Mortgage Arrears: March 2010

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The financial regulator has released the latest summary data on mortgage arrears here. The data show a 13% increase in accounts more than 90 days in arrears. In total, 4.1 percent of mortgages are in arrears over 90 days, with 2.8 percent of these being over 180 days.

Balances on past due mortgages are higher on average than those not past due: The average balance for mortgages not past due is about 147,600 while the average balance for mortgages in arrears is 188,800. This means that past due mortgages account for 5.2 percent of the total balance of mortgages outstanding. Those mortgages past due over 180 days already have approximately 10 percent of the balance in arrears.

These calculations do not include people who are not in arrears because they have come to an agreement with their bank on a different repayment schedule.

These figures suggest to me that the Central Bank Prudential Capital Assessment Review’s “stress scenario” assumption of 5 percent looks more and more like a reasonable baseline. This is also the number the Morgan Kelly mentioned in his recent article as a conservative estimate.

How could this number come about? For instance, if the mortgages that need to be foreclosed on or restructured end up accounting for 10 percent of the total balance and the loss given default is 50 percent, then this would imply a five percent loss on the mortgage book. One could imagine more stressful scenarios than this.

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40 Responses to “Mortgage Arrears: March 2010”

  1. Garo Says:

    Ireland and Irish people will never ever default on their debt.

  2. Jagdip Singh Says:

    Mortgage arrears – 2010? No? Isn’t it the case that until Mr Elderfield rode into town comprehensive information wasn’t even produced.

    Are the figures meaningless though – in April 2010, the Independent reported, citing the IBF, that 30,000 mortgages had been restructured (payment holidays, interest only, longer terms, tracker for SVR swap?) upto Jan 2010 and that 3,000 were being restructured on a monthly basis. So in addition to the >30k in arrears over 90 days, there are possibly 45k restructured. Are the 30k really the no-hopers and does this presage a wave of repossessions which would at last bring Ireland upto international norms.

    As for the consequences of repossession, is it also not time that this government overhauled its bankruptcy procedures so that people who are crushed under the weight of unaffordable mortgages with massive negative equity can reclaim some dignity in their lives. If the government doesn’t act then like people forced to travel to the UK for abortion services, there may be planeloads of bankruptcy tourists.

  3. Ahura Mazda Says:

    A 5% loss rate on all Irish mortgage debt is severe. 1. not all mortgages were taken out at the top of the market. You need to index properties to peak value and then apply the appropriate market value decline 2. not all mortgages are 100% LTVs and some will have paid down some principal. 3. very low interest rates help reduce carry costs.

    Without doubt certain years of origination will exceed 5% losses. Karl’s comment “The average balance for mortgages not past due is about 147,600 while the average balance for mortgages in arrears is 188,800″ actually supports this. Defaults will be concentrated around peak prices.

    Is 5% a stress scenario for Ireland? No. 5% is probably closer to an expected level. Without loan level data/strats, it’s difficult to come up with estimates but finger in the air 8-10%.

  4. Pat Donnelly Says:

    Jagdip Singh

    You are correct. But perhaps you do not know how sold the GFF is, on debt? The US rejigged bankruptcy laws, federally, with massive lobbying by banks to make it more difficult to file. It has been partly successful. But given the debt tsunami …… It seems not to be difficult enough, for those who make a living off of OPM! Be careful what you wish for!

    Dignity? Gerry Ryan was losing his. Rocca lost it too. Many grasshoppers are unable to steal from Ants, so they must die …… What doth it benefit politicians to encourage moral weakness on the part of those who cannot give contributions? That is the problem with a kleptocracy …..

  5. Rob S Says:

    @Ahura Mazda

    Agreed, I read an excellent piece on this from a source I can’t quote but an analysis used suggested that 16% mortgage default would be enough to completely wipe out whatever capital BOI raise and leave it starting from scratch.

    Is it not also the case that many of the mortgages taken out before the crazy prices are not either finished, nearly finished or were actually sold on by the banks?

  6. Pat Donnelly Says:

    It is early days, sadly, for mortgages. The stimulus in the economy of a massive deficit has yet to be removed. The effects of taking so much out of the economy is likely to be horrendously deflationary.

    It will get worse!

    The rest of the world is still deflating also. Ireland may recover faster than Greece, but things will be bad. The competitive devaluation of the fiat GBP is also removing a lot of the good for the Euro devaluation. Of no concern for many countries, it is crucial for Ireland.

    As I have said before, those who are or will be, in straitened circumstances should consider a change of lifestyle. The “tax everything” economy can be avoided by going back to mud/cement skin houses, more realistic in hot dry countries, it is still feasible in Ireland. Find a cave, live off the grid. It is if nothing else a defiant act, reducing the power of the almighty state! Reduce the tax base, force it to downsize. It is perhaps moral to take social welfare, particularly if children are involved, until there is reform. The bad news is going to keep coming, for the next 15 years or so.

  7. Kevin Barrett Says:

    The figure would be significantly worse were it not for the mortgage interest supplement payment from the state which many borrowers receive. As this is a time limited payment inevitably the figures will worsen when the payments start to run out.

  8. zhou_enlai Says:

    I understood that a lot of our mortgages had been bundled and sold on as MBSs. I also understood that the ones the banks were left holding were largely from the top of the market. Colm McCarthy posted on this before but I cannot find it.

    Is the figure being used for mortgages in the FR’s report and in MK’s article a net figure of mortgages which have not been sold on by the Irish banks? If so, has the nature of the mortgages held by our banks (i.e., granted near the top of the market) been factored in?

  9. Rob S Says:

    Zhou

    I believe the figures were something broadly along the lines of as follows (don’t hold me to this though):

    A 700-800% increase in the amount of mortgages issued by Irish banks between 1997 and 2006.

  10. Rob S Says:

    AIB an BOI in particular have substantial Mortgages in the UK.

    Thoughts on these being less likely to default?

  11. Pat Donnelly Says:

    A pity no one is stupid enough to buy any of these now.

    Errr…… except NAMA.

  12. consaw Says:

    @ Rob

    Mortgage rescue and repossession work done in the government here in the UK prevents most of these problems from happening and at the moment so it’s a lot less likely to happen.
    You’re protected a lot better in the UK than you are in Ireland.

    Repossession and mortgages arrears are down significantly over the past couple of months so that should prop up the BOI AIB UK mortgages for the not so distant future anyway.

  13. Vincent Says:

    What I’m having difficulty with is the level of Rents. If as they say we are oversupplied in a massive way why is it that Daft are quoting 750ish as the average when today there are 24,000 properties in the counties of Dublin, Galway, Cork and Wexford available to rent, and 40,000 nationwide.
    E750 cannot be a reasonable or even a recognised floor and while it may be the cutoff point for the banks, with such an spare supply such a position by the banks is just so much hooey.
    So how on earth can the F.R call these numbers when very soon indeed the EU will pull them on propping the market using very moody means indeed.

  14. Tom Ronayne Says:

    In relation to reference to Mortgage Interest Supplement: the Minister for Social Protection provided a written answer on Tuesday showing that there are currently 16,500 recipients of Mortgage Interest Supplement and that the estimated expenditure this year is €64 million. http://www.kildarestreet.com/wrans/?id=2010-05-25.626.0

    The number of recipients has increased dramatically since 2007. Between 1999 and 2006 the typical number of recipients was in the region of 3,000. It increased to 3,712 in 2007 and to 7,647 in 2008. The most recent figures provided show that it has more than doubled since 2008.

    Anecdotal evidence suggests it is getting increasingly hard to obtain the Supplement. It is also notable that one of the conditions for refusal is that applicants had insufficient income to pay their mortgage when it was taken out!

  15. Michael Hennigan - Finfacts Says:

    The US Mortgage Bankers Association said last week that at the end of Q1, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 9.54%.

    The combined percentage of loans in foreclosure or at least one payment past due was 14.01% on a non-seasonally adjusted basis.

  16. Ronan Burke Says:

    Unemployment jumped from just over 8% to almost 13% last year, still feeding through, and we’re in the bottom of an interest rate cycle. 5% impairment on the loan books would be highly optimistic in my opinion, given that people are going to be running out of savings/insurance before the end of the year.

  17. FlyOver Says:

    Garo Says:

    May 27th, 2010 at 12:52 pm
    Ireland and Irish people will never ever default on their debt.

    So true, 2.8% of all mortgages (+22,000) are >180 days in arrears while there are only about 1,000 repossessions a year. The courts are keeping the owners from defaulting even if the owners wanted to default!!!

  18. Dreaded_Estate Says:

    @zhou
    “Is the figure being used for mortgages in the FR’s report and in MK’s article a net figure of mortgages which have not been sold on by the Irish banks? If so, has the nature of the mortgages held by our banks (i.e., granted near the top of the market) been factored in?”

    Have we not guaranteed much of this already?

  19. bill hobbs Says:

    The stats on 180day + troubled mortgages are telling. The underlying average loan balance before arrears is 171.69k plus 18.98k in arrears. Assuming an original LTV of 80% on the underlying loan of 171.69k and a 40% drop in property value equates to a loan loss of 32% if the property is repossessed and sold. In the case of a 100% original LTV, the loss increases to 45%. Both are before legal costs etc.

  20. Joseph Says:

    I doubt that we have sufficient hard data (i.e. full and truthful disclosure from mortgage providers and government) at the moment to predict the best and worst case scenarios we could be facing.

    That most of this will be linked to the rise in unemployment (but not just that) over the past couple of years is, I think, a reasonable statement.

    Just looking at the unemployed…

    By the time you add up those we know in arrears over 90 days,
    those who have ‘restructured’ and aren’t shown in this 4.1 percent figure (“not in arrears because they have come to an agreement with their bank on a different repayment schedule.”)… but are clearly struggling,
    those who are in arrears of less than 90 days,
    those in receipt of mortgage interest supplement (@Tom Ronayne – your data and assumptions/anecdotals look correct) and will lose it soon enough,
    those in receipt of some form of redundancy insurance – finite time limit,
    those still living on savings and redundancy cheques until they run out, those being supported by family until that route is exhausted,
    those two income families where one has lost a job and they are beggaring themselves to pay the mortgage until it comes to a point where they can’t,
    those…

    You get the picture.

    Given that we still have… I dunno… another 60-80,000 to still go onto the dole over 2010-2011?

    I could go on but I won’t. The point I’m simply trying to make is that there is a lot going on out there that isn’t readily apparent but once you start thinking about it, the figures start to add up and the problem looks – to me – a lot lot bigger than 4.1 percent… and it is a growing problem.

    I blogged about this a year or so ago and back then, suggested a worst case scenario of 170,000 mortgages going into arrears in Ireland (and probable default) by the end of 2010.

    170,000 sound over the top? That’s around a third of the people on the live register and given the push by government, financial institutions and even family to persuade people to buy their own homes in the past 10-15 or so years, it would be conservative to assume that only half of those who lost their job in 2008-2009 have a mortgage and that only half of those who will lose their job in 2010 have a mortgage.

    How much does 170,000 x average mortgage tot up to? €20-30 billion?

    Who’s going to plug that hole (h’mmm I suspect the dwindling base of taxpayers)?

    What will happen when interest rates start creeping up again (that’s already started)?

    Sounds pretty alarming to me. Will be alarming by the end of the year. ‘Jingle bells’ to be replaced by ‘jingle mail’ over Christmas anyone?

    Ho ho ho (not).

  21. bill hobbs Says:

    see my post above on 180day arrears cases

    Applying loan losses of 32% to these loans results in losses of €1.33bn or €61k per householder at 45% it increases to €1.87bn or €85.8K per customer. What chance is there in recovering what becomes unsecured debt off people who have lost their homes?

  22. Joseph Says:

    @Jagdip Singh – “like people forced to travel to the UK for abortion services, there may be planeloads of bankruptcy tourists.”

    Can Irish people do that (go over the the UK and make themselves bankrupt under their more lenient regime)?

    If so, sounds like a good business opportunity (arranging it all) for an ambitious accountant (or Ryanair). Set up a one stop shop for the process, the paperwork, the plane ticket, the minibus to and from Dublin airport, etc.

    It would be funny if it wasn’t so bloody sad.

  23. Joseph Says:

    @bill hobbs – “What chance is there in recovering what becomes unsecured debt off people who have lost their homes?”

    Assuming that’s not a rhetorical question :-)

    er, none?

    And I would guess those same people would have other debts too such as credit cards, loans, etc.

    You see what I mean about the problem adding up…

    Which makes me wonder… how many people out there have been/are borrowing money from other sources to pay the mortgage?

  24. Bond. Eoin Bond... Says:

    @ Joseph

    re UK bankruptcy relocation – dont think you can do it just by popping over, think you need to physically “relocate” for a period of time, ie maybe 12 months minimum. But doing the maths, its not the worst idea in the world for some people i’d imagine…

  25. Pat Donnelly Says:

    For immovable property, bankruptcy proceedings are usual in each jurisdiction. Handing back the keys and losing possession, may in practice alleviate the connection with that jurisdiction.

    The EU may have legislation in the works, never waste an opportunity …… Ireland is unlikely to want to embarrass itself more, by preoposing what may be amended soon after! TPTB may find themselves able to deal with their own debts more favourably, as in CJH and the AIB!

  26. Jagdip Singh Says:

    @Joseph,

    “Can Irish people do that (go over the the UK and make themselves bankrupt under their more lenient regime)?”

    See a recent article on bankruptcy tourism from one of the UK’s top personal finance websites:

    http://www.thisismoney.co.uk/news/article.html?in_article_id=489549&in_page_id=2

    I feel like I should be putting in some warning here that bankruptcy is a very serious matter and anyone considering it (and some people might be at their wits end and vulnerable) should seek independent qualified advice.

    BTW, does anyone know the number of Irish bankruptcies each year (ie individuals being declared bankrupt) – I heard it was 5-10?

  27. Pat Donnelly Says:

    http://www.zerohedge.com/article/presenting-what-could-be-oddest-capital-flow-observation-history

    Bankruptcy is designed to protect the debtor from her creditors. It also did away with imprisonment despite no assets. Imprisonment is available for those who refuse orders of court for payment of debt.

    The reason bankruptcies are so low in Ireland is that debts are of no effect, if not acknowledged! after 6 years or after 12 years if under deed as in a mortgage. Never acknowledge a debt! Statute of Limitations Act 1957, is that protection for debtors. High Court proceedings are far tool expensive. Thank God, for those expensive Bar Stewards! They all have hearts of Gold! 24ct Gold!

    Any legal issues ask me! I’m only 30 years out of date!

  28. Pat Donnelly Says:

    I am informed that there is a TV series concerning the CAB?

    Does it reveal who told the Sunday Independent who it was refused to sign the first tax assessment? The Govt cocked that up too. Some of the Acts dealing with CAB did not come into effect until the Govt actually signed off on CAB and that did not happen until sometime in Oct 1996, I believe? It couldn’t be that a high ranking Garda broke the Official Secrets Act?

  29. Pat Donnelly Says:

    http://www.sott.net/articles/show/209311-The-victims-of-Ireland-s-successful-shock-therapy

    Intersting. Grauniad always a humanist rag. Amost like they care!

    What is ahead as we plug the gap in the deficit? Fun times, I’ll be bound. Self governance is such fun, anyone can do it! Who needs laws against corruption? If everyone is corrupt, they will never be enforced! Glad to see that the Judges can be bullied into reducing their pay. What else can we bully them into doing?

  30. Joseph Says:

    @Jagdip Singh – “BTW, does anyone know the number of Irish bankruptcies each year (ie individuals being declared bankrupt) – I heard it was 5-10?”

    Can’t remember precisely but the last time I saw a figure (last year) it was less than 10.

    This (link below) also looks like another problem a-brewing. I didn’t realise that 13.5 percent (probably more in reality) of credit union loans had not been repaid for more than 10 weeks. Anyone able to quantify that amount? 13.5 percent of how much?

    http://www.irishtimes.com/newspaper/finance/2010/0528/1224271297777.html

  31. Cormac Lucey Says:

    @ Karl

    You say that a 5% write-off on mortgage debts looks reasonable. I wouldn’t disagree with you although I wouldn’t rule out 10%.

    Right now, Bank Of Ireland (the supposedly good bank) has a provision of just €360m against mortgage debt of €60bn (= 0.6%).

  32. bill hobbs Says:

    @joeseph
    Credit unions loans are c€6bn. 2006 two thirds of first timers who borrowed their downpayments used credit union loans. In 2005 70% of the states 414 credit unions reported delinquency levels in excess of the outer safety limits they agreed to adhere to but provisions and write offs did not reflect the arrears profile- they were far too low. They entered the bust with a hard core of bad debts they refused to write down in order to maintain far too high “dividend”/interest payments to savers. Captured by the savers mandate and governed by net savers, focus was on maximising dividends at the expense of building adequate reserves and investing in improving operational capalities/cost efficiencies.
    Last year arrears rose to 10% on short term unsecured consumer loans with a sub-prime pathology. The regulator says this is now 13.5%. Allied to this, new loan issues shrunk on average 20% -some as high as 50%. The duration of the book is less than 3 years which means they must make c33% new loans each year just to stand still. Despite the dramatic drop in what was already a low level of lending (credit union loans are less than 48% of total assets- some lower than 20%) actual loan books did not shrink which is indicative of the level of rescheduling. Given the sub-prime pathology and high levels of loans to small numbers of customers (local developers etc) the loan loss experience will probably be close to 10%. Under reserved, the regulator introduced a 10% reserve ratio to total assets with a interim target of 7.5% – he did not indicate yesterday how many are below these thresholds but it appears that 20 or so have significant problems with loan losses. How bis is teh problem?
    Asset size ranges from €5m (low end small credit unions who stopped lending some time ago) to €400m (large provincial credit union). The top 100 control 70%+ of total assets – the problem is concentrated within this group. Bounded by a common bond which geographically or associationally restricts membership, the concentration of household savings and loans is far higher than retail banking. The regulator indicates that of 100 loan reviews carried out (probably on on larger operations) he found that over 85% were underproviding for bad debts.
    Investment losses have largely been worked through but no one knows what losses have yet to be realised in investments credit unions should never have made. Without a central liquiity system or ability to cycle excess capital and raise funding and missing a proper deposit insurance scheme with early stage intervention powers the immediate future is fraught. Currently 10 credit unions have yet to hold their agm’s for last year which they should have held by the latest last January.

  33. tull mcadoo Says:

    @ Cormac

    But almost half the mortgages are in the UK where house prices are now rising so LGDs are falling. The FR stress test provides for a 5% hit on the Irish book & if you look at analyst models, you can back out a 2%-3% hit.

  34. Joseph Says:

    @tull mcadoo – “But almost half the mortgages are in the UK where house prices are now rising ”

    I understood the market over there was about to be flooded with sales (buy-to-lets, second homes, etc.) to try and avoid problems when CGT rises to income tax levels over there (as looks likely will happen)?

    A short, sharp correction to the housing market is surely the most likely short’ish term scenario in the UK? It’s also hard to see house prices there not coming down generally anyway given the ‘pain’ to come that the new government is heralding well in advance.

  35. tull mcadoo Says:

    @ joseph

    Have you ever had a positive thought or are you just a perma bear? Alternatively are you short housing and using this site to reverse broke?

  36. Joseph Says:

    @tull mcadoo

    I would be more cuddly-bear than perma-bear. I bet my predictions about the mortgage arrears problems in Ireland are not far off the mark though. More to do with realism and application of common sense than being bearish. When I see something positive I will make a positive comment but the evidence tells me not to at the mo.

    I probably read more than you too and talk to a lot more politicians and business people because it’s my job to (though I could be wrong of course as I don’t know you). There’s a big hoo-ha going on in the UK at the moment about this mooted CGT change and it’s potential impact on the housing market. Even Robert Peston agrees with me!

    Next stop for me is to talk to a few Italian trade union people about their take on Silvio’s actions this week. I wonder if they’re feeling ‘positive’? :-)
    “Piove sempre sul bagnato” – is I think what they say over there!

  37. Joseph Says:

    Anyway, you’re just a fictional character in a John B Keane novel so why am I talking to you? I’m clearly losing my marbles.

  38. tull mcadoo Says:

    Not really a fictional character, loosly based on fact. Also dead if memory serves me!!!

  39. Cormac Lucey Says:

    @ Tull McAdoo

    When you replied to my post about inadequate bad debt provisioning at Bank Of Ireland, should you not have declared your personal interest in the matter?

    Even more frightening than its inadequate bad debt provision against mortgage debt is Bank of Ireland’s meagre 1.2% provision against loans secured on investment property!

    I would guess that BoI’s current overall bad debt provision will emerge in time to be light by about €5-€10 billion.

  40. tull mcadoo Says:

    Cormac,

    You are right. The provision is too low and will climb over the next two years as forbearance wears off. BOI will take another 7bn of losses over and obove NAMA in the next three years. However, this and more is incorporated in the FR’s stress test. So no surprise there.

    Why do you think BOI is raising equity?

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