Mortgage strike threat might just force a response

Measures to alleviate mortgage distress are failing badly, writes Bill Hobbs.

So far mortgage crisis loan modifications have been about as effective as using a foot pump on the Titanic. Solely designed so that banks can delay owning up to their losses, it’s a hopeless “delay and pray” strategy given the sheer scale of homeowner financial vulnerability and growing insolvency.

With almost 100,000 home mortgages in trouble, close to 350,000 homeowners in negative equity, 200,000 variable rate mortgage holders paying twice the interest rate they should be paying and 290,000 tracker rate mortgages about to increase, it was only a matter of time before someone would float the notion of an organised civil disobedience campaign.

Last week’s call by the INMO (Irish Nurses and Midwifes Organisation) on ICTU to support its notion of a mortgage strike might be a damp squib or it could morph into a social movement comprising tens of thousands of beleaguered homeowners. It seems that the strike’s promoters intend setting up an offshore-hosted website and inviting people to register interest in threatening to temporarily withhold mortgage payments. It appears the objective is to force Government to channel some of the billions earmarked to fund banks’ mortgage losses directly to mortgage holders.

Without an organised national mortgage debt forgiveness programme that allows people rebuild their lives, most people realise that current steps to alleviate mortgage distress are not working. While mortgage strike promoters are looking for written-off billions to be targeted directly at mortgage holders and not channelled through the banks, there is a case to be made for a statutory intermediary that will objectively assess troubled mortgages and order binding solutions on both banks and borrowers.

By last March, 90,000 loans totalling €15.4bn were dangerously in arrears or had been modified. These numbers include 64,000 modified loans mostly re-set on interest only terms. Of these nearly 26,000 are non-performing after modification. The “at risk of repossession” group is close to 50,000 loans of which 35,000 are in arrears for over 180 days. Homeowners in this category owe €9.5bn on properties that have halved in value. On average they each owe almost €90,000 more than their home is worth. Given the upward trend in arrears numbers since September 2009 when they were first published, it’s expected that these numbers will worsen through this year. As the full effect of the universal social charge and interest rate increases hit home, it’s highly likely the 100,000 troubled loans milestone will be breached well before this year is out.

The Central Bank’s recent PCAR home mortgage loss rate on four covered bank’s €74bn mortgage book, if extrapolated to the full €116bn residential mortgage market, results in potential bank losses of about €6.7bn over the next three years. Ominously the banks’ expert consultants’ expected life-time or longer term loss rate translates into losses of over €16bn. Were it not for the moratorium on repossessions and hopelessly optimistic “delay and pray” loan modification strategy, repossessions would be running at well over 9,000 a year. No doubt many people in trouble would willingly hand over the keys to their home and move on if the balance owing was written off. And many others could keep their homes if their mortgage was written down to the value of their property.

Delaying and praying for property values and incomes to recover is delusional nonsense. House prices have fallen through the floor and may not recover for decades to come. The drop in values is estimated at close to 50% but with the bottom yet to be felt it could reach Professor Morgan Kelly’s prophesy of 80%. Any bank repossessing and selling today will recover less than forty cent per euro on loans owed at this time. While bankers do not want to crystallise such losses, the Central Bank is set to force them to recognise not only losses as they arise but anticipated losses as well. But recognising losses on a balance sheet does nothing for mortgage holders.

Would the threat of a mortgage strike work? Probably not. But given the pent-up anger at consistent failure by two governments to respond to the mortgage crisis, should people to sign up simply to register their support, its promoters might just get the numbers they are looking for.

For some it’s a daft idea but who knows, perhaps the threat of a mass mortgage strike will galvanise the Government to expedite a debt forgiveness programme. With people experiencing what deflation means as the rising cost of mortgage debt repayments and increased taxation reduces their disposable income, they are looking for a way to voice their anger. The idea of a mortgage strike could well become a call to action and create a social movement that addresses one key issue – how will this society protect people from becoming indentured debt servants for decades to come.

A version of this article appeared in the Irish Examiner, Business Section, Monday 11th July, 2011.