Redundancies at Quinn Insurance suggest that the headache of mortgage arrears and foreclosures could well escalate as 800 well-paid insurance jobs disappear along with the salaries needed to make monthly mortgage repayments.
The expert group set up at the behest of the Minister for Finance to examine the arrears/foreclosure and negative equity issues for residential mortgage holders have yet to report its findings.
It’s expected that the group will recommend a continuation of the terms of the existing code of conduct for mortgage arrears as agreed between the government and the Irish Bankers Federation.
For anyone having difficulty meeting their monthly repayment and who finds themselves in arrears of three months or more, this means the bank cannot legally move to foreclose for at least one year, so long as they ‘work constructively’ with the bank.
In other words you need to contact your bank sooner than later, ideally in writing, to seek a restructuring.
This is especially important for anyone who has lost their job (or expects to), but it can also include anyone whose income has been cut and their finances simply will not stretch far enough even after a major budget overhaul.
The most common response of the bank to either avoid or mitigate arrears will be to allow interest only repayments and a longer repayment term.
For many, even this won’t be enough, but no legal action can be taken for at least 12 months and you will not lose your home in this period.
Ideally, you should still try to pay the bank something. Judges are particularly sympathetic to people who can be shown to be cooperating with their lender, and are actively seeking new work.
But everyone will be well served by a kindly judge and elaborate efforts to avoid foreclosure: some borrowers will simply never be in a position to repay their debt, even when the economy does pick up.
That person – and there are tens of thousands of them – should consider defaulting on their loans, ideally through a voluntary agreement with the lender.
According to some mortgage advisors the banks are keener to have borrowers in default, but still in possession of the property, than to be left with the foreclosed property sitting on their books, not as an asset but as a liability.
Nevertheless, for the defaulting owner, mortgage is a millstone that will prevent them from moving on, even if it means a seriously impaired credit record and the threat of the bank pursuing them for any shortfall between its forced sale value and the value of the mortgage.
If you think you are in this position, get some legal advice. The Free Legal Aid Centres are very active in trying to find a solution to this huge and growing problem.
The reform of the bankruptcy laws may ultimately be the way out for many, but until then a voluntary insolvency arrangement should be explored on a case by case basis.
Meanwhile, last week the National Solidarity Bond was launched. The offer is a 10-year gross return of 50 per cent, or 47.5 per cent net of DIRT.
The bond will pay one per cent interest every year for the 10 years plus a 40 per cent bonus only at maturity in year 10. This works out at an average 3.96 per cent per annum, but only assuming DIRT remains at 25 per cent per annum. If DIRT rises the return will fall.
Bond holders can withdraw their money at any time, but will forfeit the bonus; their return will still have been subject to DIRT. The minimum investment is €500, the maximum, €250,000 or €500,000 for a married couple.
Is it a good investment? I don’t think so. Firstly, it is not tax-free, while An Post savings bonds and savings certificates are, and they currently pay 3.25 per cent per annum and only require that you tie up your money for three or five years.
Next, the average 3.96 per cent per annum calculation depends entirely on the 40 per cent bonus being paid and DIRT staying at 25 per cent, something I doubt very much even over the next year given how desperate the State is for more income.
Minister Lenihan has promised not to increase actual income tax rates, hence the introduction of income and health ‘levies’ and higher DIRT, CGT and CAT rates over the past 18 months, DIRT is an obvious tax to keep increasing.
Finally, given the precarious nature of our finances, a lot could happen between now and 2020 when that 40 per cent bonus falls due, including the real risk of inflation. If that happens, that one per cent interest payment will be very paltry indeed.