48 thoughts on “Mortgage Arrears Report”

  1. “50% of the arrears to date are outside the Covered Banks.”

    This is interesting given that the Covered Banks make up about two-thirds of the owner-occupied residential mortgage market. The non-covered banks seems to have mortgage books that are in even poorer shape than the covered banks.

  2. @ Seamus

    “50% of the arrears to date are outside the Covered Banks.”

    ie BoSI

    NIB and ACC are thought to have pretty decent looking mortgage books, while i haven’t heard anything untoward out of Ulster. Not sure how KBC looks, and they were a major player.

  3. From Page 8 of the report,

    “A range of solutions are recommended. These and others need to be further developed, over time, by the banks.”

    Why by the banks? Surely the banks are not the best placed entities to be the primary drivers that develop solutions, given the moral hazard issues inherent in the problem?

  4. @Stephen
    Bank’s business is making loans, and they expect as part of this to have to manage delinquent loans. So yes, the banks should be the initial actors in this area, albeit closely scrutinized by the Fin Reg.

  5. i’m not sure how useful the ‘Mortgage to Rent’ proposals actually are. Slide 24 on the Approved Houseing Association proposal contains the following sentences:

    “AHA buys the house from the borrower at a discount to CMV”

    “The house is sold by the borrower to the AHA at market value (CMV)”

    These statements are almost right alongside each other. So is the house sold at the current value or at a discount to the current value?

    The second Mortgage to Rent proposal see the house surrended to the bank who lease it to a Local Authority or directly to the borrower. What happens to the shortfall given that in many cases the bank will be taking possession of a house that is of a lower value than the outstanding loan? Where does the shortfall go?

  6. Can someone explain what this means…

    Mortgage Interest Supplement
    – D/SP to devise transitional arrangements to provide for the curtailment of MIS

    – Establishment of a joint D/ECLG and D/SP Working Group to manage the movement from MIS to MTR

  7. @Bond

    My understanding is that KBCs Irish book is a complete disaster area. The got heavily involved just as the party was going into orbit.

  8. Okay translated, I think! for anyone whose interested.

    Move Mortgage Interest Relief (MIS) to Mortgage Tax Relief (MTR) by Dept. Social Protection and Dept. Environment, Community, & Law Reform.

    Simple!

  9. I am a bit confused.
    Was this group of 22 government officials paid to come up recommendations on one of the most serious social and economic issues that this country has faced in over 50 years?
    There is hardly a hint of the human cost of the mortgage in the entire report.

    The glossary make no attempt to list all of the abbreviations.

    My initial reaction is that the ‘Report’ should be binned.
    Well the link to it from this site no longer works.
    Maybe it has been binned already.

  10. The report is next to worthless.

    What fact or research has it produced that we didn’t know already?

    What recommendation is omitted? Beyond the mad-cap blanket forgiveness? It seems to have adopted a scatter-gun approach to include everything.

    Who’s going to pay for solutions. When will processes be put in place. Who will resource the processes, quango and write-downs.

    Has this report advanced the resolution of our mortgage crisis one iota?

    The two day debate next week should be abandoned and replaced by a debate on the text of a new personal bankruptcy law. Hasn’t the time for talk passed, and isn’t what we need now is action?

  11. The “Mortgage to rent” schemes look expensive for the state. On the first one – the “approved housing body” – Can the AHB be a private sector body? If so, it could be a tasty earner.

    They describe the process as:
    ■AHB buys the house from the mortgage holder at a discount to CMV*
    ■D/ECLG provides 25% equity to AHB
    ■The mortgage lender funds the remainder

    So the AHB doesn’t put in any money. Let’s assume the AHB pays 5% interest to both the mortgage lender and the D/ECLG.

    Described under “Ongoing”
    ■Mortgage holder stays in the house as a social housing tenant
    ■They pay a “differential” rent to the AHB
    ■D/ECLG pays the balance, up to 80% of CMR **

    (** Where the AHB chooses to take responsibility for the repairs and maintenance of the property, the D/ECLG will pay up to 92% of CMR)

    To keep things simple, the AHB takes 80% of the CMR in return for free repairs and maintenance. Now (via namawinelake) allsop suggest CMV rental yields are 9.4%. 80% of this is 7.2%. If the AHB purchases at a discount to the CMV and also has the rights to some level of rent from the tenant, the rental yield should be a bit higher. If the cost of funds is 5%, it looks like a nice cashflow for the AHB.

    Even if the AHB are state owned/part of the state, it seems strange the D/ECLG offers more than minimum.

    Equally the Leasing option looks expensive. There are also a number of quirks when you consider more expensive houses had lower rental yields.

    This report doesn’t seem to address the impact these measures will have on future mortgage lending and potential purchasers.

  12. @Ahura Mazda

    Approved Housing Bodies, more commonly referred to as ‘housing associations’, ‘voluntary housing associations’ and ‘housing co-operatives’, are independent non-profit making organisations that provide rented housing for low income families or for vulnerable people with special needs. They are given approved status and regulated by the D/ECLG. The most common legal structure tends to be a company limited by guarantee, with co-operative bodies and trusts forming the balance. Almost all have charitable status from the tax authorities.

    The approaches suggested are modifying existing schemes to assist home owners, such as long-term lease arrangements with private property owners http://tiny.cc/ldb3e and the Capital Advance Leasing Facility (CALF) which provides an equity injection to assist AHBs in accessing finance to acquire or construct housing for social housing purposes http://tiny.cc/ixqxa .

  13. @ Jagdip,

    I think we learned a couple of things from the Report when dealing with the scale of the mortgage problem.

    1. 50% of arrears are in the non-covered banks (though we are not told whether this is my loan value, level of arrears or number of accounts)

    2. There are 45,000 households in arrears of 90 days or more with a total of 56,000 mortgage accounts (I had previously assumed each mortgage corresponded to one household).

    3. This means the average amount owed by households in arrears of 90 days or more is €240,000. The average amount of arrears is €21,000.

    4. The 70,000 restructured mortgage accounts relate to 56,000 households.

    We learned very little when it comes to actually dealing with the problem.

  14. When you look at the composition of the Keane Group you immediately realise this is a waste of time. Everybody on it will never have to worry about their next mortgage repayment – all Civil Servants and 2 Bankers. When the people hurting are not represented you get these dickhead reports. You need a dictionary of the terms but thats par for the course with the CS/PS – never keep it simple as we might do ourselves out of a job. Rubbish !!!

    After that the other worst part is a new Quango to be set up. We need one of these like a hole in our head.

  15. No opportunity to read this proberly yet, but can anyone offer guidance on this sort of question;

    What rent does a former mortgage holder who is allowed to stay in “their” 3000 square foot detached house in Malahide have to pay per week to avoid having to leave “their” house?

  16. @ Grumpy

    The ‘mortgage to rent’ schemes are “aimed at those people who would qualify for social housing if they lost their home and where their house is appropriate to social housing”.

    I presume that this will not apply to a 3000 square foot detached house in Malahide.

  17. @ Conor Farrell,

    Jeez, this 80% of Current Market Rent seems to be in existence already. Given the Allsop rental yields, it seems that the state is overpaying. Wouldn’t 60% of CMR be more appropriate?

    @ Seamus Coffey,

    If the state is ‘involving’ itself with the 50% non-covered banks, it’s unlikely to be an additional cost. I don’t think government should set “keeping people in their homes” are some sort of a right. I’m inclined towards a private sector solution. Yes, the state will probably need to house the previous owner somewhere, but someone else will be housed there. If there’s no private sector interest, then the state should be able to acquire the asset at a very low price.

  18. Thanks Seamus. Any idea where we look for the definition of a house “suitable for social housing”

    It is not uncommon in London for very large houses in very expensive locations to be used for “social housing” dependant on family size etc. It is one of the reasons for tension between Boris and David.

  19. @ grumpy,

    The report is short on detail. Of course we didn’t actually get the report; we got a Powerpoint slide presentation. I am not sure that there actually is a report. Most of the detail is ignored and it seems this will be worked through with some “trial runs” of the proposed solutions.

  20. @Seamus

    With respect

    1. 50% of arrears are in the non-covered banks (though we are not told whether this is my loan value, level of arrears or number of accounts) [would it matter a great deal if it was 20% or 70%, surely all that is important is that non-covered banks comprise a sufficiently significant proportion of mortgage arrears that they need be taken into account]

    2. There are 45,000 households in arrears of 90 days or more with a total of 56,000 mortgage accounts (I had previously assumed each mortgage corresponded to one household). [how significant is this, there are still 780k mortgage accounts so the proportions in distress remains the same, no?]

    3. This means the average amount owed by households in arrears of 90 days or more is €240,000. The average amount of arrears is €21,000. [compared with? And is that significant?]

    4. The 70,000 restructured mortgage accounts relate to 56,000 households. [again, does this change the scale of the problem in any material manner]

    Apologies if this appears cruel but this information doesn’t materially change anything, and all that has happened in the past 2-3 months is the fig leaf of a “mortgage expert group” has been used to bat away attention on what seems to be agreed to be a colossal problem for the State (“the biggest” according to Bill Clinton last Saturday after a briefing with Taoiseach Kenny]

  21. The Austrian Bank Erste has written down 1.6 billion Euros on Hungarian loans denominated in Euros. The Hungarian government passed a law that makes it legal to repay Euro loans in Hungarian Florints. An immediate 25% + or – haircut with 62% of the loans expected to become non performing.

    There will be more moves like this in the near future which should strengthen Ireland’s hand in negotiations with the core countries.

    Erste means first as in Austrias first bank, no Johnny come lately

    http://www.golemxiv.co.uk/2011/10/hungarys-default-the-first-victim-erste-bank/

    http://www.zerohedge.com/news/erste-group-reveals-stunner-reports-billions-previously-undisclosed-underwater-sovereign-cds-wh

  22. @ Jagdip

    It would be a very low bar if that is to be considered cruel! I never suggested this pieces of information were significant merely that they were something we didn’t know previously. You asked was there something “we didn’t know already” and these were things that I did not know previously. You may have known them but I did not.

    Of course, the information doesn’t change anything it just gives us better figures to work off. It would have been useful if the report had actually used the figures to analyse how some of the proposals might be implemented. It is clear that the only thing the report wanted to say was that debt forgiveness is out and virtually everything else might possibly be in.

    I think the indication that half of mortgage arrears are in the non-covered banks is significant. There have been many claims along the lines that “we have already provided the money for banks to write down mortgages so they should just get on with it.” This is clearly not the case for half of the mortgages in distress.

    The rest is little more than minutae based on my previous assumption that that the number of mortgages in arrears and the number of households involved were one and the same. The report indicates that there is something around a 20% difference between them. This increased my estimate of the average amount owed per household in arrears from €190k to €240k.

    Finally, the proportions in distress remain the same only if you assume every household has a mortgage. This is not so. There are around 1.7 million households in Ireland. If 56,000 of those were in arrears of 90 days or more it would be 3.3% of all households. We are now told that 45,000 households are in arrears of 90 days or more which is 2.6% of all households.

    Knowing now that there are 11,000 fewer households in arrears than I thought this morning changes the scale of the problem in my eyes. I am disappointed that the report did not change my outlook on how willing we are to actually address the problem.

  23. This ‘report’ was based on non-consultation with any body that might have had practical alternatives which would have discomfited the financial institutions and/or the banking philosophy of the DOF banking unit.
    Utter,useless,cynical drivel!

  24. Ok, this is very outside-the-box, so I’m ready to be shot down, but how about a grace period which involves changing the loan terms of those in negative equity to allow them repay the loan without any interest being charged for a set number of years, say 5-10? Knowing that every €1 overpayment you make comes off the nut of the loan might be a decent enough incentive for the generation of people who are stuck in so-called starter homes to pay off enough of the loan to enable them sell and then move on, and begin consuming again, to the benefit of society as a whole. It makes more sense to me to offer people incentives to get out of the hole they’re in, than to try implement solutions with the right amount of disincentives to deter the chancers.

  25. Obviously that should have been ‘payment’, not ‘overpayment’. My negative-equity-kingdom for an edit button.

  26. “Accordingly, it is not contemplated that the Working Group will provide an exhaustive set of recommendations and/or solutions”

    That is the kind of mentality in the Public Service that has left the country where it is today.

    There are Irish soldiers in Darfur that must put their lives on the line for their country. Yet this group didn’t even have the guts to write down on paper definitive recommendations to deal with this appalling national problem.

    ‘It is not contemplated that the Working Group will provide ..recommendations or solutions’.

  27. @ Seamus

    You have currently on your blog an excellent Report on this issue produced by MABS Waterford which is far superior than this” so called” Report produced by more than 20 Civil Servants who have no experience of what the way of the World is for those in serious financial difficulty with their mortgages. Just another waste of Public money which Politicians and Civil servants have no problem in wasting.

  28. In my view there is of merit in that idea Niall….

    a few key changes though
    1) the government make X Billion available at say ECB rates (hopefully they can)
    2) All mortgages stays with the bank.
    3) the bank must pass on the exact same rate they have borrowed the money from the government to the borrower. The bank will have zero margin.
    4) No new mandatory charges, insurance or other crap that the mortgage holder must pay the bank to get the rate.
    5) All costs are eaten by the bank, (legal, administration etc) Important as the mortgage agreements will need updating and signing. Some simple criteria can be put in place to stop a bank using this opportunity to screw then borrower on something after the period expires
    6) The bank can refuse to migrate a mortgage to this scheme. they take the risk, they make the decision.
    7) No new mortgages with these funds.
    8) The state should insist the bank invest equivalent funds into the scheme…. ideally insisting bank director and employee pension funds are invested.
    9) Some criteria is established to stop the banks gaming the system with rolled up interest for mortgages already behind….
    10) Some criteria is established to stop middlemen parasites getting a % of the savings for organizing between the banks and the borrower. Maybe a max charge of EUR 200 or soemthing
    11) Simple easy to follow rules with mandatory penalties for all directors, employees of a bank if it is breaching them, for middlemen and for borrowers.

    Why…
    1) No make work scheme for solicitors, valuers, mortgage brokers and other parasites. Well the banks will have to do that stuff but they wont be rode into next week by solicitors.
    2) This is an offer from the state to pass make finance available at cost, not a debt forgiveness program.
    3) But the state takes on no further liability, no loans are transferred etc.
    4) Very small administration cost to the state but the scheme should be set up so the bank will lose.
    5) With zero margin, there really isn’t much else we can do for the borrowers or banks….

    The mortgage holder is given every chance, not interest free but at the lowest possible rate. Nobody is making money on their misery

    There is some relief for some borrowers, the hopeless cases are f***ed anyways and wont qualify; the bank will only want to migrate people who really really need it but who will pay for the duration of the scheme

    It is up to the bank and mortgage holder to come to an arrangement.

    There is a pain for the bank in moving a mortgage to this as they lose all profits while the mortgage is in the scheme. They also will probably lose penalties etc as there should be no mechanism for them to add on charges

    On the other hand it will probably keep their mortgage holder from handing back the keys at least for the duration of the scheme which is worth a lot of money to them

    There is yet more pain for the people who haven’t borrowed but it is justifiable.

    But there will be people who don’t qualify for the scheme who will be whinging.

  29. @ Ahura Mazda,
    The principle of 80% of market rent has been in place since Feb. 2009, http://tiny.cc/7qhid .The problem has been attracting private landlords to take up this offer!

    The most important thing is to ensure that citizens are protected from overpayment by the State. I think local authorities need to be aware of the rental yield in their area when negotiating leasing contracts. The problem is we do not know what the real CMV and CMR of properties because we do not have a reliable localised property price and rental price index. The legislation on the House Price Database (registering all transactions) called the Property Services (Regulation) Bill will be debated in the Oireachtas on October 19th http://tiny.cc/iexse. A rental price index based on the PRTB database of registered tenancies also needed to created. Both of these elements need to be in place to protect the State from overpaying and provide transparency in the marketplace to inform peoples decision making.

  30. This report appears to be designed to provide cover for inaction. It recommends that the Minister make enquiries to check out the status of the proposed new insolvency regime. My blood boils at such pathetic pass-the-buck advice.

    This report is a recipe for keeping insolvent young Irish Home Owners in bondage to the banks and the pensions of their elders for many years to come. The IMF will not be impressed. It is also a recipe for keeping the property market totall illiquid.

    This report smacks of the same type of denial of reality that suggests that the fiction of upward only rent reviews will increase the value of properties which tenants cannot afford to rent.

    FG deserve to pay a heavy political price for this. They were going to do the divil and all in opposition. We were all waiting for the cleam broom and the fresh thinking. They couldn’t have come up with a worse approach to this issue.

  31. It seems to me that the likelihood is that the banking head honchos, both Irish and international, got to go through this report and change anything they didn’t like the look of (this is Ireland after all).
    Is there any evidence to suggest I am correct/incorrect?

    There is nothing here that would lead to banks having to take much in the way of actual write downs. Considering the fact they have 5-6 billion allocated for this shows just what we always knew. These guys are shameless and the quango set up to do this report is toothless and worse than useless because they are wasting time.

    BTW any chance of a piece on the ‘Occupy’ campaigns or is that too low brow to be even worth debating?

  32. If half of those in serious arrears have their mortgages from non covered banks then why not make some recommendations to apply just to the covered banks? At least that would help solve some problems for 50% of people.

  33. @Niall
    Thats just crazy.
    That would effect the profitability of the banks.
    What? They have all been nationalised (one partly) and therefore they no longer need to focus 100% on short term profit motive but could actually try to help some of the young economic slaves and get some growth back in the economy.
    But how can that happen when the top management in the banks still hold the old mindset and government seem powerless to remove them or shape policy?

  34. One aspect of this crisis that I have not seen addressed in mainstream media is the impact of mortgage protection policies. It is a long time since I took out and repaid my mortgage (thank God) but I do remember it as common practice at that time that taking out and maintaining a mortgage protection policy was an integral and obligatory part of the deal.

    I would welcome views and hard data on the degree to which the issuance of such policies was/is still routine and, if so, in prevailing circumstances of much higher unemployment and general conditions making for inability to pay the mortgage, whether and to what degree claiming under such policies is widespread.

    Certainly, if it was the case over the past decade that such policies were taken out routinely as “part and parcel” of the mortgage “package”, how come we have the crisis we apparently have. And, if the policies were taken out and we do have a serious crisis, what value do they have?

    I write as a layperson with non expertise in insurance or economics.

  35. @zhou
    +1

    A very misleading statistic given prominence in the report is:

    “50% of the arrears to date are outside the Covered Banks”.

    This statistic, if true (and I some doubts), is used to give the impression of the covered banks as bastions of responsibility. They are not.

    What would this statistic be for both arrears and restructured together.
    What would it be for arrears less than 90 days.

    This is a very disingenious statistic to put into a report in isolation.

    Its purpose is to divert attention away from the covered banks and make it appear that the State is powerless in this whole area. The State is not powerless. Neither are the mortgagees.
    They should take on the banks for mis-selling.

  36. “It is estimated that it would cost #14 billion to clear the negative equity in the Irish mortgage portfolios”. (Page 14 of Mortgage arrears report).
    Who has done the estimating?
    This statement seems to assume that the full amount of the negative equity will be repaid eventually. To the extent that a borrower is unable to repay or is unlikely to repay the lender should book the loss right now and move on. The present value of the negative equity element of the loan books is likely to be a small fraction of its nominal value. 14 billion is probably a bonkers estimate of what any bank would pay for the right to sit around and wait for the loot to fall into their laps.
    There is no additional cost to the lender in writing off an irrecoverable debt, except to the extent that he is keen to play games with his Balance Sheet and to pretend that he has assets that are actually non-existent.
    The same mistake is made constantly by commentators who say things like
    “But somebody will have to pay if mortgages are written down to levels that the borrower can repay.”
    Elderfield made the same comment about a year ago when he said that neighbours who were repaying their mortgages wouldn’t want to pay for any write-downs given to their delinquent next door neighbours. The fact that this is nonsense seems to be understood by very few and seeing the “expert” mortgage arrears group perpetrating the same line is disheartening to say the least.
    Here’s me bus.
    R

  37. @Daire

    Part of the reason the banks are not that concerned to deal with the issue. Provided you continue to pay that Policy and the mortgage remains unpaid the banks will eventually get their cash back.

    When you stop paying the Policy and tell the bank that you can’t afford to the red lights will start to flash and the banks will have to play ball either hard or otherwise.

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