Monday, May 28, 2012

Daniel McConnell: More must be done to tackle mortgage debts -

'Debt is the Irish crisis -- sovereign debt, banking debt and personal debt," Finance Minister Michael Noonan famously said earlier this year. How true that statement was. 6,685 -- that is the number of people who fell into arrears of more than 90 days on their mortgages in the first three months of 2012.

That is 6,685 couples, families in Dublin, in Cork, in Galway and every town, village and parish across Ireland who have simply run out of money to pay the monthly amount to keep the roof over their heads, and now face the real risk of losing their homes.

Alan Shatter's staunch criticisms of the bank's behaviour yesterday echo the strong public resentment over their lack of action in tackling the personal insolvency crisis to date, the latest Sunday Independent Millward Brown Lansdowne nationwide poll. When asked, an overwhelming majority of people, 86 per cent, said they felt the banks are not doing enough to help homeowners in negative equity or those in arrears

According to the latest available figures from the Central Bank, at the end of March, out of the 764,138 private residential mortgages in Ireland, 77,630 or 10.2 per cent are now in arrears of more than 90 days. One in 10 of every mortgage is now in trouble and the numbers are soaring.

Worse still, of that 77,630, more than three-quarters of those, 59,437, are now in arrears of more than six months on mortgages totalling almost €13bn.

Almost 80,000 home mortgage accounts were deemed "restructured" at the end of March, up 7.2 per cent since December. By the end of March, 38,658 mortgages that had been restructured were "performing", while 41,054 were in arrears despite being restructured. That means, in total, 116,288 mortgages are either now in arrears of more than 90 days or had been restructured.

So are all these people reckless fools or genuine victims? What is to be done with all these people? How, as a country, do we tackle this debt catastrophe?

In response to the mounting crisis engulfing this island, last Monday, the State's two top banking officials, Governor Patrick Honohan and Financial Regulator Matthew Elderfield, in their polite bureaucratic tongues told the Government and the banks it has bailed out to get their fingers out and sort out the Irish personal debt crisis.

Elderfield said he was not "comfortable" with the level of mortgage arrears and called on the banks to do more.

He declared that by the end of this month, the banks must decide which loans were salvageable and which were not. "If someone is deeply in arrears . . . simply putting them on interest only isn't going to work. You have to tackle that," he said.

The implication to the banks was clear -- 'lads, stop deluding yourselves and if you have to write down the debt, then write it down and move on'.

But we know that the banks are very reluctant to face up to the losses they are sitting on. While they claim to be dealing properly with their customers, it is clear from Elderfield's point of view they are not.

That view was echoed by Taoiseach Enda Kenny in the Dail on Wednesday. Mortgage arrears was the single biggest issue facing Irish people, Mr Kenny said. The

banks, who had been propped up by the Irish taxpayer, must show a "greater urgency" in sitting down with borrowers and facing up to the problem, he said. Justice Minister Alan Shatter's personal insolvency bill, which has divided opinion so far, is due to be brought forward next month, and will contain a range of options for those struggling with debt, including reducing the term of bankruptcy in Ireland from 12 years to three.

For their part, the banks have legally moved against 278, with 170 properties taken into their possession, an increase of 27.8 per cent on the last three months of last year.

Despite this, apparently the Irish banks "recognise the human impact of mortgage arrears statistics".

"Our position on personal insolvency is unchanged. It should be done in a way that avoids unintended consequences, respects the repayment obligations of customers and minimises the impact on banks' balance sheets, capitalised to a large extent by taxpayers," the Irish Banking Federation said.

When contacted, both AIB and Bank of Ireland said they had hundreds of staff dedicated to dealing with mortgage difficulties and had new products on the market or about to come on the market to aid those in negative equity.

But there are fears that crystallising these losses will force the taxpayer into further capitalisations of the banks, and also jeopardise our chances of returning to the markets as planned next year.

As pointed out by Shane Ross in the Dail on Wednesday, akin to the talk of a second bailout, despite assurances from Government, there is growing anticipation of a need for further taxpayers' money to be injected into the banks.

Stress tests planned for this year have been postponed and the confidence about the official statistics is buckling.

This is a hot political potato and one that requires delicate handling in the weeks and months to come.

This weekend, it emerged that the Department of Justice had advertised for the new head of the Personal Insolvency Agency -- or the Nama for the little guy. Portrayed by Government as a global first, there is still much scepticism around the viability of the Coalition's approach, which is undoubtedly complex and fraught with dangers.

While any move to face our debt crisis is welcome, there is still far too little detail as to how Shatter's bill will work. Further clarity will be needed before any determination can be reached and, in my view, the banks still have too much power.

Elderfield and Honohan are to meet the boards of AIB, Bank of Ireland and Permanent TSB over the next two months to "take a direct and personal interest" in making sure the banks address their troubled mortgage books.

The powerful intervention by Elderfield and Honohan last Monday was a welcome clarion call for common sense. It's now up to the banks and the Government to heed that call.

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