A mortgage debt crisis is unfolding
Resigned families packing their homes into boxes and handing over their keys to preying banks and lenders could argue just that.
They could argue that at the very least they were misled. That lenders and banks handed them lavish loans that they could not afford and that ultimately now they have been cheated, robbed of their future.
As has emerged, many home buyers eager to get on the property market took out mortgages that were multiples of their salaries with huge interest rates.
Borrowers, encouraged by lenders, sleepwalked into uncontrollable debt.
We are now witnessing the consequences of irresponsible lending, as the country wakes up to a painful mortgage debt hangover.
Numbers of repossession case hearings in the High Court in recent years have doubled. The amount of borrowers in arrears and having to renegotiate their mortgages has risen in recent months, financial regulator Matthew Elderfield also admitted last week.
He added: “My guess is that, over time, the arrears figures are going to get worse, rather than improve, because of the unemployment levels.”
Furthermore, the Money Advice and Budgeting Service (MABS) is already overwhelmed with mortgage owners seeking help and advice.
But last week our Taoiseach stressed that the numbers of mortgages in serious difficulties was exaggerated. It was not 100,000 as suggested, Brian Cowen said, but more in the region of 70,000.
There might be debate about exactly how many borrowers are in real trouble paying for their home. But let’s get something straight here: A mortgage debt crisis is unfolding. Mortgage defaults are already high, with an estimated 36,000 with arrears of more than three months.
The banking sector will argue this is only about 4.6% of all mortgages.
But on top of this is the number of struggling borrowers who have had to renegotiate their mortgages, instead of defaulting. A recent estimate last week put this at 45,000 borrowers. Those borrowers have sought payment holidays; agreed to pay interest only for a period; or changed the term of the mortgage.
Aside from this, it is estimated that there are in the region of 200,000 homeowners in negative equity across Ireland. These borrowers are essentially trapped, unable to sell up and pay off their mortgage if they want to.
However, many families who are giving up the keys to their properties in the courts to lenders are worried about more than having to leave their homes.
The question being raised by broke borrowers now is how do they get on a local authority housing list, where can they get rental assistance from and how long will this take before they are forced from their repossessed home?
This is a real concern with many local authorities telling repossessed homeowners that there is a waiting period of several months before they can get into a home.
The banks know they will be lumped with negative equity homes, a backlash from the public and the likelihood of not selling those properties on. So, the actual number of repossessions in the courts are low.
Last week saw 11 out of a listed 83 High Court repossession orders granted.
Creditors have better memories than debtors though as Benjamin Franklin once said.
The mounting repossession cases being adjourned before the courts are to be heard eventually.
In the meantime, mortgage arrears will keep growing for those unable to meet their repayments.
Those homeowners need options. Lenders have a responsibility which they signed up to as well when loans were granted. Mortgages must be allowed to be renegotiated or in some cases, parts of debts should be written off.
It means the banks’ loans books will look better and ultimately lenders will still get a steady stream of repayments, rather than empty homes which they can’t sell on.
But, nothing is organised about how the country’s mortgage debt is being handled. The only thing certain is the inevitable tragedy that many debt-ridden borrowers are facing – being kicked out of their home.
And a huge proportion of the blame for this hangs on a property boom that was essentially organised robbery against society.
THEIR financial plight was aired on radios, talked about on televisions and read about in newspapers across the country.
The week Patricia and John Burnett finally gave up the battle for their home in Tipperary, the nation listened as the first family to go public with a repossession explained their ordeal.
Similar tragic tales are emerging around the country where newly unemployed families have given up the keys to their homes, unable to handle the mounting mortgage debt hanging over their heads.
In the next few weeks, the Burnett family will pack boxes, take family pictures down off walls and cover up their prized possessions.
The packing has already begun.
Patricia and John must be out of the three-bedroom home by December 6, according to a possession order granted to lender GE Capital Woodchester in the High Court last month.
Their next step is getting onto a housing list with their local authority or getting rent supplement. But this is proving problematic.
Patricia explained: “We’ve found a house we like which we could rent for €800 a month . . . but nobody [with the council] is doing anything for us. It’s a nice house, with a garden and would be great for our dogs.”
The married couple, who have two grown sons, are facing spiralling debts for a mortgage originally taken out on their home in Cahir, South Tipperary.
After being turned down by the main banks, lender GE Capital agreed to lend the couple €169,000 in 2006, which they needed to pay off business debts.
The husband and wife had bought their modest home for IR£40,000 in 2000, but the lender agreed to give the couple a business loan worth multiples of what they paid for the property.
But in late 2007 when husband John lost his job as a truck driver, the couple’s dreams collapsed. Mr Burnett had been earning more than €900 a week which went towards the loan repayments of €1,800 a month for GE Capital. A year later and the couple were only able to afford a maximum of €100 a week in repayments.
By the time the case came to court last month, the couple were facing almost €32,000 in arrears.
The Burnetts’ battle to keep the lender from taking their home came to a halt on October 11 last when Judge Brian McGovern granted a repossession of the home.
“It’s been hanging over us for so long. It’s dragging us down,” Patricia Burnett told the court on the day. But even now plans to give up the home in the weeks before Christmas and to move on are not working out.
“We just want to get rent allowance now and a place over our heads. I haven’t got a cent to my name. It’s not that I want a bail-out, it’s just getting very difficult. When all this is over, I’ll probably declare personal bankruptcy,” added Ms Burnett.
In the meantime, the couple are using every contact to try and secure a roof over their heads, relying on the help of councillors and local authority officials. They’ve started packing their belongings after last week receiving a letter from the lender reminding them that they needed to hand over the keys in just a matter of days.
The couple received the letter from solicitors for the lender on November 9. It stated that the stay on the repossession order granted by the courts was due to expire on December 6 and added:
“Accordingly, you should contact GE immediately if you wish to make proposals to clear the arrears on your mortgage account.
“Please note that if you fail to make proposals to clear the arrears, we are instructed to continue with the legal process and the forward the order to the Sheriff for execution.”
The Burnetts know their best option is now to get accepted for social suitable housing before they are kicked out of the house.
But even that option is proving difficult, as Ms Burnett explained:
“It’s a nightmare. It’s been degrading with people talking down to you when you try and get assistance.”
EVERY Monday in the High Court is D-Day for families and mortgage holders trying desperately to hang onto their homes.
Packed into a stuffy courtroom, defendants sit quietly at the back of the room behind rows of barristers and solicitors, who queue up to get their repossession cases heard.
The only guide to the day’s hearings is a list of lenders and banks against surnamed individuals or couples.
The defendants – those there to fight for their homes – have their names called out by the judge’s clerk in the courtroom.
Over the last two years, the number of hearings at that weekly High Court sitting have doubled.
At the end of the boom in late 2008, there were often around 40 cases listed for hearing. In the last fortnight, the number of listed repossession cases has risen to close to 90 on the day.
Judges prioritise defendants who appear on the day and get their case heard first.
But that’s not much consolation for a couple or family who must decide there and then if they should give up the keys to their home.
One case saw a mother cry next to her child in court. In others, farmers or low-level businessmen pleaded with lawyers and the sitting judge for extra time to get their finances in order.
Recently, however, more often than not, no defendant turns up in the court.
The bank explains that no letters have been replied to or that a borrower can’t be contacted by phone.
Attempts to track down or contact borrowers have even seen private detectives being hired by lenders.
Sometimes, the judge is told they have moved abroad and can’t be contacted.
Until recently, there has been no free legal aid for defendants. If you couldn’t afford a lawyer, you still had to stand up and fight your case in the jammed court room without the expertise of the lenders’ lawyers.
And not only do borrowers lose their home on the day, but lawyers for banks then seek their legal costs.
As is nearly always the case, the judge grants these without question, which often heaps another debt of sometimes tens of thousands of euro on a defendant.
Borrowers of all types end up before this court, including small developers, couples, farmers, solicitors, bust business owners, garage and shop owners, widows and taxi-drivers.
A number of recent hearings have involved the repossession of homes belonging to rogue solicitor Michael Lynn, the lawyer alleged to have perpetrated huge mortgage fraud.
And banks seeking the return of their mortgage money not only include mainstream lenders like Bank of Ireland or Allied Irish Bank.
Many, if not most cases, are taken by subprime lenders such as Start Mortgages, Stepstone Mortgages and GE Capital Woodchester.
Some weeks have seen Smart Mortgages seeking half of the repossession orders.
Some lenders – like Stepstone Mortgages – don’t even lend here any more since the boom, and just hire lawyers to recoup mortgage debt.
The latest figures from the courts show that in the first three quarters of this year, 230 repossession orders were granted in the High Court.
Another 229 repossession orders were granted by judges in the Circuit Court for the same period.
And the number of repossession cases is expected to rise in the coming months.
UP TO 50 barristers and solicitors are now taking on repossession cases without charging fees – in a bid to help households facing the loss of their homes in the courts.
Lawyers taking on mortgage debt cases with the group, New Beginning, are expected to proceed with a landmark case this week in a bid to challenge the legal and banking practices used by mortgage providers.
The advocacy group working on a voluntary basis have taken on 59 repossession cases since launching their initiative two weeks ago.
Lawyers have stalled or adjourned 14 cases where borrowers were set to lose their home. The group has received more than 5,500 hits on their website, 450 emails and 290 phone calls inquiring about help.
Group co-founder David Hall said a range of struggling mortgage owners had sought help.
“It’s been very busy. The primary ones we’re dealing with are those who have proceedings issued against them in relation to arrears. They’re from all over the country and every age group, every social class have been in contact.”
The group, which is advised by University of Limerick economist Dr Stephen Kinsella, was formed because many homeowners were appearing before the courts without legal representation.
“It’s all sorts of cases and not just subprime lenders, but all [lending] institutions. One of the things slowing us down is the lack of people having copies of their own files. Solicitors and barristers are now doing this all over the country with no return in any shape or form, not even petrol money.”
Lawyers are working with cases in the High Court, the Circuit Courts and the Master’s Court.
Co-founder and barrister Ross Maguire said 70% of cases were residential while the remaining 30% were commercial repossessions.
The group have examined the financial regulator’s Consumer Protection Code and believe there may be issues around how mortgages were issued by lenders, but they did not consider the best interests of borrowers as stipulated under the code. There is also the question of whether lenders broke rules with excessive lending.
Mr Maguire added: “It can come down to, like in any case, what happened in that particular case. So, assuming Mary and Joe with a young family are trying to buy a three-bedroom house. They have no idea about finance other than that they get their wages and spend it. They have some bank manager who says that this is the way to go. They rely on that and they take out a crazy loan and now they’re screwed. Is there a case? In common sense you’d say, damn right there’s a case.”
Mortgage lenders are expected to argue that borrowers knowingly entered into contracts, which they signed.
New Beginning expect their scrutiny of the underwriting of the loans also to throw light on whether lenders breached rules.
Mr Maguire cited one British case taken against a bank in the 1990s where the lender was found guilty of professional negligence.
THE loss of a job, serious ill health, the breakdown of a relationship, or a reduction in income – these are the reasons the people coming to front line services give as the causes of their inability to pay their mortgages.
They also describe in detail the problems that go hand-in-hand with this event; the strain on family relationships, the stress and worry of losing their home, wondering where they will end up and how they will manage, the struggle of coping with multiple creditors, the fear of the future and concern for how this will affect their children. In every case our clients would prefer to be able to meet their financial commitments.
We know in the first half of this year more than 36,000 mortgages were over three months in arrears and that more than 200,000 mortgages are in negative equity.
Not all of those affected will lose their home; some will be lucky and will manage to continue to meet their commitments, often with the assistance of MABS or with the help of law centres.
It is difficult to accurately determine the true extent of the problem at this time.
It’s true the numbers of actual repossessions in the courts are relatively low. It is also true that the number of houses repossessed and sold on by a lender is extremely low.
What we do not know is the number of homes where possession has been voluntarily surrendered to lenders by borrowers who have come to end of their powers of endurance and who could see no other option. What is also clear is that this problem is steadily growing and in the coming year is going to get worse for tens of thousands of families.
This brings us to the question of what is being done to help people with this problem.
There is welfare support in the form of Mortgage Interest Supplement, which pays the interest portion of a mortgage usually for a 12-month period. There is also the principle of forbearance, where lenders delay taking legal action for 12 months. There is the advice and support being provided by agencies like MABS or community law centres. But the real question is, is this enough?
The answer is simply, no, it is not enough. Our legal system for dealing with debt is hopelessly antiquated, created to deal with debt problems in a singular way without reference to the overall needs and obligations of the person in debt and the entirety of their financial situation.
Welfare support for mortgage debt is intended to be a temporary scheme, to provide assistance until there is some improvement in circumstances. However, receipt of this support is often reported as inconsistent.
Forbearance by lenders as a response is really a delay in formulating policy to deal with this problem in the hope that things will turn around and borrowers will be able to pick up the pieces.
This is the third year of this problem and it’s getting worse. What is needed is continued investment in state-supported debt counselling services like MABS and community law centres and a fundamental reform of how the legal system deals with those in debt.
We need a legal system equipped to hear the case of the person experiencing financial problems in their totality, which can bring about workable solutions and offer hope through debt restructuring and debt forgiveness. Our welfare supports need to be targeted more accurately and applied more consistently.
Furthermore, where there are no sustainable solutions we need to ensure that there is adequate access to accommodation for those who take the decision to voluntarily surrender their home.
* Colin Daly is the managing solicitor at Northside Community Law Centre, a service helping struggling mortgage holders.
FAMILY homes account for eight out of every 10 repossessions being sought by lenders, according to a sample of cases coming before the courts.
The survey of repossession orders coming before the Master of the High Court, Edmund Honohan SC, over one month also reveals the lenders who are taking the most cases, as well as which counties figure most in cases.
According to the analysis, the majority of cases (79%) being taken by lenders relate to properties considered family homes, where mortgage holders can have a child living on the property.
Another 19% of cases taken by lenders relate to properties which are not the borrower’s residence and which may be lands or sites.
The final 2% of cases relate to unoccupied or abandoned properties, where borrowers do not live at the residence.
Subprime lenders are taking three-quarters of the repossession cases.
A breakdown of the 540 repossession orders which came before the Master of the High Court in June this year show Start Mortgages brought the most, taking 34% of cases.
After that, GE Capital Woodchester (26%) came second, followed by Stepstone Mortgages (13%).
The average arrears for subprime lenders is close to €29,500 as opposed to €33,000 for mainstream lenders. The average loan provided by subprime lenders was €235,000 compared to €242,000 for mainstream lenders.
The survey of repossession orders being sought also reveals that most cases relate to married couples (54%), while single borrowers account for a third of cases. Divorced or separated couples account for another 7% of cases coming before the court.
When it comes to location, Dublin, not surprisingly, holds the worst record for repossessions being sought, accounting for 15% of cases. The high number of repossessions in the capital is followed by Meath (9%), Galway and Tipperary (7% each), Louth and Cork (close to 6% each) and Kildare and Limerick (both close to 5%).
Mr Honohan, at the beginning of the year in an interview with the Irish Examiner, called on banks to shoulder some of the pain of borrowers.
In recent weeks the numbers of repossession cases going on to be heard in the High Court have reached unprecedented numbers, with a record 91 orders listed on one day alone last month.
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