(Original article appeared in the Irish Sun)
For thousands of property investors the time has finally come to assume the position, AIB have directed the debt collections teams in both AIB and EBS to have at least 10% of their arrears cases ‘gone legal’ by the end of April The Irish Sun has learned.
This is a massive departure from the idea of ‘forbearance’ which reigned supreme in the recent past. Customers will now be informed that there is no option for ‘interest only’ something that up to now has kept huge swathes of troubled borrowers afloat.
Senior sources in AIB have said that ‘there are no targets, there will never be any targets’ but the collectors on the coal face of this are saying the exact opposite.
The bank will honour existing interest only agreements, but any new applications for paying only interest will have to be proven to be only a short term ‘stop gap’ measure, and those who have already availed of a 12 month interest only period will be refused subsequent extensions which might provide vital breathing space.
Collectors have been instructed to tell hard pressed borrowers that ‘we don’t do interest only any more’, this approach is diametrically opposite to the way they must deal with home-owners and where targets have been set to reach a certain number of offers for longer term solutions by year end.
Senior AIB executives have said that they will prioritise keeping people in their home but only if they in turn prioritise making their mortgage payments, and that the time for ‘kicking the can’ is over, all solutions must be sustainable in the long term for both bank and borrower alike.
They want to see an end of an era where paying the mortgage is not the number one financial priority.
This comes in light of research from NUIM economist Gregory Connor who has indicated that more than one in three arrears cases may be ‘strategic’ in nature, calling in loans for full repayment is one way to test the viability of who can and cannot pay.
Within the banks the view is simple, investment property owners are not protected by law the same way home-owners are, so they are fair game, they are also happier to get a larger sum back from a forced sale than they are to get intermittent interest which has also been advanced at a remarkably low rate because many investor loans are trackers.
The long term loss on some of these loans – and the fact that many are already non-performing make the simple demand of ‘pay up or we take back the property’ a viable choice.
The word inside the bank is that ‘people have to get off the merry-go-round’, meaning that continued efforts at borrower negotiation are over. This will be a crushing blow for many investors who bought properties in the hope that they may one day make them better off.
And because of the way the Government tax rental income many will be faced with a huge cash-flow loss by repaying capital and interest and then a whopper of a tax bill on top of that for good measure because the rules currently tax income you never actually receive.
Part of what the bank are trying to determine is just how close to the edge many borrowers are, when faced with the prospect of losing their properties they believe that many of these loans will magically ‘self cure’ or ‘bounce back’ but if debtor lobbyists are to be believed this is simply not the case.
The only good news is that debt write-downs are starting to occur, while ‘debt forgiveness’ is not being done there are ‘compromised settlements’ which amount to the same thing, these are plans that last less than 6 years (any plan lasting longer should be rejected as Debt Settlement Arrangements under new insolvency legislation are shorter) where large chunks of the shortfall are never paid back.
Internal debt collector sources in the bank point towards as much as 70% of the shortfall being ‘teed up’ for writing off – but it requires the borrower to come good on at least 30% of the shortfall to do this all of which is in line with CEO David Duffy’s remarks that they will engage in write downs ‘where appropriate’. We might not see see it branded ‘debt forgiveness’ but in practice this could result in the same end result.