Ireland mortgage arrears 'over double average rate' (IIB)

Part of the reason Ireland had such a bubble was that historically Ireland has had some of the lowest reposession rates in the world. We were therefore an almost guaranteed risk to pay back.
I think this will change.

How did IIB’s lending policies compare to the large Irish owned banks? Were they more aggressive?

This is entirely understandable. Other than Start IIB are by far the biggest customer of the High Court repossession service .

IIB were **extremely **aggressive in terms of mortgage book growth in the past decade and were prepared to take on risk that others would not .

Their interpretation of income multiples was sub prime lending . Now they are reaping the consequences. :frowning:

They marketed exclusively through mortgage brokers and get a 1 in 40 impairment rate at the very early stages of a downward economic cycle. Not unconnected I reckon. Plus it is only getting worse from here.

they had a product suite which put the book at risk, one was ‘flexi-annuity’ where you could get three years interest only on a homeloan, this mean that when property prices dropped many people were in negative equity as they had never paid off anything on the loan. That profile sits well with the trend in people who default, they pushed for investor business as well which is an issue.

as regards the link to brokerage and defaults, i would say this: there may be a correlation in defaults and broker placed business but this one bank is not evidence enough to suggest it because the fact is that many lenders have not been fully up front about their expected defaults, NIB came out and said theirs was about 260 basis points or 2.6% and they never used brokers as long as they have been in the market!

That is a write-down of even more (as a percentage) than IIB and on a smaller and more conservative book, so it shows that whether you get your clients direct or via intermediaries that you will have impairments, other banks are not ‘special’ or ‘immune’ they just haven’t come clean yet.

How have IIB and NIB expected mortgage arrears of 250bps while the main Irish players are all expecting around 100bps?

Is this a genuine difference in asset quality or pure accounting?

3+ months in arrears is a serious category. You must remember that this appears to be 2.5% of their book. When their Belgium owners are looking at arrears, they’ll be looking at arrears by book year. It is reasonable to assume that the 2006/2007 years are showing much higher arrears rates. I’d expect KBC Ireland will be told to tighten lending criteria.

Loose lending criteria have probably contributed to higher arrears. However loans originated via mortgage brokers can be more risky. You can broadly categorise people that use brokers into “people looking for the cheapest/most appropriate loan” and “people hoping to get a loan ( or a large amount)”. The latter category can benefit from brokers knowledge of how to work the system. A lender that relies solely on intermediaries runs the risk of having to relax lending criteria to keep new business flowing in.

I wonder if other banks use “mortgage holidays” to disguise arrears?

I don’t buy that. There’s very little historical data available. Historically, only building societies did mortgages, very few people qualified for mortgages and income multiples were conservative. More recently, we’ve had crazy price inflation which allowed distressed borrowers dispose of their property without loss.

I think what ewd3 is saying is that the historical figures are the ones that are pumped into the risk models. What you have given us is one of the reasons the historical figures are bogus (another one would be the discounting of residential interest payments offset against high rates of tax also being discounted by the models).

It is perfectly rational for someone in their 20’s or 30’s who took out a 90 to 100% 30 year mortgage over the past 3 to 4 years to leave the keys in the door and walk away.

The morality of paying back those loans no longer exists following the bailout of criminally negligent bankers.
The law will be unenforceable given the above and the scale of the defaults ,also politically it will be untenable to tolerate the jailing of defaulters whilst the bankers roam free.

If I had a relative in the above predicament I would strongly advise them to stuff the banks mortgage ,leave the country for a few years and maybe work in Australia.

Paying the mortgage is to submit to slavery.

Might be, might not be. Everyone’s circumstances are different, but generally speaking this is rarely as good an idea as it seems on the surface.

Well, I don’t know.
First of all, as of yet there hasn’t been a bailout of any bank in Ireland, despite what the government claims.

If someone takes out a mortage then they have a duty to pay it back, it’s not a moral issue although you can think of it as one if you like. They have a legal obligation to pay it back. Any deals the bank strikes are seperate to that.

It sucks that tax payers money might in the future be used to bail out a bank, but that’s life. if you don’t like it then don’t go taking out mortgages in the first place.

Anyone deciding not to pay back their mortgage has to go the route of handing back the keys and take the consequences. Deals between the government and the banks are completely seperate to that decision.

You don’t need to justify handing back the keys. Either do it, or don’t. Don’t try to explain to me why you are morally ok with doing it. I don’t give a damn.

I hope you don’t have a relative in the predicament, because I suspect your advice would do them no favours.

Nobody forced anybody to take out the mortgages in the first place. You makes your choices and you takes the consequences.

-Rd

to daltonr above.

my point is essentially that to default on a mortgage now in the current circumstances would be a rational decision.

I recognise there is a legal contract.I defend no one in this scenario,neither do I have a relative in this predicament.
However the legal system works only when there is concensus what are rights and responsibilities and when there is even enforcement of the law.I believe the perception now is such the population will not stomach bankers evicting people from their homes ,but if they are evicted reneging on a mortgage will be seen as a badge of honour as it is in many parts of the USA now,

That scenario is well underway in the USA.I doubt we will be immune here from the above.

As to consequences from the government guarantee we are already paying out on it .Two days ago the government issued bonds and raised over 4 billion euros .However the cost of this borrowing has increased due to the increased risk of default over what it would have been a month ago.

yeah but… I think it’s actually allowed in the USA to just give yer keys back

yep

here someone will always come back looking for the money unless you can do a deal