This article was originally published by Independent.
COUPLES in mortgage distress who borrowed big – paying “top dollar” for family homes and are now deepest in negative equity – have the best chance of securing a writedown from the banks, the Sunday Independent has learned.
The revelation came as it emerged that State-owned AIB has now written down debts on some 100 mortgages, while other financial institutions have also bitten the bullet on debt writedowns.
All of the main lenders are making a careful calculation before they agree to forgive money owed. And they will only agree to write off a portion of the mortgage and restructure the remainder if a debt writedown offers a better return than seizing a family home now worth a relative pittance.
However, this means couples deep in debt but whose homes are still in positive equity will not get a write-down and face the nightmare prospect of losing their family residence.
Hundreds of people have made enquiries about getting their mortgage written down since the first case was publicised two weeks ago.
A Dublin couple with two children who were hit with massive pay cuts as well as tax hikes since they bought their home had €150,000 wiped from their mortgage and will be allowed to stay in the family home.
In another case, a couple from Cork who had borrowed €478,000 got a €195,000 writedown on their debt.
But David Hall of the Irish Mortgage Holders Organisation (IMHO), which negotiated the deal, noted that the remaining portion of the loan has been spread out over 30 years rather than the original 20-year term.
That means the couple will still end up paying some €400,000 back on their original €478,000 loan. They will be paying that back at the current standard variable rate of about four per cent, Mr Hall said.
“Debt writedown is very much a remedy of last resort and it is not a cure-all solution,” Mr Hall told the Sunday Independent.
He believes that just one in 10 of those with distressed mortgages will be eligible for a debt writedown and the vast majority of those will be given much lower levels of debt forgiveness than the cases that hit the headlines in recent weeks.
“The bank considers two things, that the family can stay in the family home and continue to make payments and that the bank will achieve more financially by agreeing to write down a portion of the debt than they would by repossessing that home,” Mr Hall said.
Last week the Sunday Independent revealed that a separated mother from Meath who was threatened with eviction had just short of €155,000 written off the mortgage debt with another €40,000 of mortgage debt “parked.” Only if personal circumstances improve will the €40,000 part of the loan be resurrected.
The deal with EBS – now a subsidiary of AIB – was negotiated on her behalf by debt settlement company Moneybloom. It means her repayments have gone down from an unaffordable €1,544 a month to just €610 a month.
KBC Bank is also negotiating mortgage writedowns in some particular cases.
Meanwhile, the head of the Insolvency Service of Ireland (ISI) has defended the slow rate of progress in concluding deals since the ISI was set up in early September last year. As of last Monday, the ISI had, in its seven months in operation, concluded just 46 protective certificates, five debt settlement arrangements, three personal insolvency arrangements and 41 bankruptcies.
ISI director Lorcan O’Connor told the Sunday Independent: “It’s fair to say the numbers are low and it’s fair to say I would have expected the numbers to be higher.” He said the ISI would publish figures next month covering the first quarter which would show that “the trend is going in the right direction though, the numbers of concluded agreements will be low.
“If you look at the number of applications we have in the system it is now several hundred. Back in January it was just a couple of hundred. Given the length of time it takes for those to get through the system it does point to numbers improving,” he said.
Despite criticisms of the ISI, Mr O’Connor credited the organisation with helping debt advisory bodies such as the Irish Mortgage Holders Organisation to secure write-down deals with AIB and others lenders on behalf of distressed homeowners.
He said: “This time last year there wasn’t a single deal being done for anybody. The reason was banks were at sixes and sevens over how much expenditure they would allow somebody to live on.
“And this time last year the threat by a debtor to enter into a 12-year bankruptcy rang hollow with the banks. Now under the ISI and the new insolvency arrangements there is a three-year bankruptcy regime which has exercised minds and led to more deals being done.”