Friday, March 13, 2015

Evidence of Non-Payers

One recurring issue in the mortgage crisis is the issue of non-payers or what are sometimes referred to as “strategic defaulters”.  It is likely that those who are paying nothing on their mortgage have chosen to do as the maximum amount they could pay can be expected to be above zero, even if it falls short of meeting the full mortgage payment.

Do such non-payers exist? Yes.  Here are the data from the last two quarters of 2014 on accounts that are more than 720 days arrears.

720 Days

The above just covers primary dwelling house (PDH) accounts that are more than 720 days in arrears.  There was only a small rise (0.8 per cent) in the number of accounts in this sample so most of the individual accounts are the same in both quarters.

It can be seen that the average amount of arrears rose by more than €2,700 in the quarter - €900 a month.  And this will be dragged down slightly by the accounts that entered this category in Q4 which likely have lower average arrears than those accounts already in the category.

If the arrears on these mortgages are growing by €900 per month it suggests that in many cases very little is being repaid.  With the definitions used it could be the case that there are accounts in this category who are back to making full repayments but have not cleared the historical arrears so the average cannot be construed as applying to all accounts.  But it is clear that arrears are accumulating rapidly on many accounts in this category.

Is there more evidence?  The issue of non-payers was discussed by the Oireachtas Finance committee last year.  Here are some extracts from a meeting with Ulster Bank.

Jim Brown: Since last summer, the number of customers in arrears who have not engaged with us and are not making any contribution to their mortgage has reduced significantly from 35% to 14%.  This number is still unacceptably high. It is not fair to all other people who pay their mortgage that someone makes no contribution to the cost of their accommodation. We have no choice other than to pursue these customers through the legal route. Having said that, the primary intent of legal action is to encourage meaningful re-engagement so we can help. Any customer can take themselves out of the legal process at any stage by meaningfully re-engaging. We are pleased to advise the committee that almost half of our customers entering the legal process have re-engaged with us. Unfortunately, that means the same number are not engaging despite the seriousness of the situation.

Stephen Bell: They [borrowers to whom Ulster Bank has issued legal proceedings] are not meeting their repayments and are not responding to phone calls or letters. When the point is reached whereby over an extended period no repayment has been made and there has been no response to any letters or phone calls and, on occasions when we have sent an experienced adviser to the property, no response in that regard, we then have few options open to us. I would point out that we made a clear commitment that we will have an Ulster Bank representative at every court hearing so that if the customer does present there is an opportunity to engage with him or her and discuss the options in terms of recommencement of meaningful payments.

Stephen Bell: The 14%-15% who we said have neither engaged nor paid for an extended period constitutes another approximately 2,300 customers.

Jim Brown: As mentioned, there is a significant group of customers who have not made any repayments at all for up to two years or longer and refuse to engage with us. The only route available to us in this regard is the court process.

Stephen Bell: It is a matter of considerable regret to us that in some of the cases that are going through the legal system at the moment, the last payment we received was in 2007. These are extraordinarily long cases whereby the court process has run for such a long period that the eventual losses to both the customer and the bank have escalated beyond all recognition. These customers would have been provided with every possible opportunity to engage with us and reach an alternative solution.

Stephen Bell: The figure I have mentioned relates to both buy-to-let houses and primary dwelling houses. The initial number of cases was 14,231. In 2,354 of those cases, we have received no payment and had no engagement.

Maybe we won’t take a banks word for it.  Here is a research paper from the Central Bank that looked at the set of loans that were permanently modified in the PCAR banks (AIB, BOI, PTSB).  There are some great details in the paper but the the last sentence of the introduction sums up what we are looking for.

Finally, this analysis indicates that approximately 11 per cent of permanently modified defaulted loans consistently make no repayment after modification.

It is also one case but here is some correspondence between a borrower and Start Mortgages.  The central point is that the lender is seeking confirmation of the borrowers expenditure on food, clothing and medicine which seems unnecessary (but is in line with the Code of Conduct on Mortgage Arrears).  However, the first letter from the lender contains the following:

I also note that the customers have not made a payment since January 2014 and payments should be resumed as soon as possible.

Call it what you like, but there are a significant number of mortgage accounts on which no payments are being made.  What other option is there but to issue legal proceedings against these borrowers?


  1. You did a very good job on PrimeTime last night, unlike myself (a head shot in the video clip) you were interesting and informative. You showed a solid grasp of the numbers and communicated well.

  2. Hi Séamus

    Interesting analysis.

    The average mortgage account balance for those over 2 years in arrears is €218,000
    If the average interest rate is 3% ( mix of SVRs and cheap trackers) and
    if the average remaining term is 20 years
    Then the monthly repayment should be €1,200 a month.
    If the arrears have increased by € 900 a month, then it suggests that the average payment is €300 per month or €3,600 a year on a mortgage of €218,000

    €300 a month is very little for renting a "mortgage" of €218,000

    Brendan Burgess

  3. Interesting piece Seamus.

    There are two other elements in this that is worth consideration.

    1) Those who have nothing to contribute i.e. are living below the ISI reasonable living expenses (as is the case with my Start Mortgages client)

    2) Those who could pay something but who's mortgage are or have been deemed unsustainable.

    For both cohorts they will likely loose the property and in the absence of the lender taking a reasonable approach to the residual debt will be forced to look at bankruptcy. There is no incentive to make payments when in effect they are throwing good money after bad.

    In my experience banks who take a reasonable approach to residual debt don't weight outcomes based on what has been paid previously and for lenders who are unreasonable bankruptcy, right now, looks like the only viable option for which previously payments are irrelevant when the property is lost.

    Stephen Curtis

  4. Hi Stephen

    "1) Those who have nothing to contribute i.e. are living below the ISI reasonable living expenses (as is the case with my Start Mortgages client)"

    Aren't those on Social Welfare are required to make a contribution to the cost of their housing? I have an idea that it's €30 a week for a single person, and €40 for a couple?

    Your client has not paid anything at all since January 2014. If the state buys their house under the Mortgage to Rent scheme, will they pay any of the rent?

    Brendan Burgess

    1. Hi Brendan,
      Yes, under the MTR they would have to pay €30 or €40 rent per week, but, critically, they would have security of tenure in the house. What's the point of paying €30-€40 per week, get thrown out anyway and have the bank pursue you for the full residual which you can't pay?

  5. Brendan,
    Is Stephen, a registered PIP, in citing his 2nd example, advocating for deliberate non-payment (no matter how small the potential contribution) i.e. strategic default?
    Good article in the Indo
    Kind regards,

  6. Hi Anonymous

    I think that Stephen is making the same point as I have often made. If lenders pursue those who agree to a voluntary surrender in the same way as those who refuse to surrender where the mortgage is clearly unsustainable, then there is no incentive to pay the mortgage and cooperate with the lender.

    That is a statement of fact.

    He can answer for himself whether or not he recommends this as a strategy.

    Brendan Burgess

    1. HI Brendan,

      Statement of fact or not (and financially justifiable), it is an intentional decision to cease making payments.

      As such, they are living rent free and the political, social and judicial failure to deal with these cases in a swift manner is detrimental to renters and other performing mortgage holders who have no soap box representatives (how often is David Hall on the radio??).

      Best of luck this evening on The Late Debate, I wonder whether yourself and Cormac Lucey will be able to get a word in edge-ways.

      Kind regards,

    2. Hi Anonymous,

      In circumstances where a mortgage has been deemed unsustainable and the bank refuses to deal pragmatically with the residual balance what do you recommend?

      The borrower is likely to have to look at bankruptcy anyway to clear the residual debt and move on in life so what's the incentive to keep paying?

      Your loosing your house and probably bankrupting yourself - and you want them to keep firing in €50 or €60 a week to the bank? Seriously?

    3. Hi Stephen,

      I have no problem with your case #2 ceasing making payments if (i) they're on the breadline or (ii) they're close to the breadline and in spite of the potential to make a small contribution they'll face repossession order (Note my comment "financially justifiable" in 2nd post),

      PROVIDED their house is swiftly repossessed and the residual dealt with quickly by the creditor (be it bankruptcy or short term garnishee order.)

      The problem outlined in this blog and by Bredan elsewhere is that these repossessions NEED TO TAKE PLACE (they must happen) in a swift and un-emotive/objective manner.

      But are we, as a nation (a voting public), mature enough to accept this. Based on recent evidence, as a country we are not mature enough to deal with this.