate local authority mortgages, which are no longer available, are permitted to redeem such loans without any interest rate penalty and refinance them in the private sector. This represents a significant concession, having regard to the redemption penalties (of up to six months interest or more) applied by commercial lending agencies in the event of early redemption of such mortgages. Early redemption without penalty means that the Agency * which operates on a self-financing basis * has had to bear the losses on such loans.

In 2001, the position regarding high fixed interest rates on local authority loans was reviewed in consultation with the Department of Finance. This review determined that a State subsidy to reduce such interest rates would not be appropriate, particularly given the cost already being borne by the State where the holders of such loans availed of the option to refinance in the private sector without penalty."

 

[Brendan Burgess]

I emailed a civil servant in the Department of the Environment who sent me this helpful reply:

The HFA had around €29 million in 10% fixed-rate loans to local authorities on its books at 31 December 2009, with the majority having been advanced between 1986 and 1991. As the loans were generally over 25 to 30 year terms, typically they have less than ten years to go to maturity. While the agency does not hold specific information on the individual loans lent by local authorities, the average individual loan outstanding ranges between €10,000 and €25,000. Working from these figures, the repayment required to cover interest and capital ranges from €1,060 per annum to €2,650 per annum.

The attached circular issued to LAs in 1998 requested LAs to inform all fixed rate loan borrowers that they could redeem such loans without penalty.

I've read through the thread and note that there is also an issue around the mortgage protection. Local aurhtority mortgage protection became compulsory in 1986. Up until 2003, all pre-1986 borrowers were outside the cover of the group mortgage protection scheme. From 2003 to 01/01/2009, only life cover only was provided on pre 1986 loans and certain tenant purchasers who were precluded from joining the main scheme originally. These borrowers were subsumed into a single scheme on 1/1/2009.

The main difference with the pre-1986 scheme outlined above was that it was offered on an *opt-out* basis for a limited period. Borrowers were automatically included unless they declined within a specified time-frame. So while it could be said that a number of borrowers
*defaulted* into the scheme, all these borrowers were circulated with full details of the scheme and obviously their monthly instalments increased at the time to cover the cost of the insurance. (The form also allowed borrowers to proactively *opt-in*). Once in the scheme, the borrower is subject to the same qualification criteria as all other borrowers in the scheme.

In the case outlined in the thread, the LA would have issued details of the scheme including the age eligibility criteria and the borrowers would have had to opt out of the scheme.

 

[Brendan Burgess]

22 December 1998

Earlyr edemption of fixed rate housing loans

A Chara,

I am directed by Mr Robert Molloy, T.D., Minister for Housing and
Urban Renewal to say that the position of borrowers of fixed rate
local authority housing loans was raised during the recent debate in
the Dailo n the BuildingS ocieties( Amendment)B ill, 1998 and an
undertaking given that the terms on which such loans may be
redeemedw ill be drawn to the attentiono f the locala uthoritiesa nd
of borrowers.

The Minister therefore wishes to again bring to the attention of locat
authorities the fact that a local authority borrower with a fixed (or
variablei)n terestr ate housingl oanm ay redeemt heir loani n whole
or in part,a t any time,w ithouth avingt o paya redemptionfe e or an
equivalenct harget o the authorityf or earlyr epayment.l n the case
of fixed rate loanst his representsa very significanct oncessionth e
cost of which must be borne by the Exchequer or the Housing
FinanceA gency. The positiono f locala uthorityb orrowersi n this
regardc omparesfa vourablyw ith borrowersw ho haveb ank/building
society fixed rate mortgages and are obliged to pay significant
redemptionp enalties( to cover specialc osts associatedw ith such
funding) in the event of early redemption,


3. Locala uthoritiesa re not liablet o pay a redemptionf ee when making
correspondinge artyr epaymentsto the LocalL oansF undo r the HFA,
as the case may be.

It would be appreciatedif you woutd arranget o notify borrowerso n
local authority fixed interest rate loans that they may redeem such
loans without penalty (and, if they wish to do, refinance the loan at
a lower rate in the private sector).

 

[Brendan Burgess]

The HFA had around €29 million in 10% fixed-rate loans to local authorities on its books at 31 December 2009, ... the average individual loan outstanding ranges between €10,000 and €25,000.

That is around 1,500 people paying interest rates of 10% when many could have refinanced years ago at around 1/5th of this price. Amazing.

Brendan

 

[Slim]

Valc

My condolences on the death of your father. It is possible that the council made mistakes and failed to notify your parents of the limits in the scheme. Make a complaint to the council and if you get no satisfaction, you may complain to the Ombudsman. Slim

 

[Howitzer]

That is around 1,500 people paying interest rates of 10% when many could have refinanced years ago at around 1/5th of this price. Amazing.

Brendan

To be honest I'm surprised some enterprising Mortage Broker didn't cotton on to this during the boom and attempt to get their details to remortgage the lot. Even sub prime rates would have been significently better.

I guess there was just too much easy money elsewhere and the individuals on the 10% weren't numerically literate enough to know better.

 

[Brendan Burgess]

Hi Howitzer

the average individual loan outstanding ranges between €10,000 and €25,000

So, 1% commission on the largest loan be only €250. Most brokers wouldn't get out of bed for this.

Brendan

 

[valc]

Thank you all so much for taking the time to reply.

Brendan, thank you for all the information.

Of course hindsight is great. My parents alwysa asusmed if anytinhg ever happend to my Dad, the loan would be cleared. So they were happy paying a %of their old age pension every week. yes of course i would have redeemed the loan much earlier for them if i knew then what i know now.

I had a standard letter from City Council last Thursday with the redemption figure of €33k quoted and a payment date deadline of 31/8/2010!!

I have since written to the Council asking for a breakdown of the €33k. Also a schedule of the sums paid by my parents since 2004 in respect of the assurance policy (since the policy "expired" in 2004). I also asked for an explanation as to why documents relating to the policies sat on a desk in Council offices for almost 6 months untouched.

I will contact the local politician. The awkwardness right now is I am based in Dublin and all of this is happening in Cork. I need to get my hands on whatever documentation my Mum has and read through it in detail.

I am not sure if I will get anywhere in asking Council for some "slack". But if one doesn't ask, one will never know!

Again thank you all for your replies and support,

valc