Posted by Jill Kerby on March 25 2014 @ 09:00
IN SERIOUS DEBT? WOULD YOU QUALIFY FOR A BIG MORTGAGE WRITE-DOWN?
Reports of huge mortgage debt forgiveness and repayment settlements at AIB – with amounts in excess of €200,000 being written off - is giving some people real hope that the light they see at the end of their own financial tunnel is not a fast travelling train, but instead a well lit space from which they will emerge.
Two of the three AIB reported cases involve the Irish Mortgage Holder’s Association, representing employed couples with children and a single, working woman with a child. In each case nearly half their huge mortgage debts were written off with the customers able to keep their homes. No interest or capital repayment had to be made on the relatively small amount of debt parked under a split mortgage arrangement, that would only be paid at the end of the term or sale of the property.
Their remaining personal, unsecured debts may be subject to other creditor arrangements I was told, possibly including formal DSAs (Debt Settlement Arrangements under the insolvency legislation). These too would likely involve more debt forgiveness.
So how does one qualify for these write-downs? And more importantly, since most of the other banks still insist they do not have write-down policies, will the Central Bank or government intervene to pressurise them to do so?
The IMHO, which is paid by AIB (with subsidiaries EBS and Haven) and now, by KBC Bank to act as a go-between with up to 2,000 and 350 of their most difficult mortgage arrears cases respectively, has successfully completed 250 settlements with AIB. Another 250 are in progress.
Over 40 of the AIB cases have included some debt write down ranging from as little as €2,000 to €215,000.
The IMHO’s David Hall has said that the huge debt write-offs cases are “exceptional” – not necessarily because of the size of the mortgage or even the size of the arrears, but rather because the bank itself found that the writing off the debt concerned, combined with parking another portion under a split mortgage, proved to be the best deal for the bank.
It was a combination of all these criteria, plus large amounts of negative equity that allowed the bank to conclude that forcing these owners into other forbearance measures, like interest-only payments, extended repayment terms, 50/50 split loans or even voluntary surrender, would result in a worse financial outcome for the bank. In the end, foreclosure, repossession and resale comes at a substantial legal and administration cost of any bank.
The pragmatic solution – which only happens to benefits the debtor - can be the best solution.
So who is the most likely candidate (aside from being in serious arrears and negative equity) for this kind of debt write-off?
Clearly, AIB customers are at the top of the queue for the moment, and possibly KBC Bank ones now that they too have engaged the IMHO’s services.
But no matter your bank, you need to show the ability to repay a restructured, debt reduced repayment schedule, which means you must have steady, relatively safe, income.
The total cost of repossession and resale of the property has to be unfavourable enough to indicate to the bank that it serves their purpose better to restructure with a debt write-down and get you off the ‘most difficult’ list.
The bank must also be satisfied that if they do not provide a truly sustainable arrangement in place, the risk of you going bankrupt is also high (or inevitable), which will return them absolutely nothing and still leave them with costs around the repossessed property.
Other financial advisers and debt managers are making informal debt deals and restructuring mortgages with the banks, even if but AIB (and now KBC) deny they are doing any write-downs as a matter of course.
Some of the other well known debt advice organisations include NewBeginnings.ie; NeoFinancial.ie and Bankruptcyadvice.ie, the latter of whom offer bankruptcy advice on-line or in person to mortgage holders who cannot secure an insolvency arrangement of any kind.
What is clear is that creditors and debtors appear to want to avoid the cumbersome, time-consuming and in some case, more expensive formal personal insolvency arrangements (PIAs): the Insolvency Service has issued fewer than 50 DSAs and PIAs since November.
Fewer bankruptcies are happening than expected – for now –for the some of the same reasons: it is expensive and can result in no financial gain when the only real asset is a negative equity property.
If you haven’t sought help with your serious mortgage arrears do so, either through not-for-profit groups like IMHO where the banks are paying the costs, or professional fee-based advisers. Check out your formal insolvency options at the ISI.ie
The government’s is unlikely to force widespread write-offs by all the banks. You need to be proactive by seeking assistance and acting in your own interests.
Doing nothing may have worked up to now, but it won’t forever.