AIB debt writedowns: good idea or bad idea

AIB debt writedowns: good idea or bad idea

Is a certain amount of debt set to be rubbed out?

There was possible good news for those struggling with their mortgages this week when AIB chief executive David Duffy said that the lender would write off unustainable debt for certain borrowers.

Mr Duffy said the bank would look at the “principle of affordability” of borrowers’ repayments.

While he said the bank would not engage in “debt forgiveness” where borrowings “magically go away” it is a significant step in the right direction of solving the problem of those seriously in arrears.

This does not mean anyone behind in their repayments could have debt writedowns. Quite the contrary, in fact, with Duffy pointing out that the bank was not capitalised to solve borrowers’ negative equity.

There are a few extreme cases though of people having mortgages that would be simply impossible to ever repay. It was revealed during the week that 7 out of 10 distressed mortgage holders at AIB are meeting their agreed interest-only payments.

It will be the remaining three in 10 that will likely be the focus of any possible debt writedown.

Affordability, rather than negative equity, will be the barometer used for assessing situations with loans being restructured into something that the customer can afford.

Bank of Ireland has dismissed a similar deal, pointing out that 86% of its customers who have switched to interest-only or some other form of restructuring are meeting their payments.

Their preference seems to be to focus on “mortgage-to-rent” deals, with 13 cases currently being worked upon.

There is little doubt that all other banks will be keeping an eye on the success or failure of AIB’s latest move.

Their action comes soon after the comments of the Central Bank’s Fiona Muldoon, who said that some form of debt writedown was needed.

Those comments appear to have been taken on board and we wait now to see how many people or businesses will benefit.

Today we ask your opinion on the matter. Is some form of debt writedown a necessity for certain people or is it unfair on those who continue to meet their monthly repayments? Do you believe many people will benefit from any writedowns? And will other banks follow AIB’s lead on this?

Let us know and if your say below…

There are 25 comments for this article
  1. R. SMITH at 6:41 pm

    I don’t think anyone should have their debts written off. I think the banks should have just frozen their accounts for 5 years, until maybe they got back on their feet. I think that if they do give debt forgiveness and the owners of the property do get work again that they should take up from where they left off with repayments. I think that debt forgiveness only means that the rest of us struggling with big mortgages only have to pay more in the long run with high interest rates to pay for those that were forgiven and this will drive even more people into debt then in turn, and more people will default. I think because this whole mess was caused by the banks and people are paying now way beyond their means because their wages have been cut (again because of the banks) that we all should be helped in some way ie letting those in real difficulty not anything for a few years and then start again then. Why should people be trying to pay back loans to banks that destroyed their finances and their prospects. I also think that this all needs to be properly regulated this time by the Government because it’s open to abuse. We will probably hear of a few big scandals relating to it in a few years time where wealthy individuals got mortgages written off because they knew someone in the banks.

  2. Mary at 10:01 am

    Very true. There are a lot of familys that are meeting mortgage repayment and really struggling, but to them the mortgage repayment is the first bill paid and everything else is secondary. Would this family be best off to choose to go on the dole just to get the mortgage write-down or struggle on…it would be very unfair if some get a write down and others don’t..

  3. Tony M. at 11:26 pm

    Unsustainable debt needs to be addressed. This is a drag on the local economy and is an issue that reaches far beyond moral hazard…

    One needs to assess who the 7/10 are that are paying on a interest only basis and the 3/10 that are not, firstly.

    If these peoples are home-owners as opposed to buy-to-lets then everything possible needs to be done to preserve the family home and rid them of unsustainable levels of debt. Not repackaging it.

    If on the other hand these are buy-to-lets these houses need to be kept in a non-debt write-down position. And as long as these investors contribute 100 per cent of rental income to keep their repayments than they should be facilitated to maintain their interest in the properties. If they fall behind then it’s time for the banks to take ownership and perhaps offer these properties to the tenants at a sensible price, similar or below market prices/value. Whatever that is presently???.

    No debt-forgiveness (write off) should be considered where the debt is affordable. When it is unsustainable for home-owners then write-down on part of the principle needs to be considered.

    Buy-to-let properties need to be repossessed…. No write-downs.

  4. Patrick at 12:42 pm

    Well whats new ?. They say you cant get blood outa that old stone.Therefore it is indeed a prudent, logical conclusion at this point in time.Other financial institutions will no doubt, have recognized the position, and will have to yield to the inevitable.There will no doubt be a element in our society and outside, who can afford to make commitments,who will with a little planning and financial expertise contrive to avail of this and any other scheme of a similar nature.Best of luck Mr Banks & indeed poor Mr & Mrs Desperate.

  5. Common Sense at 11:39 am

    It is obviously unfair on those who work hard to pay off their mortgages, that others who break the promises they made are allowed to get away with it. This should go without the saying.

    What is also unfair is to let off the idiots who worked for banks, those whose purpose it was to encourage the grand delusion of the Celtic Tiger that fell so soon from the property ladder. Were the lost money to be subtracted, directly from their salaries, who would not be in favour of that?

    It is not just the banks I am on about here. Estate agents are also to blame, crooked spivs whose purpose it is to take us all for fools.

    How many of the unpaid mortgages were sold by agents? A fair attempt to get to the bottom of that might stand the chance to do some good.

  6. damiangibney at 9:30 pm

    this has to happen, the banks dont have any choice i shall take them on and fight for what i have paid for. things dont always go there way in the court see www. blank of ireland and down load your free e book .learn for your self its not that hard you can defend your self in court it costs them aprox 5000 euro for a court case . your costs 0 your time dont play there game

  7. Eire at 9:03 pm

    It would be very unfair for those who are struggling but still manage to meet their payments and do not qualify for this writedowns.Definately not the way to go about this.

  8. desmond connolly at 8:46 pm

    i not fair on other people who are in mortgages say ten years or so life should be fair

  9. Aidan at 5:55 pm

    OK its like this
    The Irish state is bankrupt and will default.
    The Irish citizen is bankrupt and will default.
    We have no say on the state debt, we have some say on the citizens debt so we have two choices the state and citizen go bust or the state goes bust and the citizen is solvent.
    Time to choose!

  10. Tom Ryan at 5:18 pm

    “writedowns” when banks are still paying sport club subscriptions and other benefits for staff out of our money. But they do pay BIK. TOUGH HUH.

  11. Eidin at 5:01 pm

    No it is not fair on people who have kept up payments despite equally adverse conditions.

  12. Paddy Purell at 4:46 pm

    Hard question to answer, personally I would be against it. But then my mortgage is paid but it did take a lot sleepiness nights with an interest rate of 16/17% having said that I would find it hard to accept that others get away without the hard times.
    Maybe I’m being too hard I don’t know

  13. Joe Brady at 2:55 pm

    I think debt write down is essential to the recovery of the property market and to brining a large portion of our society who are trapped in homes unsuitable to there circumstances and who are also econoomically frozen becuse they cannot pay their bills or move to advance thier careers. I am an estate agent. I have not had a sale insturction on a 2 or 3 bed starter home from an owner occupier in 3 years. I know from that fact alone that these people are trapped by negative equity. This group is significant and would typically be at the household formation stage and be net contributors to economy. Trapping this group in gross negative equity serves no purpose. That is why the government (taxpayer) re-capitlized the banks. It’s time the banks used that tax payer capital to free the heart of our economy and quit the penal attitude they have had to date. Yes of course there is moral hazard and the risk of some people trying to take advantage of the situation. I think this is why Mr. Duffy (of AIB) could say no more than he did. His comments are welcome. Now let’s put into action as quickly as possible.

  14. John Cody at 2:12 pm

    I was a first time buyer in 2007 i decided to try get a foot on the property ladder and buy my first home as a single man i was working a good job at the time i got a accepted for a mortgage up to 250000 and went looking unfortunately a house was too far out of my price range so i was advised by the auctoneers to look at apartments i was shown a few but only could afford a one bedroom apartment i was a bit sceptical but was advised by same person that prices were going up another percentage and if i waited too long i might miss my chance i thought sure maybe i could trade up in 5 years to cut things short i bought a one bedroom apartment priced at 245000 the recession hit i lost my good job and struggled to make my payements my flat is worth less then half of half of what it was valued at and im working thank god in a low paying but thank god permanent job and still have to pay 800 euro a month i eat my dinners at my parents place could only find work 70kms away from my town so i pay 120 euro a week on fuel i have no food in my cupboards i have no savings all my leftover money goes on bills etc I hear alot of people saying they want to debt forgives and pay there mortgages alot of these same people bought before the boom and there house havent changed much in value and have more close to reality mortgages im 34 i am one on thousands of young people who only wanted to get a start in life give us a break

  15. Renato Besomi at 1:58 pm

    We think that the Banks should not let anybody off with the mortgages payments. They should maybe rearrange the mortgage over more time with smaller repayments.It would not be fair to those who are paying their mortgages and struggling, to write off the debts of others. It also would not be fair on the banks and the people who invest with them.

  16. Dermot Kearns at 1:34 pm

    Every borrower in negative equity due to over priced products bought between 2000 and 2010 should receive a 50% write down.
    You cannot discriminate between people who can and who cannot pay because very soon the people who can still pay now will become the people who cannot pay in the near future.
    If everyone receives a write down this economy will flurish once again.
    Bad management by the state, bankers, Realestate agents,Property developers and the German banks caused this problem.
    Ireland needs a break not a pat on the head.

  17. Simon Wilson at 12:40 pm

    An advantage given to one group over another on a level playing field is by definition unfair. However, as the risk taken by the banks in lending to those whose financial circumstances did not and never could justify the loan have been offset already by the taxpayer and the European loans then there is a case for a partial writedown of the loans to the bank. Bank of Ireland solution of mortgage to rent appears fairer but suggests that responsibility for the property would become a duty of the bank as landlord which is not and never has been their business.
    The vicious cycle of bank failure causing down turn within the general economy and consequently the ability to repay loans by mortgagees resulting in defaults and greater banking losses must come to some conclusion unless a complete collapse is to occur.

  18. patrick reid at 12:37 pm

    A debt write down will be a necessity if customers and financial institutions are to move forward.Yes people lost the run of themselves but it is nigh on impossible to go each individual case.I would suggest strongly those customers who are meeting their payments should be given say an extra 3-5yrs extension on their repayment period with no penalties as a reward.

  19. FedUpBailingOutTheBanks at 12:34 pm

    Of course AIB should write down the debts of the people that have bailed them out, after all there is precedence for AID to do this, they wrote off the debts of garret fitzgerald and that disease charlie haughy.

    As for Duffy’s comment about the bank being not capitalised to solve borrowers’ negative equity, bullshit, FUD, duffy is trying to link two totally unrelated things, people behind in their mortgage payments and negative equity. The real issue is people not being able to pay mortgages because of reduced wages and increased taxation.

    The Statements of Standard Accounting Practice (SSAPs) and/or Financial Reporting Standards (FRS) state that bad or doubtful debts must be provided for in a companies accounts and that any interest they may accrue cannot be used in projected future earnings. i.e. if an loan is behind then the company must carry a provision for the non-repayment of that loan in the accounts and they also cannot assume that they will get any repayments in the future and the loan is therefore written down. So the bank HAS already been recapitalised for bad and doubtful mortgages.

  20. John at 12:07 pm

    So we still can not keep our homes?
    Wages go down cost of living up banks now do their own interest rates, we still pay off their debt and 4 years on no help for us.
    We should have had our own nama. The banks have been given money to help with mortgages wrong institutions to have more money.

  21. Julie at 12:01 pm

    There should be absolutely no debt forgiveness, but negotiations done to make repayments affordable for the time being, by increasing the number of years of the mortgage. House prices are rising again and will continue to do in the coming years, so the debts will reduce naturally. If written off now and with properties continuing to increase in value, so if they put them on the market in five / tens years time, they will make a profit .. not correct or fair!

  22. Ken Harper at 11:29 am

    Good idea. Surely its better for the bank that they continue some sort of relationship with the sitting mortgagee rather than taking possession and selling at auction and getting only 25% of the loan value? It may also boost values by reducing the supply of distressed properties.

  23. Paddy at 11:24 am

    Give debt forgiveness to people who we silly or greedy enough to borrow 5 or 10 times their income just to purchase a property they did not need, no way. Be compassionate, extend the repayment time, sure, why not. But under no circumstances should the sensible majority who resisted the urge to over-commit be forced to pay for the sins of others who did. It never ceases to amaze me how supposedly sensible people have through a kind of self-hypnosis process convinced themselves that they are entitled to homes, cars and a lifestyle which even a basic analysis of their finances would reveal they cannot and never could have afforded. If you can, pay cash for everything you buy, but if you must borrow to buy a house, then limit the loan to not more than two and a half years gross income of the principle earner. Do not borrow more than this, rent till the property cycle hits a low, as it always does. This advise will not suit land speculators and property developers but it will keep you out of the debtors court.

  24. Dermot Kane at 11:08 am

    Debt write down is fundamentally unfair unless it is applied universally.

    Those who are unable to repay all of their debts at present should be placed on extended mortgages with any residual debt tranfering to the individual who inherits the the mortgaged property in the future.

  25. How Fair? at 10:59 am

    I would love to know exactly how this can be determined. I have neighbours who are not paying and do not intend to pay…yet, they are working under the table and planning holidays around the world for Christmas. While others aren’t paying either for 2 years (are paying interest because it’s less than rent and keeps them in the house) because they will leave the country in a yeThe rest of us struggle on. I would love to know exactly which mortgages are viewed as ‘will never be paid back’ for the purpose of writing down debts. The smart ones mentioned above will be the ones who strangle us more in the future as interest rates WILL go up and as we all cover the cost of them again.
    FURIOUS.

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