This mortgage arrears report was cynically spun, writes Bill Hobbs
Recommendations of this Government’s “expert group on mortgage arrears and personal debt” will be about as effective as a foot pump on the Titanic. Published last week, the group’s interim report leans far too much in favour of the lender and fails to address the core issue of a massive consumer debt problem.
Written by a group dominated by government, banking and regulatory interests, the report is a banker’s and not a consumer arrears charter. Its tepid series of recommendations will do little to tackle the underlying problem. Dealing with just one symptom of the debt crisis, it lists forbearance recommendations on tackling mortgage arrears.
Critically the group’s core recommendation to standardise an approach to arrears management does not address a lenders influential power over a borrower. Called the mortgage arrears resolution process (MARP) it is nothing more than a voluntary scheme in which the borrower has no rights and remains exposed to losing their home. Forebearance, modifying loan repayments to make them affordable, won’t work in dealing with the sheer scale of the consumer debt crisis.
First quarter data on mortgage arrears from the banking regulator sketched the outline of this quite appalling mess. Over six months in arrears, 32,000 homeowners owe an average of €172,000 each plus €19,000 in arrears. Assuming an original loan to value of 80% this equates to an unrecoverable loss of 32% per loan for the banks. Householders in this category owe €61,000 more than their house in worth. The figures get worse with peak boom time 100% mortgages, losses per loan rise to 45% or €86,000 per household.
They are quite shocking figures and as averages hide the true scale of the problem. Undoubtedly the numbers for the second half of this year will have worsened and trends indicate well over 40,000 will be in the highest risk category with thousands more joining another 30,000 who have modified their loans using forbearance sweeteners offered by banks.
It is obvious that the banks still do not want to admit to the true figures. For example the group’s report uses an estimate on modified loans as none of the banks have published actual loan experience. They are of course anxious no to come too clean on their consumer loan losses as they deal with their NAMA enforced write downs and recapitalisation worries. The group’s report failed to produce a scintilla of new data save to cite sparse information already published by the banking regulator.
Its figures do not account for other troubled personal loans or personally guaranteed business loans. The vast majority of people in mortgage arrears are also hopelessly in arrears on other loans from car finance companies, credit cards providers, credit unions and others.
When speaking of his groups report, Minister Eamonn Ryan sought to talk down the mortgage arrears problem. His line was that only 32,000 of over 750,000 mortgages were in difficulty. Apart from being the entire home owning population of quite a large town, this type of political huff and guff all too conveniently ignores the fact that the majority of people who are in trouble are under age 40, married with young children having borrowed to buy grossly overpriced and now massively devalued homes. Many have no prospect of ever repaying what they owe in full.
The problem is not about arrears, it’s about the social costs to this society and its families. A recent article in this paper wrote of a worrying escalation in male suicides in 24 to 44 year olds. A 2006 report of the British Economic and Social Research Institute found that males experience significant adverse psychological effects from living in fear of losing their homes and dealing with their loan arrears. Our court lists are full of creditors ruthlessly pursuing hopelessly insolvent debtors. Our lenders are using high pressure tactics to grab their share of dwindling homeowner incomes. Government’s response has been a list of recommendations that should have been implemented years ago and commentary on the need to do modernise Dickensian debt laws.
As Government kicks the consumer debt can down the road to buy the banks more time, the report was cynically spun as benefitting homeowners in trouble. It seems government hopes to muffle the blast and limit collateral damage to banks. But decommissioning the consumer debt landmine will take far more that the measures taken so far. And reducing loan repayments only makes the eventual debt larger, creating a form of debt serfdom from which people cannot escape.
Banks lent billions to ordinary people based on unsustainable boom time incomes, overpriced homes, low interest rates and tax rates. They recklessly assumed incomes would continue to rise, people would continue to be employed and property prices could only rise. Consequently Irish households are now the most financially vulnerable in Europe and will continue to be for some considerable time to come.
It’s a perverse scenario. A €250m loan transferring to NAMA is being written down by 50% to €125m but a homeowner is expected to able to repay 100% of their €250,000 mortgage or else “voluntarily surrender” their home. Government’s message to ordinary people is at least €65bn will be forgiven of the property development sector but you are on you own if you are an indebted homeowner. Could it be that people will revolt en-masse and default on their debts?
A version of this article appeared in the Irish Examiner Monday July 12th 2010, Business Section
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