Devil in the detail in debt write downs

(this article appeared in the Sunday Business Post on the 23rd of March)

The banks are starting to write down debt. Should we be surprised? Recent news of large write downs on home loans by AIB has left out some of the necessary detail to add context to the story. The lender has equally shied away from confirmation of what happened, making it all a bit opaque.

Why would a bank choose to offer a capital reduction by writing off part of a mortgage? An alternative is to split the loan into a part which the customer can afford to pay and another part which is ”warehoused. If zero interest is charged on the warehoused part, then the affordability for the customer can be the same as if this part is written down, even if the psychological impact is different.

It is likely that there are peculiarities in the cases where debt has been written down, which means this will only happen in the minority of cases. For example, if a loan was on a one off house with a …

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Overindebted property investors – a fix without insolvency using Section 69

There are a lot of property investors who will see the ramp up of repossessions or insolvency of their current situation result in large losses occurring.

We hear from many clients that they plan to opt for personal insolvency, but in many instances this doesn’t need to be the case. If a person has five properties and one is a family home they could opt to sell the investment properties and have any losses accrued into a general shortfall where the settlement repayment plan is a compromised effort.

Compromised settlements will be a stock solution for a huge number of investors, but this doesn’t demand insolvency. In fact, Personal Insolvency (given that property ownership is required to opt for it) may not be anywhere near as popular as predicted because sales resulting in losses will mean the debt is unsecured.

There is still the family home, but banks have given an undertaking to help cut deals for family homes once unsecured debtors are taken care of first, that is what doing a Debt Settlement Arrangement is for, a Section 69 …

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AIB debt writedowns? What does it mean?

The Irish Times carried an article that stated that AIB would write down some mortgage debt. What does this mean though and who will be the beneficiary?

To begin with, the write-downs should be no surprise, that is what the provisions AIB have been putting aside for several years are for, in fact, to date it’s almost like they weren’t playing fairly because they were booking provisions but not actually using them for what they were for.

Secondly, there are 33,000 AIB mortgages with problems, of these about 10,000 are ‘unsustainable’ and for those mortgages there will be losses booked – that is the ‘writedowns’ they are talking about in the main, but on the end of whatever solution comes out of if the person may not be the owner of the home.

Several solutions are things like ‘split mortgages’ which require no writedown, others will be ‘mortgage to rent’ which will, because in that process the ownership will change and that means crystallizing the loss. How many of the 10,000 will come out …

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