Charlie Weston: PTSB -- a very middle-class mortgage meltdown
THE collapse of Permanent TSB into State ownership is a direct consequence of middle Ireland getting too heavily into debt.
Permanent TSB did not make loans to developers during the boom, and did not have any loans go into National Asset Management Agency (NAMA).
It did not stump up money to support any crazy schemes to build 50 houses on rural fields, miles from the nearest village.
The tragedy of the collapse of Permanent TSB is that it got involved in nothing more exotic than mortgages.
The lender came unstuck because it had tracker mortgages given to residential homeowners at loss-making margins.
It has also ended up being bailed out by the State because it gave out too many buy-to-let mortgages to ordinary people who fancied themselves as property investors.
Now that the homeowners and small-time buy-to-let investors are feeling the financial squeeze, as much as €4bn may now have to be pumped into the bank.
One of the largest mortgage providers in the State, Permanent TSB was responsible for one-in-five mortgages issued during the property boom.
Six-out-of-10 of the bank's mortgages are trackers, with many pegged at 1pc above the European Central Bank rate.
This means that mortgage holders are paying 2pc at a time when the bank is paying 5pc to finance these loans -- costing the bank around €400m a year.
And massive losses are expected from the loose lending to small-time property investors.
During the housing bubble, Garda Gerry and Shopkeeper Sean acquired multiple units, with some of these borrowers now in financial distress.
They were prompted to acquire multiple units, in part, by a crazy scheme run by Permanent TSB that gave favourable rates to those who already had at least two buy-to-lets for more than a year.
Now these stalwarts of middle Ireland are feeling the pain and are being told by the bank they will lose their interest-only tracker deal on their investment, unless they come off their interest-only deal and start paying principle as well. For many this means a monthly rise in repayments of 400pc.
Around a quarter of the lender's mortgage book is thought to be buy-to-lets.
The stress tests assume that in the most extreme scenario there will be a €2.5bn loss on both residential and investor mortgages over three years.
In a statement Irish Life & Permanent said this "implied a doubling of defaults from current levels, the rapid foreclosure by the bank on defaulters and higher losses on the sale of repossessed homes".
It seems the Central Bank is preparing for the next wave of losses.