Thursday 18 July 2019

Paul Cunningham: 'There are ways out there to fix bad mortgages'

The mortgage to rent scheme has been revitalised and can help people stay in their own homes, writes Paul Cunningham

'Despite popular belief, there is a range of options open to people in distress, including warehousing debt, reducing the interest rate on the loan or availing of the personal insolvency legislation.' Stock photo: Getty Images
'Despite popular belief, there is a range of options open to people in distress, including warehousing debt, reducing the interest rate on the loan or availing of the personal insolvency legislation.' Stock photo: Getty Images

Paul Cunningham

Few issues in recent times have stirred as much public controversy as the debate surrounding Irish banks and the sale of distressed mortgages.

A case in point was last week's announcement by Ulster Bank of its intention to sell 3,600 distressed mortgages, including 3,200 family home loans.

These loans are mostly between two and five years in arrears, with amounts owed generally agreed to be around €250,000 or less.

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Notifications of banks selling on such loans are met with emotive headlines concentrating on phrases like "a tsunami of evictions" where "vulture banks and lenders" hammer vulnerable people for a quick buck before clearing off into the sunset.

In particular, the popular knee-jerk reaction is to warn that thousands of repossessions are now imminent - though this same claim has been made time and again every year since 2014.

The truth, however, as articulated last week by Angela Black, head of the Citizens Information Board, is that these warnings are misleading. The reason is that Irish courts are slow to grant evictions, and political parties of all colours strongly oppose measures which end up swelling the already totally unacceptable homelessness figures.

My experience in Home for Life, since we began operating late last year, is that lenders and funds of all hues want to resolve the mortgage-arrears situation once and for all.

Indeed, one fund which regularly comes in for harsh criticism has recently written to hundreds of borrowers seeking solutions with them.

This is totally contrary to what is being constantly peddled about funds not wanting to do a deal. Indeed, the initial tranche of correspondence by the fund was directed specifically at those who had court repossessions granted but not executed against them.

So instead of instructing the sheriff to seek repossessions, the so-called vultures were seeking to engage by doing a deal with what could be considered the worst cases on their books.

The funds are now quicker to offer a solution and, while people won't like every decision they make, only a tiny number of properties are repossessed, many of which are already vacant.

The reality is that there is now a suite of options available for home owners - once they engage with their lenders. The scattergun scaremongering only serves to frighten the very people its seeks to serve, the hard-pressed householder who is genuinely unable to meet their repayments.

Currently there are between 28,000 and 30,000 such family homes in arrears for more than two years. The Central Bank's latest figures up to the last quarter of last year say there are 19,000 who have been unable to meet any commitments for more than five years.

These are the majority of what banks are now selling on to the funds. These loans fall into a couple of categories, but can be broadly identified as those who have something to contribute and those who don't.

The people with no money are, at first glance, in the most difficulty, but if they qualify for social housing and are living in a reasonably modest property, they can find a satisfactory solution to their problems in the guise of the Mortgage to Rent (MTR) scheme.

This involves the sale of the home to a third party (a housing body or approved operator) which then rents it back on a long-term lease to the homeowner at the same rent as a council house would be. The tenancy agreements come with an ability to repurchase the property if a person's circumstances improve.

The other cohort, those who do have the wherewithal to contribute payments but don't qualify for social housing, should immediately go to a competent Personal Insolvency Practitioner or the Money Advice and Budgeting Service and look to strike a deal with their lender.

Despite popular belief, there is a range of options open to people in distress, including warehousing debt, reducing the interest rate on the loan or availing of the personal insolvency legislation.

Although somewhat cumbersome, Ireland has some of the most powerful insolvency legislation in Europe.

Banks and funds want to sort out this mess and move on. They are now focused on categorising bad loans into 'can pay' and 'can't pay' by restructuring those who can pay and engaging with the rejuvenated Mortgage to Rent scheme to provide a solution for those who can't.

It is probably more likely that the true extent of the problem will be a riptide rather than a tsunami as the possibility of keeping thousands of people in their homes is now attainable once, as is happening, all sides buy into this new reality.

Paul Cunningham is CEO of Home for Life, the first Government-approved private Mortgage to Rent operator

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