People shouldn't complain about high mortgage rates

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skrooge

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Edit: this was originally a response to the thread on challenging the validity of lenders to set their variable rate.

Could a borrower challenge mortgage rates in a variable rate contract as unfairly high?

Coyote That is brilliant. I have removed the quotes to make it easier to read And I have attached it as a Word document Brendan
www.askaboutmoney.com

... Not sure about the mods title for this but my inner wannabe tabloid journalist says leave alone :⁠-⁠P



I appreciate that some people are under a lot of financial stress and higher mortgage rates are not helping but are we in danger of creating yet another negative to already long list of reasons not to provide credit in Ireland.

I can't help but think this sounds a lot like rent caps and eviction bans. It helps the small number of insiders but will ultimately lead to a situation where new mortgage providers will avoid Ireland like the plague. Or for those that stay they will just cherry pick.

The risk of doing business is priced into the the rates. If you can't reposes the collateral you'll price accordingly. If you cant control the price you charge you'll just stop offering the service.

Can a similar outcome not be achieved using existing systems like a PIA?
 
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skrooge said:
I appreciate that some people are under a lot of financial stress and higher mortgage rates are not helping but are we in danger of creating yet another negative to already long list of reasons not to provide credit in Ireland.

I can't help but think this sounds a lot like rent caps and eviction bans. It helps the small number of insiders but will ultimately lead to a situation where new mortgage providers will avoid Ireland like the plague. Or for those that stay they will just cherry pick.

The risk of doing business is priced into the the rates. If you can't reposes the collateral you'll price accordingly. If you cant control the price you charge you'll just stop offering the service.

Can a similar outcome not be achieved using existing systems like a PIA?
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People don't like to believe that, but....
 
Hi skrooge

We do not want to discourage new lenders coming into the market.

But that does not mean that we would encourage vulture funds to buy perfectly good loans and hike up the rates to about twice they would pay with their original lender.

I defended the sale of Non performing loans to vulture funds on the basis that if you don't allow repossessions, don't complain if the banks sell those loans.

But I was very critical of the Central Bank forcing ptsb to sell perfectly good split mortgages to a vulture fund. These guys are now being charged 6.5% in many cases.

It's a question of balance. We must give the banks the tools to deal with the small percentage of non-payers, yet at the same time we should not throw to the wolves, those borrowers who experienced problems but who dealt with them responsibly.

Brendan
 
Brendan Burgess said:
Hi skrooge

We do not want to discourage new lenders coming into the market.

But that does not mean that we would encourage vulture funds to buy perfectly good loans and hike up the rates to about twice they would pay with their original lender.

I defended the sale of Non performing loans to vulture funds on the basis that if you don't allow repossessions, don't complain if the banks sell those loans.

But I was very critical of the Central Bank forcing ptsb to sell perfectly good split mortgages to a vulture fund. These guys are now being charged 6.5% in many cases.

It's a question of balance. We must give the banks the tools to deal with the small percentage of non-payers, yet at the same time we should not throw to the wolves, those borrowers who experienced problems but who dealt with them responsibly.

Brendan
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I wouldn't disagree with most of what you're saying. Though I think we still have to acknowledge that a spilt mortgage is fundamentally based on the fact the loan is impaired. Its ultimately not doing what it was originally suppose to do.

I'm not against trying to help people but it's the unintended consequences I would have a problem with. Yet another incremental change needs to be seen in the overall context of measures taken in the last 15 years and the impact that had had on the provision of new credit. Fundamentally would this change address a gaping hole in the existing approach? I'm not so sure. It might end up doing more damage than good.

Its in no lenders interest to push a borrower into arrears. Something like a PIA is an avenue someone could currently take if it was getting particularly bad. I would imagine most lenders would want to avoid having to engage in this.
 
skrooge said:
Though I think we still have to acknowledge that a spilt mortgage is fundamentally based on the fact the loan is impaired. Its ultimately not doing what it was originally suppose to do.
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Hi skrooge

You took out a mortgage of €100k over 40 years at ECB +0.5%
I took out a mortgage of €100k over 20 years at SVR. I got into difficulty and extended the term to 30 years.

My mortgage is not doing what it was originally supposed to do, so mine is impaired while yours is not, despite the fact that I have a higher rate and will have it paid off sooner.

That is the sort of nonsense the Central Bank comes up with.

So the original plan should not a reason for it to be impaired.

Brendan
 
Now let's look at split mortgages.

Unfortunately, ptsb was too generous.
  1. The granted them easily.
  2. They charged no interest on the warehouse
  3. They warehoused an average of 50%
  4. They rarely reviewed them
But even still, many of them were on SVRs of 4.5% , so they were getting an average of 2.25% when other "performing" loans were paying 0.5% interest.

And, at any time, ptsb could have reviewed the loan and moved it into fully performing.

These loans were classified as "non-performing" but they were very profitable.

Brendan
 
You might not like the accounting approach to loan performance but there needs to be something objective there.

Performing and profitable are two different things. Both loans in your example probably turned out to be less profitable then expected. However, the svr loan is less profitable because of the borrower. So there is a difference. It might just be luck (relating to ECB rates) that the tracker didn't fall into arrears but it is still a material difference.

You raise an interesting point about PTSB. First, should a borrower not be able to take a case against PTSB? If they were incorrectly offered a split/misclassified as non-perfoming is there a grounds for compensation given the negative outcome? Second, we don't do credit scoring, so many (not all) should be able to demonstrate to another borrower that they are a better bet than what PTSB think. It sounds like the main grievance is with PTSB.
 
skrooge said:
Performing and profitable are two different things.
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This is correct, but they are inextricably linked.

As a lender I would much prefer a profitable loan which was "non performing according to the original agreement"

Than an unprofitable loan which was performing in accordance with the original agreement.

This is the problem which you, the Central Bank and the banks can't seem to grasp.

Brendan
 
Brendan Burgess said:
As a lender I would much prefer a profitable loan which was "non performing according to the original agreement"

Than an unprofitable loan which was performing in accordance with the original agreement.

This is the problem which you, the Central Bank and the banks can't seem to grasp.

Brendan
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Okay so something is better than nothing but if that something is less than it should have been there is an issue.

Brendan Burgess said:
On what basis? That they were too generous?

Doubt it would fly.

Brendan
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You call it generous, there's nothing generous about saying we think can't repay your loan and we'll nobble your credit history, for no reason. Either there were grounds for splitting the mortgage or there wasn't.

It makes no sense for a bank to want to class more borrowers than necessary as impaired and even less sense to keep them there unnecessarily.
 
I don't understand the regulatory, accounting, and business decisions to increase the rate on a restructured loan from 4.5% to 6.5%. What I do know is that it will tip a lot of people into default and misery.

It feels fundamentally unfair when I can fix for five years at less than half of 6.5%.

I am all in favour of debt discipline and the legal system is far too easy on the "won't pays" who are out there. But I've seen a few threads on AAM where people are wearing a hairshirt already at 4.5% with the dream of paying off their mortgage some day and 6.5% seems to breach some fundamental principle of fairness.
 
skrooge said:
You call it generous, there's nothing generous about saying we think can't repay your loan and we'll nobble your credit history, for no reason. Either there were grounds for splitting the mortgage or there wasn't.
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Hi skrooge

You have to remember what was happening at the time. There were huge numbers of people struggling.

The split mortgage was the main solution.

The idea probably was that if you saw some hope out of your negative equity, you would be more motivated to keep paying something.

I presume that the rules about NPLs were not in place then or their implications for split mortgages had not been thought out.

I told people, especially those on trackers, to exit the split as soon as possible.

If you have a ptsb split mortgage, which you no longer need...

I was talking to someone today who has had a split mortgage from ptsb for the past 5 years. They have about €200k warehoused. It is a tracker at ECB + 0.6% They have fully recovered financially and are building up savings with a view to trading up in a few years. I suggested to them that ptsb...
www.askaboutmoney.com

Brendan
 
NoRegretsCoyote said:
I don't understand the regulatory, accounting, and business decisions to increase the rate on a restructured loan from 4.5% to 6.5%. What I do know is that it will tip a lot of people into default and misery.

It feels fundamentally unfair when I can fix for five years at less than half of 6.5%.

I am all in favour of debt discipline and the legal system is far too easy on the "won't pays" who are out there. But I've seen a few threads on AAM where people are wearing a hairshirt already at 4.5% with the dream of paying off their mortgage some day and 6.5% seems to breach some fundamental principle of fairness.
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Fairness is something difficult to measure objectively. I do not think one should be forced to offer fixed rates. One potential solution would be to consider to have a law that future selling of mortgages should only be possible to institutions which also offer fixed rates as well - but then no one could prevent them of having a variable rate of 6.5 % and a fixed rate of 8%.... I do not believe the government could nor should be the one setting out mortgage rates. If they try the Irish market would be even less attractive for foreign mortgage providers.

The only other option would be to prohibit banks and institutions to sell mortgages. But then I wonder if that would lead to a further hike of rates for everyone as banks can't offload bad mortgages....
 
NoRegretsCoyote said:
I don't understand the regulatory, accounting, and business decisions to increase the rate on a restructured loan from 4.5% to 6.5%. What I do know is that it will tip a lot of people into default and misery.

It feels fundamentally unfair when I can fix for five years at less than half of 6.5%.

I am all in favour of debt discipline and the legal system is far too easy on the "won't pays" who are out there. But I've seen a few threads on AAM where people are wearing a hairshirt already at 4.5% with the dream of paying off their mortgage some day and 6.5% seems to breach some fundamental principle of fairness.
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Could an argument be made that if the rate rise is the factor that puts a consumer into arrears that this goes against the protections and guiding principles of the Consumer Protection Code ?
For example the extra mortgage payment is the only change that the SFS shows has been changed and the consumer simply cannot afford the hike , that surely is not acting in the best interest of the consumer , when there had not been in arrears prior to the rate hike .
 
Just in terms of an classification on the loans a performing PIA is a performing loan per Central Bank..if the main banks embraced the personal Insolvency system many loans would not need to have been sold
 
Raging Bull said:
Just in terms of an classification on the loans a performing PIA is a performing loan per Central Bank..if the main banks embraced the personal Insolvency system many loans would not need to have been sold
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But as Brendan has always said the rules that protected the people in genuine bother from loosing their homes was exploited by people who just gamed the system . PTSB sold Project Glas to Start for a 38% discount , had half that discount been applied on a sensible manner to genuine arrears cases then the funds would not have been needed .
 
CorkHome2022 said:
But as Brendan has always said the rules that protected the people in genuine bother from loosing their homes was exploited by people who just gamed the system . PTSB sold Project Glas to Start for a 38% discount , had half that discount been applied on a sensible manner to genuine arrears cases then the funds would not have been needed .
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I agree Banks should make better effort at working things out...some have no real interest doing it
 
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