One discussion point from the Financial Regulator’s mortgage arrears statistics is the performance of loans in the state-owned banks (AIB/EBS, PTSB & INBS) which between them have about 50% of the owner-occupier residential mortgage market in Ireland.
There is a small additional group of mortgages controlled by the state and these are local authority mortgages which are provided to eligible people who may not be able to get a mortgage from a bank. These mortgages are are not included in the FR’s arrears statistics.
At the end of 2011 there was €1,425 million outstanding on these loans which is around 1.25% of the total (see page 64 of the 2011 HFA Annual Report). A breakdown of the amount by local authority at the end of 2010 is in Appendix Six on page 39 of this audit report.
There are around 22,550 local authority mortgages giving an average balance of around €60,000. The interest rate charged on these loans is currently 2.75%.
At the end of Q2 2012, 6,280 (28%) of these loans were in arrears of 90 days or more. This compares to 11% for mortgages in financial institutions. The pattern of local authority mortgage arrears in 2010 and 2011 can be seen here.
The aggregate balance on the loans in arrears was €204 million in Q3 2011. In 2011, the amount collected at the end of the year as a percentage of the amount due was 71% (see slide 13) but this includes accrued arrears at the start of the year. Excluding accrued arrears, there was a shortfall of around €9.3 million on the repayments of around €100 million due in 2011.
At the end of 2011 the total arrears owing on local authority mortgages was around €33 million. The shortfall has to be made up by the local authorities to meet their repayment commitments to the Housing Finance Agency who provide the finance for the loans. Appendix Five on page 37 shows the collection rates of housing loan repayments by local authority in 2010.
The Department of the Environment has produced A Guide of Local Authorities – Dealing With Mortgage Arrears which outlines the steps that should be taken when a mortgage falls into arrears. Page 15 has a definition of an “unsustainable mortgage”.
A loan may be deemed unsustainable if the full interest is not serviceable on a long term basis. Short term arrangements may allow for partial payments on loans, even where the full interest is not being met, for a period of up to 36 months cumulatively. If the balance on the loan is increasing rather than remaining static or decreasing, after a period of incremental short term extensions exceeding 36 months, then the loan appears to be underperforming and might be considered unsustainable.
This is put in terms of the balance increasing which is a better measure of mortgage distress than account arrears.