Tracker mortgage Q&A: Why have so few people received compensation?

Why is the tracker mortgage scandal back in the news?

The Central Bank on Tuesday issued a new report saying just 25 per cent of customers hit by the scandal had received redress and compensation so far. The the number of people impacted by the issue has risen by 23 per cent to 13,000, and is expected to rise further.

How were these mortgage holders impacted?

Of the cases uncovered so far, 60 per cent did not receive tracker accounts when they should while 40 per cent did not receive the correct margin on their property loan.

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What was the fallout?

Apart from placing an unnecessary financial burden on thousands of people, the Central Bank said lenders had told it 23 homes were repossessed as were a further 79 buy-to-let properties.

Remind me what the scandal is about?

In simple terms, it has at its core a determination on the part of most of the mortgage lenders who operated in the Republic over the last 20 years to try and move people off loss-making tracker mortgages following the crash.

During this time, borrowing became extremely costly for Irish banks. They could not get their hands on cash at rates anywhere close to the rates they had committed to offering all tracker holder for the lifetime of their mortgages. That meant every one of the hundreds of thousands of tracker loans they had given out in Ireland were costing them money.

What kind of money are we talking about?

Given that the official ECB rate is just 0.05 per cent, a person on a tracker is paying an interest rate of between 0.8 per cent and 1.3 per cent on their home loan. Typical variable rates, meanwhile, hover between 3 per cent and over 4 per cent.

If someone has a 25-year, €200,000 tracker mortgage and is paying 1 per cent over the ECB rate, they pay around €750 a month.

A variable rate mortgage holder owing the same money over the same term will pay around €1,110 a month.

If someone was taken off their tracker in 2008 and only found out about it last year they may have ended up paying €33,600 more than they should have. Over the course of a mortgage they could be looking at overpayments of more than €80,000.

When did this start?

For the thousands of people caught up in it, it started up to 10 years ago. That is when the banks realised they had not done their sums and when it dawned on them that writing all these tracker mortgages to claim market share might not have been so clever.

For years up until 2015 there were murmurings that banks were forcing people off trackers for the flimisiest of reasons but it was not until the summer of 2015 that the story reached a climax in courts when PTSB lost a case taken by two couples who had claimed their mortgage accounts had been mismanaged by the bank.

What happened then?

The case prompted an enforcement investigation by the Central Bank which identified “significant failures” by both PTSB and its subsidiary company, connected to tracker mortgage options and rates.

Among the issues identified was PTSB’s failure to inform certain customers of the consequences of their decisions to break early from a fixed rate or discounted tracker period.

As a result of the PTSB revelations, the Central Bank looked into the practices at other banks. A preliminary investigation later in 2015 led it to believe the problem was more widespread than initially thought and in October 2015 it wrote to all lenders notifying them of its intention to conduct a “broader examination of tracker mortgage-related issues covering ... transparency of communications with and contractual rights of tracker mortgage borrowers”

The scandal grew and grew.

Last December the Central Bank disclosed that “at least” 8,200 homeowners had been improperly denied a tracker mortgage by their lender and said those affected in the scandal could be as high as 15,000.

All the big lenders were caught up in the scandal?

Where are we now?

The banks have yet to deal satisfactorily with all the people whose lives they so badly affected. And it will be well into next year before they do so which means that for many of the impacted they will have endured a lost decade and endless torment at the hands of banks who used to - and still do - claim that they care deeply about their customers.

Could I have been impacted?

If you were on a tracker and were moved to a different rate or chose to go on a fixed rate and were put on a variable rate mortgage when the fixed period ended you may be a victim.

You may also have been impacted if you were on a tracker rate and the margin increased. The banks have been going through their books and have committed to contacting all customers affected.

What is the Central Bank doing?

It says it has “extensively engaged” with lenders and claimed that “lenders overall reviews are subject to ongoing assurance work and vigorous challenge”. It is taking a three-pronged approach when dealing with lenders. It wants the impacted customers identified, the harm stopped and those affected borrowers given redress and compensation.

Is the Central Bank not moving very slowly?

It says it has no choice but to take things very slowly and in its latest report it says had it sought a quicker resolution from lenders, consumers would have lost out.

It points to some areas where resolution offers from lenders fell short, including either failing to offer, or unacceptably low offers of compensation to affected borrowers.

Can it not just compel lenders to give certain levels of compensation?

Not really. The legislation giving it that power can only be applied to cases occurring after August 2013.

Have all the banks identified all the customers who were wrongly moved off trackers?

No. Two lenders - who the Central Bank will not name - are set to be pursued for what the Central Bank said were ongoing failures to identify customers caught up in the scandal.

What happens next?

The Central Bank wants all lenders to start their compensation programmes by year-end. As it stands, only 25 per cent of customers have got money they are owed and just three lenders have started redress programmes.

And on Thursday the Central Bank will appear before the Finance Comittee at the Oireachtas after which it is like ly to be back in the news.