What if bank adds 60k to borrowers salary on loan application?

[usernameinuse]

So now we've resorted to dissing the peasants. We're talking about Ireland ten years ago..

'Tis far from dissing the peasants I am. You are the one who wrote "She didn't bother to ask the nearest person capable of using a website to bang the numbers into a mortgage calculator." In December 2006 Ireland had only 430,000 broadband subscribers, and those were mostly subscribers in cities like Dublin. With respect, I do not think you understood rural Ireland in 2007, dub_nerd, if you think most people then knew what a mortgage calcalutor was never mind had broadband. Sure the mortgage experts should have had mortgage calculators then, but I'd suggest most other people had not broadband never mind had a mortgage calculator, or ever used a mortgage calculator.

 

[dub_nerd]

With respect, I was living in very rural Ireland in 2006, owing to realising the housing market was in an insane bubble because of people like your friend, and refusing to jump on the housing bandwagon in Dublin. I had dial-up internet which was easily enough for accessing a mortgage calculator. Not that you even need an online calculator, you can do it with a pencil and paper and secondary school mathematics. You don't even need that to calculate your outgoings on an interest-only mortgage. You said she spent most of her disposable income as if that came as a big surprise. That would have been a case of multiplying two numbers, something like this: €430k x 5% = €21.5k/yr = €1,800/month. You said this person was a qualified nurse? Don't they require at least a basic education?

 

[usernameinuse]

You don't even need that to calculate your outgoings on an interest-only mortgage.

She did not need to calculate her outgoings on the interest only repayments, the bank told her what those would be. The banker would not and did not tell her what the capital and interest monthly repayments would be after 10 years, only that they would be affordable, the bank were the experts and had examined her figures, they had decades of experience and anyway if she wanted she could roll over for interest only for another 10 years.

I'd say most people, if they got their mortgage file from the bank, would see that

• the bank did not add over 60k to their salary in the loan report,
• told the borrower what monthly interest and capital repayments would be
• would not get basis facts wrong on the valuation report, which they were supposed to give to the borrower but did not.

 

[Brendan Burgess]

To be fair to our nursing friend, most people do not do any such calculations either on pen and paper or with an online mortgage calculator.

They go to the bank and they ask how much they can borrow and what the repayments are.
Even if they can't afford the repayments, they often borrow the money on the grounds that they will let out a room or that their income will improve.

Interest only on a cheap tracker was very affordable for a lot of people.

I am not justifying this approach - just explaining it.

I can remember only a few people ever saying "The bank will lend us €300,000 but we can only afford repayments on €250,000 so we are going to buy a house which we can afford, rather than a nicer house"

Brendan

 

[newtothis]

This thread seems to have to meandered off into different directions.

You asked in your original post:

Should the bank have had a duty of care to behave honestly to its customers?

I’d say most people would answer this as “yes”. However, what comes next? You seem to be suggesting she should be entitled to some form of compensation, under threat of calling in the guards. My view is that she’s already had her compensation: living in what’s presumably a very nice house for the past few years at a cost nobody else could achieve.

Even if a crime was committed, the closest analogy I can think of is someone who innocently buys stolen goods; they have the use of the goods until the crime is detected, but would anyone argue the case they should be entitled to keep them indefinitely? I think you'll find that what happens is that the stolen goods are handed back, and they are left high and dry.

As I said before, my suggestion would be to report this to the regulator (the Central Bank), with the anticipated result that regardless of what happens they will have to surrender a house they clearly can’t afford.

 

[RETIRED2017]

What is she earning now can she afford to pay back loan and keep her nice house, she should be on or near the top of her scale by now,

 

[usernameinuse]

My view is that she’s already had her compensation: living in what’s presumably a very nice house for the past few years at a cost nobody else could achieve.

Its a decent house in a scenic area, but I would not describe it as a very nice house. It is only 3 bedroom, no fancy features, all but one of the windows are single glazed etc. Not energy efficient either. I would disagree she is living there for the past few years at a cost nobody else could achieve. She has paid almost €200,000 in variable interest rates since 2007, and if she had rented since then in a the same rural area, rent would have been less than than figure, not more. You can rent similar oldish 3 bedroom houses in rural Ireland for less than say 1440 per month quite easily. She had to pay €11,000 on major roof repairs (part had to be replaced), and money on other replacements too eg boiler. In fairness to her she has not lived there for the "past few years at a cost nobody else could achieve". She has not married or had kids or even socialised much as a result of financial worries.

What is she earning now can she afford to pay back loan and keep her nice house, she should be on or near the top of her scale by now,

No, she cannot afford capital and interest repayments now, but in fairness most people - certainly both the banker and herself - expected in 2007 that her salary would keep on increasing like it had in the previous number of years, and neither expected the house to be worth so much less 11 years later either. I am not excusing the borrower, she has to take some blame, I am just stating the reality.There are even vacant houses in her locality now, rural Ireland is not like Dublin.

As I said before, my suggestion would be to report this to the regulator (the Central Bank)

Unfortunately the Central Bank does not investigate individual consumer complaints.

The PIA seems the best route to go down, thanks for everyones suggestion. She had just one meeting with a PIP so far, yesterday in fact, and he looked at the P60, payslips etc, loan report, valuation etc. He said it would be better to have the loan report and valuation investigated, or answers obtained about same, before proceeding with the PIA.

.. regardless of what happens they will have to surrender a house they clearly can’t afford.

She knows that, she does not mind surrendering the house. She would prefer to live in an easier to heat dwelling closer to her work and not in the sticks anyway. She thinks that at least if the Gardai Fraud squad investigates it, other borrowers may not have to go through what she has gone through.

 

[Maz2408]

I was sold mortgage in the exact same way. Local branch appointment, submitted pay slips and P60s was asked to have employer sign a salary cert, I still remember him saying make sure he only signs it as we can't have any descrepencies between salary cert and pay slips, no idea at the time he was actually getting us to hand over a blank salary cert so he could insert a ridiculous wage on it to make sure mortgage was approved. Interest only payments discussed, no discussion of capital repayments. Property was never going to be a long term keeper, so why worry about repayments i'd never have to make asked the now retired broker. I didn't even know he was a broker until years later as we were in a local branch of an Irish bank.

To all the critics above with the it's her own fault attitude, she should have checked the information she was offered. Hindsight is an amazing thing. 10 years ago around 95% of the population would never have dreamt that banks would commit fraud in pursuit of profit. No one went online and typed in, are banks defrauding customers, because no one including our own government believed that could happen.

You went to a bank believing the information they were giving you was true, correct and in your best interest because they were the experts in that field.

Out of interest, how would it be if the Nurse in question gave you incorrect information regarding medication or treatment for say your 6 year old Child or your 80 year old Mother and it caused them serious harm. Would the nurse be to blame or would it be your fault for being stupid in acting on her expert advice?

 

[PaddyBloggit]

You went to a bank believing the information they were giving you was true, correct and in your best interest because they were the experts in that field.

Out of interest, how would it be if the Nurse in question gave you incorrect information regarding medication or treatment for say your 6 year old Child or your 80 year old Mother and it caused them serious harm. Would the nurse be to blame or would it be your fault for being stupid in acting on her expert advice?

But ... it's not rocket science knowing/finding out what multiple of your annual salary can be got as a mortgage amount. I bought my first house at 26 and I read up about what I needed to do and what I could get as a multiple of my salary etc. I knew what I could afford before I approached a bank and I cut my cloth to measure.

Maxwell House at the time had a book about the steps involved in buying your own home. I picked up more info as I went along and I read my offer letter from the bank before I signed on the dotted line.

The OP's friend is complicit in a situation by error of omission.. the omission of failing to keep her eye on the ball.

Saying all that, the bank should not have fiddled the numbers for her either. She couldn't/can't afford the result of that fiddle.

 

[newtothis]

Unfortunately the Central Bank does not investigate individual consumer complaints.

True, but I wouln't see it as a consumer complaint (she's not exactly been disadvanged in some way by the bank), but rather the discovery of very questionable behaviour by a bank, which presumably they would be interested in.

She knows that, she does not mind surrendering the house. She would prefer to live in an easier to heat dwelling closer to her work and not in the sticks anyway. She thinks that at least if the Gardai Fraud squad investigates it, other borrowers may not have to go through what she has gone through.

Again, I'm not sure what you're asking then. The reason I suggested the regulator rather than the Gardai is that it's not clear an actual crime has been committed, and from what I hear the Gardai have more than enough resourcing issues investigating clear-cut cases without having to spend time discovering if a crime has been committed or not.

 

[Maz2408]

@PaddyBloggit. Fair play, you did your research before approaching a financial institution, I'm assuming this was pre-2007 as I don't think there's a mortgagee in the Country who would approach a bank today without doing their homework. My point was, many thousands didn't do what you did pre-2007 because we just wrongly assumed banks would never do anything dishonest or with complete disregard of customers ability to repay.

As I said Hindsight is a wonderful thing. As for it not being rocket science, I'd have to disagree. I would assume the banks would disagree as well, after all they continued to borrow billions from other financial institutions even though they had no ability to pay it back, maybe they should have read up on it.

 

[ashambles]

Even smart people avoid thinking too much about some topics. They don't want to know. It could be a mortgage, a pension, their own medical health etc.. Everyone one has their blind spots.

Leaving that aside, it's inevitable that banks needed to apply different income multiples or salary projections for interest only loans.

Interest only loans for regular home purchases were introduced when normal purchasers couldn't pay the inflated price with a regular loan.
If the same criteria applied to an IO loan as to a regular mortgage then the introduction of the IO loan would be pointless, someone who couldn't afford a normal mortgage also couldn't afford the IO loan.

So it seems the banks started estimating what a salary would be at the end of IO, for public servants of the bubble era that would have been based on ludicrous 9% p.a. payrises.

I'd assume the CB gave banks the go ahead to give out interest only loans without considering that it made it inevitable the banks would adjust their loan criteria. The CB, arguably, at least implicitly gave banks the go ahead to adjust the criteria by allowing them to sell IO mortgages.

The CB should have stopped IO mortgages before they started, politely have told the banks where to go. But they didn't want to know about a lot of worrying things either.

 

[dub_nerd]

To all the critics above with the it's her own fault attitude, she should have checked the information she was offered. Hindsight is an amazing thing. 10 years ago around 95% of the population would never have dreamt that banks would commit fraud in pursuit of profit. No one went online and typed in, are banks defrauding customers, because no one including our own government believed that could happen.

As ashambles says, nobody wanted to know. People were drunk on the idea of owning expensive property -- it was a badge of honour to spend more than you can afford. Lots of people told me they'd "just signed their life away". They were right. With my own acquaintances I tried to persuade them that inflation would never wipe out their mortgages as it had done for their parents. I'm happy I saved one family member from disaster (as well as myself). And there was no possible justification for the price increases we were seeing -- even in 2005 when people couldn't believe there was any air left in the property bubble we were still 30% off the top! I never considered it to be anything other than a hysterical mania of monumental proportions. It only worked because there were loads of reckless borrowers for every reckless lender.

At the end of 2006 Morgan Kelly painted a picture that should have stopped everyone in their tracks, if nothing else had. He told us exactly what was going to happen, in precise detail, ahead of time. 2007-08 were the "Wily Coyote years", the years when the property market went over the cliff but kept pawing the air for a last moment before gravity took over. The people who bought then were the most unfortunate, prices hadn't fallen yet but the market had totally seized up, with only the last few clueless stragglers available to be fleeced. I'd like to say it was painful but at least we learned our lesson. But instead we're busily reinflating the same bubble again! Anyone who thinks "this time is different" needs to get in their time machine and go back to 2007 when the "experts" were last telling us "this time is different".

 

[usernameinuse]

Saying all that, the bank should not have fiddled the numbers for her either.

Someone in the bank fiddled the figures unknown to her, it was not "for her". It was for the bankers own commission or bonus or promotion or whatever. It was not done for the borrowers benefit. In fact as said before the borrower has not married or had kids or even socialised much as a result of financial worries.

Out of interest, how would it be if the Nurse in question gave you incorrect information regarding medication or treatment for say your 6 year old Child or your 80 year old Mother and it caused them serious harm. Would the nurse be to blame or would it be your fault for being stupid in acting on her expert advice?

Good analogy. The bank were the financial experts and they said they were themselves, with decades of experience. They should have known it would only end in tears for everyone else (the banks shareholders, those who borrowed from the bank etc) if they lent 10 or 20 times the borrowers annual income by the bank altering the figures for the loan report. A nurse or doctor would not give incorrect information for medication or treatment, for the nurse or doctors short term gain, if the patient gave them written correct information?

As for it not being rocket science, I'd have to disagree. I would assume the banks would disagree as well, after all they continued to borrow billions from other financial institutions even though they had no ability to pay it back, maybe they should have read up on it.

Correct. Not all banks or bankers can be tarred with the same brush though. Some bankers refused to lend individuals half the amount other bankers did.

 

[Jim Stafford]

A Personal Insolvency Practitioner (PIP) has said that debts arising from a loan (or forbearance of a loan) "obtained through fraud or similar wrongdoing" are not suitable for a PIA.

The PIP is correct in advising that debts obtained through fraud do not qualify for a PIA. However, that provision is to deal with debtors "obtaining" loans fraudulently, not with debtors who are "given" loans fraudulently.

I would not have a difficulty in progressing such a PIA. I would progress it by making full transparent disclosure, and, ultimately, it would be up to the judge to approve.

However, the difficulty the nurse would have is that she doe not appear to qualify for a Section 115A PIA (i.e. it appears that she was not in arrears as at 1 January 2015.) and thus the bank could veto the deal. She would have to make the PIA "attractive" to the bank to encourage them to vote yes.

Some of the "fraudulent" acts that we have seen carried out (not that many by the way) are stranger than fiction. As one banker said to me half way through a court case that my clients were defending "Jim, we are beyond embarrassment at this stage. We do not care what comes out in court". It all came out in court but the bank still got their judgment!

Jim Stafford

 

[usernameinuse]

"He is to look further in to it but said if there is a question mark of fraud it may not be suitable, but it could be investigated further to see what went on. For example, he said, the borrower could have got the valuer to make an incorrect valuation for all he knows, or the banker to add 60 or 65k to their salary. Further investigation is necessary, he said.
If the Gardai Fraud squad can establish that any fraud and wrongdoing was completely internal to the bank, that should help the borrowers case in getting a PIA."

The PIP is correct in advising that debts obtained through fraud do not qualify for a PIA. However, that provision is to deal with debtors "obtaining" loans fraudulently, not with debtors who are "given" loans fraudulently.

Thanks for that. Excluded debt is "debt or liability of the debtor arising from a loan (or forbearance of a loan) obtained through fraud, misappropriation, embezzlement or fraudulent breach of trust". Where does it mention about the fraudulent loan being "obtained" or "given" or a bit of both?

 

[Jim Stafford]

Where does it mention about the fraudulent loan being "obtained" or "given" or a bit of both?

Section 2 (1) of the 2012 Act: "obtained through fraud".

I would make full disclosure. The bank could then object if they disagreed etc

Jim Stafford

 

[usernameinuse]

Yes, and the bit I see ""obtained through fraud" is the same as I quoted. It does not mention fraud by any particular party.

Unless all the "t" are crossed and the "i"s dotted first before the PIA, the borrower is worried there may be a risk she could undergo say 4 years of a PIA and then land back at square one. Anyway, I'll let the borrower and her PIP worry discuss those things, I think they will be having a second meeting in due course.

As one banker said to me half way through a court case that my clients were defending "Jim, we are beyond embarrassment at this stage. We do not care what comes out in court".

Maybe if a few end up in jail, like dozens of bankers have in Iceland (population 330,000), then the rotten apples in banking circles here will care?

 

[Leo]

Yes, and the bit I see ""obtained through fraud" is the same as I quoted. It does not mention fraud by any particular party.

In a load arrangement, one party (in this case your friend) obtains a loan, the other party (in this case the bank) provides the loan.

 

[usernameinuse]

In a load arrangement, one party (in this case your friend) obtains a loan, the other party (in this case the bank) provides the loan.

Correct, and in this case, it could be excluded debt, if it is "debt or liability of the debtor arising from a loan (or forbearance of a loan) obtained through fraud, misappropriation, embezzlement or fraudulent breach of trust". Hence it is better to have the loan report and valuation explained or investigated. Thank you.