Mortgage debt: banks are doing secret deals
Lenders easing burden on some customers in home loan crisis
BANKS are offering secret deals to release certain customers from crippling mortgage debts -- and allowing some in negative equity to move house.
An Irish Independent investigation has found that at least one bank is not chasing those who sell their home at a loss but cannot afford to make up the shortfall.
And major lenders such as AIB, Bank of Ireland and Permanent TSB have all been allowing "negative-equity" mortgages.
These permit small numbers of homeowners already in negative equity to take out another mortgage -- and carry that negative equity into the new home loan.
These solutions have the blessing of the Central Bank. Crucially, however, banks are not allowed to advertise them.
Instead, they are offering them on a strictly limited basis and only to those who have enough knowledge to ask for them.
Today Finance Minister Michael Noonan will tell the Dail's finance committee that we will have to wait three weeks for formal solutions to the mortgage debt crisis.
They are expected to include negative-equity mortgages, and assistance for those who sell their house but don't raise enough money to clear their mortgage.
But the Irish Independent has learned that one bank is already facilitating those left with a shortfall. They seek a judgment against them but do not enforce it.
Sources said the judgments were not being enforced because "you can't get blood from a stone" and there was no point in spending legal fees chasing borrowers who couldn't pay. That means borrowers will never have to pay off the cash but they will struggle to get credit again.
Such deals only arise when borrowers can show they can't afford to pay off the shortfall -- even if the bank were to let them pay it over a long period.
Borrowers also have to make a "voluntary surrender" where they hand back the keys and allow the bank to handle the sale of the property. The number of cases so far is limited.
Senior figures from other banks said that while they hadn't pursued such arrangements yet, they might have to with an increase in numbers selling houses at a loss.
"We are going to have a situation where we have to write off mortgages after voluntary surrenders," one source said.
Meanwhile, several banks, including AIB, Bank of Ireland and Permanent TSB, have been allowing customers already in negative equity to move house and take out new mortgages.
This is happening where a family finds themselves in an unsuitable property and wants to move to another one for a similar price, or if they have to move across the country for work reasons.
In these situations, banks have been allowing mortgage holders to take their negative equity with them to their new properties.
Again sources stress that the number of cases to date has been "very small".
The Central Bank confirmed that banks were allowed to offer negative-equity mortgages provided they did so "in accordance with criteria agreed in advance with the Central Bank".
These criteria include an assessment of the size of the loan, including the negative equity, against the value of the new property.
The size of the new mortgage relative to the borrower's income would also be considered, as would the credit history of the borrower.