Karl Deeter "Some borrowers are going into arrears on purpose"

[44brendan]

By right there should be a lot more repossessions than at present.

Not a lot to be gained by a re-posession. Bank strategy in most cases is to obtain co-operation from clients by placing the units on the market as a "voluntary" sale. Rental income is frequently sufficcient to cover the interest on the loan & some small principal reductions. Re-posession is only a last resort and benefits neither the Bank nor the client.

 

[DerKaiser]

Not a lot to be gained by a re-posession. Bank strategy in most cases is to obtain co-operation from clients by placing the units on the market as a "voluntary" sale. Rental income is frequently sufficcient to cover the interest on the loan & some small principal reductions. Re-posession is only a last resort and benefits neither the Bank nor the client.

You've raised a very interesting point in my mind.

Is the property more valuable in the hands of the bank, as they do not have to pay tax on the rental income?

Is it possible that reposession could be a better option for both the bank and the owner with the state losing rental tax revenue?

 

[Bronte]

I worked for a debt management company in the earlier days of the downturn. I no longer work there but my partner still does. From experience, there are very few going out of their way to default on mortgages.

You are the first person with direct experience. And of those who default on mortgages could you give us an idea of the situations these people are in. Can they afford to pay and are they hiding their income.

 

[Bronte]

Didn't people lie about their earnings when looking for inflated mortgages prior to the bust ? I'd suggest that people are saying they owe moneylenders, family members money or education costs for the kids etc.

When people lied about their income to get mortgages the banks knew full well they did. But that was to get a mortgage. What is the point of an investor lying about income to not pay all of the mortgage, there is no gain to the borrower as they will lose in the long run?

You mentioned 3 areas of lying

Moneylenders

I don't think people who bought investment properties go to moneylenders.

Family loans

Banks would not accept this as a valid expense

School fees

Well it's legit for Simon Kelly and for any other parent that pays them so why not?

For all three of the above the borrower would have to supply proof of the loans/outgoings?

And yes of course ordinary people are going to pad out their day to day living expense, but that's not going to amount to much. Groceries at 220 instead of 200, you're not going to be able to put down groceries at 500 a week.

 

[jonocon]

And I have spoken to people with investment properties who seem to think that the investment property income and expenditure is ring-fenced from their own lifestyle. If the rent does not cover the repayment, they say that is the bank's problem. They can only pay the rent and no more.[/QUOTE]

I know this to be true as I have 4 Business acquaintances who haved stopped paying, I also know it to be true because I have considered it myself. I'm not saying its right but I have considered it. My moral compass tells me to pay it if I have it, when the day comes that I don't have it I'll deal with that then

 

[elcato]

When people lied about their income to get mortgages the banks knew full well they did. But that was to get a mortgage.

So when the banks make the same assumption here they are wrong ?

I don't think people who bought investment properties go to moneylenders.

But people who want the bank to believe they are broke will say this. Same for the family member and the school lunches. Do you really think that people who engage in pretending that they cannot pay will actually tell the truth when asked to ? Just to be clear here, the genuine people (i.e. the majority of those in arrears) would not be resorting to this.

 

[Kerrigan]

You are the first person with direct experience. And of those who default on mortgages could you give us an idea of the situations these people are in. Can they afford to pay and are they hiding their income.

My thoughts are; that the few who are purposely defaulting will quadruple when the personal insolvency trustees are appointed to deal with the new insolvency bill. Only at that point do I believe the banks have an argument.

While working in debt management we would have customers call us, looking to put their loans into one affordable payment plan. We would take their details over the phone, but never ask them to prove their income or what they were spending their salaries on, all we got was their word with no proof.
All we heard was a voice at the other end of the phone telling us what their income and expenditure was, for all I knew I could have been talking to a multi millionaire down the phone who was well capable of paying their debts.

I made my feelings clear that there may be a percentage who was taking advantage of the service but my thoughts fell on deaf ears. As you can gather debt management is big business and is yet to expand triple-fold when the insolvency act comes into the equation. Already some facilitators of the boom are steadying up to become trustees.

Lots of customers back in the earlier days preferred we sent somebody out to their home. Yes, I saw the plasma screen, two family cars etc. but all items would be on hire purchase.
My better half still works for the same company and says they cannot keep up with the level of telephone calls and expect to expand business.
I’m guessing around 10% to 15% are trying their luck but this will surge when the insolvency bill is formally on the table.

 

[moycullen14]

There are two issues at play here.

First there is the grading of debt. A lot of people have mortgages, investment properties, CC, car loans, etc. When things get tough, it is sensible to rank these debts in terms of importance AND urgency. Mortgage might be the most important but it is not the most urgent - as said above missing 3 months payments is not going to be terminal.

The second issue is how to deal with investment property - specifically BTL - loans that have gone south. In my own case it is an apartment that is unsellable at any price and likely to remain so. The gross rent covers about 90% of the mortgage interest. Take off NPPR, voids, household charge, maintenance fee, tax and it is costing me about 3-4K pa. As someone said above, if this was a business you'd shut it down - but you can't. And like any business, conditions have changed, assumptions that were made 5 years ago no longer hold. There is no way I can afford to pay off capital now or in the future. So what to do? Morally and legally I accept that I am liable for the debt but I have to put my own and families interests first. I know that as long as I keep paying the bank interest, they will be 'happy'. I also know that it doesn't solve the problem.

I also know that the bank are scared witless that me and countless like me will just say 'To hell with it' at some stage and default. The bank will then repossess the property, realise that it is unsellable (ironically because their mortgage department won't give mortgages on apartments outside the main urban centres) and then they have to come after me. They may or may not be able to get me to sell my PPR - but that is in NE too - so no solution there. Once they have a judgement on my PPR, i'll stop paying that mortgage too. The nett effect is that the bank know only too well that defaulting is contagious and solves no problem.

What are the banks hoping for? 3 things, as far as I can see. First, is government help to stabilise their balance sheets - this has largely been done. Next, they absolutely do NOT want the proposed insolvency legislation - as that makes defaulting at least more attractive. Finally, the only long term solution for the banks is long-term inflation reducing the debt effect.

Make no mistake about it, when the day comes that you have a penny of nett positive worth, the banks will swoop and take all you have if you have defaulted. They're just waiting, knowing that the government will keep bailing them out. They're is no long term risk for the banks.

For the mortgage holder, in the present legislative environment, there is no benefit to defaulting. The banks WILL NOT cut a deal. They will just wait...and wait. The only risk for then is the new insolvency legislation which completely scuppers their wait and see 'strategy'.

As an individual, you can forget about the moral hazard and 'greater good' argument. You have a loyalty to yourself and family, period. Whatever course is best for you, do it. Unfortunately, without cash or assets, you're only codding yourself that there is anything you can do.

 

[Bronte]

Moycullen you have a very good summary of where things look like they are going. I have one relation doing the exact scenario you outlined. They tried to deal with the bank but the bank would only speak about the mortgage and would not talk about the other debt (with the same bank) so they see the situation as pointless and are defaulting on investment property and PPR. They don't care any more as they have nothing to lose.

I read about a new mad scheme yesterday. Whereby if you owed 300K on your PPR but could only afford repayments on 200K that an arrangment could be made on this, and when eventually the property was sold you pay back the 100K out of the equity. What about banks wiping off 100K of debt and letting people off that giving them an incentive to continue trying.

As an aside, it is most annoying not being able to edit and correct my spelling.

 

[elcato]

I read about a new mad scheme yesterday. Whereby if you owed 300K on your PPR but could only afford repayments on 200K that an arrangment could be made on this, and when eventually the property was sold you pay back the 100K out of the equity. What about banks wiping off 100K of debt and letting people off that giving them an incentive to continue trying.

From the small bit I read, it's a case of a private company buying a third of your house and lessening the risk, bit like the Affordable Housing scheme but without having to pay rent on the third you don't own. I think what they are propsong is that they get a third of the house on sale.

 

[orka]

From the small bit I read, it's a case of a private company buying a third of your house and lessening the risk, bit like the Affordable Housing scheme but without having to pay rent on the third you don't own. I think what they are propsong is that they get a third of the house on sale.

Do you have a link to this? It seems weird as it could only really work where there is positive equity (of at least the amount of the loan/buyout share) unless the banks agree to a write-off if the house is sold before the mortgage is repaid and why would they do that?

What about banks wiping off 100K of debt and letting people off that giving them an incentive to continue trying.

Debt forgiveness while allowing the borrower to retain ownership of the asset would be incredibly unpopular and would have major moral hazard issues. The only debt forgiveness that has a chance of being acceptable is if the asset is forfeit - even then there is some moral hazard but not as much.

As an aside, it is most annoying not being able to edit and correct my spelling.

Why can't you edit? The function was working fine this morning. And I just edited this...

 

[Bronte]

The only debt forgiveness that has a chance of being acceptable is if the asset is forfeit - even then there is some moral hazard but not as much.

I think we are beyond that Orka, taking all the houses off everybody in arrears doesn't make sense. And who is going to buy them. A partial write down of their mortgages where people can afford to repay a certain percentgage makes more sense. No legal costs to the banks, no evictions, people stay where they like, no sale costs a more stable society. Keeping people on interest only and 70% of mortgage repayments long term will not work. Massive arrears are being built up.

If they keep backing people into corners and not deal with the problems then people will start defaulting on a massive scale. That's my personal opinion.

Re editing, I wanted to fix spelling on posts that are older than a couple of days, it used to be possible but no longer.

Elcato, with this scheme there is no benefit to the homeowner. Take a house with 300K mortgage and 100K does not have to be repaid. They continue to repay the 200K for the next 30 years. They are now 60 years of age and house is worth 100K, maybe 150K/200K. They will still owe the 100K and if they sell for 200K will have to hand over 100K. And without a house but have 100K to purchase something. Also I'm sure there is some money changing hands somewhere when the bank hands over the 100K to the new company. It's very messy.

 

[elcato]

Elcato, with this scheme there is no benefit to the homeowner. Take a house with 300K mortgage and 100K does not have to be repaid. They continue to repay the 200K for the next 30 years. They are now 60 years of age and house is worth 100K, maybe 150K/200K.

I've no silver ball but you are assuming the house is only worth at best the same price as today in 30 years time. As I understand it they are not liable for the 100k (using your example), the company that buys out the 100k have a 33% share in the property. So in order to but the 33% back they would pay the market price whatever that may be.

*Disclaimer: I just read/scanned the article in one of the Sunday papers and didn't see the details.

 

[monagt]

Eddie Hobbs tweeted an apt description of the people who are determined that their fellow citizens must suffer (while we pay all the debts of others back)

"Let Them Drown brigade agenda for consumer insolvency"

 

[monagt]

It has to be debt forgiveness or we all drown..........we cannot cut our way out of this despite what the Let Them Drown brigade say.

http://brianmlucey.wordpress.com/2012/04/18/bundes-boobery/

 

[orka]

I think we are beyond that Orka, taking all the houses off everybody in arrears doesn't make sense. And who is going to buy them. A partial write down of their mortgages where people can afford to repay a certain percentgage makes more sense.

I’m sure it makes lovely sense to those who would benefit but it makes no sense to me. For a start, there would be massive issues about who decides what’s ‘affordable’? Is it ‘affordable so you’ve enough left to eat and live frugally’ or is it ‘affordable while having a nice standard of living’?

Eddie Hobbs tweeted an apt description of the people who are determined that their fellow citizens must suffer (while we pay all the debts of others back)

"Let Them Drown brigade agenda for consumer insolvency"

Another inane soundbite from Eddie... Who are the ‘Let them drown brigade’? I don’t hear any clamouring to hang people out to dry or leave them in permanent misery. Not wanting to give some individual citizens free assets at a cost to other individual citizens doesn’t mean not wanting to find fair and decent ways of helping people in financial distress.

It has to be debt forgiveness or we all drown..........we cannot cut our way out of this despite what the Let Them Drown brigade say.

Debt forgiveness for Ireland Inc. will come when we sort out our current account spending.

Debt forgiveness (write-off of debt after assets are sold, leaving a clean sheet) should be available for those with unsustainable mortgages (unable to pay even interest only).

Debt forgiveness (partial write-off while retaining 100% of the asset) for those able to pay interest only would be very unfair and would be unpopular with probably all except those benefitting. At 4%-5% interest rates, interest only costs about the same as a 25 year repayment mortgage of 2/3rds of the mortgage amount – so why should the taxpayer (via the state-owned banks) pay off one-third of someone’s mortgage when they can keep it going on their own with no arrears building up? What’s wrong with interest-only? It has the benefits bronte describes “No legal costs to the banks, no evictions, people stay where they like, no sale costs a more stable society”. Sure, you don’t own the house after 25 years but neither do renters – and if the house is repossessed, the owners would have to become renters anyway so they are in no worse a position (probably better off as rent will gradually increase with inflation over 25 years while the mortgage payer’s principal remains the same on a gradually increasing asset value).

And back to the original point of this thread, can you imagine the extra number of people who would develop 'financial problems' to get a big chunk off their mortgage? A 100K ‘gift’ is quite an incentive.

 

[monagt]

And back to the original point of this thread, can you imagine the extra number of people who would develop 'financial problems' to get a big chunk off their mortgage? A 100K ‘gift’ is quite an incentive.

And this is the crux of the problem. Perhaps the parable of the Prodigal Son should be read by one and all.

And for the record, I personally do not need Debt Forgiveness but I think that those who do should get it. (and probably some will get it when they should not but thats a different matter). And yes, perhaps limit it to normal 3/4 bed housing values.

But Debt Forgiveness is the way to go.