John Moran: Clock is ticking to settle long-term mortgage arrears misery

A well-designed system of mortgage interest supplements can ensure the availability of enough ethical long-term funding to solve this mortgage arrears crisis

There is still a large number of home mortgages that are in arrears, and a significant slice of people who are in arrears have been so for more than 10 years.

What I am presenting here is a plea, or proposing a new year resolution for bankers, fund managers, and politicians to take a new approach to mortgage arrears in Ireland.

Back in October 2012, I broke from standard Civil Service practice in calling publicly for solutions that involve a much more dramatic write-off of debt for households that were facing levels of mortgage debt that they could never pay off.     

Despite some headway, almost 10 years on and too much still remains undone.

In 2012, with help from the troika of the EU, IMF, and ECB, we battled to reset the balance of power between debtors and creditors. 

Against much opposition, mortgage lending was included in newly introduced personal insolvency legislation. 

John Moran is a former secretary-general of the Department of Finance and founder of RHH International.

We reduced the dire consequences of bankruptcy previously driven by a Dickensian poor-house philosophy.

But how can it be that after so long after that crisis, there is still a large number of home mortgages that are in arrears, and a significant slice of people who are in arrears have been so for more than 10 years? 

The resolution for 2021 is it must be the year when the political and financial leaders come together with the non-governmental sector to finally resolve this problem in an ethical manner and to find a solution that does not involve merely passing the problem over to vulture funds.

There are already tools to help, including State-funded mediation, personal insolvency arrangements, mortgage-to-rent schemes, and legislation on debt and repossessions. 

Personal insolvency rules help reduce the unsustainable portion of the debt and bring willing and unwilling creditors to the table.

But most mortgages extend over 20 years, and applying short-term solutions will only kick the can down the road, again.

During the Covid-19 economic crisis, we have had to look for brave political leadership. 

Many in the system are willing to help but, knowing the system as I do, it will take a courageous political leader to drive a new solution to mortgage arrears 

As of last September, the figures show almost 60% of loans in arrears for more than two years have been sold by banks and purchased at big discounts by investment funds. 

But the clock is ticking for these funds who normally hold such assets for a relatively short time. 

The number of distressed mortgages held by the funds will increase as banks sell more of their distressed home loans. 

It is true that the funds have been admirably slow in seeking involuntary repossessions but there will come a time when the patience of foreign boards and funders will run out. 

Of course, banks too can do more by ensuring that remaining customer loans are sold only to buyers committed and funded to offer long-term solutions.

AIB will be the first out of the gates in 2021 and closely watched during the closing stages of its well-publicised “ethical” or charity sale. 

I’ll confess an interest in this as I have worked with the bank, David Hall and Arrow Global to devise new structures to work better for these households.

But this sale is just the tip of the remaining iceberg. For a solution of scale and speed, the State cannot dodge its key role.

Back in 2014, expecting this point to arrive more quickly, I had advocated for a rapid increase in social housing stocks. With interest rates at historical lows, the State can now fulfill its housing obligation in a more innovative way

A well-designed system of mortgage interest supplements can ensure the availability of enough ethical long-term funding to solve this crisis once and for all.

It need not involve bailout funds, banks, or so-called undeserving households, but it could bring an end to a lost decade for many forgotten families.

• John Moran is a former secretary-general of the Department of Finance and founder of RHH International and the RHH Institute