PIA imposed on Pepper at 0.5% mortgage rate

The unemployed widow from Tipperary has been given 36 years to pay off the loan when she will be 91.

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A PIA containing the proposal was not approved by the Circuit Court following Pepper’s objection.

However, Pepper dropped the objection after an appeal was lodged and the PIA was approved last week [October 21] by the High Court.
Her creditors were Pepper – owed €145,500 on the mortgage for the family home, which was valued at €230,000 –

A key feature of the PIA is that it does not involve the writing off of debt, just more time to repay it and a favourable interest rate.

Under the PIA, arrears on the mortgage will be capitalised. Interest will be allowed to roll up for a year, after which there will be a six-month period where interest-only payments of €61 a month will be made. After that, capital and interest payments of €382 a month will be made for the remaining 417 months of the mortgage.

Her creditors were Pepper – owed €145,500 on the mortgage for the family home, which was valued at €230,000 –

This PIA is outrageous.

I would have no objection at all to the PIA if the interest rate were set at ECB + 2%.
Let the interest roll up like a Seniors Money mortgage.

But forcing a lender to lend at 0.5% is just as wrong as allowing lenders charge 9%

Brendan Burgess said:

Her creditors were Pepper – owed €145,500 on the mortgage for the family home, which was valued at €230,000 –

This PIA is outrageous.

I would have no objection at all to the PIA if the interest rate were set at ECB + 2%.
Let the interest roll up like a Seniors Money mortgage.

But forcing a lender to lend at 0.5% is just as wrong as allowing lenders charge 9%

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As I understand it, Pepper could have challenged the decision or asked for a different arrangement. The judge is quoted as saying " if they are not objecting, who am I to intervene?".

So, what's the issue here?

Allpartied said:

As I understand it, Pepper could have challenged the decision or asked for a different arrangement. The judge is quoted as saying " if they are not objecting, who am I to intervene?".

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Pepper Finance Corporation (Ireland) DAC strenuously objected to the 0.5pc interest rate when it was first proposed in a personal insolvency arrangement (PIA) for unemployed widow Marie Taylor (55), who was in arrears on her home in Clonmel, Co Tipperary.

It claimed the restructure would be “unfairly prejudicial” to its interests for a number of reasons, including the “uncompetitive fixed interest rate” proposed. It also claimed the mortgage repayments over such a lengthy term would be “unsustainable”.

A PIA containing the proposal was not approved by the Circuit Court following Pepper’s objection. However, Pepper dropped the objection after an appeal was lodged and the PIA was approved last week [October 21] by the High Court.

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Allpartied said:

As I understand it, Pepper could have challenged the decision or asked for a different arrangement. The judge is quoted as saying " if they are not objecting, who am I to intervene?".

So, what's the issue here?

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Appealing a PIA is not always worth it.

I have been involved in appeals on a banks side and you might win but could end up spending 50K to 100K on barrister fees.

Allpartied said:

As I understand it, Pepper could have challenged the decision or asked for a different arrangement. The judge is quoted as saying " if they are not objecting, who am I to intervene?".

So, what's the issue here?

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As @AshKhan points out, the huge costs of High Court proceedings mean that it's not justified.

If we were adults, we would just say "You have a house worth €230k and a mortgage of €145k - sell the house and repay what you owe".

Alternatively, as we seem to think that everyone should be bailed out, the state should say "OK, it is a matter of public policy that no one should ever lose their family home, so the taxpayer will clear your mortgage for your".

But telling a lender that they must provide accommodation to someone who has been paying very little over the years is ridiculous. It results in the highest mortgage rates in the eurozone.

Brendan Burgess said:

As @AshKhan points out, the huge costs of High Court proceedings mean that it's not justified.

If we were adults, we would just say "You have a house worth €230k and a mortgage of €145k - sell the house and repay what you owe".

Alternatively, as we seem to think that everyone should be bailed out, the state should say "OK, it is a matter of public policy that no one should ever lose their family home, so the taxpayer will clear your mortgage for your".

But telling a lender that they must provide accommodation to someone who has been paying very little over the years is ridiculous. It results in the highest mortgage rates in the eurozone.

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I think the individual treatment of each loan, with the individual circumstances taken into account is a positive gor Irish customers.
This is not the original lender. This is a vulture fund, who bought a distressed loan at a significant discount.
If they had done their due diligence they would know how Irish courts are loathe to evict anyone, especially widows and long term sick.
This would have been factored in to their offer price for the original loan. They lost out, to some extent, but if they don't like it, they can always pull out of the very lucrative Irish market, which has made them multi millions in profit, over the last few years.

Allpartied said:

If they had done their due diligence they would know how Irish courts are loathe to evict anyone, especially widows and long term sick.

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They surely know all this already, but they still make good money on most loans that they take over or service. Only a tiny minority will end up in a scenario like this. I'm sure that they can cover the losses arising. If any.

But @Brendan Burgess's point still stands. Our repossession system is arguably toothless, dysfunctional and far too tolerant, represents a moral hazard that encourages and rewards strategic default, and is a major contributory factor towards Ireland having higher mortgage rates than other Eurozone jurisdictions.

One curious thing about the above case , its a mortgage on the Family Home , and the woman concerned is a WIDOW ...... What happened to the Life Cover thats obligatory on Mortgages , that should have cleared the balance and not allowed this situation to take place .
Maybe I am wrong but dont all mortgage contracts insist on Life Cover ?

CorkHome2022 said:

Maybe I am wrong but dont all mortgage contracts insist on Life Cover ?

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There are exceptions where it's not required
but even where it is, if the borrower stops paying the mortgage they'll probably also stop paying the life insurance premiums and the cover will lapse. It's also a possibility that the deceased spouse wasn't on the mortgage or they were estranged etc.

Edit: from the original article:

The court was told Ms Taylor is a widow whose husband died in recent years. They had been separated since 2012 and financial difficulties arose afterwards.

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Allpartied said:

This is not the original lender. This is a vulture fund, who bought a distressed loan at a significant discount.

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A part of the reason that the taxpayer had to bail out the depositors in Irish banks was because the banks had to write down the value of their mortgages and subsequently sell them at a huge discount.

If we had a functioning repossession system in this country, the original bank would have been able to repossess the house within a year or so of arrears, and recover more of their money.

But their difficulty in repossessing meant that they had to sell them at a discount and the taxpayer had to put money into the banks to make up for the losses and mortgage holders have been paying higher interest rates ever since.

Brendan

Brendan Burgess said:

If we had a functioning repossession system in this country, the original bank would have been able to repossess the house within a year or so of arrears, and recover more of their money.

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And the foreign banks would still be here lending and we wouldn't have the highest mortage rates in Europe. In effect, most of us are bailing out the few..

Brendan Burgess said:

A part of the reason that the taxpayer had to bail out the depositors in Irish banks was because the banks had to write down the value of their mortgages and subsequently sell them at a huge discount.

If we had a functioning repossession system in this country, the original bank would have been able to repossess the house within a year or so of arrears and recover more of their money.

But their difficulty in repossessing meant that they had to sell them at a discount and the taxpayer had to put money into the banks to make up for the losses and mortgage holders have been paying higher interest rates ever since.

Brendan

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In 2010,over 100k households were in serious default on their mortgages.
I don't think you understand the catastrophic consequences of evicting tens of thousands of families into penury, on Irish society. And do you, seriously, think that such a huge dump of property onto a market that was collapsing would have saved the banks money? Without intervention, the banks would still have collapsed and the entire depositer base would have been wiped out.

Those thousands of evicted households would still be liable for any remaoning mortgage debt which, in 2010, would have been substantial.

The Irish govt might have made mistakes in managing the housing collapse, but the minimising of evictions/repossessions wasn't one of them.

Allpartied said:

In 2010,over 100k households were in serious default on their mortgages.
I don't think you understand the catastrophic consequences of evicting tens of thousands of families into penury, on Irish society.

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Good points. And I think most of us are well aware of them.

Most of the 100k households who got into arrears, addressed those arrears with their banks and worked their way through them.

But some, maybe 5%, of people are just irresponsible. When they saw that there was no sanction for not paying their mortgage, they just stopped paying. And they are still in their houses today. Had they seen that failure to pay their mortgage would result in a repossession within a year or so, they would have made better efforts to pay.

And I have long campaigned on behalf of responsible people in mortgage arrears. And, in particular, I have on multiple occasions, lobbied for the government to help people with their mortgage repayments, on the same basis as we help people with their rent, if they can't afford their rent.

But I spent a lot of time in the repossession courts and it was scandalous how people were allowed to hold onto their houses while paying nothing for years. If you have a council home, you must pay 15% of your income. So everyone should pay something towards their accommodation costs.

Firefly said:

And the foreign banks would still be here lending and we wouldn't have the highest mortage rates in Europe. In effect, most of us are bailing out the few..

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Is it still the highest?

We have had the highest mortgage rates for most of the last 10 years.

I am a PIP so will give you a bit of an insight

Certainly I think there is merit in argument that a protracted Reposession process is creating a moral hazard process with a core who wont pay. That being said there are many who simply cant pay but for them they are merely interested in a roof over their heads and stringing out things as long as possible is one of their strategies. Such people should be directed to Mortgage to Rent or other solutions which bring finality to it.

Dont necessarily agree with the point about taxpayer taking the hit when pillar banks sold the loans. They chose to do so in part by pressure from Central Bank. Some are better working through the loan book than others.

The case is interesting thats reported I imagine that if it had been contested in the high Court the PIP would have lost. We cant bring a Debtor past life expectancy unless Creditor agrees. 91 in this case would be past statistical expectancy of 80. I guess they (Pepper) did not contest simply because they are terrified of precendent. They would IMO likely won the war in the final outcome of case but risked a published decision and battle over the rate.

I think a lot of you miss a fundamental point - the Interest Rate because its a Fund is a Component of Profit unlike a Bank. A Bank would fund the Mortgage Book with deposits, Bonds etc... an Investment Fund by its very name generally does not as its lump sum investments by a number of Investors.

Its always open to any of the so called "Vulture Fund" to prove its unfair. They would need to demonstrate what they pay for it and any funding. They choose not to for their own reasons

The Court takes the view that Investments can go up and down.

Now if the Mortgage was not sold there would not be a hope in hell of a Court making this decision as the Bank would defend it and win rather comfortably. But its against a Fund and its a different playing field.

As someone alluded to it also its a cost issue. Hard to get Costs vs a PIP, in this case they are getting paid back in full albeit over a longer timeframe and rate sinking legal fees into this might not have been worthwhile

Hi I am just wondering then if their not like the banks , will the interest rates not go down. Mine was sold to pepper and I'm paying 7% interest rate

Shellyg said:

Hi I am just wondering then if their not like the banks , will the interest rates not go down. Mine was sold to pepper and I'm paying 7% interest rate

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Quite the opposite isn't it?
You could look into this but seems like a long shot to me...