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Public suffers trauma of being bombarded with artificially bad news on home loans

IT's good news, of course, that Ireland's mortgage bosses believe that the "vast majority" of the 80,000 or so home loans in arrears can ultimately be fixed.

And it's good news that the mortgage crisis isn't nearly as dire as commonly believed.

But all that good news also raises some serious questions.

Like how were the arrears numbers allowed to get so startlingly high in the first place if many of the cases can be cured?

And how did the already embattled Irish public come to be bombarded with figures that made a crisis look so much worse than it probably is?

The answer to the first question -- why are 77,630 people still 'in arrears' if most of those cases can be cured -- could be put down to a combination of ignorance and ineptitude coupled with a systematic failure to adapt to a changing environment.

In other words, the Irish banks first failed to see the approaching high-speed train that was about to knock them off the tracks, then failed to come up with the right strategies to avoid getting crushed, and then baulked at the idea that they weren't doing enough.

The Central Bank has spent the best part of three years trying to coax and cajole banks to come up with better strategies for coping with mortgage arrears.

The tortuously slow progress has been a source of major frustration at Dame Street, and some banks freely admit that the inept strategies of the past were a major contributor to the elevated number of arrears cases on their books.

Some bankers say the problem was a lack of long-term strategies to help troubled customers -- something that left banks using sticking plasters like temporary periods of 'interest only' payments, when what the patient really needed was major surgery like a 'split mortgage' that would pause part of the debt.

Banks also blame an inability to contact customers proactively -- a restriction that has been eased by the Central Bank's latest consumer protection code -- as a key trigger that made arrears get worse than they should have been last year.

It has to be said that some banks have fared better than others, but it is almost universally acknowledged that more could have been done sooner. As Central Bank Governor Patrick Honohan put it recently, the mortgage crisis "overwhelmed" the banks as a group.

That inability to react quickly enough meant that mortgages were allowed to languish in the 'in arrears' basket far longer than they needed to and that the arrears numbers soared to an artificial level that doesn't reflect the core state of the Irish mortgage market.

The more progressive banks already say that their improved strategies are delivering results. They say that since their enhanced collections teams have begun reaching out to customers, they've seen fewer people slip into arrears.

They add that they expect the new 'longer-term' solutions coming this year to solve a significant number of the 'old' cases that have been bogging down the books for so long. And they say that the 'real' mortgage arrears problem will get better sooner rather than later.

That brings us to the other question. The 'real' mortgage problem might get better sooner rather than later, but the apocalyptic mortgage problem laid before the Irish public will take longer to show an improvement because of the way the data is presented by the authorities.

While the big commercial banks break out all kinds of different arrears measures -- those less than 30 days behind, those 30 to 60 days behind, etc, etc, the Central Bank goes for the yardstick of "90 day plus arrears", which has become the benchmark.

The argument for doing this is because a borrower who's more than 90 days in arrears is more likely to be 'truly' in arrears, while borrowers who are less than 90 days in arrears could be behind for 'technical' reasons like a standing order not going through.

Be that as it may, the "90- day plus" arrears does present a misleading picture of current arrears trends, because the most recent figures don't actually depict recent trends. A surge in "90- day plus" arrears to the end of March means lots of people got into difficulty late last year and couldn't get out of it -- it does not mean a fresh crisis hit in the three months to end of March.

The Central Bank appears to have come round to this view and has committed to presenting data on "early and middle arrears" by the end of this year, along with the current data on "90-day plus" cases. That will help give a more accurate view.

The other quirk is the fact that arrears stay on a homeowner's account long after that borrower has resumed making normal payments or begun meeting a revised payment schedule.

This means that the figures don't just capture those in trouble now -- they also capture those who were in trouble previously, have been cured and are now awaiting full confirmation of remission.

Solving that quirk is trickier than simply introducing an 'early arrears' category, but the solution is by no means beyond the capabilities of the Central Bank.

After four years of relentlessly bad banking news, the people of Ireland should be spared the trauma of any more artificially bad mortgage crisis news.

Irish Independent