On talking Money on the 24th of November we looked at the issue of mortgage arrears and the role of the Insolvency Service in terms of finding ways to get solutions with guaranteed end dates. There is a mismatch between the goal of banks and borrowers and it is resulting in solutions that often don’t work.
We discussed housing and the economy with Marc Coleman on his Sunday night show ‘Coleman at Large’. Other guests included Dan White from the Herald, Constantin Gurgiev of Trinity, Sheena Horgan who works in marketing and Karl Deeter.
We were asked to speak on RTE’s ‘Morning Ireland’ business news with Brian Finn about interest only mortgages and whether or not they constituted a future threat to the mortgage market as well as to comment on the Insolvency Service of Ireland figures that were out which showed a marked increase (although still low gross numbers) in resolutions.
We were pleased to contribute to RTE’s flagship current affairs show ‘Primetime’ when they looked at the Irish property market. As students of history we are confident that we are going to go through another boom-bust in the 2020’s, as believers in the ability for change we are hopeful it won’t have to be this way, but there is little to give faith in that when you look at the current policy response.
I was asked to help form part of a working group on mortgage arrears which has yet to publish their respective papers on various topics. The one I undertook had to do with mortgage arrears and the issue of life cover on a loan.
While the intention wasn’t to release anything for a few weeks yet, I thought it was pertinent to share this one given some of the days headlines (link to the paper is at the end of the blog).
The area of mortgage protection is a tricky one because some people are paying beyond the necessary amount and others are not, but they equally can’t make the payments so the policy lapses. What happens next is that in some cases a person dies, one example we are working through involves a suicide, and others involve people who become terminally ill.
Rent receivers are generally sent in when a landlord is unable to meet the terms of their contract. It doesn’t mean they can’t pay anything (although often insolvency is behind it), sometimes the landlord is on an ‘interest only’ term that reverts to capital and interest and the uplift in cost means there is no way they can meet the increased commitment.
The issue is also more common in properties with equity because the bank don’t stand to suffer a loss in that position (they do in properties with negative equity), it’s also used as a more coercive approach to borrowers who want to hold on to trackers, as ‘interest only’ is often extended for people willing to forgo that aspect of their contract.
Unbalanced taxation on property is also a concern, the ability to tax a cash flow loss on residential property makes it a difficult trade off of ‘who shall we upset’ the choice being the bank or Revenue (most opt for the former).
The Insolvency Service of Ireland are already starting in on audits of regulated providers to ensure they have the proper procedures in place to deal with people correctly and that they are in adherence to the code.
From our perspective we see it as a very proactive move and a positive one for the regulated debt advisor sector. People complain all the time about ‘light touch regulation’ and it exists in part because the regulators in question are not out there looking into the affairs of the market participants, or the market participants are finding ways to duck the rules the normal firms have to abide by.
Regulatory arbitrage is thankfully not present in the PIP space the way it is in the debt mediation industry. You can’t call yourself a ‘Personal Insolvency Practitioner’ unless you actually are one whereas it is still the case that unregulated entities can call themselves debt mediators and charge for the service.
How long should they wait before the start a process like this given so few PIA’s have been done? No time at …
We had another successful outcome with a lender and thought that it might be worth describing in terms of how it came about and how it worked out.
This time it was Bank of Ireland who many say (in the past ourselves included) are notoriously difficult to deal with, while they are not easy (as none of them are) we have noticed a definite thaw in recent months in how they deal with negotiators which is a positive development.
The client in question has a job in the public sector (many in mortgage arrears do), but has faced various reductions in income and tax increases which resulted in payments being missed.
They engaged with the bank to no avail, spoke to another firm who they heard offer debt mediation for free but then got a quote and that kind of annoyed them so they called us. We suggested that if they wanted free service they go back to the provider who they spoke to first, that provider sent out a standard financial statement reminding them it would cost upwards …
The hype-machine is in full throttle on the sale of the former INBS loans. The fear being that some large evil hedge-fund is out there waiting to repossess homes in the thousands.
There may be such a fund headed by some unknown Dr. Evil, but chances are a hedge-fund is the best outcome for the IBRC mortgage holders.
While some of the points about who does and doesn’t fall under various regulations has been made here already, it is worth pointing out that several other factors must apply.
Firstly is that IBRC loans have no recourse to the FSO already, and loans in the IBRC cannot be changed outside of the original loan terms so people simply can’t get a solution while they are IBRC owned.
This is a problem common in other lenders such as Bank of Scotland who don’t exist here any more, only original loan terms can apply so apart from interest only there is no creativity for a mortgage resolution allowed.
Due to that …
In the Sunday Business Post yesterday an article appeared which explained the new AIB split mortgage deal. We sought details of this from AIB but only scant ones were provided which we posted already.
How it works in money terms was not disclosed by AIB but they equally didn’t retract any statements showing up in the press so we can assume that the information published is correct as they haven’t publicly retracted any aspect of how it has been covered. For that reason there was an aspect to this which we see as being of grave concern.
However, if Mary and Tom get a pension lump sum at retirement, they must use this towards paying down tranche B. This only applies to pension lump sums and doesn’t apply to any other lump sums a person may receive e.g. inheritance, bonus payments, gifts, lotto win etc. On this matter it is always advisable to seek professional pension advice.
Read the highlighted parts again, ‘they must use’ the lump sum …