Could the new AIB split mortgage be illegal?

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 …

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The first rule about debt deals is ‘we dont talk about debt deals’

Due to disclosure requirements I can’t actually tell you much about dealing with banks when it gets to the specifics of some cases, what I can say is that should a person get any debt write down of the type that banks are not doing that you will be asked to sign something like the letter to the left (click for full version).

What we do find frustrating is that there will be an insolvency register where people are named, but that you can’t find out what kind of restructure took place or what creditors accepted.

This is almost like having an absence of case law with which to go to court. It’s a huge oversight and will reduce the effectiveness of advisors who will all act in a common arena totally blind to what all of the others are doing.

As for specifics, this means you can’t ever talk about getting a write down or even a non-write down advantageous re-arrangement. You can be asked to destroy all of the evidence you have referring …

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Mortgage to rent in as bad a shape as the mortgage market

I think Ciaran Lynch hit the nail on the head when he said the ‘mortgage to rent’ scheme risks ‘becoming a flop‘. The issue here comes down to the creditors treatment of borrowers.

We have already posted a letter from Pepper showing how they are willing to do write-downs for customers. This is there for anybody to see, it isn’t here-say or rumour. In that case the loans of GE Money (a sub-prime lender) were sold to another company at a big loss.

The buyer of the loan buys it for say, 36c on the Euro meaning a loan for €100,000 is purchased for €36,000. What happens next is that they write to the borrower and say ‘hey borrower, if you pay me €50,000 and make all of your payments then we’ll call it quits’.  Meaning the borrower gets a €50,000 debt write off for either paying their loan or selling up.

This is a strong incentive to do the right thing, and it …

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Debt relief without moral hazard.

I put on my thinking caps last week and drafted a paper called ‘Designing a Debt Relief programme with minimal moral hazard to address the Irish household debt overhang‘.

We were every happy with the write up it got in the Sunday Independent via Carol Hunt.

There is far too much talk of ‘moral hazard’ in the public debate to date, instead we should be also considering ‘separating equilibrium’ (which is kind of the opposite of moral hazard – it’s the ‘pain’ that comes with moral hazard ‘gain’).

To do this you have to create a programme which works within some of the parameters of the existing laws (new legislation must still take account of what exists before it), look at the operational aspects of the scheme (how it functions in real life), design a general algorithm of the process and most importantly have an ‘incentive alignment’ which means that neither party voluntarily makes an action to the intentional detriment of …

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