Mortgage arrears among the worst and longest-lasting legacies of crash
Published 03/09/2015 | 02:30
It was something of an irony that just as ex-mortgage issuer Michael Fingleton was giving evidence to the Banking Inquiry yesterday, new figures were published on mortgage arrears - one of the worst and longest-lasting legacies of the property/banking crash.
Before discussing the still slow pace of tackling this legacy, it is worth considering for a moment the often bizarre spectacle that took place in Leinster House yesterday.
Fingleton, who ran Irish Nationwide Building Society for many decades, put in a performance matched only by the former regulator, Patrick Neary, in its demonstration of ineptitude. In self-exculpatory delusion, it was in a league of its own.
There were many lowlights to the Fingleton farce yesterday, but taking the biscuit was probably his utterly fantastical claim that there were no poor lending practices at his institution while he was at the helm.
This beggars belief. By the time his reign at Nationwide ended in 2009, its balance sheet had ballooned, with outstanding loans of €10,000m. In excess of half of all that money was lost - more, proportionately, than even the other really rotten bank, Anglo Irish.
Internationally, such losses are almost off the charts. When a financial institution loses more than half of all the money it lends out, it is usually the result of a deliberate act of plunder, rather than the combination of incompetence and hubris which characterised the Irish banking community in general, and Irish Nationwide in particular, during the bubble.
Just how long-lasting the legacy Fingleton and his ilk have left is clear from the number of bubble-era loans that are not being serviced as contracted.
The still-huge scale of the problem was underscored yesterday morning when the Central Bank published its three-monthly figures on mortgage arrears.
Let's start with the best of a bad lot. The data showed that something of a landmark was passed in early summer. The number of people in arrears on mortgages on their own homes (as opposed to those with mortgages on properties that they bought to rent out) fell below 100,000. As recently as the middle of 2013, there were half as many people again in this unpleasant position.
But it all still means that more than one in eight owner-occupiers with mortgages was behind in their payments to their respective financial institutions. The cost of non-payers, it should always be remembered, is being picked up by those who pay.
Some solace can be taken from the fact that the arrears problem among owner-occupiers is shrinking slowing, but none can be taken from the fact that it is becoming more concentrated among fewer hard cases.
Most concerning in the figures on owner-occupiers published yesterday was the continued rise in the numbers who have been in arrears for two years or more. There were just over 38,000 mortgage holders is this sorry state as of end-June, a near doubling in less than three years.
More unwelcome news came from the huge number of landlords who remain in arrears.
Known in the jargon as "buy-to-let" mortgages, there are more than 30,000 of these loans in arrears, representing nearly one in four of the total.
Amazingly, the non-performing share of buy-to-let mortgages has not fallen since the authorities starting counting them three years ago.
More astounding still is the fact that there has been a huge increase (from 4pc of the total three ago, to 11pc as of June 2015) in the share of buy-to-let mortgages which are in arrears for more than two years.
The Central Bank has come in for much deserved criticism over the years since the crash for the softly-softly approach it has taken towards forcing the banks into dealing with their dud loans - solutions range from different forms of restructuring to foreclosure and repossession. Nowhere has that criticism been more warranted than in the landlord sector.
While nobody wishes to see anyone fail in their business endeavours, allowing more than one in ten buy-to-let mortgage investors to go into long-term arrears is unacceptable. It amounts to a subsidy for landlords who have made bad bets by other bank customers and, ultimately, all taxpayers.
One reason for the failure to get to grips with the problem is the very rare resort to foreclosures/repossessions. While there is a strong case to use this tool sparingly when it comes to family homes, the case for leniency when dealing with investors is next to non-existent.
But it is resort to repossession that has been next to non-existent. A report by an International Monetary Fund economist in December last year showed just how rare it has been. The report compared four housing-bust countries: Ireland, Iceland, Spain and the US.
In the first five years of the crisis American banks had repossessed 15pc of all mortgaged properties. In Spain it was 4pc and Iceland 2pc. In Ireland it was one tenth of 1pc.
In recent quarters there have been some signs of greater resort to repossession - from both yesterday's figures and court reports.
But without greater resort to the stick of repossession (and the carrot of restructuring), it will take many more years for the banks to be fully cleaned up and their non-performing loans returned to levels that will allow them to function normally.