Is the mortgage crisis worse than we thought?

Is the mortgage crisis worse than we thought?

MABS (the Money Advice and Budgeting Service) a publicly funded group who are given €18,500,000 a year to help the indebted, have produced research which indicates that when it comes to people with mortgage difficulty that the people affected are mainly those with children and are aged from 41 to 65.

They also found that the loan was typically with a regular lender, not a sub-primer.

This is counter to the popular message that the ‘negative equity generation’ are all in their late 20’s and 30’s. In fact, here is a piece we wrote about a recent client (couple in early 60’s) who were being asked to ‘give up their home’ as two of only one solution offered! The letter provided wasn’t even fully legible as the EBS clearly had some printing issues that day.

On an anecdotal level, the distressed cases that come to Irish Mortgage Brokers for advice are often older too. This may be because people of a certain age are more likely to turn to advisors, or it may reinforce the research which MABS has produced as our sample pool is nowhere near big enough to provide similar data (MABS used a 6,000 strong sample of people).

The report went on to claim that banks were taking up to two months to get back to people on mortgage arrears issues and this is in line with what we see regularly. Getting banks to give any kind of definitive answer, reply to anything where there is any level of commitment to a plan or even making a decision requires everything to go up the line to management and then back down the line to the consumer (eventually), making negotiations a protracted and painful process at the best of times.

Something else we are seeing is that older people are more likely to pay unsecured creditors who are aggressive with them. While the Code of Conduct on Mortgage arrears sets out limits on the number of calls banks can make this code doesn’t apply to Credit Unions or Credit Card companies.

They are subject to the Consumer Protection Code which has similar limitations but this is difficult to police because the national focus is on the mortgage portion of the loan. We know of no complaint (to date) on unsecured debt being based around excessive calls, but what I can say is that the actual collectors are often aggressive (mortgage arrears require empathy by law) and in some cases have broken regulation codes.

Where regulation codes were broken we acted immediately to complain to the firms compliance officer, but a normal person wouldn’t realise that nuanced points of financial regulation were not being adhered to, even when you do this for a living you find out new methods lenders employ to get around the code and then have to change tack in order to prevent them.

The MABS report also found that a high number of people are suffering from anxiety, stress and depression. That use of the word ‘high’ has no definitive number attached, but again, based on our firms clients we would agree. A key issue here though is not the debt itself, it is the protracted resolution process where people are kept in a position of uncertainty.

The lack of an alternative resolution scheme only makes it worse, but for why that is still not in operation and yet again delayed we might need to ask our minister of justice Mr. Shatter.

Karl Deeter is Compliance Manager of Irish Mortgage Brokers in Dublin 2.

What do you think of this? Have your say….

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There are 16 comments for this article
  1. owen at 5:46 pm

    It is correct that one cant get a response from the bankers because of a slow buerocratic process which frustrates everyone and in the end the answer is always negative. Now the government give the banks the final say and e veto over everything. The banks can now control peoples lives, where they go, what they eat etc. This worse than anything that has gone before…they lecture us when they wrecked the country, made the people take over their debts. This is worse than any administration in Ireland, be it the present government or pre 1921. People should protest about this and be vociferous . Everyone should visit their TDS/Senators/Councillors and let them know and insist on their dealing with it seriously.Only if their vote is in jeopardy will TDS act. When one grinds the people into the ground with no hope left they die, commit suicide or develope mental illness, costing the state more money in medical care, not to mind ruining peoples lives for the greed of others. This is the first time in my life I have felt angry about our government and bankers and the regularatory authorities. By the way this is on behalf of others. I personally have no negative equity.

  2. Maire at 4:25 pm

    Why in gods name are we supporting banks that are holding their customers to random? They recklessly lent money to individuals who could never pay it back? Paid little heed to ‘Stress testing’ these loans ( it’s where they are required by Codes of Practice to ensure if there is a rate hike that a customer coukd handle the increased repayments) but low and behold many cant even repay the interest only repayments now. Bankers use statistics to hide behind take a criminally long time to come back with their reply and generally treat people with blearily concealed contempt. I wish more people would stand up to these bullies and say no more they can’t repossess a family home for at least 12months. I firmly believe the customers who face them down get a lot of what they request as they dislike bad press. You always have the ombudsman as a back up too

  3. John Joseph mcDermott at 3:29 pm

    It would be unfair to the majority of young people who are permanently stuck in “starter” apartments and cannot even afford their outrageous mortgage (up to 500,000 Euros) if people who borrowed say 1 million Euros to buy an nice family home, were given equal treatment in terms of debt forgiveness.

  4. Dermot Kearns at 2:37 pm

    A 50% write down across the board will not only solve the mortgage crisis it will kick start the economy. You have to understand one thing the only people to gain anything from pressurising distressed Irish families is Banks, money lenders and politicians- the politicians get patted on the head for being the good guys for bowing to their masters, Non Irish citizens I might add.
    The fight is gone out of the fighting Irish.
    Irish citizens did not cause this crisis but are being forced by Irish politicians, banks and non Irish citizens to pay for their failures to enforce the laws of this land. The anniversary of the 1916 rising is almost upon us and to be honest the only proud people on the streets should be Irish politicians celebrating a victory over their own kind.

  5. Jack Canon at 1:24 pm

    I firmly believe a write down of all mortgages across the board is the quickest solution to getting control on the mortgage crisis. To limit the moral hazard of those lucky enough not to find themselves not in finaical difficulty an equity share should be taken in the property by the lending institution. Say the mortgage write down for an individual is 50%, then the lender takes a 50% equity share in the property. Should the property be sold at a later date, following clearing the remainder of the mortgage, the lender gets an additional 50% of the excess proceeds of the sale.

    Another method of reducing the pressure on people is to simply extend the term of the mortgage to say a 100 or 200 years, with compulsory life cover to be kept in place throughout thus ensuring repayment of the mortgage balance on death. Alternatively reduce the repayments to 30% or 35% of the persons net take home pay. This will allow people to live a little and free up some money to be spent in the economy which is what the country needs right now.

  6. Karl Deeter Author at 12:23 pm

    @Joseph Lennon: in a way that’s what an interest only loan does, it’s term (when only paying interest) is perpetuity, but it doesn’t solve the capital reduction dilemma, so that idea might need something more to be effective.

    @Tim McMahon: good point, if the property has equity there might be good cause not to have any but also remember that under the CCA 1995 s. 126 that at a certain age they can waiver this.

    @Emanuela: sadly that is the way that reprofiling loans works, that was a private rant of mine for a while, any advantage from TRS, rate cuts or otherwise has been captured by lending margin.

  7. Hostage To Banks at 12:08 pm

    Having recently left the Bank to start up my own company, I tried to step down my borrowings by moving to a smaller home. Lo and behold the Banks will not do this, because I’m in a business start-up position and have very limited income for the first few years. Also I approached the same Bank for support for the new Business venture and could not secure funding because you guessed it, they wanted a full statement of Net Worth and personal guarantees. And this is a Bank that says its lending to the SME sector! For the love of God just shut these Zombie Banks down…

  8. Anthony at 12:00 pm

    Im up to my tonsils in mortgage debt on investment property new builds not rented and lying idle. Properties worth 50% of loan now and unlikely to get better.
    Mortgage loan amounts are, on average countrywide twice the cost of the property.
    Mortgage writedowns should be around 50% (each case on its own merits). This allows everyone to start again, move up or down and allows development of suitable idle properties.

  9. Paddy at 11:59 am

    The banks have two options with mortage debt really. Extend and pretend (as they have been doing up to now) and hope there is some sort of recovery and that they will avoid massive debt write downs. However in the meantime the repayments being made on these properties will continue to decrease as every month / year goes by.

    You’d have to think there is a logic in forcing the sale of a property and selling it to someone else who has the ability to properly service their mortage. There has to be write offs and short term full and final settlement deals with the old borrowers as well.

    Based on the current strategy the only way the banks are ever going to get paid is if there is a sustained bout (a decade maybe) of annual house price growth of say 7% pa. That doesn’t look likely any time soon. It might start to happen in four or five years time but mortgage arrears of three months and over will probably be heading for 30% of the owner occupier market at that stage and closer to 50% in the buy to let market.

    In my experience of debts the longer the person or institution owed the money takes to bring the matter to a head the less they end up recovering. In property there is always the hope that the capital values will rise and eventually exceed the outstanding loan. If you are a bank and you adopt this strategy then as sure as night follows day your bread and butter of monthly interest and capital repayments will continue to dwindle as eventually borrowers will say to themselves why should they bother servicing a loan that they have no chance of ever clearing within their working life? They might as well use their hard earned cash for some other positive purpose rather than pouring it down a black hole.

  10. damiangibney at 11:14 am

    we want our economy back ,there are too many people behind in mortgage repayments ,that cannot and will not be able to get out of the amount of debit they are now in ,the society as we knew ,will never be able to start off as people have no money to pay the banks ,as a result the country will not be able for growth in the future the debit was caused by the banks in the first place ,they have messed up the economy of the state ,make them pay

  11. Helena at 11:09 am

    Hi, I am in negative equity, had my shared ownership morgage house, with my local council on the market for 3 and a half years had to bring it down from top of market 195,000 to 85,000, still did not sell,no offers, had to take off the market as agent would not advertise it as he was now charging fees for advertising, which was not so at the start of agreement, he was not even advertising it in his travel agency. If I wanted to go with another agent I would have had to pay advertising fees up front, so as I could not afford them, the only thing I could do was take it off.I am a loan parent and not getting the payment that was ordered by the court, now withe the new legislation, as I am divorced my maintanance arrears case has to be heard in the circuit court, so I have to wait 9 months now for legal aid for that to be heard,as result of not getting this payment I cannot pay my morgage. I went to my lender who is the local authority and because I have morgage arrears of 2 and a half years because of the maintance issue, I asked them if it would be possible for me to avail of the morgage to rent option because of my circumstances and they flat out said no, that they got no money from the government to be able to offer this. In 2 years time because of the cutback I will lose my loan parents and be down 60.00 euros a week, which makes this morgage unsustainable. I was reading on the keeping your home.ie website, that the government issued a statement saying that the morgage to rent option was definatly being rolled out, so why is it in my dire situation that I am not being given this option? a morgage is a morgage, at the end of the day the lender, my local authority will repossess and look for the debt to be paid, just the same as the bank, so why are local authority morgages not given the same possible solutions as the bank morgages.If I don’t get this obtion I will have no choice but to file for banckrupcy for 3 years.

  12. Lynne Kavanagh at 11:06 am

    I agree with Joseph regarding extending the life of repayments. At least the banks are getting revenue. However I think more should be done to help customers with their mortages.

  13. Emanuela at 11:02 am

    I am in banking snd lookig to trade up, banks are still very conservative and rates are a lot higher. These means that trading up for us would be twice as costly with a mortgage principal that is less than what we have today!!!
    Families that over extended themselves a few years ago are stuck as the rental market does not offer much, properties are expensive for what they have to offer. If they are asked by the bank to trade down but in order to do so they may be giving up a €1mm mortgage with a tracker rate and payment of €4,300 to get a smaller place with half the mortgage (€500k) and still pay €4,000 a month as rates are now 400bps more than a few years ago.. In a nutshell, banks in Ireland are lending less and taking less risks but charging more. Rates are historically low and there should be an incentive to maintain previously secured low rates when trading up/down if the risk profile is unchanged. This would introduce some flexibility in the market.

  14. Tim McMahon at 10:51 am

    No thought seems to have been given to the bank’s insistence on extending life cover when they extend mortgage terms as part of a restructuring deal. If the mortgagee is in their 50’s or 60’s this can be prohibitive.

  15. joseph lennon at 10:41 am

    we can not write down every loan but the banks could be more helpful they could give life time mortages therefore bring down repayments and they would still get there full loan back but over a longer period.

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