Report of Expert Group on Mortgage Arrears and Personal Debt

An interim report of the Expert Group on Mortgage Arrears and Personal Debt has been released by the Department of Finance. The report is here. Press statements are here and here.

19 replies on “Report of Expert Group on Mortgage Arrears and Personal Debt”

Yippee. Another report!!

I am not going to criticise it though because it is probably the best they could have done. The report that really matters in this area will come from the law reform commission.

Hmmmm. I suspect that in practice, the lenders will put very little resource into changing things (but will put out lots of PR saying they will) in these ‘difficult’ times and they sure as hell won’t do anything that will favour the lender over themselves as tiz the way of the world. We keep seeing the Brian’s bandy around this figure of 30,000 (which I believe are just those over 90 days in arrears) but I suspect the underlying problem is far bigger… and growing. As Brian Lenihan just said earlier, nothing will be done that harms the banks. Banks are more important than humans.

“The people of Ireland stood by the banks in their hour of need for the benefit of the whole population.”

It sounds so Churchillesque. We shall meet them on the beaches. More like the people of Ireland were railroaded into propping up the banks so as not to scare away the bondholders, at a price in the tens of billions and with each citizen contributing an arm and a leg.

Any possibility the mortgage holder be allowed to add the interest that he/she did not pay to the ‘value’ of their delinquent loans before they flog them on to a seller that is lined up such as NAMA?

A formal scheme for borrowers in mortgage default to deal with lenders should reduce the mental stress suffered. This relief will hopefully save lives and families.

However, it turns my stomach that this expert report simply says that we need urgent reform of personal bankruptcy and there will be another report later in the year. Everybody in the country already knows we need urgent reform of bankruptcy. We did not need a report to tell us this.

It is absolutely intolerable that our civil service has failed to produce legislation up to now and will not do so in the near future. I hope that outside Brian Lenihan’s capacity review of the DoF is extended to a review of the legislative capacity and procedures of other departments, including the department of the Environment.

Reform of the bankruptcy laws should not be initiated by an expert panel. The first draft of proposed legislation should be available before an expert panel is even appointed.

so :
shareholders – saved, to a small extent, some skin left in the aib/boi game
bondholders – laughing all the way from the banks
taxpayers – wha? wha? as the are stripped of cash
mortgageholders- pay 100% eventually, but take your time, we can wait
developers – pay “all that is repayable” as Minister for Commenting on Everything Eamonn Ryan said on the matt cooper show ….

nice one..

BARP! No surprises here. As suspected from the makeup of the group its report leans towards lenders. MARP is a cut and paste import of schemes elsewhere – I note the decision to afford relief rests with the lender with an emphasis on “voluntary surrender” for those who are declined forebearance.

The question is what happens when forebearance dosen’t work or runs its course for many people? US experience of forebearance/ loan modification is not great – over a third of cases default on arrangements.

It’s notable the report dosen’t produce a scintilla of fresh information – just how many households are strugglng with unaffordable debt – mortgage or otherwise? How many more will be by the end of the year? etc…

Domestic property price is declining by approx – 1% per month. Full drop must be approx -80% (range will vary depending on location). That means approx 80 months before prices revert (7 years!). 2015! We have to have a general election before then.

What we have now is neither a Recession nor a Depression, but a Great (economic) Reversion. We are in a transition phase from Permagrowth to Permadecline. Knee-jerk economic responses will all be tried – they will initially seem to work but the effects will fizzel out. Then it comes to the hard (political) choices. Should be interesting.

B Peter

the regulator had a press release out literally within minutes saying ‘we support this and its as good as implemented’, very PR savvy/sensitive? Anyway, if you want ideas you can start on tomorrow then this report is what you want, minor operational change – really nothing more than a standardization of existing practice that all ties in with the code of conduct on mortgage arrears, and then some changes on social welfare aspects – which were long overdue anyway. Regulator can’t enforce any of the big changes which have come in the way that Mortgage Interest Supplement is awarded, and of course, debt managers are totally unregulated and many people are using them, all in all this is plain vanilla through and through, but ya gotta start somewhere i suppose.

I submitted a draft code of practice on debt management to the group and note I’m not included in the appendix. Not that I’m miffed but makes me wonder how many other submissions aren’t listed. (the code is on my blog)

Until the substantive issues of debt forgiveness and negative equity are dealt with the reports are an utter waste of time & resources and contribute further to the ongoing declines. Banks have got away with murder by grossly misrepresenting their position to NAMA, and developers WILL be forgiven significant portions of their debts. There must be a plan in place for mortgage holders. How can Matthew Elderfield cite the ‘moral hazzard’ agrument against debt forgiveness when every tax payer in the country is doing just that for the developers. Debt forgiveness is nothing new. Bill Hobbs – don’t take it personal – I handed a report to Eamon Ryan & I’m not mentioned either. I also note there’s not one person from the property industry. Property was (a substantive) part of the problem, and out of necessity will need to be part of the solution, as any steps, measures, or call them what you like will be linked to the property market.

Mortgage Interest Supplement – am I reading this right?

It will be re-vamped but they aren’t saying whether it will be revamped to help more unemployed people or less unemployed people…

…who are running into trouble fast as the unemployment figures rise (and long term ones in particular – those savings and redundancy payments sure get eaten up quickly when most of it is going towards paying the mortgage for the first few months after losing your job and finding there aren’t any more jobs out there when you go searching).

I suspect in these times of ‘austerity’ we could see MIS pared back under the guise of “sure, there’s a process in place now to deal with people behind on their mortgages.” A disaster waiting in the wings for thousands more who lost their jobs through no fault of their own.

Prices still apparently in freefall. No prospect of increases in overall employment. Emigration up. Still talking of the “boom”. Still talking of preferential treatment for mortgage buyers over other types of household.

The ideas in the report will be a help, but not much. The main issues are still there, still unaddressed.

Other than that, it’s apparent that justice and economic sense are still absent in Ireland. Politically, there’s still a huge impetus to “do something” to keep people in “their” homes, and even today there’s press commentary about how people who are “more fortunate” should pay to keep people in their homes.

Now if there are costs to be borne to protect “homeowners” then the least that should be done is to impose those costs only on the culpable parties.

For instance, a levy on top of all mortgages from the period to pay any costs of a NAMA for the people makes perfect sense.

Or, we could be broader and let two criteria apply. Those that can afford to pay should pay, and only those who were culpable for the bubble should pay.

Other housebuyers from the period who drove prices up, bank management, the press, the members of the government during the period, and developers. All were guilty, some have money.

Now the banks essentially have no money left and the shareholders from the boom period are wiped out and largely replaced by taxpayers anyway, so no future levy on the banks is justified except that it’s politically convenient. However the previous management still have a little money, certainly sufficient to bail out a couple of thousand families. The government members can be raided for their pensions, etc. It’d help a little, probably several hundred families. The developers will be done for by NAMA eventually, but if any of them get away then the rest could be taken for the householder bailout. Then, we could get the remaining money needed from the other party responsible for the boom. Other housebuyers. If you bought in the boom and can still pay for your own mortgage, then you can afford to pay for the bail out. You’re partially responsible for the increase in house prices that’s got them in trouble, and you’re still in your family home.

Ultimately, morally it’s important to keep those who didn’t participate in the orgy out of the costs of the cleanup. Pensioners, young people, renters, etc., should be kept out. Morally.

Of course politically it’s obvious that morality will be ignored entirely. This is only step 1.

The report is a step in the right direction but unfortunately it simply doesn’t go far enough. There appears to be no mention of debt forgiveness which surely has to be considered if homeowners in arrears and negative equity are to be genuinely assisted.
I don’t think the moral hazard argument can continue to be rolled out when it clearly doesn’t apply to our banks – moral hazard should apply to all or no one. Broader structural changes are required – debt forgiveness, non-court based debt settlement solutions, mediation and the write off of residual debt on successful completion of an agreed debt payment programme are some measures which need to be considered.
Hopefully some of this will come in the later, final report in September – only a year after the formation of an Expert Group was first mentioned in the renewed Programme for Government.

Given the recent success of the Dutch team, it may be worth looking to them in terms of dealing with delinquent borrowers.

Below is the foreclosure process from an investor presentation of one of their biggest mortgage lenders:

During the period in which arrears on payments have occurred, an effort is always undertaken to find a satisfactory solution for Bank X
• The foreclosure process is typically initiated at 8 months, however at a maximum of 14 months, since delinquency status
– However, foreclosure may be initiated as soon as 4 months if Bank X determines an accelerated foreclosure is in its best interest
• During the foreclosure process, a relatively low number of third parties (law firms for example) are involved allowing for flexibility and speed to finalise the process
• Bank X has the option of foreclosing on property in two different ways:
– Voluntary sale: the Borrower offers the property for sale with the help of an estate agent and in close coordination with the arrears management department. This type of foreclosure tends to be more beneficial to the sales price of the property, and will take on average 4-6 months to be finalised (depending on the type and location of the property, the range will lie between 3 and 9 months)
– Public auction: the property is offered for sale at a public auction. This alternative is considered the last resort, after all else fails, and will normally take 3 months to be finalised
• In all cases, after foreclosure of the property, the collection of the remaining debt is outsourced to a collection agency
– The recoveries on such remaining debt are on average quite low
– The ability to pursue post-foreclosure recoveries is an indirect pressurising tool in the arrears management process

The speedy process reduces default rates and increases recoveries. The clear process means borrowers know where they stand.

Great info on the Dutch process.

The difference with NL and here is that the extent of post-foreclosure recovery outstanding will typically be much higher in Ireland than in NL. Dutch prices didn’t spike as much as here, and haven’t dropped as much as here, and the economy has not tanked as much as here.

Adopting a Dutch process will make the process easier, but may not address the underlying financial issues for bank and borrower (and bailer-outer).

@Aoife, as a BTW
It’s interesting to see that someone from a Housing Association – often associated with values like justice and fairness – would be so supportive of increasing the amount of injustice in the country.

You’re basically arguing that because one wrong has already been done, we should do another.

I take your point on board but it is because we are committed to social justice and fairness that we believe people in difficulty should be assisted. We need to distinguish between those who cannot pay and those who won’t pay. We need to help those who simply cannot pay, because often it is through no fault of their own for example unemployment, illness or marriage breakdown. The financial costs (not to mention the societal costs) of people losing their homes are extensive and we believe it makes far more finanical sense to assist people in the short term to remain in their homes. The Joint Oireachtas Report on Personal Indebtedness said that in the US about one third of the value of the house is lost by the bank through reposssesion – surely it makes more sense to forgive some of that debt rather than repossess? Otherwise the cost of rehousing them for the remainder of their lives will fall back on the state and ultimately the taxpayer.

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