Mortgage rules to ‘target low hanging fruit’

Strict new deadlines for banks to conclude deals with mortgage holders in arrears of more than three months will see a rise in repossessions because it will force banks to “go after the low-hanging fruit”, warned the barrister Ross Maguire from the advocacy group, New Beginning.

Under pressure from the troika, the Central Bank has given financial institutions tougher targets in tackling the mortgage arrears crisis. The banks must now conclude arrangements with 15% of customers in arrears over 90 days by the end of this year and 25% of customers by the end of next March.

They must also have offered solutions to 70% of customers in arrears by more than 90 days by the end of next March.

According to the latest Central Bank statistics, there are 97,874 of mortgage holders with a total value of €18.6bn in arrears by over 90 days.

“We are now going from a situation where the banks have been doing nothing all along and they are now being forced into action,” said Mr Maguire. “They will go after the low-hanging fruit and call in loans, which will cause a rise in repossessions.

“Ultimately, this is bad because some cases could be solved but it requires time and the use of a PIP [personal insolvency practitioner], but because of these new guidelines the banks will have to act much sooner.”

The original timeframe allowed for making offers to customers in arrears over the course of this year and early next year and then putting in place arrangements over 2014 and beyond.

The chief executives of AIB and Bank of Ireland came in for considerable criticism during recent Oireachtas Finance Committee meetings into mortgage arrears for including legal letters threatening repossession in the solutions offered to customers to meet second quarter targets.

A Central Bank source said it was auditing the banks’ offers to customers to determine whether these letters could be deemed to be sustainable solutions.

During the Oireachtas hearings, AIB chief executive David Duffy said that roughly one in four of mortgage arrears customers were strategic defaulters because they could afford to pay but chose not to.

Speaking at a conference in Dublin yesterday, Nigel Nagarajan from the EU Commission, and a former troika representative in Ireland, said that, contrary to experience in other countries, mortgage arrears were still rising in Ireland despite a stabilisation in unemployment last year.

This suggested that some customers had lost the motivation or discipline to pay their mortgages and this had to be dealt with through legal action, he said. The banks had a limited amount of capital and it was important that this was used to deal with arrears customers who are in genuine distress and needed to be put on a more sustainable repayment schedule, he added.

And even though repossessions of family homes should remain a last resort, it has to be an option open to banks, otherwise mortgages would in future be price as an unsecured lending product, said Mr Nagarajan.