The debt doctors: ‘There’s a black cloud over a lot of people’

A man approached William Prior as he stood in a muddy field at the National Ploughing Championships in Athy in the autumn of 2009. The man knew someone “with a few bob” who was interested in what Prior was doing, he said quietly.

“It seemed a bit shady,” Prior says now.

What Prior was doing was setting up a charity to help people who were being put under intolerable pressure by postcrash banks desperate to bring a soaring mortgage-arrears crisis under control.

Prior had seen the consequences of that pressure at close quarters. A year earlier a friend of his, a man in his 40s, had killed himself, leaving behind his wife and three young children. Although it’s impossible to know for certain what caused this tragedy, the friend had taken his life after being pursued by a bank that had cut his overdraft overnight and put his farm at risk.

“In the house after the funeral I heard about his debts,” Prior says. “I started wondering if there was anyone who could have helped him. I talked to the Money Advice & Budgeting Service, but back then there was nobody else out there. So I brought together a couple of people to see if we could do something [for others].”

The Phoenix Project was born.

William Prior, along with a qualified financial adviser, opened the doors of a small office just outside Portlaoise in 2009, and offered to help borrowers who were in danger of losing their homes. Prior wanted to make sure there were no barriers to people coming through his doors, and insisted from the outset that this new organisation would charge no fees for its work on behalf of borrowers. Securing charitable status took almost a year.

It was while Prior was building up his small enterprise that he met the man at the ploughing championships. He was suspicious of such unsolicited contact but needed money and knew better than to look a gift horse in the mouth.

His initial impression of shadiness gradually faded. “He came and looked at our set-up and was impressed.”

The man was a representative of two wealthy elderly farmers-turned-philanthropists who wanted to do something tangible to help Irish people deal with the financial problems that had suddenly beset them.

These two low-key farmers agreed to fund the Phoenix Project, and have done so since 2009. Last year it cost €540,000 to run. Their donation so far is more than €2 million. The project has kept tens of thousands of people in homes they might otherwise have been forced to surrender. In the process they have lifted great stresses from those people’s shoulders.

A condition of the funding was that the farmer philanthropists remain out of the public eye. They would be neither interviewed nor named for this article, and Prior still guards their identities closely.

None of its directors takes salaries

So do other members of his project team. When the garrulous Prior starts talking, even in general terms, about his backers and alludes to other charitable gestures they have made, his team cough politely and steer him off the topic.

Although there is an obvious lack of transparency about who funds Phoenix, the rest of its business is conducted in the open. Last year the organisation, which now employs 17 people, spent €540,000 on more than 3,000 cases, which works out at €157 per mortgage case handled. None of its directors takes salaries or expenses. Prior, as chief executive, earns less than €80,000 a year.

When the Phoenix Project was first envisaged almost no one else was doing its kind of work. Today there are many for-profit debt specialists, as well as organisations such as New Beginning and the Irish Mortgage Holders’ Association. What sets this group apart? Prior has his answer ready.

“We are completely free and independent. We don’t have any involvement with any other organisations. We have taken absolutely no money from the banks. We have been approached with offers of funding, but you cannot serve two masters.”

Jude: ‘I bent over backwards for the bank’

"My 89-year-old father opened the repossession letter from the Bank of Ireland, " says Jude Harper, who is 58. "It said we'd just seven days to vacate the property. He's a very elderly man and suffering from dementia.

“We try to keep as much from him as possible, because we don’t want him to get upset, but he always meets the postman, and he always thinks the post is for him. He opened the letter and read it. He got very upset and broke down.

“Things started to go wrong in 2009. I had a business that used to do the fittings for Atlantic Homecare, and we’d assemble flatpack furniture for its customers. It was good, and I had six people working for me, but then the company was bought out by the Grafton Group” – which also owns Woodie’s, Chadwicks and Heiton Buckley – “and my job disappeared. I went into my bank branch immediately and explained the situation. I had around €100,000 left on the mortgage. I was not in arrears, but I told the manager that there would be some difficult days ahead.

“At all times I wanted to work with the bank. Every six months I had to fill out a financial statement. It wasn’t too bad, but I wanted a long-term arrangement in place. They kept telling me to wait for a package that was being developed between the banks and the government.

“My Bank of Ireland case managers kept changing – there must have been six or seven of them. And every time a new person came in we had to start from scratch. Once, because of an overlap, I went into arrears of €1,100, but that was recapitalised.

“The payment should’ve been €1,020, and we were paying €650 every month. Then the bank started saying the mortgage was unsustainable. I did everything to try and reach an accommodation with them, but all my solutions were rejected. I suspect that there were two reasons why they were so keen to get me out of my house. I was on a tracker, and there was equity in my property.

“It was all very stressful. Then, earlier this year, they sent me that solicitor’s letter telling me they were repossessing my house within seven days. That was the one my dad opened.

“I had been dealing with the Phoenix Project already, so I rang them on the Friday evening, and by Monday an agreement was in place. Under the new deal I will pay just over €700. It will be reviewed in three years.

“I worked with the bank. I bent over backwards for the bank at every turn, and I jumped every fence they put in my way. And still it wasn’t enough. At least the Phoenix Project people gave me a voice and they made the banks listen.”

‘Economic recovery makes it harder’

Many of the Phoenix Project people previously worked in industries they must now negotiate with. Among those who work or volunteer in the centre just outside Portlaoise are former bank executives and former loan officers. A retired Revenue official – “a man who practically wrote Ireland’s tax code”, according to Prior – donates his time. Prior was an auctioneer during the boom years.

Abigail McEvoy is the Phoenix Project’s stress-management counsellor. “What we are seeing are people coming in with toxic levels of stress, and it is stress they have been living with for years. Sometimes they are hardly able to walk up the stairs. I have grown men crying in front of me every day, and that is something that can be hard to get used to.”

Almost daily she meets people who have kept their worries bottled up for years, she says, to the point that they are too ashamed to share their problems with even those closest to them. Then they reach breaking point. Often they are quietly referred to the Phoenix Project by TDs who are anxious, but unable, to help.

“When they come in they feel like total failures,” McEvoy says. “Their self-confidence and their self-esteem have been floored. They don’t discuss it with their families. And that is why they break down in front of me. They are totally overwhelmed – and then have to lay bare their private affairs in front of a stranger. It’s very difficult for them.

“For many it’s the same as dealing with a death. We see the same anger, denial, bargaining and depression. But the difference between death and debt is that in this situation they also have to survive. They have to try and put food on the table.”

Not long ago McEvoy had a couple come in to her in “dire straits”. Their heating had broken down, and they felt they had no option but to make it through the winter in the cold, so they could keep the banks off their backs. “That’s not right. People have to be able to live at the very basic level. I think that level of stress is destroying our society, and it has been so long in people’s systems.”

Listen to the Government and some talking heads in the media and you could be forgiven for thinking that the good times were rolling again. The economy is certainly on the up – growing at a rate of 7 per cent, according to figures published this week – but the rising tide is not lifting all boats. Some, in fact, are sinking faster and deeper, and tens of thousands of Irish people are still drowning in the debt swamp.

“On some levels the economic recovery is making it harder,” McEvoy says. “It makes people feel more helpless, more hopeless and more alone. They go home at the end of the working week. They pay all their bills and realise they don’t have enough money for food. There is this big black cloud sitting over a lot of people. They are not living. They’re only existing.”

‘She had absolutely no will to live’

Prior nods as she speaks. He recalls getting a late-night phone call from a distressed client, a university professor, not long ago.

She rang him sobbing, and said she could not handle the stress of her debts any more. A woman in her late 50s whose home was under threat of repossession, she told him that she was going to end her life.

“She was distraught and had absolutely no will to live or to carry on,” he says.

Prior and McEvoy went to her home, where they did their best to normalise the situation. The simple act of making tea steadied things a little. “She told us she’d been ill. She had multiple abscesses,” Prior says. “We had to convince her to visit a doctor. We resolved that, and she has been engaging with us since.”

After some difficult negotiations with her bank a deal has been reached, and the threat of repossession has been lifted.

Since 2009 the Phoenix Project has processed more than 18,000 cases. It has no repossessions on its books, although a handful of clients have voluntarily surrendered their homes.

This rankles with Prior, who is convinced that they did so only after being put under excessive pressure by banks.

‘The really important piece of information’

Tom O’Reilly is a financial adviser with the air of a man who could withstand pressure from bankers. “People need to understand the process,” he says calmly.

The process for most people starts with a standard financial statement, or SFS. Banks routinely expect people in financial difficulty to fill them out. The statements detail a person’s income and expenses.

But, O’Reilly says, the really important piece of information is the bit left over, the bit that can be used to pay a mortgage. It is the bit that can mean people stay in their homes or face repossession.

Such a financial statement is complex, but banks expect people under pressure to produce it alone; some even demand that a person complete it over the phone. “The SFS effectively is what determines if people keep their homes, but they don’t realise the importance of it,” O’Reilly says.

Depending on that statement, a bank can decide if a mortgage is sustainable.

“But the decision is made based on a snapshot in time, taken by someone who doesn’t know how to use the camera. If I could get just one message out there it would be, Please get help in filling out the SFS.”

When it comes to doing deals the SFS is important, but the identity of the bank is more important still. “Sometimes it comes down to luck – and which bank you took out your mortgage with all those years ago.”

If someone’s full mortgage repayments are €1,000 but they have only €500 left once they have met all their other expenses, with KBC they will get a split mortgage. This sees part of the outstanding loan warehoused – which is to say set to one side, for repayment later – and payments on the remainder set at a level that the customer can afford. Then, if circumstances change, the level of payment can also change.

But other banks view that person's mortgage as unsustainable. If they can pay €600 then AIB and EBS will do a deal, says O'Reilly. If a person wants to get a deal with Bank of Ireland they will need to come up with 80 per cent. Other institutions, particularly the funds that bought banks' loan books – might not do a deal at all. If that seems arbitrary, it's because that's exactly what it is.

‘I went into PTSB. At first they were helpful’

“ I was a victim of the recession,” says Albert Bagnall, who is 70. “I lost my job as thousands of others did. I was working in construction, and on good money, but the recession came and I got laid off, and suddenly I couldn’t afford my mortgage.

“At the height of the boom my house was worth €300,000. Now it’s worth maybe €100,000. I still owe around €80,000.

"I went into Permanent TSB, and at first they were helpful, but things dragged on. We're going back to 2010. As the years passed they started to put more and more pressure on me. I was getting aggressive phone calls from agents acting on the bank's behalf.

“I’m on the State pension, and was paying €500 a month into the mortgage to cover the interest, plus €100 to cover some of the capital. They kept pressing me to pay more. They were putting me under intolerable pressure.

“I am not stupid, but I don’t know how these things work. I was getting six or seven phone calls a day, so I just blocked the number. Once when I did answer the guy kept telling me the bank wasn’t the St Vincent de Paul. He was really rude. I just said I wasn’t looking for charity. I’m one of these people who will stand up for myself. But eventually it grinds you down.”

What some banks do and others don’t

Dave Kavanagh, another of the Phoenix Project’s qualified financial advisers, is well aware of what each bank will and will not do. He spent 40 years working in the Irish banking sector; he left six years ago to set up his own financial advisory company. He works with the Phoenix Project one day a week, and sees six or seven people every day he is there.

“AIB have solutions for nearly everybody these days,” Kavanagh says. “If you look at the most difficult banks to deal with, well, Permanent TSB would make up nearly a quarter of my clients, and when it comes to legal actions that bank is also among the most active.”

Bank of Ireland is not easy to deal with either. It is, in fact, “brutal”, he says. “It is not that AIB, EBS or KBC are soft, not by any means. What they are is realistic. With Bank of Ireland you have a chief executive” – Richie Boucher – “who is very bullish. They also have a very limited product range. If you cannot pay your full mortgage, or if you don’t qualify for their split mortgage, you quickly run out of options. I know they are just doing their job, but they should see the carnage that we see. They are particularly brutal.

“I worked in banking for 40 years, but I don’t have much sympathy for bankers now. I see the carnage before me, and my sympathy is for the distressed borrowers.”

A couple of years ago, for research purposes, Kavanagh decided to do a course leading to a professional certificate in residential-mortgage arrears. It is run under the auspices of the Institute of Bankers.

“I did it to see how the banks were training their staff. It was horrendous. It was all about challenging distressed borrowers about their standard financial statement. It was outrageous.”

He suggests that banks’ negotiating tactics have improved slightly in recent times, and when it comes to talking about borrowers’ spending the lenders focus more on the spending guidelines published by the Insolvency Service of Ireland. It has put reasonable living expenses at a starting point of about €1,200 a month, but this varies with people’s circumstances. The banks will add an additional 20 per cent to give borrowers a degree of wiggle room, says Kavanagh.

Bank of Ireland will not comment on individual cases but says its objective is “always to work to find a solution”. It says in more than eight out of 10 cases where customers have difficulty meeting mortgage repayments it can “offer forbearance”.

Permanent TSB is says it is surprised by the criticism in this article and has had “great success” in helping “huge numbers of customers who are in mortgage difficulties agree sustainable solutions”. The only explanation for a customer getting “six or seven calls a day”, says a spokesman, is “because they weren’t answering the calls and therefore we weren’t able to speak to them”.

‘If interest rates rise, the crisis deepens’

On the surface the arrears crisis appears to be subsiding. Recent figures from the Central Bank of Ireland show that the number of mortgage accounts in arrears continued to fall in the second quarter of 2015. There have now been eight consecutive quarters of decline.

In all, 98,137 – or 13 per cent – of mortgage accounts were in arrears at the end of June. This is a decline of 6.3 per cent compared with the first quarter of the year. But the figures also show that the number of mortgage accounts in arrears of two years or more are still rising.

“I think the reality is that the problem hasn’t really been reduced,” says O’Reilly. “There has been a lot of arrears capitalisation, but that really doesn’t address the problem. What we need are split mortgages, term extensions or rate reductions.”

John McGrath, chairman of the Phoenix Project, believes that, although things appear to be getting better, they could get a lot worse very quickly. The standard variable mortgage rate is about 4 per cent, he says. "The European Central Bank has been pursuing a policy of quantitative easing. That could take between 18 months and two years to start having a real impact. When it does, you could see inflation rising.

“Inflation is like a combination of a runaway train and an oil tanker. It can take off very quickly and be very hard to turn around. If inflation goes beyond 2 per cent in the euro zone you will see the Germans pushing for interest-rate increases.

“That means that the person on a mortgage rate of 4 per cent could be looking at a rate of 6 per cent. A lot of people have done deals with banks that have seen them squeezed. They don’t really have much wiggle room, and if interest rates rise the crisis will deepen.”

The group estimates that 49,000 people are still facing a serious threat of repossession. It might not happen today or tomorrow, but the threat is there.

It calls on banks to do more to develop long-term and sustainable solutions. There need to be more split mortgages and more mortgages for life. This would allow people who are in their 50s and 60s – and even 70s – and saddled with mortgage debt they cannot pay to defer some of the costs until they die.

“If a person has a mortgage of €1,200 and they pay €400 now, over the course of the next 20 or 30 years they will chip away at the debt as the house appreciates in value. It could be sold on their deaths, with the bank realising their assets in full,” O’Reilly says. “It is done elsewhere and could be done here, but the will doesn’t seem to be there on the part of the banks. It is up to the banks to make a decision. That is all we need: someone to decide.”

Jude and Albert

“We are in a better place now – and at least for the next three years,” says Jude Harper. “But after that I’m not sure what will happen. I’ve applied for a job that I might get, and that would change my circumstances completely. But it is all still very raw. I’m still very angry.”

Albert Bagnall knows that his situation remains precarious. “A lot of people will collapse mentally in situations like this, but I learned a long time ago to be proactive, to do something about your finances, and if you can’t do it yourself find somebody who can.

“I passed all the information on to the Phoenix Project. I pay €500 a month now. It’s tough going to pay all my bills and then pay the bank, but if I stop they will move in and they will take my house.”

The Phoenix Project is at phoenixproject.ie or 1850-203040