Irish home repossessions will rise as banks show “improved willingness” to reduce the worst of their non-performing mortgage loans on their books, according to credit rating firm DBRS.
That is the conclusion of its survey of Irish repossessed properties contained in groups of loans in so-called residential mortgage-backed securities.
Following the banking and property crash, Irish banks carry the highest levels in Europe of non-performing home loans, which has weighed on their balance sheets and limited their ability to lend, despite an expanding Irish economy. Though reduced, the high level of non-performing loans at AIB will influence the amount the Government will raise in its sale of a 25% stake in the bank, analysts have said.
DBRS said that so-called securitisations by banks of non-performing loans will provide “a possible form of capital relief for banks’ balance sheets”.
“The sustained backlog of highly delinquent loans that was caused as a result of the financial crisis remains high in Ireland due to several factors, including a historical difficulty to enforce the collateral given the foreclosure moratorium,” said DBRS. “Further, there is a general unwillingness to enforce, given the high DSDs [distressed sale discounts] that have been observed. The recent trend of increasing repossessions demonstrates the historical unwillingness to enforce is diminishing as a result of continued house price growth and clearer regulatory guidance.”
The credit rating firm forecasts “that Irish repossessions will increase further because of improved willingness to work through the sizeable stock of mortgages in highly delinquent states”.
“Supported by economic growth and an improving labour market,” it said the Central Bank’s Mortgage Arrears Resolution Process, or Marp, which since 2013 has set out an approved conduct between banks and distressed homeowners “should become more successful and aid in reducing the delinquent loan stock and help give rise to more RPL (re-performing loan) portfolios”, said DBRS. It found that distressed sale discounts were higher than average for “more seasoned loans”, for buy-to-let loans, and for homes based outside Dublin.
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