Mortgages in Negative Equity three times more likely to be in arrears!

We have a reasonable number of "strategic defaulters" on our books. It's a contentious term and they would generally see themselves as such. Broadly speaking when calculating ability to repay mortgages in arrears we measure current spending against "reasonable living expenses" as per Insolvency Guidelines. These are not strictly enforced but we would question cases where spend is significantly above the level per family size. Expectation is that the client(s) will prioritise the mortgage above other loans. There are some exceptions allowed where a car may be repossessed or where a short term loan can be cleared and these can be negotiated.
Most clients co-operate and flexibility is given. However, there are other clients who will not curtail expenditure and continue to pay amounts well below that considered as affordable. These would be the "strategic defaulters" and would be prioritized for removal from MARP and acceleration of Legal Proceedings. Virtually all of these are in significant negative equity on their homes!
 
I remember being very surprised as a fresher when a lecturer informed us that Economics was premised on the idea of a rational consumer.
We frequently speak about the collective 'madness ' / irrationality of our house buying behaviour during the Celtic Tiger. However, what's irrational about buying an asset that's appreciating in value and that required none of your own money (100 percent mortgages) - especially, if the vast majority of the population have no formal training in Economics and are unaware of boom / bust cycles?
Selective defaulters are also acting rationally - if in significant negative equity and if little or none of their own money was involved in securing the property, especially in a largely consequence free environment.
It could be argued that those struggling to pay for an over priced 'asset' (liability) are acting irrationally - especially in areas outside of the main urban areas where rent is affordable.
 
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epicaricacy said:
..if in significant negative equity and if little or none of their own money was involved in securing the property, especially in a largely consequence free environment.
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This is the case in our situation, on loans totalling 1.3 million only 8K has been repaid and that from rental income..

My excuse for not paying full cap and interest is that the surplus identified in our SFS to the bank goes towards setting up a business that in turn will create a sustainable income to pay off the loan within the loan term. There is zero logic in paying the bank any capital until such a time that my income is sufficient to cover all overheads and a basic lifestyle. Once that is achieved then the bank can get a look in..

At all times the bank is free to petition the high court for bankruptcy and start repossession proceedings. The time it will take them to do this, the costs involved, the myriad delaying tactics i can use etc should be sufficient to push out bankruptcy to a point that when it does happen, i'll be in a better position of control.

Indeed, negative equity off approx €700K has been very much in my favour.
 
It's a perfect example of economic rationality at work. I've friends who didn't act rationally in their dealings with their bank(s) and they ended up being treated with disdain - e.g. a couple who continued to pay their full mortgage out of their redundancy lump sum for 20 months until all of it was gone and, after a further 12 months of paying a restructured amount, they were 'forced' into voluntary sale the minute the MARP period ended. When faced with a powerful adversary - such as a bank - it's imperative to act as 'break on through' is acting. After all - as my friends quickly found out - there are no rewards handed out for 'good' behaviour.
 
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