THE mortgage repayment crisis is a ticking time bomb that terrifies borrowers and lenders alike.
Last summer, the Taoiseach Enda Kenny put it succinctly. “At no time since the Land War have people felt so stressed about the future security of their homes.”
Since then, there have been growing rumblings about the inability of the authorities and financial institutions alike to get to grips with a problem that is already draining the life out of households.
This week, Fiona Muldoon, a Central Bank regulator and largely unknown to the wider public, added plenty of fuel to what is an increasingly fiery debate when she rounded on the institutions at the annual bankers’ federation shindig.
In an address which must have cut through the audience like an early winter’s draught, she reminded the bankers that the Central Bank had addressed “serious shortcomings” in their approach to recovery on loans outstanding.
The banks’ recovery teams are, she said, “too small and insufficiently resourced with the appropriate experienced people.”
She went on to say that “old-fashioned credit collection techniques” are largely absent and systems are “clunky and difficult to operate.”
She noted “management information is not in place”, and added: “I am a big proponent of the proposition that what gets measured gets done.”
Many of the executives present at the Irish Banking Federation bash must by now have been experiencing digestion problems as they toyed with their lunch.
Muldoon is a 25-year veteran of the insurance industry who spent most of the past decade abroad working for XL, a large insurance and reinsurance group in London and Bermuda, where she got to know Matthew Elderfield, then head of regulation on the island. She now reports to Elderfield, deputy governor of the Central Bank.
The institution has undergone something of an internal revolution since Patrick Honohan arrived as governor, with the straight-talking Briton, Elderfield coming on board, soon after, in early 2010.
Muldoon, a philosophy graduate of UCD, rose steadily through the ranks at XL Group, a company with assets of about $50bn (€38bn), headquartered in Dublin since 2010, but with executive offices in Bermuda. In Sept 2008, she was promoted to the position of group treasurer.
In 2010, she returned to Dublin to take up a senior position with Canada Life (touted as a possible buyer of Irish Life) before landing the plum post as insurance regulator at the Central Bank last year. Following the departure of Jonathan McMahon early this summer she took on the added responsibility for regulating domestic credit institutions.
In her speech this week she made a virtue of her status as an ex-pat: “I do believe I look at the banking industry through outsider’s eyes.”
She referred jokingly to the line from the ’80s group, Talking Heads: “My God, how did I get there?”
Some of her audience may quietly, and through pursed lips, have been wondering just the same.
The regulator’s core argument is that too little has been done to address ultimate repayment capacity issues with regards to the €35bn worth of loans in arrears, along with the €9bn of restructured loans currently treading water.
Muldoon pointed to what is a twin-track problem arising from the fact that there are people who can’t pay, mainly boomtime borrowers saddled with crippling debts, and those who simply won’t pay.
Muldoon sums it up as follows: “If we do not continue as a society to operate in a repayment culture, then the bill simply becomes too big to pay. Meanwhile, the misery of personal indebtedness ... unsustainable for so many people, must be meaningfully dealt with. This is the needle to thread over the coming years.”
The regulator was dismissive about the line trotted out by the banks about how they are ‘humbled’ — a pitch which calls to mind similar mea culpas from Cardinal Seán Brady over his failure to halt the activities of child abuser, Brendan Smyth, in the 1970s.
Muldoon was having none of it. “Did I spend too long in a North American environment? The Americans make their mistakes and clean them up quickly. Why the need to talk of being ‘humbled’ four years on?”
However, the banks too have not been helped in their task by the long delay in the implementation of legislation on personal insolvency. The new laws are expected to come into force shortly and should bring welcome clarification.
The act will overhaul bankruptcy law, reducing the period of personal bankruptcy to three years, while providing for the establishment of a new insolvency service, the PIA.
Banks will retain an important degree of control as it will be up to them to approve new debt settlement arrangements.
But the regulator is clearly concerned about the banks’ ability to live up to their side of the bargain.
SOME believe the Central Bank has itself been slow to address the problem and it appears that fears have been voiced from Dame St (the bank’s HQ) that bankruptcy may be made too easy as a result of changes in the law. In a media interview in June, Muldoon painted a grim picture.
Apart from acknowledging that bank home loan losses have moved towards those envisaged under the worst case, or stress level scenario set out last year by consultants Blackrock, she went on to suggest that a further recapitalisation of banks would be required.
This would be the stuff of nightmare as far as the Government is concerned.
Fears on this score appear to have been dampened down, but the spectre of borrowers walking away from their responsibilities has not been banished.
To date, many have struggled to keep up repayments, but the concern remains that a mortgagor strike could yet upend the apple cart.
Muldoon is clearly calling on the banks to get on with it. However, finance industry sources express some sympathy for the bankers, given the enormous task of dealing with close to 100,000 problem loans on a case-by-case basis. There is confidence that the firewalls erected following the stress tests will not buckle.
The regulator’s intervention this week is aimed, one suspects not just at the banks, but at the Government.
The concern must be that left untackled, the problem of arrears will continue like an untreated infection, to drain the life out of the economy.
Better, say some experts, to allow losses be crystallised now ahead of an intervention by the ESM than allow a society-sapping illness go untreated.
Yet the banks too must be given time for the sorting process to be brought to a conclusion so as to ensure that free riders do not win out at the expense of wider society.
* Education: BA in English and philosophy at UCD; qualified as a chartered accountant.
* Career: 25 years in financial services. Started out as an accountant. Worked for over a decade with XL Capital, rising to position as senior vice president, group treasurer. Previously, head of corporate strategy and development planning.
* 2010: Chief finance officer, Canada Life Ireland.
* Aug 2011: Appointed to newly created position as director of insurance supervision.
* May 2012: Succeeded Jonathan McMahon as regulator of credit institutions.
* Family: Married with two children.