Shane Ross: Ostriches deny mortgage debt
Published 16/12/2012 | 05:00
SOMETHING about the mortgage crisis does not add up. While mortgage arrears are out of hand, repossessions are minute.
Indeed, last June some 83,250 mortgages were in arrears. At the same time, there were only 961 repossessions.
Quite a puzzle.
The low level of evictions must be thanks to those pussycats in the banks, the souls of human kindness.
The stand-off between borrower and lender is bizarre. No one is moving. The bankers seem paralysed while the homeowners are beginning to realise that there is safety in numbers. Not paying a mortgage is becoming normal, rather than rare.
Is there a quasi-mortgage strike developing? Even more intriguingly, is it being indulged by the Government?
While owner-occupiers are falling behind in their droves, buy-to-let owners are in an even more chronic state of default.
The banks are, thankfully, unable to evict many homeowners because of a court judgement last year.
In 2011 Justice Elizabeth Dunne found that a new Conveyancing Act had failed to include integral aspects of old legislation. As a result of this omission she ruled that the banks could only repossess properties that fell into serious arrears after 2009.
The banks' hands have been tied ever since. Strangely, the Government has done nothing to reform the law, while the happy defaulting property owners – mere spectators observing the farce from the sanctuary of court protection – are enjoying a litigation-free mortgage holiday. Miraculously, the Dunne judgement seems to suit all three parties. Is it a win, win, win situation?
Not quite. That fairytale began to unravel last week. Our financial masters in the Troika have commanded that this little fudge cannot continue. Under pressure from the ECB, the IMF and European Commission, Michael Noonan promised he would introduce legislation in 2013 to "realise the value of loan collateral under certain circumstances". He even referred to his intention "to remove the unintended constraints on banks". The minister sometimes sounds positively menacing.
Noonan's tortuous language camouflages a conspiracy. Decoded, do his words mean that next year after the law is changed, the way will be cleared for banks once again to enjoy open season on the borrowers?
A wave of repossessions may be on the way.
Not so, says Taoiseach Enda Kenny. On Wednesday, he spun a reassuring message. He stated categorically that there would be no "mass repossessions" when the "loophole" is plugged next year.
Of course, the Troika is plugging no mere loophole. It is demanding a fundamental change in the law. Our foreign masters must be wondering why it is taking so long to change a piece of urgent legislation that would take half an hour of the Dail's time. Indeed there was no pressure – even from the banks – to amend the law and face reality until the Troika spotted the racket.
All the interested parties had been silently grateful to her ladyship for providing them with such a wonderful short-term copout in the face of a nightmare scenario.
Such escapism could not last long.
The Troika spotted the wheeze a mile away. Now the state-owned banks and the Government, joined at the hip, have been forced to respond. Not for the first time they will be made to explain why they have misled unfortunate borrowers into a false sense of security.
This time the victims had begun to believe that there would never again be any repossessions. The bankers and their government allies dangled the Personal Insolvency Bill in front of their eyes, titillating them with the temptation of salvation for debtors in arrears.
Redemption is promised if they submit to the procedures and settlements provided by this seductive piece of legislation.
Of course, the state/banking cabal do not admit to their victims that under this syrupy Bill, the banks hold a veto over any settlement of their mortgages or their debts. If borrowers in trouble refuse the bankers' settlement terms, they will lose their houses or else be put into bankruptcy by their friendly lender. The outcome sounds a bit too like old-style repossession, dressed up in the happy-clappy language of the Bill.
But there is a more basic reason why the Government has been so reluctant to remedy the flaw exposed by the Dunne judgement. Both the Government and their banker chums are deeply fearful of the consequences of repossessions. No, not in sympathy with their victim borrowers, but in fear of their potential to wreak havoc on bank balance sheets.
What would happen if the bankers were given the power to repossess? Would they move rapidly against the 83,250 property owners in arrears last June?
Unlikely. Perversely, they would drag their feet as they brandished the Personal Insolvency Bill in their grubby little hands.
They would be terrified that if even a tenth of the properties in arrears was put on the market, house prices would collapse further.
The consequences for the banks would be catastrophic. At present, they hold property collateral on their books valued at vastly inflated levels. Repossessions and sales would immediately expose their artificial valuations. They would be forced to mark down similar properties on their books en masse.
Valuations would tumble across the board. The pack of cards supporting their balance sheets would fold. Their precious, but still scarce, capital would again be exposed as inadequate.
What would happen next? Yes, the Irish taxpayer would be called on to pony up several extra billion to recapitalise the banks.
The Government's policy would be in tatters. They would be forced to extract further taxes from a people who have no more to give.
So the fantasy world of false property valuations is coming to an end. Michael Noonan and Enda Kenny will introduce the amending legislation as late as possible in 2013, in the vain hope that the Irish property market will recover in the next 12 months. Or, that they will secure a deal on bank debt. Or, that something will turn up.
The bankers' pretence – that the overvalued collateral held against loans on their books is adequately cushioned by the capital already raised from Irish taxpayers – cannot continue indefinitely.
The crunch is coming. The 83,250 property owners in arrears will not be able to pay their mortgages. Repossessions will bring the day of reckoning even closer. If the banks put these mortgaged houses on the market we can expect a fresh crisis.
Burying your head in the sand is not a policy.
Sunday Indo Business