James Fitzsimons: Play banks at their own game and get what you want
If in mortgage arrears protect yourself and, at the very least, enter a resolution process
Published 01/09/2013 | 05:00
AFTER five years of acting like headless chickens, the banks are tightening their grip on those with distressed mortgages.
Europe and the Department of Finance want to see more repossessions, and the Central Bank wants the arrears cases back on track. They've told the banks what to do, but true to form, even though many are in State ownership, or on support, they are doing it their way and they are not for changing. If you are in arrears, or fear that you soon could be, you need to know what to expect.
If you default on your mortgage you are in breach of contract and the bank is entitled to repossess. It's the wrong solution for the problems that most people have, but it's the easiest way for lenders to deal with it.
It's not about fairness, it's about keeping the gravy train going until they run out of track. And that could take forever. They are organised, but those in trouble are not. The Central Bank should be protecting distressed borrowers, but it's like asking the fox to guard the henhouse. Europe is calling the shots.
There are some things you need to know. First, if you have missed repayments you are in breach of contract and the assets that secured the mortgage may be forfeited. The only way out is to renegotiate the contract but there is no obligation on the banks to do so. Like it or not, you must go cap in hand and ask for a deal. This might seem futile, in view of how banks have treated people until now. They can do what they like, but if they don't act within the code, you can complain to the Central Bank. There is no guarantee of satisfaction, but it might stop them having it their way. For now, that's as much as you can hope to do.
It's a pity we are putting so much into a system that didn't work in the first place. The resources could have been used directly to help those in trouble. Split mortgages, lower interest charges and even debt forgiveness could have been applied where they were due. It was never the banks' initiative to have a social conscience. But they need to be reasonable.
The banks can't cope with mortgage arrears and what they are doing will make things worse. There's only one entity that could sort out the mortgage arrears crisis and that's the Revenue Commissioners. Nobody wanted to pay the property tax, but as soon as the Revenue took over, nearly everybody paid. In the process they got more information about property in this country than they ever had before. Some people even think they play fair and we know they do deals.
Frank Daly, former Revenue chairman, was appointed to Nama, to sort out the developers. It didn't work out as planned, but maybe they've learnt from their mistakes. The banks are up to their necks trying to cover up their mistakes and bad loans. They should never have been appointed to find the solutions and they have already refused to give them. We need an independent body to oversee and control the resolution of the mortgage crisis. If there are many in strategic default, it won't take long to find them.
We should draw a line in the sand as lenders can't sort it out between themselves, and take back the money they were given to do the job. Give somebody else a turn. Meanwhile, those in default can still lose their assets if they are not co-operating, and that's not easy to do. If you are lucky enough to have a pension fund they can stop you paying into that too. The Government made private-sector pensions fair game. If you've a public-sector pension there's not much they can do.
If you are in arrears or heading there, you need to understand the Mortgage Arrears Resolution Process and how to use it. If your troubles are minor it should help you. If they are complicated it favours the banks, but you must enter it nonetheless. It's not just about keeping your home, it's about keeping control and protecting what rights you have. But what can you expect from them?
Since the way was cleared for the banks to repossess homes, they've displayed it like a loaded gun on their desks. Thousands of letters threatening legal action and worse have been issued to those who are in arrears. They want a lot, much more than most people can give. This is no reason to ignore the problem, you must fight for your rights. If you shut your eyes and hope for the best, the worst may happen.
They did nothing up to now because the courts stopped them. When Alan Shatter changed the law, he put them back where they want to be. If you don't do something about it, they will hunt you down and take what they want. There is no sentiment in banking. They don't care whether it is your home, your pension, your investments, or your ill-gotten gains. They want it all and if you owe them something they will take it from you.
See what they have to offer and they will even pay an accountant to help make it clear. If that doesn't work, you still have options.
If you are ready to get your repayments back on track, and arrears are your only problem, you are clearly over the worst of it, so don't give them any more control. If you need forbearance, such as three to six months before things are flowing again, engage with the bank, or if reduced payments work they'll talk about that too. There won't be a settlement in every case, but they are restructuring to extend the term, and even capitalise the arrears. They don't want to talk about debt write-offs, but one day they will have no choice. They won't always capitalise arrears, you'll need a good excuse.
They charge interest on the arrears; €50,000 capitalised over 15 years at an interest rate of 4.5 per cent could cost you another €20,000 in interest charges. If your financial difficulties are forcing you to live on an overdraft, you could be paying interest of 13 per cent or 14 per cent just to hold things together. That's definitely not sustainable, but the banks are getting away with it. There are compelling arguments to say that they are responsible for the arrears as much as you. In the circumstances they should let you pay them off without charging interest.
If you are waiting for debt forgiveness, don't hold your breath. It's not that you don't deserve it, but it's not the business the banks are in. They'd lose any hope of getting private investment again and they've closed ranks to resist it. But they are not stupid and if there is no hope of getting anything back, genuine cases may benefit. If you feel that's where you are, make your case. You don't have to be a pauper to qualify.
If the banks don't play ball, the justice system might. It did once, but the real test has yet to come. Maybe the banks have bitten off more than they can chew. Even a bad system will rebalance itself eventually, so don't lose hope. No matter how bad things seem, things are going to get better. They always do. Meanwhile, know what the banks are offering and how to get what you want.
James Fitzsimons is an independent financial adviser specialising in tax and financial planning