Charlie Weston: Ten years after the financial crash and the Central Bank is still letting us all down
TEN years after the financial crash that convulsed the country it is still not clear that our Central Bank is up to the job of regulating.
The latest revelation that the Central Bank has to change how it calculates its arrears figures is damaging for the institution, which took a large share of the blame for failing to do its job in the run-up to the banking meltdown.
That there is an inability to properly measure the arrears, after all we have gone through, will do little to inspire confidence in the regulator.
Vultures have a peculiar way of treating residential arrears data, and the Central Bank is aping these calculation methods. This is something that has served to inflate the monetary value of arrears totals.
Inflating the arrears (and not the amount that people owe) risks making matters worse for those facing repossession of their homes.
The puffing up of the data may not impact on the numbers of homeowners behind on their payments. But the miscalculation of the data does exaggerate the amount homeowners in arrears owe.
Askaboutmoney.com founder Brendan Burgess discovered the problem, which he said throws the entire system for measuring arrears into doubt.
Take a family that has a mortgage of €100,000. They have missed €10,000 in payments, so this is the value of their arrears.
The vulture fund decides it is not worth its while to negotiate a restructuring of the repayments to deal with the arrears. Instead, it calls in the loan. This leads the vulture to then treat the entire loan as being arrears.
This means the amount of arrears balloons overnight from €10,000 to €110,000. Arrears figures are also thrown out by other actions of lenders too.
Say a family has an interest only tracker mortgage for 20 years. When the 20 years is up they have to repay the full capital. They never missed a repayment and so were never in arrears. But when the 20 year term is up, if they can’t repay it.
This means the entire mortgage is treated as being in arrears.
The way the Central Bank measures arrears, such a loan would go from not being in arrears to being 83 years in arrears overnight. This distorts all the averages.
Figures from the Central Bank put the total long-term arrears amount owed by households to vultures at €834m. Mr Burgess reckons this is double what the figure should be. What an embarrassing mess the Central Bank has allowed itself to be embroiled in.