Bank gives customers chance to cut debts

AIB are stepping up the pace of mortgage write-offs by offering customers who work with them a chance to cancel some of the debt they owe the bank.

From the new year, about 30% of borrowers who have had their mortgages restructured and who are working with the bank could have a portion of their debts written off.

The head of the bank’s arrears unit, Garry Stran, said while more than 70% of borrowers that have had loans modified are meeting monthly repayments, the rest are a “rump” whose loans need to be restructured and may have part of their loans written off.

“Writing off debt where people are doing the very best they can is absolutely appropriate,” he said.

However he ruled out “wholesale debt forgiveness”.

AIB said it had enough money to begin ramping up the pace of restructuring of troubled mortgage holders debts following the €21bngovernment-funded bailout.

The Mortgage Advice and Budgeting Service (Mabs) welcomed Mr Stran’s comments, saying they offer a fresh and realistic approach that had been absent until recently.

#budget13 Debt problem not sustainable....no blanket debt forgiveness but restructuring being done by AIB...mortgage debt must be addressed

— Michael O'Mahony (@michaelom) December 5, 2012

A spokesperson said: “This is a fresh tone from a bank; a tone that has an element of reality to it.”

In particular Mabs welcomed the commitment not to go after people’s little luxuries. The agency said it spend a huge amount of time engaging with banks over small items, such as how much a person spends on bus tickets each week.

However, Mr Stran said they would try to avoid cutting things such as gym memberships and cable TV.

“Given the scale of the problem, do we really want to be having emotive conversations with people” about satellite TV subscriptions, gym memberships, and cigarette habits? Mr Stran asked. “No, we don’t.

“If someone’s a member of a country club at €500 a month and in the scheme of their life that looks to be completely unreasonable, then of course we’ll have a conversation.”

Although a portion of debt may be forgiven, AIB is warning there will be an increase in repossessions, even if the bank’s strategy “is not possession-led”.

Any loan restructurings will be based on a borrower’s ability to pay while letting them keep to a “reasonable” standard of living, Mr Stran said.

The ESRI’s John Fitzgerald warned that debt forgiveness would hamper a bank’s chances of returning to profitability. “The banks have got to get back to profitability, and giving away houses to people is not how you make money, they have got to maximise their return on assets, which may be politically difficult,” he said.

Mabs has also cautioned people who will be plunged into arrears as a result of Budget 2013.

Noonan welcomes that AIB is contacting customers to help them with their mortgage finances

— AerTVNews (@AerTVNews) December 5, 2012

“People in difficulty with personal debt or at risk of getting into debt resulting from income and expenditure changes brought about by Budget 2013 need to be fully aware of their primary responsibility to first provide for the basic living expenses for themselves and their families,” Mabs warned.