It is time to really tackle the mortgage arrears crisis and that begins with an amnesty from repossession of family homes for distressed borrowers, suggests Julie Sadlier
Since the recession in 2008, I have advised large numbers of clients facing bank repossession and attended repossession courts around the country.
In all this time, I have not seen a pattern or sign of so called “strategic defaulting” among homeowners facing loss of their homes.
I have, however, had consistent, tremendous difficulty getting resolutions or even someone to talk to, regarding my clients, in all banks and vulture funds.
So who are these distressed borrowers? They are anyone old enough to borrow in 2003-2008, so they are now typically aged anywhere from 40 to 70.
They are your neighbours, your friends, your doctor, your shopkeeper, your lawyer, your brother, and likely yourself. Most people affected do not tell anyone, even their children, about their problem.
During the “boom”, I remember rocketing property prices, overnight queues when new housing developments were launched, and the freely available finance that fuelled all this.
From 2004 onwards, many clients were concerned about the rising cost of homes but, despite informed predictions from independent sources that a bust was imminent, we were reassured over and over by leaders and experts that the economy was sustainable, banks were well capitalised and we would have a “soft landing”.
In 2007, banks in the UK and US began to experience problems but we were not concerned here until September 2008 when Lehman Brothers collapsed and we could no longer ignore the signs.
From then until 2014, property values plummeted, the construction sector and rental market collapsed and countless jobs were lost. Amid the chaos, more than 100,000 ordinary people, fell into frightening arrears on their home loans as their incomes and asset values crashed.
Back then, there was a belief that Government and the banks, who had most control over the cause and solution to the problem, would assist these people.
The Central Bank Codes of Conduct on Mortgage Arrears which were first introduced in 2009, listed many resolution products which pointed to this.
At all times I advised very distressed victims of the financial crash, to stay in their homes and keep paying whatever they could until resolutions to their mortgage arrears were found and they did.
However, from the outset, instead of offering them solutions, their local branches were reviewing their financial statements and harassing them about their meagre spending.
I recall clients receiving calls from formerly friendly local branch staff querying payments on their bank statements to dentists or barbers and asking if these were really necessary.
It was an awful time but endless numbers of people disclosed all of their personal details to their lenders in the hope of obtaining workable resolution only to be met with petty criticism and pressure but sadly no resolution.
Then came the IMF bailout in 2010. Incomes were cut across the board and the banks were bailed out by the taxpayer. This led to all of the banks setting up call centre-type arrears resolution units. The already beleaguered borrowers now had to deal with faceless, first name-only voices in call centres, who looked for the same information all over again.
Huge numbers of people, eager for the promised resolutions, were met with nothing more than copious boilerplate written demands and then further queries.
For the lucky few, some type of temporary restructuring was agreed but, for most, the response was either “unsustainable” or “non-compliant”.
Non-compliant did not mean, as we are led to believe, failure to engage but, much more cynically, it meant failure to fit procedural criteria. There was often no rhyme nor reason as to how one person got a restructuring and another got rejection, even with the same bank.
As the IMF took hold, the need to resolve cases increased but this brought more pressure on people to surrender their homes than it brought resolution.
I have since come across clients who were so terrified by bank threats at that time that they did surrender their home, and many still have no permanent replacement home.
The legal problems with the 2009 Land and Conveyancing Act have been blamed in a recent study by a Central Bank economist for the increasing number of defaulters over this period but this was not the case. The increasing defaults that I saw from 2010 onwards were due solely to how income and repayment capacity fell away over these years.
The Land and Conveyancing Act issue was corrected in 2013, opening the floodgates for repossession which, in turn, increased hugely the stress on already very distressed borrowers. They were now before the courts, most of them for the first time in their lives.
I find repossession courts very sad. Thousands of ordinary homeowners attend time after time, mostly unrepresented as they cannot afford to pay lawyers, but lenders are fully represented.
Unlike much of Europe, we do not have free legal aid for people facing such an enormous loss as their family home. We have a token ‘Abhaile’ scheme introduced in 2016 but it only pays for up to two legal consultations and does not provide any representation.
Vouchers for these consultations are provided by the Money Advice and Budgeting Service (Mabs) or personal insolvency practitioners only and are designed to assist with legal problems associated with personal insolvency applications and not to defend repossession claims.
Most repossession cases are adjourned many times as this is the only legal power our courts believe they have in cases where they are met with no representation or defence.
The absence of legal representation has meant that the law in favour of the homeowners has not been developed either, which is unfortunate for our legal system.
Banks also apply for adjournments to change their paperwork as they sell loans or restructure themselves. This adjournment phase cannot go on forever and if something more is not done soon by Government, many, many thousands more possession orders are inevitable.
At the end of quarter two, 2017, the Insolvency Service of Ireland shows just short of 2,000 Personal Insolvency Arrangements and approximately 1,500 bankruptcies were approved.
The Personal Insolvency Act was introduced in 2013, but the number of home loans restructured under it is very low because banks are frustrating and delaying its effectiveness by engaging in numerous expensive court challenges rather than complying with its spirit, which was to provide solutions for homeowners, often with multiple debts and some repayment capacity.
The Personal Insolvency Act 2015 provides for the possibility of proposals of mortgage to rent or other such options, but unfortunately this is not happening due to an absence of prescription, workable vehicles, and bank veto.
Over the years, as the jobs and property markets recovered, many of the 130,000 borrowers in arrears found resolutions, some short-term, some long-term, some with write-downs, but the common thread to all these resolutions is no transparency or system.
I have many clients without resolutions before the possession courts, who have engaged and whose payment capacity and history is better than many who have found resolution, often with the same lenders.
There are others who had temporary restructures but once these expired they received no new offers. I came across a case recently where a couple came off a tracker mortgage on to a less affordable interest rate for a temporary, interest-only restructure, rather than lose their house. This was done with Central Bank approval. The temporary arrangement is over, their tracker is gone, and they are before the courts for repossession.
I know many families where negotiations have been ongoing for years, but they still have no signed agreements as both bank personnel and approach to their cases has constantly changed.
Banks, now back in profit, are closing down their arrears support units and preparing to transfer unresolved loans to vulture funds. Contrary to what they want us to believe, the remaining loans are not those of the “no-hopers” or “non-engagers” but rather those they have failed to address, because resolving home loans has never been their real objective, despite the bailout.
It is difficult to see how genuine resolution for distressed borrowers has been a priority for either the Central Bank or Government over all these years. The elephant in the room is that restoring bank balance sheets by any means has been their main priority at huge human cost, and this is nowhere more apparent than in the tracker crisis.
Ongoing, unsubstantiated suggestions by banks and their brokers and agents that strategic defaulters make up a significant number of those in mortgage arrears is totally contrary to my experience.
This view is disingenuous in the extreme from a sector that has frustrated a whole generation by its reckless lending, even more reckless recovery methods and the impersonal and cynical way it now manages its customer relationships.
It is the case that some people find dealing with their banks so difficult that, at times, they have to disengage to cope, but I have not come across people with real repayment capacity that deliberately stop paying their home loans.
So what next? We need to acknowledge that the income and repayment capacity for the vast majority of the tens of thousands still in arrears has never been, and is unlikely to ever be, replaced because of the damage caused to their sectors by the recession.
They are also the cohort being accused of strategic defaulting but from what I see default is not, and never has been, part of their strategy.
Bank claims of strategic default are false, just like their claims for that many years there was no tracker overcharging. This is simply propaganda to alter public perception and influence government policy.
These borrowers do not, however, fit into bank or personal insolvency resolution criteria and so they are facing certain repossession and homelessness unless Government intervenes.
In my opinion, all distressed borrowers should have an amnesty from repossession of their family homes. To achieve this, the State must recalibrate our home mortgage law with strong legislation to restore proportionality and balance between the human rights of homeowners, which are enshrined in our law and law, with the contractual and property rights of those who own any loans of homes in this state.
This legislation must balance the needs of the homeowner and family with the economic benefits given to and duties of care of the loan owner and its predecessors such as:
It should also ensure that if owners cannot retain their legal interest in their family homes that this interest transfers to a state supported ethical housing agency and not a commercial fund.
Our existing personal insolvency law, together with a number of bills that are before the Dáil, address these issues in varying degrees but they will never be addressed fully unless the Government and its advisors are prepared to recognise the real and desperate circumstances of so many and the inadequacy of current measures to address them.
It is time now to sort this widespread national problem and not look back in 30 years time and acknowledge all the damage that was done — damage that was preventable.