THERE are new targets for banks when dealing with customers in mortgage arrears. The Central Bank agreed them with the Troika.
The targets, set last March, require the banks to offer sustainable solutions to 50 per cent of their customers by the end of the year and it is to rise to 70 per cent by next March. Now the banks are to conclude agreements with 15 per cent of their customers before the year is out and bring it up to 25 per cent by March. That leaves the majority out in the cold and it shows there is no end in sight to the crisis.
The shenanigans were exposed when the heads of banking went before the public accounts committee last month. The banks didn't offer enough viable solutions and to meet their quotas they threatened legal action instead.
There are nearly 800,000 primary dwelling home (PDH) loans. The figure would be higher if the banks were still lending, and about 13 per cent are in arrears. There are close to 150,000 buy-to-let (BTL) mortgages and nearly 20 per cent of these are in arrears. The combined total of arrears is about 14 per cent of all mortgages, but there could be as many ticking over on interest-only that hide the real bank losses. It is astounding that the banks that created the problem are in charge of resolving the crisis, even though they have a vested interest in its outcome. The dust should be settling on the mortgage crisis – but it isn't, and it won't until something changes.
The banks are restructuring loans to get cases in arrears back on track, but they must be forced to offer the solutions that most people need. They will extend the term if that is sustainable and they will capitalise arrears if they have no other choice. Selling the property is one of the solutions with or without the owner's consent. Interest-only arrangements postpone the inevitable, as sooner or later these properties must be sold or the debt written down.
One thing is clear, the new personal insolvency process has little, or nothing to offer. It costs thousands to enter the process, even though the people who need it don't have the money to pay. If restructuring is all you need, you can do a better deal with less expenses by working things out with the bank yourself. If debt write- down is what you are looking for, try bankruptcy.
There is nothing in the personal insolvency code to prevent lenders from writing off unsustainable debt. It doesn't have to be part of an arrangement, but most people thought it would. The banks made it clear they are not for debt write-downs. If they open that door the whole system could break down, because if they give it to those in need, the rest will want it too.
The Insolvency Service of Ireland (ISI) is a complete waste of time because while it was set up to protect distressed borrowers, it doesn't have the power to do anything the banks don't like. It's a government quango that creates pointless overpriced jobs with outrageous pensions that nobody else can afford.
The ISI should have the power to force banks to accept viable options that they would prefer to refuse. If it has nothing to offer distressed borrowers, there is no point in being there. It can't even justify its own fees. The only thing good to come out of the personal insolvency process is that it's now easier to be declared bankrupt and write off your debts, but there's nothing else.
MABS may be able to help if you need legal advice. Not all the bank paperwork is up to scratch and they may get you to sign something that plugs the holes. So find out what you are letting yourself in for. The banks will pay an accountant to help you understand the financial implications of any arrangement they propose, but that could help cover up their mistakes.
If your problems are financial and you want to get back on track, try working it out with the bank yourself. A personal insolvency practitioner (PIP) can provide the structured approach that the ISI wants, but only if the lender agrees – and it is expensive. If you are in negative equity, bankruptcy may provide the solution. The system lays the blame entirely on you, and lets financial institutions off the hook.
Some will find legal remedies, if the banks don't cover them up. Others think they can continue paying interest only, until property prices recover, or the banks take the negative equity away. Loan agreements will be reviewed by the banks and they can demand capital repayments, where interest only applied up to now. That will push many more loans into default.
There are as many bad loans ticking over, as there are loans in default and the worst has yet to come. All the banks can hope for is to put a lid on it, but it's a pressure cooker and it will explode, unless recovering property prices release the pressure. Get distressed borrowers, who can, back on track. What's left will have to be written off. But you can't leave it to the banks to decide.
James Fitzsimons is an independent financial adviser specialising in tax and financial planning.