Regulator calls for ‘sense of realism’ in helping those in mortgage arrears

MORTGAGE arrears and repossessions have increased in the first three months of the year but people need to get real on helping those in difficulties, says the financial regulator.

Matthew Elderfield said that in seeking to assist households in difficulty, we need to recognise that the cost of any support will be borne by people who avoided excessive borrowing or are “gritting their teeth and meeting their obligations”.

Speaking to the Insurance Institute of Ireland he called for a “sense of realism” about calls for measures to help people in difficulty with their mortgages.

He said there was no“silver bullet” solution to the problem, because of the financial constraints affecting the Government and the banks.

“We must be careful that any approach doesn’t provide financial incentives for the arrears problem to get worse,” he said.

He said Irish mortgage arrears may be the “biggest legacy” of a financial crisis which pushed the country’s banking system to the brink of collapse.

He added however that he is not pouring cold water on the prospects for some positive news out of his office’s work on mortgage arrears, as it is working on a number of recommendations to tackle the problem, but he said it is to say: “There is a need for a sense of realism as to what can be achieved given the financial constraints affecting both Government and the banks.”

Mr Elderfield also said there are concerns that some banks may be providing incentives for customers to switch from tracker rate mortgages to variable rate mortgages.

“We do not believe this practice complies with the code which requires firms to act in the best interests of their customers and to recommend suitable products only,” he said.

Chief executive of the Irish Brokers Association Ciaran Phelan said on the issue that mortgage holders should not feel pressured into changing their loan terms or switching to another provider.

“Many mortgage holders are reviewing their situation – however, for many, there may be no cause to take any action and doing so may end up costing them in the long run,” he said.

Mr Elderfield also said the financial crisis had led to a shift in thinking, which meant regulators were no longer prepared to wait for a market failure before taking action. He said he had challenged his staff to take a more assertive approach to management of financial institutions.

“It should therefore be no surprise to anyone in the financial services industry that the scale of change that is coming in regulation will be very significant indeed.

“The crisis has spurred a fundamental reassessment of some of the principles underpinning financial regulation and has prompted an extensive international agenda of regulatory reform.”

He said there is a huge “to do list” and we must have a clear appreciation of what requires the most attention at any time.

“It’s clear that restoring the banking system to a sounder footing has to be at the top of the list,” he said.