Repossessing homes - Banks must take losses in loan crisis

THERE can be few situations more distressing than the prospect of losing your home. Being turned out on the side of the road, put out of the house where you and your partner planned to build your family’s future might unnerve the best of us.

Losing the family home because a bank has secured a court order to that effect places enormous strain on individuals, relationships and a couple’s ability to be the parents they would wish to be.

There are very few events, along with the decimation of pension funds, that so starkly illustrate the betrayal by politicians, bankers and regulators of ordinary people than the eviction of newly unemployed people from the homes where they had hoped to put down roots.

Of course debts must be repaid, that after all is one of the principles of banking. Another principle is that all lending must be prudent and not over-burden the borrower. There must be a reasonable prospect of the borrowings being recovered.

In too many instances, especially involving companies dealing in subprime mortgages, that convention was ignored. People were given 100% mortgages; others, like Charlie McCreevy, were given even more than the purchase price of the property in question.

If the borrowers were naive, or simply had no choice if they wanted an insanely priced three-bed, semi-d, then the lenders were reckless and exploitative.

They would not have lent the money if they were not convinced that the old rules would apply and that their interests would be put first if things went wrong.

This situation has been recognised by the Master of the High Court, Edmund Honohan. He has suggested that lenders must accept things have changed and that they might have to settle for a lot less than they anticipated when they extended credit. He has also asked that the code of conduct on handling repossessions be rewritten.

Mr Honohan’s intervention on this time-bomb issue is set against a backlog of more than 1,000 repossession cases awaiting his court’s attention. It is unlikely that figure will fall anytime soon.

The Financial Regulator reported last month that 26,271 homeowners were more than three months in arrears to the end of September 2009. Almost 8,200 families had received legal notices or been issued with court proceedings and are at serious risk of having their homes repossessed. It also emerged that 4,565 formal demands – a letter from a bank demanding repayments or repossession – were outstanding up to the end of September. Basically, about 40,000 individuals or families are caught in this horrible bind.

Some banks have thankfully recognised this and have said that they are willing to consider every option before going to court. That is how it must be. Some banks, especially the subprime pirates, have been less accommodating. They must be confronted and told that the state will always put the homeowners’ interests first. If that means that a few sub-prime mortgage lenders go out of business then good riddance to them.

This is a tipping-point issue and must be treated as such by the Government and the banks because Irish people will not tolerate mass evictions.