Sharp increase in debt write-down deals

A group involved in brokering deals between banks and distressed mortgage holders has reported a sharp increase in activity.

The Irish Mortgage Holders’ Organisation (IMHO) said it had recently negotiated 97 deals involving customers of Allied Irish Banks that included some form of debt write-down.

In one case, involving a couple in Cork, the bank had written off €195,000 in mortgage debt while allowing the couple and their two children to remain in the house.

The deal is believed to be one of the largest mortgage write-downs agreed by the State-owned bank. The couple had borrowed €478,000 to buy their home.

Under the terms of the deal, the family will have to service a new 30-year variable rate mortgage of €200,000, with an additional €100,000 being warehoused – effectively parked until a later date – and €195,000 written off. "There's been a monumental upsurge in activity" related to mortgage debt, said David Hall, a founder of the IMHO.

'Restructuring deals'
"After six years of banks doing nothing, we have banks now doing a combination of good and bad things from repossessions to restructuring deals," he said.

Last November, the IMHO agreed an initiative with AIB to provide negotiation services to mortgage holders who were in arrears.

Mr Hall said his organisation was now dealing with just over 2,000 clients from AIB or its building society EBS as well as 360 KBC bank customers.

However, he said there was anecdotal evidence that hundreds of customers were agreeing debt write-down deals with the banks independently of brokerages.

AIB yesterday declined to comment either on the IMHO figures or its policy in relation to debt write-down.

The bank recently announced a new split-mortgage product involving some form of automatic debt write-down.

Under the deal, eligible customers will have their loan broken into three tranches.

The first part, which the customer will be expected to repay, will be based on the current market value of their home, while another will be warehoused, interest-free, for settlement at a later date, with a final tranche being written off.

Security of tenure
"The uncertainty around the security of tenure in the property is resolved in this new split but obviously the more high-profile component of it is the fact that there can be a debt write-off within the product itself," Mr Hall said.

However, Fianna Fáil finance spokesman Michael McGrath called for “greater consistency” in how mortgage arrears cases are being handled.

“At present, there is a distinct lack of consistency across the different banks between the deals being achieved by borrowers in mortgage arrears,” he said.

“For example, the decision of AIB to grant some form of mortgage write-off to at least 100 borrowers contrasts sharply with the policy of the other pillar bank, Bank of Ireland, which does not support debt forgiveness of any kind.

“One bank’s sustainable solution could be another bank’s unsustainable mortgage, leading to repossession proceedings.

“For borrowers in difficulty with their mortgage, whether or not they are allowed to keep their home really shouldn’t come down to a game of poker in this way,” Mr McGrath said.

The latest Central Bank figures suggest 96,474 loans, or 12.6 per cent of the mortgage market, were in arrears of more than 90 days in the final quarter of last year.