Mortgage arrears crisis remains unresolved

With a general election approaching, the Government can take satisfaction that many of the issues that arose after the crash have been addressed. The economy is growing again and the public finances and banking system have been stabilised.

However, one key legacy issue remains unresolved. The high number of Irish households not paying their mortgage debts.

The headline figures on mortgage arrears show some improvement.

The number of owner-occupier mortgages more than 90 days in arrears has fallen from a peak of 12.9% in mid-2013 to 9.3% in the second quarter of 2015.

The economic recovery, particularly the fall in the unemployment rate, is helping to reduce financial distress amongs households.

Furthermore, loan modifications by banks, particularly the 23,000 split mortgages, are helping to get distressed borrowers back on track in paying debts.

However, a hardcore of households in long-term arrears have still not been dealt with.

The Central Bank’s latest data for the second quarter of 2015 show there are still 38,000 households over 720 days in arrears, or 5% of total mortgages.

Together, these households have built up almost €2bn of arrears, or €53,500 on average. Their average mortgage balance was €217,820.

This group has increased their mortgage arrears by €13,375 on average over the past two years, or by €560 per month.

To put these figures into context, last week’s Private Residential Tenancies Board release showed the average monthly residential rent was €878, up 7% on the year.

Of course, some households are making an effort to maintain their monthly payments despite strained financial circumstances, but banks have indicated that many mortgage accounts in long-term arrears are making no monthly payments whatsoever.

We know these long-term arrears cases are far more likely to be people who remain in unemployment. So, resolving them without resorting to repossession will prove extremely difficult.

That said, unrealistic expectations of debt-write off, coupled with little apparent effective threat of repossession so far, could still be encouraging some borrowers not to make payments.

The Central Bank’s key initiative in 2014 were targets for banks to propose solutions for 85% of cases in arrears by the end of the year.

Banks had proposed repayment and restructuring solutions for 46,500 mortgages, including split mortgages, term extensions, arrears capitalisation and borrowers clearing their debts.

Furthermore, borrowers had to the new deals in 91% of cases. So, there has been some progress in addressing the problem.

However, there were also 30,900 accounts threatened with repossession at the end of 2014.

Of these, 16,683 had concluded, expected to end with loss of ownership, 15% of which were voluntary sale/surrender agreements, but the remaining 85% were mainly classified as non-cooperating.

So, thousands of households could face eventually repossession, especially those in long-term arrears who are unemployed.

Since April, when the Central Bank announced the results of it Mortgage Arrears Resolution Targets, there has been little information on how the situation is evolving.

In the first half of this year, there were just 773 properties repossessed or voluntarily surrendered, a tiny fraction of the what the final total might be.

Perhaps the most informative account of how repossession cases are progressing through the courts came from Brendan Burgess, Seamus Coffey, and Karl Deeter, who documented 300 through February to April this year.

Remarkably, they found only one in five of the borrowers in questioncome to court. Almost every case was adjourned at the first hearing for three to six months.

Where a repossession order was sought, the vast majority of cases were adjourned against the wishes of the lender.

Moreover, where a repossession order was granted, a stay of execution for up to nine months was put on the order, providing more time for borrowers to start paying their monthly mortgage payments.

In short, even if our courts had the capacity to deal with thousands of cases, it is not minded to resolve them quickly through repossession.

The recent OECD report on Ireland recommended this process should be accelerated.

Given the delays in the court system, large numbers of repossessions are unlikely in the near-term so that they become a key election issue.

Nonetheless, higher numbers of repossessions are inevitable.

The first stage of dealing with Ireland’s mortgage arrears crisis was ensuring banks agreed to long-term sustainable solutions for households in strained financial circumstances.

However, there is little consensus on how to deal with the thousands of borrowers who face little prospect of resolving their debts without losing their home.

Conall Mac Coille is chief economist with Davy Stockbrokers


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