Lenders need to be realistic on arrears, says Flac

The legal rights group Flac (Free Legal Advice Centres) threw its support behind a report issued by Davy Stockbrokers yesterday, urging banks to take a radical approach to dealing with mortgage arrears.

“Davy’s report is another stark indicator of the need to ensure that, even beyond the introduction of a new personal insolvency regime, lenders must be more realistic and reasonable in their proposals around mortgage debt for Irish consumers,” said Flac director general Noeline Blackwell.

At the end of March there were 78,000 residential mortgage holders — 10.2% of the total — in arrears of 90 days or more.

Davy forecasts arrears to peak at 16.5% of the total value of mortgages in 2013.

Roughly 25% of the total value of all buy-to-let mortgages are in arrears of more than 90 days, which is forecast to peak at 38.4%.

The report found banks’ attempts to improve loan performance have so far had a very limited success.

Moreover, new forbearance measures “falls well short of principle forbearance... so the likely success in improving loan performance may be limited”.

The proposed personal insolvency arrangement (PIA) also falls short of debt forgiveness and will have limited effect.

The report warns that unless banks come up with credible long-term solutions to deal with mortgage difficulties, then investors will continue to question the level of losses they are holding, which will weigh on their ability to secure funding in the future.

“The current stalemate of negligible repossessions and debt writedowns set against banks’ high tier-one capital ratios, arrears rates, and non-performing loans cannot be expected to persist indefinitely,” said the report.

Ms Blackwell said: “In Flac’s experience, this focus on short-term interim measures to deal with mortgage debt has indeed worsened the position of Irish consumers.

“Such measures often only prolong the life of loans that are truly unsustainable. They provide neither certainty nor assistance to consumers... This focus also feeds a trend where lenders are only concerned with their own debt, whereas we see that many consumers are trying to juggle multiple debt.”

The report forecast total mortgage losses among the covered banks will reach between €10bn and €11.5bn. The Central Bank conduc-ted a comprehensive stress test of the Irish banks in Mar 2011, which pencilled in €9bn in losses under the adverse case scenario.


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