Irish banks tell troubled borrowers to cut health care insurance

The Independent carried an article in which it described how Irish banks are telling troubled borrowers to cut their health care insurance.

The fact that banks which were bailed out by the government feel they have the right to make this request of borrowers demonstrates the banks do not expect any meaningful consequences from their bad behavior.

Your humble blogger refers to the bank behavior as bad because there are very well known rules of thumb for what is the maximum percentage of a family's budget that should go to housing while allowing them to maintain a reasonable standard of living.

In the US, the maximum housing expenditure percentage adopted by the Obama Administration is 31% of gross income before tax.  There is no reason that a similar maximum percentage does not exist in Ireland.

Once everyone knows what the maximum housing percentage is, a level the Irish government should set if it hasn't already, there is no reason to discuss how the borrower spends the rest of their money.

Banks are behaving badly, when they try to get the borrower to cut back on their spending above the maximum percentage and requiring the borrower to hand over this money to the bank.

BANKS are telling thousands of families struggling to restructure mortgages they will have to cut back on health insurance, private education, groceries and Sky Sports before any deal can be done. 

Around 1,300 families a month are now getting their mortgage payments reduced -- with the Government admitting last night that more were likely following yesterday's revelation that one in seven homeloans is in trouble. 

The banks have been accused of putting the boot into homeowners who are unable to meet their existing mortgage repayments. 

An Irish Independent investigation can reveal how banks will only agree to change the existing conditions if homeowners:
- Shop in discount stores like Aldi or Lidl instead of local shops or supermarket chains seen as more expensive.
- Change health insurance provider or drop down to a cheaper plan.
- Cut out extra sports or movie packages from their satellite or cable television services.
- Secure a reduction in other loan repayments before coming to the bank for help.
- Take children out of private, fee-paying schools.... 

Homeowners seeking to modify their mortgage repayments must fill out a 12-page financial statement. 

This lists all household spending and income, providing the bank with bank and credit card statements going back three months, according to financial consultant Michael Dowling, who is a member of the Independent Mortgage Advisers Federation.

The form details spending on everything from phone bills, fuel and groceries, to gym memberships, salons and sports events. 

Mr Dowling, who helps households secure a deal from their banks, said pressure from lenders on homeowners in south Dublin to take children out of private schools was leading to bitter arguments. 

“People get very vocal when they are told to take their children out of a fee-paying school and send them to one that does not charge fees,” he said. Demands from banks that people change health insurer or drop down to a cheaper plan were also leading to huge rows, he said. 

David Hall of New Beginning, a group of lawyers who represent mortgage holders in danger of having their homes repossessed, said lenders were challenging households paying for Sky Sports or UPC movie packages, telling them to change to basic TV packages. “Banks should not be telling people how to live in the absence of long-term solutions for mortgage problems,” he added....

A spokesman for the Irish Banking Federation said banks were trying to be as fair as possible. 

He said that some people were willing to compromise on certain items of expenditure while others were not. 

“Each situation is dealt with on a case-by-case basis. It is about working out what people can afford to pay on their mortgage and what they need to maintain a reasonable standard of living.”