Top of the to-do list this year for politicians and the Central Bank is to bring an end to the unnecessary misery facing hundreds of thousands of people because 10 years after the onset of the property crash, banks cruelly insist householders repay mortgage debt for homes they had to buy at boom-time prices, writes Eamon Quinn.
The excuses for doing next to nothing have long been exhausted. Every three months, the Central Bank publishes a splurge of data on the latest arrears figures.
The headlines of the Central Bank releases are if anything upbeat, proclaiming steady progress in reducing “the stock” of outstanding mortgage cases in arrears.
The data would appear to suggest that the problem is self-fixing and that the burden of arrears debt is much lighter since its peak in the summer of 2013. Financial misery, unemployment, underemployment, or emigration meant that by then, one in every eight households in the Republic had missed some payment on their mortgage.
Behind the figures is a hidden story of human misery. The latest arrears figures were published earlier this month covering the period to the end of last summer. Behind the Central Bank’s top line figures of progress and targets met lie a strikingly different picture. Let’s examine the first of the headline numbers which shows that almost 72,500 mortgage accounts linked to a principal home were still facing some sort of arrears.
That means that about one-in-10 of all home mortgages are in arrears — a decade after the onset of the crash and three years after the start of one of the largest rebounds experienced by any advanced economy.
Assuming that each of the cases represents a single household of up to four people, we can deduce that well over 275,000 children and adults face some sort of deep financial stress.
The reports no longer attract the attention they once did — even though the solution of the banks writing down long-term debt is at hand and very much affordable.
The figures show that by far the largest part of the arrears cases, at almost 31,625, are people who have been in financial trouble for two or more years — or in the financial accounting terms used by the banks, for over 720 days. Using the assumption that each of the cases represents a four-person household, the long-term arrears cases suggest that 120,000 children and adults are in the red.
So many people in financial stress for so many years tells us that the inflated mortgages people were forced to take out for homes in the four or five years before the 2007 crash still represent a substantial burden. And it is a burden that will weigh on the life chances of a new generation of children in indebted households.
Thanks to mortgage debt, and not consumer debt, Ireland’s household debt burden remains among the largest in Europe. The economic consequences are quite dire too. Mortgage debt weighs on consumer spending for large parts of the population.
It risks unbalancing the distribution of the fruits of the economic recovery —making households that are both underemployed and facing long-term housing debt particularly vulnerable.
A lot of detail behind the Central Bank figures gets little coverage. Information about the value of the outstanding mortgage debt as carried on the banks’ loan books is truly valuable. And it is also where we find clues to the solution to the mortgage debt crisis.
For the banks, the almost 72,500 cases in any type of arrears represent over €2.75bn of arrears that are linked to almost €13.32bn of outstanding mortgages — debt that has yet to be paid down in future years. And the almost 31,625 cases that are in arrears for over two years represent about €2.5bn of arrears on about €7.12bn of outstanding mortgages on the banks’ loan books.
In the context of outstanding total mortgage lending of €98.65bn across the loan books of all the banks, solving long-term arrears by aggressively writing down debt is affordable as well as sensible for the banks to do.
That the major three mortgage banks have not done so and could contemplate selling off mortgage loan books to vulture funds, in response in part to growing impatience by the ECB with Irish and Italian lenders, is nothing less than a scandal.
The Central Bank needs to learn the lessons from another scandal — that of the tracker-mortgage scandal. Failing to get out ahead meant the banks were less than forthcoming about the numbers of customers they had overcharged for their home loans over several years. In the scandal, people lost their homes.
The Central Bank cannot be faulted for the action it has taken in recent times in forcing lenders to come clean.
However, even as they increased provisions in late 2017, the banks appear happy they will be able to pay the huge fines as the regulator completes its so-called enforcement orders on almost all the mortgage lenders. The banks have not flinched at the prospects of covering payments for the tracker scandal amounting to an estimated €1bn.
The mortgage arrears scandal is deeper still. The Central Bank ought to revisit its strategy in dealing with banks over mortgage arrears and decide that the only prospects of salving the damage of the last decade is to force banks aggressively to write down debt of the long-term arrears cases.
The regulator must also insist in overhauling the new so-called sustainable mortgage deals offered by banks in arrears cases.
It must also take seriously the concerns of many advisers who deal with households in deep mortgage debts and question why a worryingly large number of supposedly sustainable new-start mortgage deals fall apart.
The answer may lie in the fact that even after striking such agreements the overall debt is still too high because little or no amount has been taken from the capital of the overall mortgage.
In the short term, the Central Bank could stop its practice in its quarterly updates of anonymising the names of the lenders behind the arrears cases.
It’s another lesson to be drawn from the tracker mortgage scandal. When people could see which of the banks had the worst record in overcharging and see the lenders who had been the slowest in declaring the cases, the quicker the crisis was resolved.
Yet, the banks who hold the greatest number of arrears cases by number and value, and the identity of the service agents and the less-regulated vulture funds which have bought mortgage debt books from the main lenders, remain hidden.
The €64bn bill paid by taxpayers to save the main banks and to keep the financial system from collapse during the crisis should be reason enough for a lot more clarity. The governing politicians have gone missing in the arrears crisis. The promises in the Programme for a Partnership Government have fallen short. In selling down part of its ownership in AIB and for the bank and 14%-owned Bank of Ireland to plan to start paying out dividends means the Government believes the banks are in a healthy state.
And if the banks are also tapping the fruits of booming house prices by writing back provisions into profits, why are they not offering debt deals for long-troubled households?