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MoneyTimes - September 10, 2013

Posted by Jill Kerby on September 10 2013 @ 09:00

WHAT TO DO WHEN THE MORTGAGE REPOSSESSION LETTER ARRIVES

So what can distressed mortgage-holders take away from last week’s grilling of four bank bosses (AIB, Bank of Ireland, Ulster Bank and PTSB) by the Oireachtas Finance Committee members?

First, the Committee was given a confused and incomplete picture of the ‘long term and sustainable’ mortgage solutions that the banks are being compelled to put in place by the Central Bank. Three out of four of the banks categorically insisted they are not writing down arrears though most advisers who are representing clients say they do, but only on a case-by-case basis and especially with buy-to-let owners.

Meanwhile, the banks have sent out at least 10,000 letters threatening repossession to customers who they claim have not ‘engaged’, some for up to three years or who are not paying enough or anything, off their loans. (A time-consuming audit of the banks’ resolution measures is underway by the Central Bank.)

‘Strategic defaulters’, claim the banks are people who have sufficient income, savings or other assets to pay their loans with but choose not to. However, many advocacy groups say a distinction has to be made for homeowners who are not paying their mortgages because they are forced by other unsecured creditors like car finance lenders or credit card providers to pay those loans first.

The committee were also given a confused and incomplete picture of the ‘long term and sustainable’ mortgage solutions that the banks are being compelled to offer by the Central Bank. While the committee were told that c1600 offers of split mortgages were made by the banks by June – this is a favourite but not necessary ideal solution - only a tiny number, about 143, have been accepted and only 17 processed.

Other loans are also being restructured – as interest only, extended terms, lower interest rates (Ulster Bank has been more creative in its thinking than the others by lowering the entire rate of some mortgages to just 0.95%), debt for equity and voluntary surrender.

But again, the numbers are low compared to the huge number of “pay up now” or we’ll repossess “offers”. Insolvency practitioners and other advisers I’ve spoken to are not overly impressed by the banks’ insistence that they will not be writing down mortgage debt. Richie Boucher of Bank of Ireland, they say, was the most direct when he said that debt-write downs and restructurings “come at a cost” and his bank was focussed on profits, not losses. This also explains why B of I (which is only 15% owned by the Irish state) is charging full interest on all split loans; the others are waiving interest payments on the part of the ‘warehoused’ mortgage, though all will expect that set aside portion to be fully repaid when the mortgage term matures.

A common thread of advice is running through my conversations with insolvency practitioners and financial advisers since the committee hearings. They all think the thousands of repossession letters are part of a game of bluff, to get people to engage and accept whatever deal is put before them, such as voluntary surrender or split loans.

They recommend that you:

1) Contact the bank immediately and seek a meeting.

2) If you haven’t done so already, fill out the MARP personal financial statement (see www.mabs.ie) which sets out your income, assets and liabilities.

3) Get advice from an impartial adviser like MABS, a private accountant or financial adviser, ideally before, during and after the meeting. This person can then interpret the banks’ offer and whether it is suitable.

4) If the banks’ ‘long term and sustainable’ offer is not to your liking, challenge or reject it and suggest a different one.

5) If the offer involves voluntary surrender, be aware that the bank will pursue you for the shortfall, so negotiate for the write-off of the shortfall. If the bank rejects this, consider that after a voluntary surrender you can apply for a Debt Settlement Arrangement (DSA) for up to €3m worth of unsecured debt, that is, the shortfall. At the end of a 5 year discharge period of the payable debt, you will be debt free.

6) If you are determined to keep your family home, and the bank does not offer a genuine long term and sustainable offer, consider a Personal Insolvency Arrangement (PIA). Be aware that 65% of creditors must approve the arrangement, ideally that includes some write-off of both secured and unsecured debt. If the mortgage lender has already rejected a deal, and they are your biggest creditor, they may not accept a PIA proposal.

7) Borrowers who are getting nowhere with their banks in securing a suitable deal or PIA, may have to call their creditors’ bluff and threaten the banks with bankruptcy, which will leave creditors with very little.

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