Banks clueless on cost of mortgage crisis, says Dukes
Former IBRC chairman Alan Dukes believes the Irish banks have no idea how much the mortgage arrears crisis will cost them.
With almost 143,000 borrowers in mortgage arrears, the banks are coming under increasing pressure to write off mortgage debt.
"Have the banks really got a handle on how big a hit they can expect to take on mortgage writedowns? I suspect not," Mr Dukes told the Sunday Independent last week.
The former Fine Gael leader believes it is inevitable that the banks will have to write off mortgage debt.
"There are a group of people who cannot afford to repay their mortgage who are also in negative equity," said Mr Dukes.
"Selling the house won't clear the mortgage. The Central Bank will have to talk to the banks about how they will go about deciding on cases where debt writedown will be done," added Mr Dukes.
The next round of Central Bank stress tests – which will ultimately determine whether or not the Irish banks need more capital – are expected early next year. "I think banks will need further support after the stress tests if debt forgiveness is going to be part of the equation – and debt forgiveness is going to be part of it," said Mr Dukes.
"In the original bank recapitalisation, banks got a chunk of money to cover the cost of mortgage writedowns. I have doubts about the validity of claims that they got enough money then [for mortgage writedowns]. Things haven't got a whole lot better since the original recap. The mortgage arrears situation has got worse."
Mr Dukes warned that any moves by the banks to step up repossessions would not resolve their mortgage arrears headache. "Even repossessions don't really solve the problem," he said. "Banks would still be taking a hit on negative equity."
Separately, distressed homeowners who are told by their banks to sell up have nowhere to go to appeal their lender's decision apart from the bank itself – unless they can afford a costly court action.
In a recent statement, the Financial Services Ombudsman, who investigates complaints against financial institutions, said it would not probe any decision made by a bank when dealing with a homeowner in arrears, as long as the bank conducted itself in a way which followed Central Bank rules.
This leaves a borrower with no option but the bank itself if they wish to appeal the decision. "People now are more likely to lose their home – without any right to a proper appeal," said Paul Joyce, a senior policy analyst with Free Legal Advice Centres.
A spokeswoman for the Central Bank said: "While the [bank's] appeals board is not independent of the lender, it does play an important role in the process, as it allows a second review of individual cases."