Friday 22 November 2019

Moody's claim of strategic default by some 'untrue'

Agency warns borrowers are no longer afraid


Mortgage experts and State-funded money advisers helping those in financial despair have dismissed claims by rating agency Moody's that some property owners are strategically defaulting.

But lenders are adamant there is evidence of a "change in payment behaviour" in the run-up to new insolvency laws.

The report by Moody's cited growing "moral hazard" as borrowers appeared to no longer fear the consequences of falling behind on their debt.

The agency also claimed that "the impact of moral hazard is very difficult to calculate but we know the consequences of being in arrears have reduced, and five years into the housing crisis, repossessions are negligible compared with the rate of arrears".

Central Bank figures indicate that 107,700 of Ireland's mortgages have been restructured or are in arrears.

And, last week, Moody's warned that more than 20 per cent -- or 150,000 -- of Ireland's 764,138 mortgages may be forced to default.

Labour TD Arthur Spring has warned that the 100,000 Irish homeowners who are struggling with their mortgages should not be included in any new property tax scheme.

He said that young families in difficulty with repaying their mortgages should be considered for exemption from the property tax.

"Many of my generation who purchased their family home in the last decade paid a high level of stamp duty due to property prices.

"Many of these same people are now in mortgage arrears, in negative equity, and are paying an excessive amount of their net income towards repaying debt. They are carrying the heaviest burden of the debt crisis" Mr Spring said yesterday.

"Every effort must be made to protect these people from being burdened with excessive levels of property tax."

Mr Spring warned "if we put too high a burden of property tax on these people in difficulty, we risk exacerbating the mortgage crisis and pushing them into default''.

The Moody's claim in relation to borrowers no longer fearing the consequences of falling behind in their payments refers to the landmark judgement by Ms Justice Elizabeth Dunne.

The judge stated that a lending institution cannot apply for an order for possession where a mortgage was created before December 2009 but a demand for full payment was not made by the lender until after that date.

Justice Dunne stated that the repeal of the old legislation had created a "lacuna" (a gap in legislation) and it was not for the court to supply that which was not in the 2009 Act.

There is some frustration among lenders over the failure of the Government to fill the gap in the intervening 14 months.

A spokeswoman for Justice Minister Alan Shatter said: "The position is that Ms Justice Dunne's High Court judgement of July 2011 in the 'Start Mortgages' case has been appealed to the Supreme Court.

"Consultations between the Department of Justice and Equality and the Office of the Attorney General regarding the implications of that judgement, and several more recent High Court judgements which appear to have narrowed the scope of that judgement, are ongoing."

Felix O'Regan, of the Irish Banking Federation, said it remained very concerned that the issue over Ms Justice Dunne's judgement had still not been addressed. "It was a technical fault in the legislation but the impact of the judgement is that it has stalled the rights of lenders to exercise their rights and security and the extent in which they can move against a defaulter has been greatly stymied.

"The other issue is the impact of that judgement on attitudes -- the so-called moral hazard. We have seen evidence over time that where you have a hiatus in the process or the policy or the legislation, that it can have an impact on behaviour over and above the norm.

"Last year, lenders reported to us that all the speculation at the time over whether there was going to be debt forgiveness did lead to a change in behaviour among some borrowers which had nothing to do with any change in their employment situation.

"In other words, the lenders looked at the borrower profile, saw nothing had materially changed but [that] their repayment behaviour [had] changed," he said.

"We have seen more evidence of that surfacing again more recently and that is what Moody's have pointed to."

He added: "We are now awaiting the finalisation of the detail of the insolvency legislation and you have again evidence that this has got into the minds of some borrowers who perhaps see an opportunity."

Michael Culloty, of the State-funded Money Advice and Budgeting Service, disagrees. He says the vast majority of people are in the "can't pay" rather than "won't pay" category. "The vast majority really want to engage and sort out their problems," he said.

Mr Culloty added that it was only when the insolvency legislation was finalised and there was a sign-off on all the options to be made available to consumers that the portion of the mortgage book that was unsustainable would be made clear and therefore open to repossession.

Trevor Grant, of Mortgage Negotiators, told the Sunday Independent: "The Moody's assertion is false. Undoubtedly there is a small minority who are going to take advantage but this recession has been going on for five years.

"People have begged and borrowed to keep up with their payments. That has now ran out and they are simply unable to meet their mortgage payments after struggling for years."

Sunday Independent

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