Greedy banks resist two year moratorium for mortgage defaulters

Run_to_da_hills

Greedy banks have the audacity to resist the two year moratorium for mortgage defaulters requested by the Government as a part of the bailout. As the dole queues soar thousands of struggling families could soon be turfed out of their houses for arrears in payments.

The AIB and Bank of Ireland are resisting Government pressure to agree to wait up to two years before taking legal action against mortgage holders who miss repayments, as part of the €7 billion recapitalization plan. It looks like they want to settle for just 6 months instead.

This is sickening more so since it is the people of Ireland are the very ones that are saving the skins of these financial institutes.

http://www.irishtimes.com/newspaper/frontpage/2009/0210/1233867929772.html

silverharp

you have to factor in moral hazzard here , if you are not at risk of losing your home why pay your mortgage? everyone would start looking to have their mortgages restructured.

Jo King

who ends up paying for people who default on their loans? the other borrowers and depositors. Defaulters should be out of their houses after three months of arrears. people who borrow more tha they can afford to pay back should learn the price. One time they would have been put in prison until the debt was satisfied.

Run_to_da_hills

silverharp wrote: »

you have to factor in moral hazzard here , if you are not at risk of losing your home why pay your mortgage? everyone would start looking to have their mortgages restructured.

Im sure the state would have all the evidence of your current earnings particularly if you are using the EFT and that this service would only apply to those on the live register.

K-9

TV3 are reporting a period of one year has been decided.

woodseb

the banks also have to look at their funding. Would you lend money to someone who is going to to give it to someone else and then not ask for it back?

there probably will be some measures to prevent defaults from the govt, but for the banks to faciliate it would hurt their international reputation

Run_to_da_hills

K-9 wrote: »

TV3 are reporting a period of one year has been decided.

Not so bad, at least it may give some a chance to find work abroad, 6 months was a bit rich.

The_Conductor

Banks are businesses like any other commercial entity. They need to have a sound business model. AIB and Bank of Ireland packaged some mortgage products in the last 10 days and offloaded them to international investors (which is what they have always done). A series of different terms and conditions were attached to the different products- a 12 month default moratorium on domestic mortgages, an 18 month and a 24 month package. No-one was interested in the 18 month and 24 month packages, they failed to sell at all.

If the government wants longer than a 12 month moratorium on home repossessions (and this is repossessions alone- mortgage interest does not stop accruing in the intervening period), they have to accept that the banks are no longer in the market of offering commercial products to customers- and nationalise them- simple as.

Its already highly doubtful whether the 7 billion recapitalisation programme is sufficient to cover bad debts associated with non-performing developer loans- if you throw a spanner into the works by ripping out the residential portfolios from the institutions too- you have wholly gutted the businesses, and must accept the consequences associated with this.

The public sector already look like they may go on strike over paying for the bailout via the pensions levy- do you want a couple of pence added onto both tax bands and the abolition of tax credits and ceilings for everyone on top of this? That is the price that would have to be paid- the government is not in a position to borrow money to finance nationalising both banks, without taking steps to shore up their revenue income with commensurate measures.........

While its politically correct to suggest a much longer moratorium on home repossessions- its commercially naive to expect the banks to irremediably destroy their business models to deliver it.

SMcCarrick

RedPlanet

I don't know.
I don't like it.
If somebody took a 100% mortgage and acted irresponsibly in doing so, why should the rest of us bail them out?
Shouldn't they face the music?
It's like there's some kind of conspiracy to keep property values from plumeting.
Would it be better for the banks to go after these properties then dump them on the market in a race to the bottom?
I don't know, but i've a gut feeling that this is prolonging things and is unfair to those of us whom behaved prudently during the Celtic Tiger.

The_Conductor

RedPlanet wrote: »

I don't know.
I don't like it.
If somebody took a 100% mortgage and acted irresponsibly in doing so, why should the rest of us bail them out?
Shouldn't they face the music?
It's like there's some kind of conspiracy to keep property values from plumeting.
Would it be better for the banks to go after these properties then dump them on the market in a race to the bottom?
I don't know, but i've a gut feeling that this is prolonging things and is unfair to those of us whom behaved prudently during the Celtic Tiger.

Because the poor people didn't know what they were doing- its not their fault. They never imagined that property prices would ever slow- never mind fall- sure their local politician assured them, they had to get on the 'property ladder' at any cost- and if they didn't, that they'd risk getting left behind.

My arse.

Since time immortal people have refused to accept responsibility for their own actions. Politicians have also pandered to the masses. These are two constants, along with death and taxes.......

Its not fair- very very unfair- but its whats going to happen.

We have a few good threads on this over in the Accommodation/Property forum......

_Nuno_

smccarrick wrote: »

Because the poor people didn't know what they were doing- its not their fault. They never imagined that property prices would ever slow- never mind fall
..

I agree. The bursting of the property bubble has been announced for a good while. Saying that the people never imagined what was eventually bound to happen is no justification.

Since I arrived in this country almost every one I met told me not to rent, that rent was done money and I should buy instead because in three years time if I went back I could always sell and make some money. At that time some financial comentators and various financial reports were already saying the was a big risk of the whole thing collapsing.

I didn't follow their advice and if I had I would now be looking at probably a decade before I could sell the house just to pay the loan.

I do think that people who lost their jobs should be given a break, but many people just should have known better, and especially people who bought houses as investments and played their part in this whole thing should get no breaks at all. You take risks, you reap the profits but you should also take all the pain when it comes.

deadhead13

Jo King wrote: »

who ends up paying for people who default on their loans? the other borrowers and depositors. Defaulters should be out of their houses after three months of arrears. people who borrow more tha they can afford to pay back should learn the price. One time they would have been put in prison until the debt was satisfied.

Many mortgage holders have lost and will lose their jobs through no fault of their own. Will find themselves in arrears, again through no fault of their own. But lets blame them and not the government and the banks who caused the mess in the first place. You smugness is offensive.

LoLth

I dunno... my take on this is

the guy that bought a 5 bed detached residence where he was going to live alone because the bank was giving him a 100% mortgage

the investor that soaked up ten houses on high mortgages financed by a single property

the buyer that looked at his wages and then matched his mortgage amount to wages - basic cost of living

these are examples of stupidity or gullibility or at the least extreme shortsightedness.

People that bought the house they needed and had to get a large mortgage because the property prices were inflated

People that lost their primary source of income due to market cutbacks

these people are just unfortunate. everyone can allow for a lower wage but no-one can allwo for a complete loss of wage (well, except contractors where its part of the risk/return)

Banks should agree to a delay of foreclosure. they should also agree to giving their clients the option to make a once off payment deferral (for six months) and/or a once off mortgage extension - to reduce the monthly repayment.

these actiosn would allow the mortgage holders that need it, time to recover form economic shock (job loss, wage reduction) without also having the threat of legal action from a lending institution.

the banks made a killing during the housing boom, time to start paying the price for their windfall. I'm not saying banks are evil and should suffer, but we dont want large scale repossessions. extending mortgage terms etc doesnt lose the bank money (it increases the repayment in the long term), neither does deferral (it means a slight interim drop) but it does mean that a potentially legal situation resulting in repossession of an asset worth 60% of the original value defaulted is avoided and allows the bank to eventually recoup the full value of their investment.

having said all that, yes I can see gits taking advantgage of the situation and seeign a government decree as a license to not bother repaying what they owe.

Flamed Diving

Run_to_da_hills wrote: »

Im sure the state would have all the evidence of your current earnings particularly if you are using the EFT and that this service would only apply to those on the live register.

How sure?

silverharp

deadhead13 wrote: »

Many mortgage holders have lost and will lose their jobs through no fault of their own. Will find themselves in arrears, again through no fault of their own. But lets blame them and not the government and the banks who caused the mess in the first place. You smugness is offensive.

I would take issue here , I'll admit the system is geared towards screwing the averge punter as many people are financial illiterates. However I grew up here during the 70's and 80's when things were hard. Who on a middle class salary lives with only 1 mths savings in the bank and expects to get though life without having the risk of being made redundant or suffering some kind of medical problem. The problem with a credit party is that everyone wants it and likes it so apportioning blame to one set of parties is not logical.

gurramok

I think that those who borrowed prudently should have some sort of leeway in all of this, especially for PPR's. The one's who took out 100% and 40yr mortgages should learn their lesson and see the wonders of renting, its unfortunate and ignorant that they did not educate themselves to know their limits to borrow on the biggest transaction of their lives.

'the investor that soaked up ten houses on high mortgages financed by a single property' - Seize the 10 houses if this guy falls behind. Investors know the risks and should abide by them.

As i said, a family/singleton who borrowed prudently and fall on hard times would get my first vote for a 1yr moratorium.

HashSlinging

Just cleared off arrears, (was paying bits off anyway) and after being let go am now on a very short term contract with nothing in sight past a week. two kids and another on the way. only loan is our mortgage and we borrowed less than some to get on that ladder.

This for me and my family is great news, finally something to be happy about.

The_Conductor

Its wholly unworkable though.
How about all those people who under the guise of prudence got additional loans under the radar from credit unions that hadn't subscribed to the ICB, safe in the knowledge that their bank/building society would never find out about it- and then got their 80% or 92% loan from their primary lender, with the intention of paying off the original loan via equity release down the road. These 'canny buyers' as the media hyped them to be, should be at the top of queue for getting their knuckles rapped, but somehow I doubt they ever will be either......

HashSlinging

Same goes for those people who dont pay the TV licence. They should all be locked up, straight to mount joy for them.........bitter

deadhead13

gurramok wrote: »

As i said, a family/singleton who borrowed prudently and fall on hard times would get my first vote for a 1yr moratorium.

I agree. There is a big assumption on here that of those who will find themselves in difficulty with their mortages over the next few years - it will all be due to reckless borrowing. An assumption they do not backed up with facts. But such is the want of reactionarys.

The_Conductor

HashSlinging wrote: »

Same goes for those people who dont pay the TV licence. They should all be locked up, straight to mount joy for them.........

Not at all. If people have made a conscious decision not to purchase a tv licence- give them a couple of hours community service. If they can show that they were financially unable to pay for the licence- give them a warning (and a leaflet showing how they can claim an exemption on income grounds).

There is no point in criminalising people who may have traversed the law through economic necessity- there go all of us, it not only counter productive- but patently ridiculous.

My point was the banks are commercial businesses. If you want them to abondon their commercial endeavours- people have to accept that there is a price associated with that- be it increased taxation and nationalisation of the banks- or whatever it entails.

HashSlinging

The banks are not abandoning their commercial interests, to suggest that the banks are is foolish they are giving a payment extension to people at their most vulnerable time. Most banks and credit unions do this anyway at request, its all about communication, this is great for someone who is worried about losing their house during the current climate.

I pity someone renting though as I doubt a landlord would give you so much as a month to get your rent..

Also anyone who thinks houses should be repossessed after 3 months is living a very SAD life.

LoLth

smccarrick wrote: »

My point was the banks are commercial businesses. If you want them to abondon their commercial endeavours- people have to accept that there is a price associated with that- be it increased taxation and nationalisation of the banks- or whatever it entails.

banks are a commercial business yes, but a mortgage is a 30+ year income stream for a bank. to foreclose on a mortgage means accepting whatever loss comes with the sale of the asset in question as well as the legal fees incurred in obtaining the property and any expense in repairs etc (if any are required and there are people who lost their houses in the 80s and trashed the place before leaving).

Surely, asking them to be open to deferring their income for two years, or talking to hteir client and agreeing a lower repayment over an extended period is in the banks own interest.

My only concern is that property investors will benefit more than those who genuinely need the help. Personally I'd say only the principle dwelling should be protected.

The_Conductor

HashSlinging wrote: »

The banks are not abandoning their commercial interests, to suggest that the banks are is foolish they are giving a payment extension to people at their most vulnerable time. Most banks and credit unions do this anyway at request, its all about communication, this is great for someone who is worried about losing their house during the current climate.

I pity someone renting though as I doubt a landlord would give you so much as a month to get your rent..

Also anyone who thinks houses should be repossessed after 3 months is living a very SAD life.

Banks are not at present granted foreclosure in the first 3 months following a break in mortgage payments- on average for Bank of Ireland and AIB, it takes between 8 and 9 months. Some lenders- principally in the prime lending sector, do aim to repossess a lot sooner- there have been more foreclosures granted to Start Mortgages in the last 12 months than there have for AIB and Bank of Ireland combined- and the time between a break in mortgage payments and foreclosure activities is just under 3 months in the subprime sector.

Re: Landlords kicking people out- there is a prescribed procedure for regaining vacant possession by a landlord, as per the 2006 Residential Tenancies Act. If the landlord does not follow the procedure to the letter- he/she can be found culpable and fined- irrespective of whether rent is being paid or not (though lack of rent is one of the prescribed reasons for initiating eviction proceedings). It can take 4-6 months to evict someone at present, if they challenge the proceedings, it can take even longer.

By extending the period under which a mortgage holder can be default before initiating foreclosure proceedings, international investors have determined that the commercial banks are in fact abondoning their commercial mandate, and have refused to support their activities. Bank of Ireland and AIB have both offered bonds with differing conditions attached which recognised varying periods of default on the part of mortgagees before foreclosure. These Contracts of Difference were put on the market in the past 10 days. There was precisely no interest in investors in investing in paper recognising defaults in excess of 1 year- which is why the banks fought so strongly against the government's proposal to have a 2 year moratorium.

Further- the current proposals are not to give a payment extension to mortgage holders- it is have an optional one off 'payment holiday' recognised, during which interest would continue to accrue on the principle, before a period of default were recognised (during which interest would also continue to accrue). This proposal is expected to be included in the forthcoming financial bill, which will cover all institutions- not just those who availed of the government guarantee last September, or the currrent refinancing proposals.

I do not think that houses should be repossessed after 3 months (as currently happens in the small Irish subprime sector). I do think that once people recognise that they have a financial problem that they should approach their creditors as soon as possible to renegotiate payment terms, before they get themselves into an irretrievable hole. MABS have some excellent suggestions in this respect (indeed they even have template letters on their website that you can send to your bank/building society- and suggestions about how to figure out how much you can reasonably expect to repay on a monthly basis as a result of your changed financial situation).

The problem at the moment is people putting their heads in the sand, like ostriches, hoping their problems will be magic'ed away- all the while their problems are incrementally getting bigger and bigger. The lending institutions are, in the main, reasonable. Its in their interest to get 200 Euro a month in lieu of 1000 Euro a month- rather than having their lender get totally over their heads and not pay anything back at all.

The problem is a lack of communication- yes, but the problem is that people do not communicate their problems to their mortgage/loan holders until such time as it has gotten to a critical stage. What we need is an education campaign to educate people on financial management techniques, and destigmatise personal financial difficulties. This has to occur in conjunction with a total overhaul of the Irish personal bankruptcy laws.

In the US homeowners who get into difficulty have been engaging in a practice known as 'Jingle Mail' whereby they simply post the keys of their property back to their banks. This total abdication of personal responsibility is what has crashed the financial systems worldwide- and contributed significantly (but definitely not wholly) to the Irish situation. Irish personal bankruptcy law is the other extreme- believe it or not, it continues to based on Victorian laws- while it may not have poor houses on the agenda any longer- it does support indefinite burnishing of salaries and superannuation rights until such time as the debt is satisfied, and can forbid the bankrupt person for holding a credit card or any debt in excess of EUR100 without the permission of a court. This is also plainly ridiculous.

Numerous agencies have been trying to model Irish personal bankruptcy law on our commercial bankruptcy provisions- most recently the 2006 ACA proposals- but our legislature has been very slow to act in this regard.

What we need even more than a moratorium on the initiation of foreclosure proceedings in the current climate, is an emergency revision of Irish personal bankruptcy law- that recognises the significance of a person's PPR. Were we to have this significance recognised- people in default on debts, including mortgage arrears, could plead personal bankruptcy safe in the knowledge that they would not be turfed out of their homes, and given a breathing space to reorganise their finances, depending on what the future were to bring to them.

There are massive problems out there- but simply dictating a repossession moratorium to the lending institutions is merely a sticking plaster approach that is temporarily moving critical problems down the road- to a point where we'll have to revisit everything all over again.

Do we realistically expect an improvement in the Irish economy in the next 2 years? The OECD and the IMF do not- and given the Irish government's lacklustre forecasting record, we would do better to look elsewhere than to Irish government forecasts for our economic expectations........

S.

SkepticOne

I am in favour of this but one side effect of it will be to make banks much more cautious in future lending decisions on top of the extra caution due to the downturn. This may be a good thing but it will have a further downward effect on house prices and negative equity.

LoLth

SkepticOne wrote: »

I am in favour of this but one side effect of it will be to make banks much more cautious in future lending decisions on top of the extra caution due to the downturn. This may be a good thing but it will have a further downward effect on house prices and negative equity.

negative equity *only* affects investors imho. if you buy a house and you intend to stay there, what difference does it make what the market value is ? If you seel your house for less than you bought it for, then you have to buy another house, possibly for less than you would have paid for it six months ago.

If falling house prices mean ordinary people can buy houses to live in without having to go for incredibly high mortgage repayments that results in having no way to absorb economic shocks then this is what the market needs. It will have to re-adjust.

Blackjack

deadhead13 wrote: »

Many mortgage holders have lost and will lose their jobs through no fault of their own. Will find themselves in arrears, again through no fault of their own. But lets blame them and not the government and the banks who caused the mess in the first place. You smugness is offensive.

Yeah, let's blame everyone except the borrower, who was clearly unaware of the risks.

Sure none of us ever heard "THE VALUE OF YOUR HOME/INVESTMENT MAY GO UP AS WELL AS DOWN" and questioned the down bit.

smccarrick wrote:

There are massive problems out there- but simply dictating a repossession moratorium to the lending institutions is merely a sticking plaster approach that is temporarily moving critical problems down the road- to a point where we'll have to revisit everything all over again.

Do we realistically expect an improvement in the Irish economy in the next 2 years? The OECD and the IMF do not- and given the Irish government's lacklustre forecasting record, we would do better to look elsewhere than to Irish government forecasts for our economic expectations.......

I only see this as something that's going to prolong the problem. Why would I sell if I have a 1 year moratorium on paying my mortgage. By the same extension, if I've held out, why buy now?.

banshee_bones

OK, slightly off topic but is no one else sick at the part that mentioned yer man "waiving" a BONUS of 600+ K !!!

A bonus! :eek:

how can money like this even be thrown around in our economy!

deadhead13

Blackjack wrote: »

Yeah, let's blame everyone except the borrower, who was clearly unaware of the risks.

Sure none of us ever heard "THE VALUE OF YOUR HOME/INVESTMENT MAY GO UP AS WELL AS DOWN" and questioned the down bit.

It is the people who have lost their jobs and fall into arrears the moratorium is trying to address. You are assuming they all bought their houses at the height of the boom with 100% mortgages. It is your employment status that will affect your ability to pay, not the type of mortgage you have or when you took it out.

Time Magazine

"Greedy" banks trying to be profitable, what's new?

If this thread doesn't turn into a discussion about the financial position of the banks, or a discussion on moral hazard in the next 24 hours or so it's going to be locked.

Blackjack

deadhead13 wrote: »

It is the people who have lost their jobs and fall into arrears the moratorium is trying to address. You are assuming they all bought their houses at the height of the boom with 100% mortgages. It is your employment status that will affect your ability to pay, not the type of mortgage you have or when you took it out.

Am I?. To be honest, I'm assuming that the people who took out the mortgages knew what they were doing and did sufficient stress testing on their own finances to overcome at least some difficulty. However, we know that many have not. That's their own fault. Of course that was the Banks job, or the Government, or everyone else - not the people who were taking loans they could not afford and getting deposits from the Credit Union.

While I agree with some moratorium, a year is more than reasonable. Asking for 2 years is giving people a license to dig themselves into a bigger hole. If you can't afford to pay your loan for a year, then you're already well in over your head. Interest mounts up over this period and is added to the existing outstanding. If the sale of the house does not cover the original loan amount, the bank can (and given they now have to wait a year of non-payment before they can take any action, probably will) chase you forever for the balance owed.