Coldwell Banker Estates

The Financial Regulator’s decision to impose a twelve-month moratorium on house repossessions for all mortgage lenders, and not just for the two main banks, will provide welcome relief for some hard-pressed homeowners. The decision reflects a rapidly worsening mortgage repayment situation. But it does not adequately address the problem.

In contrast, the Oireachtas Committee on Social and Family Affairs has recommended that a moratorium of 24 months should apply before a claim for home repossession can be brought before the courts.

Establishing a level playing pitch for mortgage lenders is an important first step. Requiring AIB and Bank of Ireland to apply a 12-month moratorium, while their competitors operated a six-month stay on legal action, was vulnerable to legal challenge.

Moving on from here and accommodating the interests of various competing parties will be difficult. As things stand, a 12-month moratorium only applies where the borrower actively engages with the lender. If that period is extended, debtors will have to be actively encouraged and advised on how to resolve their problems.

The number of repossession orders before the courts doubled in 2008 and amounted to 758. Figures from the Financial Regulator suggested that 26,000 homeowners were more than three months in arrears at the end of last year. And the Oireachtas committee has provided a figure of 35,000.

The situation requires urgent action on a number of fronts. Foreclosure serves nobody’s long-term interests. In that regard, the Irish Banking Federation has announced it will explore the scope for further initiatives that would provide protection for borrowers.

On a related front, the Government should introduce legislation amending bankruptcy laws that are more stringent than those in Britain and the United States. This applies in particular to personal insolvency. The Law Reform Commission recommended such action last year and there is a commitment to that effect in the revised programme for government. A statutory, non-courts-based, debt-settlement regime is required that will be both cheaper and quicker than the current system.

Crucially, it should be designed to provide protection for the homes of businessmen while encouraging the banks to deal more quickly with the issue of impaired loans.

Printed in The Irish Times 19.02.2010

THE NUMBER of mortgage-holders falling into default appears to be levelling off, according to the latest data from ratings agency Moody’s. Figures released yesterday on mortgage-backed bonds show that the incidence of loans where interest has not been paid for more than 90 days decreased slightly between November and December.

Moody’s said 3.24 per cent of Irish residential mortgages backing bonds issued by financial institutions were in 90-day arrears in December, down from 3.26 per cent in the previous month. The proportion of the loans in actual default also declined, from 0.82 per cent to 0.72 per cent.

Annual comparisons remain stark, however, with 90-day delinquency rates 110 per cent higher in December than in the same month of 2008. Defaults were up 167.1 per cent on the same basis, although the rate of annual increase in both cases was slower than in November.

First Active had the highest rate of 90-day delinquencies in December, with 4.87 per cent of the residential mortgages backing its bonds falling into this category. It also reported the highest default rate of 1.6 per cent, with both rates having increased since November.

Bank of Scotland (Ireland), which is exiting the Irish market, had the next-highest 90-day default rate in respect of its bonds.

Printed in The Irish Times 19.02.2010

The Financial Regulator has written to all mortgage lenders informing them that with effect from 17 February 2010, the Statutory Code of Conduct on Mortgage Arrears has been amended to require that a regulated firm must wait at least twelve months from the time arrears first arise before applying to the courts to commence enforcement of any legal action on repossession of a borrower’s primary residence.

Printed in The Property Week – 06 Feb ‘10

BANKS are working with thousands of home owners struggling to keep up with their mortgage repayments.

As many as 30,000 mortgage holders are being facilitated by the banks due to their difficulties in meeting their monthly repayments, according to the Irish Banking Federation.

Banks are working with their customers to help them though the current difficult period that has resulted in over-lending by the banks and over-borrowing by some of their clients.

Pat Farrell, chief executive of the IBF, said in the current difficult climate banks are working hard to stabilise the effects of 2009 and to rebuild in 2010.

Addressing the Chartered Accountants Leinster Society, Mr Farrell said banks here would do everything possible to help people deal with their arrears.

The banks also have to be realistic and pragmatic in how they deal with struggling borrowers, he said.

“We currently have various initiatives from Government and the Regulator and of course the sector itself, which has committed not to take legal action where homeowners engage with their financial provider.”

Banks accept the “need to look after people who have problems” in this very difficult climate, he said.

He stressed the banks “will engage constructively and proactively — with the minister and with other stakeholders — to develop solutions that are socially and economically responsible and which assist in the overall goal of economic recovery”.

He defended the banking sector’s approach to lending to SMEs which Central Bank governor Patrick Honohan said on Tuesday needed greater support if the economy and the banks are to thrive in the future.

Mr Honohan said the banks were running scared of the risk-taking and needed to address that issue.

Mr Farrell stressed the need for caution by the banks as well.

He said that “20%” of SME loans are non-performing, a fact highlighted by the recent Mazars report.

“I think you have got to be realistic about this,” Mr Farrell said.

The Small Firms Association has condemned the lack of cash for small Irish firms since the banking crisis struck. However, the amount of credit outstanding to the SME sector at over €33m has changed little, while the economy “has shrunk by 10%”, said Mr Farrell.

Banks also have to operate in a tougher riskier climate and are required to boost their capital bases while “the risk in terms of lending to the sector (SME) has risen considerably”, he said.

This story appeared in the printed version of the Irish Examiner Thursday, February 11, 2010

The Irish Times – Friday, February 5, 2010

The Finance Bill gives effect to the extension of mortgage interest relief for first-time buyers until the end of 2017, which was announced in the budget.

Qualifying mortgage holders whose entitlement to mortgage interest relief ends in 2010 or after will continue to receive the relief at the applicable rate until the end of 2017. Previously, entitlement to the relief expired after seven years.

Qualifying loans taken out before December 31st, 2011, will continue to get relief at the current rates until the end of 2017, while transitional arrangements are provided for qualifying loans taken out after December 2011 and the end of 2012. The relief will be provided at reduced rates for shorter periods in these instances.

Mortgage interest relief will be abolished entirely for the tax year 2018 and thereafter.

Several reliefs were abolished. From 2012, relief on service charges such as waste removal will no longer be available, with charges paid in 2010 eligible to be claimed against tax in 2011. Relief had been available at the standard rate for a maximum of €400.

The relief available to owners of significant buildings and gardens who are passive investors is to be abolished, effective from this year, although a transitional phasing out period will apply.

Other reliefs to be removed include property gifts to the State, the benefit-in-kind exemption for employer-provided art objects, capital allowances for childcare facilities and relief for long-term care policies.

Rescue of homeowners shouldn’t be too little, too late, says ISABEL MORTON 

IT MAY, at long last, have dawned on the Government that saving the banks was not too different from saving a sack of kittens from being drowned. Once saved, they quickly scatter, as they see no good reason to remain forever in your debt. In a recent survey conducted by the PIBA (Professional Insurance Brokers Association) the word “declined” appears on numerous occasions.

According to the survey, mortgage lending declined by €19 million last December, which was the eighth consecutive month of declines in lending. And, over three-quarters of PIBA’s 900 member firms throughout the country reported that between 60 per cent and 80 per cent of all mortgage applications had been – you’ve guessed it – “declined”. More proof, if it were needed, that banks are just not lending and have not been lending for some considerable time. However, where tardy about lending, they are lively about charging and it is expected that they will attempt to follow the example of PermanentTsb, which has once again increased its interest rates by 0.5 per cent on its standard variable mortgages having already hiked them up last July, by the same amount.

The media repeatedly asks whether or not the Government can do anything to prevent banks from doing this, but alas no: apparently banks, as per all other businesses, are entitled to do whatever they wish (within the law) in order to ensure that they trade profitably.

Presumably, however, there is little or no precedent for a situation where a bank is on the verge of collapse, has to be rescued by the State and remains operating under guidelines which prove to be flawed?

Now, this is where things become rather interesting because despite the fact that our banks appear to have broken virtually every rule and regulation in the book (obviously one which neither they, nor the financial regulator, ever read), for some strange reason, we’re told we must honour and respect their right to trade profitably, therefore continue to refinance them and permit them to raise interest rates.

Having traded recklessly, have banks not now forfeited all of their trading rights and entitlements? And, surely these rights should not be reinstated until the banks have been restructured and are operating to a new set of guidelines and under new regulation.

In order to avoid quoting you reams of boring and complicated banking rules and regulations, which vary between nations and jurisdictions, I stole from Wikipedia, which had a short and concise list of “objectives of bank regulation”:

Prudential: to reduce the level of risk bank creditors are exposed to (i.e. to protect depositors). Systemic risk: to reduce the risk of disruption resulting from adverse trading conditions for banks causing multiple or major bank failures. Avoid misuse of banks: to reduce the risk of banks being used for criminal purposes, e.g. laundering the proceeds of crime. To protect banking confidentiality. Credit allocation: to direct to favoured sectors.

Banks failed to adhere to all but the last of these objectives. Their credit allocation was indeed “directed to favoured sectors”, the construction industry having been the most favoured of all. Must we wait until the proposed banking enquiry is completed before beginning to restructure our banks? And in the meanwhile, are we going to continue to let them to hold us to ransom?

Despite being entirely responsible for the dire state of our economy, banks saw fit to repossess over 360 Irish homes last year and showed no mercy to their creditors. And, just as we despaired of the Government’s apparent lack of control of the banking sector, we learn that at long last, it’s putting its foot down and demanding that the banks extend the same helping hand to its creditors as is being extended to them by the taxpayers.

Financially stressed Irish homeowners are to get Nama-style mortgage relief, which may, or may not put a stop to the avalanche of home repossessions predicted due to the increased number of households in mortgage arrears. In an effort to persuade banks and lending institutions to assist the 26,000 (and rising) households who are struggling or unable to service their mortgage repayments, the Green Party has drawn up a scheme to encourage banks to take equity in the homes or take ownership of the houses but agree to lease them back to their clients, with the rent payments to be deducted from their loan.

While undoubtedly relieved that something is being done for the hard-pressed mortgage holders, we must now ensure that it’s not too little and too late. A retrospective review should be undertaken, in order to include the unfortunate people who have already suffered harassment from their banks and been put through the horrors of the courts before having homes repossessed.

Having catnapped for over a decade, the Government must now accept that the fat cats are out of the bag and they, along with the alley cats, who indulged in so much cream over the years, will now be skinned, one way or the other.

Thousands of stretched borrowers renegotiate mortgage deals

By Charlie Weston Personal Finance Editor

Wednesday February 03 2010

THOUSANDS of hard-up homeowners have succeeded in getting their lenders to allow them to restructure their mortgages in a bid to make their repayments more manageable.

In excess of 30,000 homeowners have renegotiated their mortgage deals with their lenders, the Irish Independent has learned.

The Irish Banking Federation (IBF) said cash-strapped homeowners have been forced to come to a new agreement with their lenders after they lost jobs or suffered pay cuts.

However, some mortgage experts reckon the numbers who have restructured their mortgages is far higher.

Mortgage adviser Karl Deeter, of Irish Mortgage Brokers, pointed out that more than 26,000 people were at least three months in arrears, according to Financial Regulator figures.

“To say that just 30,000 people have restructured their mortgages does not seem right. If 26,000 people are in arrears, it seems a bit unusual that just another 4,000 have restructured their mortgages,” he added.

Homeowners on standard variable rate mortgages are facing the prospect of higher rates after Permanent TSB raised its interest rate on their mortgages by 0.5pc at the start of this week.

Other lenders are expected to follow suit, in a move that could affect up to 350,000 people.

Banks and building societies are free to hike standard variable rates whenever they want, but can only move trackers when the European Central Bank raises rates.

Difficulty

IBF chief executive Pat Farrell insisted on RTE’s ‘Morning Ireland‘ that banks were working with borrowers in difficulty to keep them in their homes.

He said thousands of mortgages have already been restructured, adding that this included payments holidays. This is where the homeowner does not pay anything for a certain amount of time.

Another option being allowed by banks is the rolling-up of interest. This is where there is no interest initially, but it is added to the loan amount.

He said another option being offered to borrowers was to extend the term of the loan.

Mr Farrell added that banks were losing money on mortgages because of funding costs, but lenders who are members of the IBF would not seek to repossess a home where the borrower engages with the bank or building society.

There are 8,000 cases where a formal demand for the property or legal proceedings have been issued, according to the Financial Regulator. And more than 6,400 people have failed to pay their mortgage for a year or more, a recent report from Moody’s rating agency shows.

Communications Minister Eamon Ryan is pushing plans at Cabinet level to assist mortgage holders with arrears.

- Charlie Weston Personal Finance Editor

Irish Independent

By Charlie Weston

Tuesday February 02 2010

SOME banks are charging their own customers far more for fixed-rate mortgages than new borrowers, the Irish Independent has learned.

A number of lenders were last night accused of discrimination after it emerged they were charging some of the highest rates for existing customers who wanted to lock in to a fixed-rate home loan.

But new customers are able to avail of rates that are up to an unprecedented 2pc cheaper.

Permanent TSB, Bank of Ireland and KBC Homeloans have been accused of punishing customers for being loyal because they charge higher fixed-rate mortgages to existing custo- mers.

Thousands of people want to lock in to fixed rates following the move by Permanent TSB (PTSB) to increase its standard variable rate by 0.5pc, with others expected to follow.

Some fixed rates are at historically low levels.

But mortgage brokers said some of the rates being offered to existing customers who wanted to fix were so high that it did not make fixing worthwhile.

PTSB offers a new customer the option of fixed for five years at 3.7pc, but an existing customer who wants to lock in to the five-year fixed rate will be charged 5.75pc.

There is a difference of €293 a month in the repayments on a €250,000 mortgage over 30 years between the two rates.

Consumer watchdogs said the higher rates being imposed on existing mortgage holders seeking to fix their mortgages was an attempt to stop people fixing their mortgage rate.

“People need to be aware that there is crazy mortgage pricing going on out there,” Consumers’ Association chief executive Dermott Jewell said.

He also accused the mortgage industry of confusing people by offering different rates depending on what percentage of the value of the home was being borrowed. The introduction of so-called tiered loan to value rates were hugely confusing for consumers.

The Irish Independent last week revealed that around 350,000 homeowners have standard variable-rate mortgages, on which banks are free to increase the rates whenever they want.

Switching mortgages is no longer an option for many homeowners as most of those who took out mortgages in the past few years are in negative equity. This is where they owe more on the mortgage than the house is worth.

A spokesman for PTSB said that it had always had discounted rates for new customers and denied it was punishing its existing customers now that it had raised its rates.

He stressed that the 3.7pc rate over five years was only available to new customers borrowing less than 50pc of the value of their home.

A spokeswoman for Bank of Ireland admitted it offered lower rates to new customers, but said this was done to help new buyers with the “additional costs which they incur” when they bought a first home.

- Charlie Weston

Irish Independent

By Emmet Oliver Deputy Business Editor

Tuesday February 02 2010

Plans by Minister Eamon Ryan to assist mortgage holders with arrears are likely to run into significant problems with the ratings agencies and providers of liquidity to the Irish banks.

The ratings agencies are likely to seek information on any government plan to write off mortgage arrears, offer payment holidays, or undertake debt-for-equity swaps for hard- pressed householders.

Shortly before Christmas, a plan by the Italian banks to offer a payment holiday scheme to householders immediately ran into problems with Moody’s which warned it could lead to downgrades for Italian residential mortgage-backed securities (RMBS).

Package

RMBS, which Irish banks undertake regularly, involve residential loans being packaged up and sold off to investors. These investors are then entitled to interest and principle payments from the mortgages.

Irish banks have also used residential mortgages as collateral for general liquidity, and any reduction in the value of these mortgages, via a write-off or payment holiday, is likely to make such funding more expensive, or possibly prohibitive.

The ratings agencies’ chief concern is that payment holidays, in particular, where the householder does not have to make any payments for an agreed period, simply end up creating a backlog of defaulting mortgages. In other words, defaulting loans are simply frozen for a period, but will still be in arrears at the end of the ‘holiday’ period.

Downgrades

“Without proper implementation, certain deals, especially those with low excess spread or no additional liquidity, may potentially suffer downgrades, especially on junior notes, mainly due to an increased risk of back-loaded defaults,” Moody’s analysts wrote recently about the Italian scheme.

Yesterday the Department of Finance declined to comment on the potential impact of Mr Ryan’s proposals on bank funding, but the Department said Finance Minister Brian Lenihan had held discussions with Mr Ryan and some proposals would go to cabinet shortly.

Mr Ryan has yet to specify the precise measures he would favour. But in recent months Irish banks have raised concerns that the wrong measures, if adopted, could seriously weaken bank funding.

Just before Christmas, a senior executive at EBS, Fidelma Clarke said: “There are, unfortunately, consequences for the banking industry in doing that. The way the system works is that institutions use loans as collateral for lines of credit for wholesale funding purposes and liquidity.

“Any damage to any contract, as would be seen by an international investor, could have unattended negative consequences for the Irish banking system. If all covered bonds, securitisations or liquidity facilities with the ECB were no longer deemed to be of the quality people thought they were signing up for, they could be downgraded.”. However she said the banking sector was open to new suggestions and government initiatives.

- Emmet Oliver Deputy Business Editor

Irish Independent

31 January 2010 By David Clerkin, Markets Correspondent

Permanent TSB is to pass on more pain to its fixed-rate mortgage customers in the coming months, following its move last week to hike the cost of its variable rate loans.

The bank, which increased the cost of its standard variable rate (SVR) mortgages by 0.5 per cent to 3.69 per cent with effect from tomorrow, will charge an even higher rate for customers coming off a fixed rate mortgage who wish to transfer to a variable rate.

These customers will be unable to sign up for the bank’s SVR mortgage and will instead be offered a separate product with rates up to 0.45 per cent higher than the SVR.

Those with a loan-to-value (LTV) ratio of more than 80 per cent will transfer to a variable rate loan of 4.15 per cent, while those with lower LTVs will pay 4.05 per cent.

About one third of the bank’s 180,000 mortgage customers are on fixed-rate loans, with rates that cannot be changed over a term agreed between bank and customer.

Most fixed-rate arrangements are put in place for periods of two or three years, although some customers have fixed their rates for up to ten years.

Fixed-rate terms are popular with borrowers who seek to protect themselves from ECB rate increases or unilateral moves by their lender to increase borrowing costs.

For the majority, however, the bank has discretion to set the rate that will be applied to their loan at the end of the fixed period. Lenders are not required to offer the same terms to these customers as those that are already on variable rate loans.

Permanent TSB’s revised pricing means fixed-rate customers who want to lock in their borrowing costs for an additional period will be offered rates that are between 1.1 per cent and 2 per cent higher than the variable rate that would otherwise apply to them.

A Permanent TSB spokesman said the variable rate offered to customers coming off fixed-rate contracts had differed from the SVR rate for some time, in common with other lenders.

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