AIB
has written off more than €170,000 in mortgage debt owed by a couple in Dublin and allowed them to keep their home.
The deal is believed to be the largest example of debt forgiveness for borrowers in negative equity yet published.
The deal, brokered by New Beginning, also shines light for the first time on the formula the bank – which is 99 per cent owned by the State – appears to be using when considering options for customers who can no longer afford to pay their mortgages in full.
According to the insolvency and advocacy group, AIB considers offering a restructured loan worth 130 per cent of the current value of the home of a borrower in negative equity after which it writes off the remainder of the debt. This would see someone with a €300,000 mortgage on a property now worth €100,000 given a restructured loan of €130,000 with a further €170,000 written off.
The latest case has seen the bank write off €171,000 from the mortgage of a couple with three children living in Dublin. The couple’s home is understood to have seen its value fall by over 50 per cent since they bought it at the height of the boom.
AIB declined to comment either on the latest debt write-down or how it came to agree debt forgiveness with this or any of its customers in mortgage distress. However, a source in AIB said affordability was a key issue not loan- to-value.
While acknowledging the role it had played in brokering substantial debt forgiveness with AIB on behalf of some of its clients, New Beginning last night castigated the bank for a lack of transparency in how it was conducting negotiations and for cherry-picking the customers it does deals with.
Barrister Vincent P Martin of New Beginning said it would be "completely understandable" for people not mired in unsustainable debt to express grave concern over write-downs, particularly if they were "pulled out of a hat by a bank owned and bailed out by the taxpayer".
Citizens
The bank's failure to provide "transparency and formality" to the system could create "resentment on the part of those citizens who do not need to avail of insolvency".
He said while New Beginning welcomed AIB’s move towards writing down mortgage debt, it was “most disappointing that the people’s bank has declined to explain exactly how they go about identifying customers and what criteria they are applying”.
He warned that “cherry-picking customers in an arbitrary way could prove hugely divisive”. And while huge write-downs left individual debtors “thrilled”, they also caused “understandable resentment” among those servicing their debts.
He accused AIB of trying to encourage people to stay away from the “transparent insolvency system” through what he called “selective leaks” suggesting that debt forgiveness was available directly from AIB to debtors of their choosing.
