Banks imposing 'draconian' rules on loan deals
BANKS are threatening to cancel deals for people in a mortgage mess if they borrow more money or earn extra income without telling the bankers.
The news comes as it emerged that the three main banks have sent more than 12,000 legal letters to struggling householders threatening repossession.
Details of the what have been described as draconian conditions imposed on heavily-indebted people who accept long-term solutions – such as split mortgages – have enraged support groups.
Bank of Ireland's Richie Boucher was yesterday accused by TDs of profiting from those who are in arrears by offering split mortgages.
The demands placed on customers being offered split-mortgage deals make it difficult for those behind on their payments to accept the deals, New Beginning's Vincent P Martin said.
He accused banks of putting unreasonable conditions into split-mortgage contracts.
Central Bank governor Patrick Honohan is among those who have hailed split mortgages as potential solutions to the mortgage crisis.
Banks offering splits can demand full payment of the "warehoused" part of the mortgage if the borrower's income increases, or they get an inheritance.
Contracts for split mortgages seen by the Irish Independent show that banks imposing strict conditions include:
* Bank of Ireland which states that the homeowner can stay on a European Central Bank-linked tracker rate. It calls this the repo rate, but adds: "If we certify that the repo rate is unavailable at any time or times we will charge you our prevailing variable rate".
* Permanent TSB's terms and conditions state that it reserves the right to terminate the agreement for any "reason as the bank in its discretion thinks fit".
* AIB/EBS states that people who get split mortgages will not be allowed to borrow more than €5,000 without the bank's consent.
* Bank of Ireland sets out four circumstances when it will end the split arrangement, including if the mortgage holder misses a payment, if the household income rises but the bank is not told, or if the bank considers it necessary to "protect or maintain our security for the loan".
* The Irish Credit Bureau will be informed, harming the homeowner's credit rating, three different banks point out.
The tough conditions emerged as bank bosses were called before the Oireachtas Finance Committee to outline how they are getting to grips with the home-loans crisis paralysing middle Ireland.
TDs and senators were shown figures from Ulster Bank's Jim Brown and on Tuesday by AIB's David Duffy that show much of their efforts to deal with those in arrears involve sending legal letters threatening repossession of family homes. It raised fears that legal letters are being fired off by banks to meet specific targets set by the Central Bank to tackle long-term arrears.
Guidelines from the Central Bank show the legal route can count, but was supposed to be a last resort for banks.
Writing in the Irish Independent today, AIB's Mr Duffy says: "In cases where customers refuse to engage with the bank despite our efforts to reach them, we are left with no option but to pursue a legal resolution of the arrears situation, which may ultimately result in repossession.
"However, this is not an outcome which is desirable for either the customer or the bank.
"AIB cannot and will not use taxpayers' money to write off debts for those who are financially able to repay some or all of their liabilities," he writes.
Meanwhile, Ulster Bank's chief risk officer Stephen Bell said banks had been told there would be consequences if they missed the targets.
"Boards of directors will do what they need to do to hit the targets," he told committee members.
Bank of Ireland's Richie Boucher was accused by TDs of profiting from those who are in arrears by offering split mortgages – but then charging interest on the warehoused part of the mortgage.
A split mortgage is where part of the mortgage is put to one side for up to 20 years and full payment is made on part of the mortgage. The arrangement is supposed to lower the repayments until the homeowner is in a position to deal with the part of the mortgage that has been warehoused.
Barrister Mr Martin said split mortgages were set to become favoured solutions of banks as they meant banks did not have to write down loans on their balance sheets. But he advised anyone being offered one to seek legal advice. New Beginning offers free legal advice to people who are in trouble with their mortgage repayments. "The contracts for split mortgages are very one-sided. They are so much in favour of the banks that I would regard them as draconian," he said.
The Central Bank said it would only treat such split mortgages as sustainable if the lender agreed there was no recourse to any shortfall at the end of the term of the mortgage after the sale of the property.
And head of new Insolvency Service of Ireland Lorcan O'Connor told the Irish Independent that if split mortgages formed part of a personal insolvency deal then banks would have to clearly set by what happens at the end of the term of the split loan.