Concern over level of mortgage restructuring

A mortgage expert has expressed serious concern after Central Bank research showed the number of home loan accounts — possibly well over 120,00 and as many as 200,000 — that needed some sort of modification or restructuring was much higher than officially recorded, writes Eamon Quinn.

Michael Dowling, chair of the mortgage committee at the Irish Brokers’ Association, said the discrepancy in the figures raised concern because the new figures suggest the household debt crisis to be larger than first thought and that the challenges were greater in tackling the debt distress faced by many households.

He called on the Central Bank to provide more details over how the discrepancy could have occurred. The Central Bank said that the new figures on non-preforming loans in the Irish market showed that “the scale of mortgage modification in the market is larger than previously measured”.

The research by Fergal McCann showed that AIB, Bank of Ireland, Permanent TSB and KBC issued almost 100,000 temporary modifications between 2009 and 2016, and issued around 100,000 modifications on a sustainable, or long-term basis, over the same period.

Double counting will likely mean that there were fewer than 200,000 modifications but that the number was nonetheless higher than the official figures suggest.

The Central Bank quarterly arrears figures record there were almost 120,400 restructured residential mortgage accounts, at the end of June.

The research, called Mortgage Modification in Ireland: A recent history, said the figures cover five banks, or 90% of the mortgage market, and cannot be directly compared with the official figures.

However, it is unclear if the Central Bank will have to change the figures in its quarterly arrears bulletin. Researcher Mr McCann wrote: ”Relative to the 120,398 that are classified as being restructured by official Central Bank statistics, these numbers highlight that, when previously elapsed short-term arrangements are counted, the scale of mortgage modification in the Irish principal dwelling house mortgage has been even larger than measured by statistics on the currently -restructured group of loans.”

The research found there were improvements after the Central Bank brought in its new set of rules for banks dealing with mortgage customers in arrears, called mortgage arrears resolution targets in 2013.

In the early part of the crisis, banks were most likely to offer temporary solutions such as accepting repayments of only the interest on the loans for existing mortgage holders “to alleviate the repayment difficulties faced by borrowers”, according to the research.

Before 2013, the research found 75,000 mortgages had been issued a temporary modification, while 40,000 mortgages had received a permanent modification.

After the introduction of mortgage arrears resolution targets, the number of permanently modified mortgages surpassed the number of ever-temporarily modified loans, the research showed.

“In general, modifications issued before 2011 have been more likely to be in longer-term arrears by the end of 2016 than those issued since then”, it showed, and borrowers are likely to be more successful in meeting longer-term mortgage modifications.

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