AIB CEO David Duffy appearing before the Oireachtas Finance Committee this afternoon. Screengrab/Oireachtas TV
Mortgage Arrears

AIB says 4% of its total mortgage holders are in 'strategic default'

CEO David Duffy told an Oireachtas Finance Committee that 20 per cent of customers in mortgage default have the ability to pay but have chosen not to.

AIB CEO DAVID Duffy has said that four per cent of its mortgage holders are choosing not to keep up payments and are in ‘strategic default’.

Duffy told an Oireachtas Finance Committee this afternoon that about 20 per cent of its total mortgage holders are in arrears. The bank estimates that 20 per cent of that number have disposable income to make payments but have made a decision not to do so.

The bank says that it comes to this figure by defining  disposal income as any income 20 per cent above what the Insolvency Service of Ireland defines as required to meet reasonable living standards.

Sinn Féin’s Pearse Doherty questioned Duffy about whether this disposable income included making allowances for unforeseen costs associated with things such as third-level education for children.

Duffy responded by saying that, “If someone decides to pay something else, they’ve made a decision to not pay their mortgage”. He added that it is not part of the bank’s role to judge what else they have used their income on but only to recognise when it constitutes a strategic default.

Fianna Fáil finance spokesperson Michael McGrath also probed the chief executive on a similar issue. He enquired about what circumstances mortgage holders who have entered into a negotiated settlement with bank would qualify for a ‘debt break for a period of time’. He referenced cases of bereavement or medical emergency.

Duffy responded by saying that, “If you asking are we practical then the answer is yes.” Duffy added that such debt breaks are also provided not just in emergency but in cases where a mortgage holder has an investment opportunity and needs access to extra credit. He said that in such cases the bank would engage with the debtor to look at ‘practically what is affordable’.

Mortgage restructuring

In March, the six biggest financial lenders were told to “restructure” 20 per cent of their mortgage arrears book by July with a further target of 30 per cent by end of the third quarter of this year. In AIB’s case this translated to a requirement to restructure about 6,200 mortgages in arrears.

Much of the debate within the committee focused on whether AIB has met these targets.

Duffy claimed that the bank had made 12,500 offers for sustainable solutions to customers with mortgages in arrears so far this year. Of these offers 1,600 were offers for split mortgages. Duffy admitted that only 153 split mortgages had actually been successfully negotiated.

Deputy McGrath criticised Duffy for not giving the committee the figures in advance of the meeting. He said that the point of these meetings was to examine the banks progress in meeting targets and the fact that the figures are only being provided now made that task difficult:

“You’ve thrown a whole load of numbers at us which I’m glad you have but we should have had access to these numbers before the meeting.”

Doherty also criticised not only the manner in which the figures were given to the committee but also disagreed with AIB when it said that contact with mortgage defaulters constituted meeting its commitments, “A letter to a customer asking them to engage is not a long time solution,” he said.

He added that letters sent to debtors threatening legal action is not what was is required from the bank: “You can’t give these figures and say that you have reached targets.”

Duffy’s appearance is the beginning of  a new module of the finance committee with the chief executives of Bank of Ireland, Ulster Bank and Permanent TSB before also scheduled to appear to answer questions about how they are dealing with Ireland’s mortgage crisis.

Figures released last month from the Central Bank showed that almost 13 per cent of mortgages in Ireland were  over 90 days in arrears.

Read: Mortgage arrears crisis the ‘defining issue of our time’

Read: TDs and Senators coming back next week to grill bankers over mortgage arrears >

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