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Updated: Monday, 16 September 2013 10:20 | By Karl Deeter, TheJournal.ie

Column: Mortgages are contracts – they should be treated as such

Banks behaved deplorably, that’s an indisputable fact, but does that give a tacit right to some borrowers to do the same? asks Karl Deeter.


Column: Mortgages are contracts – they should be treated as such

WHETHER A MORTGAGE default has a level of intention behind it or not is a subjective matter. What isn’t subjective are some of the figures which are not widely discussed, they get lost in the mix as it often turns into an argument about social correctness above common sense.

There is idea that many comfortably accept, which is that people on welfare might do a cash nixer if offered. It’s not something you’d hear strongly denied, but this ease of interpretation is suddenly shelved when we think that middle Ireland might not pay a debt when due on a house for personal gain.

Mortgages, which at their root are a contract, can be dishonoured it seems, if you have a reason for not being able to pay. Would that argument hold if we discussed other contracts? What about contracts for labour? That’s the thing we commonly refer to as a ‘job’, it’s a contract too. Would people support a company not paying their staff?

Would they defend them if they denied workers wages while having the means to do so? Of course not, because workers have a contract right? But only certain contracts carry a fully corresponding obligation in Ireland, we have sought every defence possible for reasoning why some contracts are not the same. If only we could get Napolean from Animal Farm to help explain how ‘all contracts are equal, but some are more equal than others‘.

The white knight lobbyists would have you believe there is ‘no definition for strategic default and therefore it doesn’t exist‘. This lie has it’s own name in logic, it’s called the ‘continuum fallacy’, where non-defined quantity creating a definition is turned into evidence that something doesn’t exist. Then there are the many media personalities who are more concerned with being popular or fair than being critical.

We readily default into ‘empathy without examination’ and it passes as our national conversation because nobody seems to have the common sense to question it outside of emotive examples.

The myth about mass mortgage defaults

The understanding seems to be: we have a mortgage crisis, therefore throw endless money at it (don’t worry about how that money won’t go towards better causes, or mean our children may pay more taxes in the future), because it’s either that, or the state has to house everybody and we’ll have thousands of homeless people.

This is a myth. Can a person who can’t pay a €3,000 a month mortgage equally not afford to rent a place for €900? Why bother asking when we can instead evoke the darkest era’s of Irish history, drawing a narrative which ends with the modern day equivalent of the Black and Tans throwing you onto the road and torching your thatched roof cottage?

It is quite literally impossible to have a meaningful debate in this country around the area of property and mortgages without it devolving into that kind of conversation. No wonder we’ve screwed up the job of fixing it so badly.

Not only that, if you dare to raise the prospect that there is anybody out there who might do anything in their own self interest – like not pay a debt on purpose, or prioritise expenditure over contractual obligations – you are an instant hate figure (I look forward to the comments section!). This is a nation damned by self serving politics, vested interest, and greed.

Yet obviously, these traits occur only in the people who belong to whatever group we are happy to blame on the day, there are none of them amongst ‘the rest of us decent folk’. Sadly, these traits can only exist in particular if they also exist in general.

‘The banks are always wrong’

The counter argument is almost always another logical fallacy, the ‘argument from incredulity’ where we appeal to the righteousness of the reader to bring them on side, because we ‘simply can’t believe this kind of thing can happen in Ireland!’ where they crowd in as expected.

Who in the ‘borrowers are always right banks are always wrong’ cohort would raise the fact that the ECB rate cuts since Draghi came in put about €6,000 a year back into the pockets of tracker mortgage holders who are more than 50 per cent of the loan holders in Ireland. Or that arrears and unemployment decoupled more than 2 years ago?

Banks behaved deplorably, that’s an indisputable fact, but does that give a tacit right to borrowers to do the same? Or to defend those who can pay who don’t? Nobody thinks that a person without work is able to pay for a mortgaged property, but where is the line?

Should you be able to keep something you can’t pay for?

Are we to believe that they instead should be able to keep something they can’t pay for? Would you say the same if they borrowed for a car? Is it even fair to them to keep them on the hook in that circumstance?

Is housing policy about affordability and sustainability or is it about maximising a persons stay in a property they can’t afford to pay for?

Alas, we have also have no numbers right?

Wrong. In AIB there are 40,000 arrears accounts, a full 50 per cent have not filled in a Standard Financial Statement (SFS), this is the document you have to submit to get a resolution. They were introduced years ago and are key to avoiding repossession.

The 6,000 ‘repo threats’ they sent out and were admonished for resulted in a 33 per cent re-engagement of those borrowers, and 2,000 started to pay again. In the UK the legal threat results in a 70 per cent re-engagement. And let us not forget, that the letter only went out to those who were both non-engaging and at least 2.5-3 years behind on repayments.

There is no ‘free housing’ in Ireland

Even in local authority housing you have to pay something. There is no ‘free housing’ in this nation, anybody who says there should be, I invite you to go build it for those who want it.

Permanent TSB report similar numbers; they have an 80 per cent take up but many are outdated (12 months old or more) and therefore no longer relevant.

Are the banks really not trying? They aren’t innocent, but they do have large staff numbers trying to work through a mire of complexity. In the case of AIB they even sent out 1,400 ‘shot in the dark’ offers of split mortgages to clients who were in deep arrears.

700 never responded, of the 50 per cent who did respond, less than 20 required anything other than some short term assistance, that’s a less than 1.5 per cent amount of the initial target audience.

Naturally this is the fault of the banks, or so the debt lobbyists would have you believe. Can you expect them to say otherwise? To do so not only wreaks their own businesses, it would betray their commitment to sustaining the status quo.

Class warfare

That’s what this is really all about, after this crash what we seem to want is that nobody loses, so the middle class and well of will stay that way while the poor remain shut out from middle-class welfare systems.

The perfection of it is that we get the lower class to do the fighting for them, convincing them that it is their fight and their future wealth at stake. It’s a master-stroke of class warfare, the best I have ever seen.

The real victim in this debate is the truth though, we won’t get it, we can’t, there is no potential to have a genuine debate in this country without it devolving into a tangled web of accusation and emotive responses. You can make anything seem real using words, that’s why science fiction is usually high on fiction low on science, and that’s where the Irish intellectually find themselves most comfortable, we won’t even quantify the contradiction.

Don’t let little concerns like facts or numbers get in the way of a good yarn about our bad banks. This article covers only a sampling of them. You can’t be popular and be honest in Ireland, sadly it seems you have to pick one choice and run with it come what may.

When it comes to property almost everybody, this analyst included, is a vested interest in some way, the only ones who don’t have an axe of some sort to grind are still in school, my hopes rest with them.

Karl Deeter is a founder and Compliance Manager at Irish Mortgage Brokers in Dublin 2. His expertise is in credit, regulation and financial advice. Follow @irishmortgages on Twitter.

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Column: Mortgages are contracts – they should be treated as suchBanks behaved deplorably, that’s an indisputable fact, but does that give a tacit right to some borrowers to do the same? asks Karl Deeter. Karl DeeterTheJournal.ieTheJournal.ie(©Copyright (c) Journal Media Ltd. 2013, All Rights Reserved.)2013-09-16T09:20:222013-09-16T09:20:21Alexander Raths via ShutterstockWHETHER A MORTGAGE default has a level of intention behind it or not is a subjective matter. What isn’t subjective are some of the figures which are not widely discussed, they get lost in the mix as it often turns into an argument about social correctness above common sense.There is idea that many comfortably accept, which is that people on welfare might do a cash nixer if offered. It’s not something you’d hear strongly denied, but this ease of interpretation is suddenly shelved when we think that middle Ireland might not pay a debt when due on a house for personal gain.Mortgages, which at their root are a contract, can be dishonoured it seems, if you have a reason for not being able to pay. Would that argument hold if we discussed other contracts? What about contracts for labour? That’s the thing we commonly refer to as a ‘job’, it’s a contract too. Would people support a company not paying their staff?Would they defend them if they denied workers wages while having the means to do so? Of course not, because workers have a contract right? But only certain contracts carry a fully corresponding obligation in Ireland, we have sought every defence possible for reasoning why some contracts are not the same. If only we could get Napolean from Animal Farm to help explain how ‘all contracts are equal, but some are more equal than others‘.The white knight lobbyists would have you believe there is ‘no definition for strategic default and therefore it doesn’t exist‘. This lie has it’s own name in logic, it’s called the ‘continuum fallacy’, where non-defined quantity creating a definition is turned into evidence that something doesn’t exist. Then there are the many media personalities who are more concerned with being popular or fair than being critical.We readily default into ‘empathy without examination’ and it passes as our national conversation because nobody seems to have the common sense to question it outside of emotive examples.The myth about mass mortgage defaultsThe understanding seems to be: we have a mortgage crisis, therefore throw endless money at it (don’t worry about how that money won’t go towards better causes, or mean our children may pay more taxes in the future), because it’s either that, or the state has to house everybody and we’ll have thousands of homeless people.This is a myth. Can a person who can’t pay a €3,000 a month mortgage equally not afford to rent a place for €900? Why bother asking when we can instead evoke the darkest era’s of Irish history, drawing a narrative which ends with the modern day equivalent of the Black and Tans throwing you onto the road and torching your thatched roof cottage?It is quite literally impossible to have a meaningful debate in this country around the area of property and mortgages without it devolving into that kind of conversation. No wonder we’ve screwed up the job of fixing it so badly.Not only that, if you dare to raise the prospect that there is anybody out there who might do anything in their own self interest – like not pay a debt on purpose, or prioritise expenditure over contractual obligations – you are an instant hate figure (I look forward to the comments section!). This is a nation damned by self serving politics, vested interest, and greed.Yet obviously, these traits occur only in the people who belong to whatever group we are happy to blame on the day, there are none of them amongst ‘the rest of us decent folk’. Sadly, these traits can only exist in particular if they also exist in general.‘The banks are always wrong’The counter argument is almost always another logical fallacy, the ‘argument from incredulity’ where we appeal to the righteousness of the reader to bring them on side, because we ‘simply can’t believe this kind of thing can happen in Ireland!’ where they crowd in as expected.Who in the ‘borrowers are always right banks are always wrong’ cohort would raise the fact that the ECB rate cuts since Draghi came in put about €6,000 a year back into the pockets of tracker mortgage holders who are more than 50 per cent of the loan holders in Ireland. Or that arrears and unemployment decoupled more than 2 years ago?Banks behaved deplorably, that’s an indisputable fact, but does that give a tacit right to borrowers to do the same? Or to defend those who can pay who don’t? Nobody thinks that a person without work is able to pay for a mortgaged property, but where is the line?Should you be able to keep something you can’t pay for?Are we to believe that they instead should be able to keep something they can’t pay for? Would you say the same if they borrowed for a car? Is it even fair to them to keep them on the hook in that circumstance?Is housing policy about affordability and sustainability or is it about maximising a persons stay in a property they can’t afford to pay for?Alas, we have also have no numbers right?Wrong. In AIB there are 40,000 arrears accounts, a full 50 per cent have not filled in a Standard Financial Statement (SFS), this is the document you have to submit to get a resolution. They were introduced years ago and are key to avoiding repossession.The 6,000 ‘repo threats’ they sent out and were admonished for resulted in a 33 per cent re-engagement of those borrowers, and 2,000 started to pay again. In the UK the legal threat results in a 70 per cent re-engagement. And let us not forget, that the letter only went out to those who were both non-engaging and at least 2.5-3 years behind on repayments.There is no ‘free housing’ in IrelandEven in local authority housing you have to pay something. There is no ‘free housing’ in this nation, anybody who says there should be, I invite you to go build it for those who want it.Permanent TSB report similar numbers; they have an 80 per cent take up but many are outdated (12 months old or more) and therefore no longer relevant.Are the banks really not trying? They aren’t innocent, but they do have large staff numbers trying to work through a mire of complexity. In the case of AIB they even sent out 1,400 ‘shot in the dark’ offers of split mortgages to clients who were in deep arrears.700 never responded, of the 50 per cent who did respond, less than 20 required anything other than some short term assistance, that’s a less than 1.5 per cent amount of the initial target audience.Naturally this is the fault of the banks, or so the debt lobbyists would have you believe. Can you expect them to say otherwise? To do so not only wreaks their own businesses, it would betray their commitment to sustaining the status quo.Class warfareThat’s what this is really all about, after this crash what we seem to want is that nobody loses, so the middle class and well of will stay that way while the poor remain shut out from middle-class welfare systems.The perfection of it is that we get the lower class to do the fighting for them, convincing them that it is their fight and their future wealth at stake. It’s a master-stroke of class warfare, the best I have ever seen.The real victim in this debate is the truth though, we won’t get it, we can’t, there is no potential to have a genuine debate in this country without it devolving into a tangled web of accusation and emotive responses. You can make anything seem real using words, that’s why science fiction is usually high on fiction low on science, and that’s where the Irish intellectually find themselves most comfortable, we won’t even quantify the contradiction.Don’t let little concerns like facts or numbers get in the way of a good yarn about our bad banks. This article covers only a sampling of them. You can’t be popular and be honest in Ireland, sadly it seems you have to pick one choice and run with it come what may.When it comes to property almost everybody, this analyst included, is a vested interest in some way, the only ones who don’t have an axe of some sort to grind are still in school, my hopes rest with them.Karl Deeter is a founder and Compliance Manager at Irish Mortgage Brokers in Dublin 2. His expertise is in credit, regulation and financial advice. Follow @irishmortgages on Twitter.Column: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as suchColumn: Mortgages are contracts – they should be treated as such
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