News Martina Devlin

Saturday 20 September 2014

Can Noonan be serious? There's no way we can trust the banks

Published 14/03/2013 | 17:00

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Finance Minister Michael Noonan

DID you hear it? That chilling sound? The polite language of men in suits couldn't mask it as the Central Bank, with the Government's backing, yesterday proceeded to "Cry 'Havoc!' and let slip the dogs of war".

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Solutions advanced to deal with the mortgage crisis include unclipping the muzzles on banks, allowing them to pursue property owners in arrears. Once, banks were restricted to three unsolicited contacts a month. Yesterday, it was announced that those boundaries were being lifted.

To havoc, by the way, was a military term in the context Shakespeare used it: an order after victory, permitting destruction and the seizure of plunder.

Let's not pretend banks are interested in showing compassion to borrowers experiencing troubles. Banks are in the money business.

So I wasn't convinced by Michael Noonan – in that grandad-in-his-rocking-chair tone – insisting that new teams are in place and that the public has every reason to trust banks. Not when he also said that restraints had been removed from them.

If one message can be taken from yesterday, it's that repossessions will start to happen: the rationale is that homeowners need to know sanctions will be applied.

Mr Noonan agreed that some repossessions would take place, but nobody could put a figure on it. There followed a certain amount of bamboozlement about last resort blah-blah, in extremis blah-blah, don't be afraid blah-blah.

The dog collars were swinging in his hand and people shouldn't blanch? No need to be in negative equity to dread such measures in our society.

Losing your home is terrifying. Perhaps there are some who could pay but don't. However, most people would do anything to save the roof over their heads.

As for giving back repossession rights to banks, suspended by the Dunne judgment in 2009: any bank that repossesses is losing out in real terms because it's taking a hit on the loan – but it doesn't begin to compare with the negative impact on families.

Sustainable was the buzzword yesterday in terms of solutions. To date, banks have offered interest-only arrangements, a short-term answer one step up from crossing their fingers that impaired mortgage holders might find a magic lantern, with a genie conjuring up a high-earning job.

Of course, there must be engagement between banks and homeowners in difficulties. But that engagement needs to be constructive, not hectoring. Which needs rigorous policing.

Yesterday's Central Bank consultation paper expressed concern about banks being hampered in their efforts to deal with arrears because of the limit to three contacts a month. Indeed, but what about homeowners who may end up feeling hounded and bullied by banks?

The Central Bank's paper refers to ensuring customers "are not subject to harassment", but how well can they scrutinise that? They promise they'll monitor the banks' behaviour, and I daresay they'll do their best. But it's not exactly a confidence generator, in view of banks' general standards of behaviour in recent years.

Banks are likely to offer that time-honoured excuse, "any unpalatable steps are taken take because we owe it to our shareholders".

Since 2011, there has been a steady rise in arrears. By the end of December, just under 144,000 properties were listed as being in mortgage distress, with 94,000 of them at least three months behind in repayments.

Distress doesn't only cover an inability to meet mortgage repayments. Distress is fear, anxiety, mortification – it is sleepless nights and strains on relationships.

It is simply not possible for all of the mortgage loans taken out during the boom to be repaid. We need to admit this reality, paving the way for an acceptance of debt forgiveness.

Some people made stupid and feckless decisions when they borrowed. But some were simply unlucky because of timing. Doubly so if they lost their jobs. The real problem isn't mortgage arrears, but unemployment – with a job, some level of repayment can be maintained.

Yes, some people have adopted too casual an attitude toward debt repayment. Giving banks the right to cast a cold eye on their expenditure should take care of that, however.

But we cannot let irritation with a feckless sub-division, possibly quite small, blind us to the realisation that many homeowners are suffering through no fault of their own.

And let's not forget the pressure to buy – the sense of panic in the years immediately preceding the crash, when people were terrified they'd never get a toehold on the property ladder.

Mr Noonan's "Irish dilemma" – otherwise known as debt – now has something called a solution attached to it, according to the speakers yesterday.

He spoke of informal round-table discussions between banker and borrower leading to a formal arrangement whereby the mortgage would be restructured. It all sounded remarkably cosy. Until you remembered those dog collars in his hand.

www.martinadevlin.com

Irish Independent

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