Latest mortgage plan has isolated borrowers

The banks are still not doing enough for stressed mortgage holders, writes David Hall.

ON Wednesday white smoke emerged from the Sistine Chapel and brought good news for 1.2bn Catholics, but there were no good tidings from the Department of Finance or at the Central Bank.

Instead, Wednesday brought a formula to add additional stress upon the 145,000 people in mortgage arrears.

A recent Money Advice and Budgeting Service (Mabs) report showed that people in mortgage arrears have on average four other unsecured debts.

Let’s start with the facts — which seem to have escaped some people. The facts are that banks, the Central Bank, and the Government have failed in effectively tackling the crippling mortgage crisis.

There has been a quarter-on-quarter increase in those with mortgage arrears, with the figure now at an astonishing total of 143,851.

About 94,000 of these are in arrears for more than 90 days.

However, this is the selective figure used by banks and Government in trying to portray a lesser problem.

With arrears come serious pressure and stress. Recent attempts to class a significant number of those in mortgage arrears as strategic defaulters does not reflect the situation in Ireland.

If there are any strategic defaulters, they are few and far between.

Each day and each night those in financial distress and mortgage arrears think of nothing else. It’s destroying our society, destroying our country, and stopping economic growth.

* The Central Bank should have issued a more prescriptive approach to banks;

* It should have specified solutions and defined key aspects of what was mentioned in the mortgage plan;

* It should have defined sustainability, affordability, last resort, engagement, and co-operation. Each of these are key components to what was announced this week and no matter how well-intentioned the announcement, it leaves these definitions as the sole remit of the banks.

Many of the banks have not adopted the solutions introduced through the Keane report in Sept 2011. There have only been eight mortgage-to-rent solutions achieved; only 52 split mortgages have happened; and only six trade-down mortgages. History has shown us clearly what we are dealing with in respect of banks’ inaction on this issue.

Each bank has what’s called an independent appeals system, which is a bit of a joke given it is staffed by bank employees. The Central Bank could have established an appeals department to allow borrowers appeal solutions given to them by banks and their treatment in meeting these targets by banks.

Let’s be real — the ultimate sanction here is the loss of a family home. Buy-to-let properties are less emotional. Logic would have said dealing with the buy-to-lets first would have been better — giving everyone time to adapt to any new regime.

I believe the best option for both borrower and lender is a debt-for-equity swap. This is where the banks write down the loan for those unable to pay and take an equity percentage in return. This equity held by the bank could be returned over a set number of years to the borrower, following payments being made on the balance.

For example, Mary and Joe have a €300,000 mortgage but they can only pay capital and interest on €150,000. In this case the bank would take a 50% equity in the home and write the principal mortgage down from €300,000 to €150,000. Mary and Joe would pay interest and capital on the €150,000. If Mary and Joe adhere to their full monthly payments on the €150,000, the bank could release a certain percentage of equity back, say every five years, eventually giving back the 50%.

The removal of the limited consumer protection contained within the current code of conduct and the correction of the legal issue around Justice Dunne’s judgment only empower banks further and destroy the concept of fairness and balance.

If the Government and Central Bank were serious about helping resolve the mortgage crisis they would have provided for professional and meaningful advice/services to borrowers following offers of the so-called solutions that will now supposedly follow from banks. This would allow an effective and considered protection to the borrower that they are signing any agreement following professional advice.

The concern with Wednesday’s announcement is that banks can offer a “solution” and already indebted homeowners are expected to accept without the opportunity of having professional advice and may not be able to afford same.

What’s facing mortgage holders now? What should they do?

I believe that Government and the Central Bank, having taken the combined steps they took this week, have in fact isolated borrowers and exacerbated their fears. I had a feeling of grief when I read this plan. It puts already stressed and frightened people into an even more difficult position. You have to engage with your lender — the threat is too great.

The time has come for all those involved in advocating for, and prov-iding services to, mortgage holders to come together under a united organisation which banks and Government should fund from the €10m set aside for borrowers to get proposals “translated” by financial advisers. This body should be established urgently to allow for a safe, independent advisory and representative function to borrowers and, if need be, legal representation.

* David Hall is director of the Irish Mortgage Holders Organisation. See


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