What banking insiders think of what banks are going to do

We got a comment on our site from an ex-banker who heard a radio segment where we were talking about banks and repossessions. We got in touch and asked if we could post his comment as a stand alone entry, he agreed, his thoughts are very interesting and in part might help explain why we have repossession orders without repossessions, eye opening reading…

I listened to your piece on Newstalk this morning (19/08/2013) regarding ‘strategic defaulters’ and I just wanted to congratulate you for highlighting the reality of this issue.

I worked for the former *closed bank* for over 17 years and for a two year period I was it’s Mortgage (Residential) Administration Manager. Although I’m out of banking now I still help former clients with negotiations with various banks.

My experience over the past couple of years, and especially this year, in ‘dealing’ with the banks, foreign and domestic, has exposed some incredibly unethical and unfair practices and on the whole I fear there is still great damage being done to peoples lives without there being any correlating improvement to the ‘real’ banking system or indeed the economy.

With specific reference to the above ‘Davenport after Dark’ broadcast relating to the Land Conveyance Law Reform Act 2013, (and also including the subsequent amendment to the Code of Conduct on Mortgage Arrears which came into effect on 1st August) and the prospect of increased Repossessions I have the following observation to make-

The Banks (specifically, AIB, Bank of Ireland and IBRC) intend using the legislation to obtain Orders for Possession but not necessarily to actually repossess houses. The point to be noted is that once an institution obtains an Order for Possession it is valid for twelve years (six years initially with automatic renewal for a second six years on application to the issuing Court) with the ‘holding’ institution never having to revert to Courts or indeed any other authority to exercise it’s Order during that time.

The Banks will then use the Order for Possession (and the threat of Repossession) to target the so called ‘strategic defaulters’. More importantly the Banks at present are also classifying people who choose to pay unsecured loans (Car Loans, Credit Union Loans etc.) ahead of their mortgages as ‘strategic defaulters’. It is their intention to use the threat of Repossession as a means to counter this and is, I believe, a scandal of itself, equal to any other in the Banking Sector.

Bear in mind that (according to Bank of Ireland’s Richie Boucher) 10% of Arrears cases are deemed to be ‘strategic defaulters’ (10% of 14% (accepted arrears level) is 1.4% of mortgage holders). You and I both know that mortgages are not classified into ‘ordinary’ defaulters and ‘strategic’ defaulters (there is no way of telling on a banks IT system) therefore it follows that ALL Banks are applying the same ‘tactics’ and intimidatory practices to ALL mortgage defaulters.

I’m ashamed to say that we used the very same ‘tactics’ during my time in *closed bank*  although I will argue that they were different times ‘pre-crash’. Once we had an Order for Possession we’d threaten to Repossess every so often, the Customer would come up with a few bob, we’d postpone the Repossession and then a few months or a year down the line if arrears had built back up we’d repeat the threat and away we’d go again!

I just think that in the current climate, with the enormous pressures being placed on mortgage holders, and the increased risks of ‘finance’ related suicides, this is an abhorrent practice. The Banks have, in my opinion, pulled the wool again over the Regulator and the Government’s eyes.

That’s my rant for the day out of the way! I would just like to compliment you again for highlighting the issue and you might also pass on my compliments too to Newstalk for their coverage which is excellent.

This is something that helps the debate, perhaps it is the intention of the banks to get lots of repossession orders but not actually have to take back properties, we already saw how AIB lost €4m on just 17 properties, if that was applied across larger sections of the loan book imagine what would happen? It also matches what we are hearing from lots of estate agents who say banks are constantly delaying the sales process where receivers are involved, or repossession orders granted, we’d have to wonder about the motivation there as well.

One thing is for sure, much of happening doesn’t make any sense.

Comments

  1. Ronan

    Having read the headline and intro i was looking forward to this, but I’m left a bit confused having read it.

    What does the mystery ex-banker find so unappealling or predatory about threats to repossess? Of course it isn’t “nice”. How else do debts get paid in the economy?

    “Dear Mr. Deeter,

    Would you please pay your mortgage? PLEASE. Don’t be so mean to us. We loaned you that money in good faith.

    Regards,

    Mr AN Sadsack”

    If it makes sense for a bank they may prefer reduced payment, or periodic payment, over repossession. In any effort to recoup a debt the threat is often more valuable than the actual practice. Is this news now?

    As far as Irish mortgage holders are concerned: you don’t know you’re born, as the saying goes.

    • Karl Deeter

      I think the issue is (because I’m not against repossessions, I think it’s the natural outcome for unpaid loans) that they don’t do it in order to actually take possession, they do it to obtain an option which can be a call or put depending on how they intend to exercise it. It also becomes a latent threat that can/can’t be used. There could be some sense in a rule that a property that isn’t possessed upon receipt of an order within a number of years then has to start again perhaps?

  2. Frank Street

    In regard to AIB losing €4m on the sale of 17 properties, I have read elsewhere that the balance is made up by the banks through their ‘insurance’. Is this correct? Have banks insured their lending so that it pays out in the event of a loss on the sale of a repossessed property? This is a fundamental question that goes to the heart of the behaviour of the banks and must be addressed by the media.

    • Karl Deeter

      That depends on whether they took out the insurance or not and whether the insurer didn’t already go bang. There is thing called an ‘indemnity bond’ or ‘mortgage indemnity guarantee’ and it covers the bank for losses of the part between 75% and whatever LTV they went to (if they lent 92% then it would be covering for 17% of the balance).

      The banks do have these in some instances, in many they don’t, on others they self bonded and in some examples they have it but the insurer has ceased trading. This is something which becomes known during the possession process normally.

  3. A McG

    Waaaiiit, just a second: so a repossession order is valid for 12 years? So the bank can wait until there is further equity in the property, and then decide to cash in their “investment”? Sinister indeed.

  4. paddy

    Ronan (above) is obviously a banker….

  5. Cantered

    Ronan: Point me to the banker that lost his house when we started bailing out the banks, please? Point me to the politician among those responsible who lost his house, his savings, his freedom, over the mess they presided over. Point me to the senior regulator who lost his job, got fined and jailed over the mess they approved of. Point me to the tax dodging TD’s who have been since dragged to court and sued, losing everything because they refused to pay their tax. Point me to the bank that is being forced to co-operate with it’s new shareholders – that’s us, the public since we bailed them out – instead of controlling the options.

    “Strategic Defaulter”, and other weasel words, used to avoid legalities and shirk responsibilities. The bank uses these weasel words to make you look like an opportunistic b-stard that won’t pay because you don’t want to. Never mind that you can’t pay because your money is taken to bail the same bank out of it’s own gambling debts…

  6. Ronan

    The usual bunch of non-sequiturs mixed with emotional nonsense. If you can’t pay your mortgage you shouldn’t retain the property, it should be sold to someone who can. Currently the person who can buy it is looking at paying rising prices, or rising rents, all because his/her taxes are being used to keep people in homes they can’t afford.

    It was wrong to bail out banks, and it is wrong to socialise the debts and arrears of those who can’t or won’t pay at the expense of those who can. Your mammies told you long ago that two wrongs don’t make a right. Pay your mortgage or move on.

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