Mortgage Arrears Statistics

The Central Bank have released the Q3 2012 update of the Mortgage Arrears Statistics.  The arrears situation continues to deteriorate.  There is some useful new information in this release.  On owner-occupier loans a further breakdown is given of loans that are more than 180 days in arrears.  This is the number of accounts in each sub-category:

  • In arrears 181 to 360 days:  23,035
  • In arrears 361 to 720 days: 24,825
  • In arrears over 720 days: 19,541

The accounts in the final category are an average of €40,000 behind on their repayments.  Loans in arrears over 90 days are now equal to 15.1% of the total balance of owner-occupier mortgages.  The total stock of owner-occupier mortgages has declined from €118.6 billion in Q3 2009 to €111.2 billion in Q3 2012.

Some additional forbearance measures are added to the list usually provided.  These are for a permanent interest rate reduction and a split mortgage but the numbers of these provided remain small at 194 and 12 respectively.  Of the 153 owner-occupied properties repossessed during the quarter 70 per cent were by way of a voluntary surrender.

Details are also provided on buy-to-let loans for the first time.  A spreadsheet with the data for both loan types is available here.

82 replies on “Mortgage Arrears Statistics”

But will the “Government” concede to Troika demands to seize land ?

Steve from Virgina.
Credit money expansion (Banks) replaces a great debt with another, greater debt. There is never a net reduction in the debt, only a perpetual increase.
(Dork – we are reducing our debt by exporting our debt / symbolic wealth via goods export elsewhere destroying internal commerce)

Treasury money expansion is repudiation of debts => repudiation of (pre-existing) money, institutionalized default (expansion includes purposeful inflation).

Finance offers fiat debt then demands repayment in circulating currency (gold clause effect). Fiat currency offered by the government to retire fiat debt: both the debt and the currency are extinguished at once.

The creditor says, “You owe us, you must pay with circulating money!”

The debtor says, “There is no circulating money, the creditors refuse to lend …”

The creditor says, “We will seize your property instead and destroy your economy!”

The government (which is also a debtor) says:

– “We will create money without borrowing and repay the loans as they come due. We can do this because we are the government, our money is paid to our army.”

– “The loans are fiat — they were created by the lender with the stroke on a keyboard, they were not made from circulating currency. To act as if they were is a crime, a false claim. The lenders will be repaid by a stroke of the keyboard, in the same form as the debts were issued. If you or other lenders touch our property or our citizens we will throw you into prison and decide later whether to feed you or not.”

– “Because lenders have impoverished our country with endless false claims we will punish you severely whenever we can get our hands on you. You are our enemy and we will destroy you if we can, because you have sought to destroy us!”

The pace of new arrears cases is not slowing as quickly as I thought it would. When will this peak and at what level?

Most other indicators are showing signs that the economy is stabilising. Mortgage arrears is probably the most significant series showing continued deterioration.

I have some doubts about whether the monetary arrears values in both the case of OO and BTL are credible.

The monetary arrears values appear far too low in relation to the capital values outstanding. One wonders whether interest ‘income’ is being recorded on some of these loans at all. This also ties back to the credibility of the interest income figures being shown by banks at present.

Can anybody clarify whether interest income (due), stops being recorded after a certain overdue period, and the implications of such an income recording policy on both these mortgage arrears figures and bank interest income generally.

@ Joseph,

I’m not sure what you mean. The size of the arrears seem credible to me. The average arrears are:

Less than 90 days: €1,833
90 to 180 days: €4,979
180 to 360 days: €9,304
360 to 720 days: €18,598
More than 720 days: €40,213

If you work off the basis that an average monthly repayment on these accounts might be €1,000 then the level of arrears are credible.

I don’t know what you mean in relation to the income revenue for the banks. I’m not an accountant but I presume the banks will record the interest revenue when they receive it. If there are no payments being made on a loan then there is no interest income from it. Maybe someone else will have a better insight into the “income recording policy” you are looking for.

@Seamus — During the early part of the Irish crisis, the Irish domestic banks hid the looming problems in their loan books by reclassifying loan arrears by developers as “new lending” so as to hide growing arrears. Not sure if this is what John Ryan is claiming regarding residential mortgage arrears — it would seem more difficult to manipulate the accounts in this case since it is not like an ongoing business relationship with a property developer where non-payment on an old loan can be more easily disguised as a new loan rather than arrears (and a loss). But it certainly is something to watch out for, fool me once, shame on me, etc.

There are still 5 and 10-year interest-only BTL mortgages to with payments on the capital due to begin.

Davy Stockbrokers said last Aug: “We expect that by value the proportion of BTL loans in arrears will rise to 38.4%. Based on a 60% fall in property prices, peak-to-trough, delinquent loans will have a current market value of €6-7bn or close to 40,000 BTL properties will be in arrears.”

Below is the elementary property valuation error that bankrupted Ireland;
Professor Neil Crosby’s online response to this Irish Independent letter
“Bubble values” 29th February 2012

“The analysis may be simplistic but unfortunately it is not flawed.
Banks ask valuers to tell them what the market value/exchange price is
at a point in time and then lend vast amounts over time based on that
simple number. The surveyor gives them that simple number and do not
think it is their job to tell the banks that the question they have been
asked is stupid on its own and what they should have asked for is the
underlying value. It was obvious in 2005 and 2006 that prices in the
property market were higher than could be sustained by any rational cash
flow analysis. But in a culture that rewards individuals for short term
performance rather than longer term perspective, it was in neither the
bankers’ nor the valuers’ interests to stop it. I cannot see anything in
what the UK regulatory authorities have proposed that makes me think
they understand the role of property valuation in driving asset bubbles
and will prevent it all happening again sometime in the 2020s.”

Neil Crosby
Professor of Real Estate and Planning
University of Reading

John Corcoran – Neil Crosby is quite right to point out the critical and corrupting role of valuers and banks in the property bubble. RICS and other property related professionals should hang their heads in shame for not raising the alarm bells and not challenging landowners, banks and homeowners about the outrageous rise in property valuations which had no relationship with reality or ‘underlying value’. Their role is similar to that of ratings agencies which were paid to sign off triple A ratings by their clients for instruments most of which related to property assets..Sadly it does not require a university professor to point this out.
Anyone with a modicum of experience in property and development knew we were headed for trouble and I am sure I was not the only person to flag it up. If these so called professionals had been held to account by their so called professional bodies ( as the General Medical Council regulates doctors) half of them would have been struck off. Their primary responsibilty should have been to the reputation of the valuation profession and not their commission. In many countries property is taxed and valuers are independent or are part of the state.

Radical reform is required or we will surely revisit this crisis again in the near future.


“most indicators are showing signs that the economy is stabilising”

The economy is two speed if not multispeed. The domestic economy is not going particularly well at the moment. Unemployment is stuck on 14%. Young people are suffering as there are no jobs for many of them and the ones they get are often second class compared to insiders. The Mortgage arrears crowd is another group who are taking a lot of pain while others sail on.


I accept that your figures make the situation more plausible, but I find it hard to accept that after 4 years only 6.6% (1.645/24.7) of the value of total OO monetary value of mortgages are in arrears. [BTL 9% .953/102.).

“I presume the banks will record the interest revenue when they receive it”
Most businesses will record revenue or presumably interest when it is due, not when it is received. The question is what do banks do. If one ceases to ‘accrue’ interest on non paying loans after a certain time, then two things happen.
1. Interest income is theoretically understated.
2. Bad Debt Expense is consequently are technically understated, (though the bad debt provision is not as the unreceived interest was not recorded)

I am not saying this is happening, as I do not work in a bank (no such luck!) but it is a very important facet of recording bank interest income. Banks do have procedures in relation to this. However, in good times the amounts are immaterial to bank interest income calculations. In bad times they could have a significant impact.

This is the question I am posing in relation to mortgages (above), though I concede your analysis would appear to disprove my point in that area.

The domestic economy has not done well since 1979 !

Its decline has been hidden by multinational operations

But perhaps the lack of liathordi goes much further back in time.

The decline of the Irish economy because it cannot get its mortgages (debt contracts) up……..

How sad is that ?

When did debt contracts become the physical economy again ? (don’t answer that question)
Cromwell I guess ……

Why do mortgage demand have to be the money supply ?

@ Joseph

“I accept that your figures make the situation more plausible, but I find it hard to accept that after 4 years only 6.6% (1.645/24.7) of the value of total OO monetary value of mortgages are in arrears. [BTL 9% .953/102.).”

Where are you getting these figures from? 15.1% of the ‘principal dwelling house’ mortgage book is now in arrears. The BTL figure is 25.5%. If you follow the link at the top of this page you can see all the latest data from the central bank.

@John Corcoran
Although off topic I have been meaning to ask.
John Why is it you seem to be one of the very few ploughing this furrow?

Where are ISME and Chambers Ireland and the IDA in all of this?

Yet again this week we hear the obvious fallout from ridiculous rent prices.
Bewleys on Grafton Street is making a 700k loss even though they are doing a roaring trade of 6million.
The reason 1.5 million in rent.

I hear mark fielding and other business reps give out about rates all the time but on unsustainable ridiculous rents they seem to be silent.

Over 60% of companies in this country are not making a profit. A shocking stat.
No wonder the reflex reaction of small business owners is not to demand lower rent, but to be allowed to continue borrowing. They are hooked to debt and have lost their profit motive years ago.
It is my belief that credit was keeping terribly run companies in business for the last 10 years.

John you are correct in saying rent is the biggest barrier to profit in small business in Ireland.
Why don’t you all come together like a union and demand large reductions?
Are you all so ideologically opposed to collective bargaining?
Rent seeking on this scale is killing any chance of getting the economy moving. The land lords need to be put back in their boxes.
They are currently making hay with the prices of property.

Mortgage arrears have spiralled completely out of control. These figures are worse than a Morgan Kelly prediction. 64% of all arrears, and 74% of buy to let arrears are in arrears greater than 90 days.

The simple existence of an “over 720 days”(2 years) category in the central banks report is a damning indictment of the situation(never mind the 20,00 in it). Who here predicted we would see such problems in bank’s mortgage books? Who here predicted we wouldn’t?

What can we expect in 2 years time? 50,000 mortgage over 720 days arrears? A new 1440 dpd category? How bad is this going to have to get before people admit that it is really that bad and that something serious is going to have to be done about it?

If you work off the basis that an average monthly repayment on these accounts might be €1,000 then the level of arrears are credible.

Are those interest only repayments or the full amount?

@ Joseph,

I think you are misusing the numbers.

There is €111.24 billion of owner-occupier mortgage that. Of that, €16.28 billion (15.1%) is in accounts that are more than 90 days in arrears. The value of arrears on these accounts (i.e. payments they are behind) is €1.55 billion. You seem to be getting a ratio that does not make sense.

In the BTL sector €7.93 billion out of €31.05 billion are in arrears of 90 days or more. This is 25.5% of the total.

@ Seanus C

So individuals (B2L and owner-occupiers) with mortgages are currently a total ~ 8.5 billion behind on their payments?

I’m just wondering what the implications for the valuations of the Irish banks are? The central bank values them at 10 billion, right? Now I realise all these arrears are not just owed to Irish banks.

Still though at this rate, how much will our banks be worth in 2 years? Or perhaps the question is how much won’t they be worth?


I did not explain myself very well. And time pressure etc did not afford me the time to do so.
The figures that I was referring to were the arrears content of mortgages in arrears.
Monetary arrears of mortgages ‘in arrears’/mortgages in arrears.
This, unless I am making an error, works out at
6.6% (1.645/24.7) of the value of total OO monetary value of mortgages are in arrears. [BTL 9% .953/10.2). (I had the decimal in wrong place).

These numbers are low, notwithstanding you rationalization above.
They also beg the question of why the need for such large reserves by banks if the arrears values to date are so low. [I do understand that they have various methods of calculating these reserves that take more than arrears to date into account]

@ OMF,

” 64% of all arrears, and 74% of buy to let arrears are in arrears greater than 90 days.”

Why is this significant/surprising?

As to whether these figures could have been predicted. It has always been known that thousands of mortgages will never be repaid.

From November 2011

Between loans that are in arrears, loans that have avoided arrears because of restructuring and loans in short-term arrears it is clear that over 20pc of mortgage accounts are showing some level of distress. This corresponds to around 135,000 households.

The group that are in real danger are those who are in negative equity and in mortgage arrears. Using September 2011 house prices this group is estimated to be contain between 25,000 and 37,500 households. The deteriorating trend in house prices and mortgage arrears means the number of households in danger will increase.

Some commentators have claimed that there are 200,000 mortgages in serious trouble. There are not. There are many mortgages in some trouble, but there are probably around 20,000 to 30,000 households in serious trouble who need a dramatic intervention.

October 2011

There are going to be cases where the mortgage will never be repaid regardless of what forbearance measures are introduced. It is hard to know how many such households there are but a figure of around 20,000 is possible. These are cases where people have borrowed well in excess of their means and will never be in a position to repay the loan.

And August 2011

These are substantial arrears but there are many who will be able to get back on track. There is a significant debt overhang from the credit boom but a blanket scheme is not necessary. Most households are dealing with the debt they face.

We need to offer targeted support at those who not so fortunate. This could be as low as the 20,000 households estimated by David Hall to anything up to 50,000 households.

I don’t think it is a surprise that 19,500 accounts (maybe 15,500 households) are in mortgage arrears of more than two years. I expect the number to rise and we cannot wait another two years without doing anything about it.

Arrears are calculated relative to the payment set out in the contract. The €1,000 figure was just used to show that the arrears figures quoted stack up.

@ John Foody

Owner-occupiers who are 90 days plus in arrears have missed €1.55 billion of payments. BTL borrowers in the same category have missed €0.89 billion of payments.

The total is €2.44 billion.

OFM: “How bad is this going to have to get before people admit that it is really that bad and that something serious is going to have to be done about it?”

Think France 1789 and you will come close. Those with power and influence will do anything (including imploding the economy) in order to maintain their status-quo. They are very, very loss averse. Mind you, it is of great comfort to them that they KNOW (with religious certitude) that they are doing the RIGHT thing – despite being totally wrong!

Us ‘lower orders’ simply do not matter. What do we know anyways?

@ Joseph,

I can’t quite see what you are getting at.

A 250,000 mortgage over 25 years at 2.5% will have a monthly payment of €1,121.50. After five years of making that payment the balance will be €211,650.

If the borrower then misses six complete payments in a row they will be 1,121.50 x 6 = €6,729 in arrears on a mortgage balance will increased to around €214,300 with the accumulated interest. The borrower is 180 days in arrears and using your metric the amount of arrears is equivalent to 3.1% of the outstanding balance.

Why do you consider the figure of 6.6% you give to be “low”?

@ Seamus

Mea Culpa. Obviously mis-read an earlier post of yours. If you’ll entertain me I’m interested to hear your thoughts on the implications for the balance sheets of the banks we unfortunately own? Eg Is it safe to assume that the portion missed (of that money attributal to Irish banks), at the very least, is unlikely to be repaid, considering those that recover will be offset by those that don’t in the sub-90 day group. In short, what are your thoughts on how much will the mortgage crisis cost our-banks/us?

@ All

A point to be considered is the manner in which the source of most of the BTL difficulties – the Section 23 tax incentives – operated. Expenses, including the cost of the mortgage, could be offset against the rental income of the property OR ANY OTHER RENTAL INCOME. This was an open invitation to the build up of “property portfolios” and imaginative schemes to create other rental income. This is what the political establishment is most unwilling to unpick.

It would be interesting to know how many cases are purchases of single properties e.g. as a pension investment with no offset against other rental income. The answer could be very illuminating.


“I can’t quite see what you are getting at.”
“Why do you consider the figure of 6.6% you give to be “low””

It looks like I have made an error in saying what I did, because I did not understand that the arrears calculation was an ‘equivalent days’ past due.
This would mean that the arrears values shown have been concertinaed into full mortgage day equivalent payments.
If I now understand this correctly, a person could have been struggling with a mortgage for four years, with full payments, partial payments and some non payments, to arrive at a situation where that person owes the equivalent of 5 months mortgage payments.
That person is the classified as 90-180 days in arrears, though they may have been struggling for years to keep at or below that level.
The figures therefore may be financially correct, but diminish to a large degree, via their presentation method, the underlying distress of the mortgagee in arriving at the equivalent days outstanding classification that he or she finds themselves in.

So in effect the arrears as calculated tell us nothing about the recording of income by the banks. Indeed it is quite possible that the banks may not be recording any additional mortgage interest due on some of these mortgages. We simply do not know. So my question on the methodology of recording of bank interest and bad debts remains an open one.

One further point is that in an overall context the mortgage arrears figures are indeed low.

OO arrears due are 1.6 billion, BTL ~1.0. Total 2.6 billion.
AIB alone has bad debt reserves of 15.5 billion at June 2010.

So while the mortgage issue is hugely distressful and quite properly a national issue, the figures at this point are not large enough to ‘break a bank’. Regrettably that has been done already by other loan categories.


IMHO, which is not always correct as you cane see from above, the BTL is a quagmire. But a quagmire that the powers that be are quite happy to leave un-drained, until at least the passing of the PIB legislation this week.

That PIB will afford many people the opportunity to sell mortgaged BTL property, leaving the residual debt as an unsecured personal debt. That unsecured debt, with no limit, can then part of a Debt Settlement Arragement (DSA), that could allow the debtor to live in their own home (which I agree with), with reasonable living expenses suited perhaps to their ‘legitimate expectation’, providing that the main creditor (bank) agrees.
Indeed people who gambled on Anglo or AIB shares can avail of a the DSA.
No need to guess what class of person (pun intended) has the best chance of securing bank agreement for a DSA.

@Joseph Ryan

Thank you for your comment I have not being following the insolvency bill as much as I would have liked and I didn’t realize it was that close to being law.

I guess this will mean that next year we will start to see more properties come onto the market (mainly apartments) at more realistic prices. The asking prices are quite often still very high compared to where I would expect them to be. This is an improvement, small steps.

@ Eamonn Moran

It was the Fine Gael Landlords Association who made the decision, with the aid of comrade Gilmore,the landlords friend. The state colluded with the commercial property cartel and destroyed our economy. The cartel could not have existed without the state’s collusion.

Many of the state’s landlords are insiders and politicans cronies and donors. Some cabinet members families are large state UORR landlords.
It had nothing to do with Nama. The cartel spun that story and even named a DoF official as the patsy. It was all orchestrated by the political liars and their financial backers.

Labour are very concerned about jobs—that decision will destroy tens of thousands of sustainable Irish jobs and businesses.

I don’t think it is a surprise that 19,500 accounts (maybe 15,500 households) are in mortgage arrears of more than two years. I expect the number to rise and we cannot wait another two years without doing anything about it.

In isolation, perhaps not. But the fact that the central bank has gradated bands in this fashion shows that the problem is systemic and not confined to a rump of people who simply haven’t been paying for two years.

What the bands and figures show is that over the last five years, ~17% of mortgages in Ireland have been slowly falling behind, month by month, and aren’t recovering. Some have built up 90 days arrears, but more are now in the 180 days+ band. This has been a slow, systemic decay which shows no signs of even congealing into anything resembling stability.

Things are not getting better; these people are not paying down their balance. The real danger will come if there are any further shocks, shifts in sentiment, or outright rebellions, which could cause these fragile figures deteriorate very rapidly.

Instead of falling behind by a few days each month, these mortgages could stop paying dues outright. Then instead of heading for the moon, or Jupiter, the arrears figures could go hyperbolic and leave the solar system altogether.

Arrears are calculated relative to the payment set out in the contract. The €1,000 figure was just used to show that the arrears figures quoted stack up.

I’m not willing to trust the banks on matters like this. How are the arrears for interest-only mortgages being calculated? Is there yet another hidden source of fragility in this data that could cause the figures to explode? The PIAs are not designed to save 135,000 households.

To clarify my scepticism on interest-only figures; If a bank restructures a mortgage so that only interest is paid, and the borrower is meeting those payments, do the original arrears figures continue to increase? In other words, how much worse would these figures be if people hadn’t been shifted into interest-only lay-bys? What happens when people are shifted out of them?

@Seamus, Joseph, and others – Do these mortgage arrears seem roughly consistent with the domestic banks’ bad debt provisions or do they indicate the need for increased bed debt expenses? If they imply another several billion of losses realizable in the future by the domestic banks that would be notable. Of course the realized long-term losses will depend upon the level of generosity of any mortgage debt forgiveness policies, and lots of other unknowns.

These’arrears’ are the future earnings (the mortgages being non-recourse) of the creditors. They NEED the income stream to re-invest in more debt instruments and also to increase asset values (prices). Its one or more of the following;

(a) the debtor pays an increasing proportion of their waged-labour income; Bad outcome.

(b) the creditors seize the asset, sell it, and stick the debtors (alive or dead) for the balance; Very bad outcome.

(c) creditors strongarm the politicians (again) to extract continuing bail-in payments from the taxpayer. Corrupt outcome.

Absent a significant taxpayer revolt the proposed ‘insolvency legislation’ will never be allowed to shift any risk back onto the lenders.

You will know that a genuine reform is at hand when:

(a) all tax-reliefs, without exception, are withdrawn permanently and unconditionally; Outcome – shrieks of faux rage, rending of cast-off garments, etc. by usual sources;

(b) non waged-labour incomes are taxed in the exact same manner as waged-labour income; Outcome – ditto as in (a) plus ‘threats to leave the country;

(c) ye olde, boring and conservative (pre 1980) lending conditions for res property mortgages (homes to raise a family in) are re-instated; Outcome – the Sky will surely fall! Yeah!

Probability of occurrence. 0.000!

I’m amazed that it’s surprising that the mortgage arrears problem has worsened. I hope people are aware that what’s in circulation is the small amount of cash in the economy plus the principal, or partial principal, of each loan. From this the economy is expected to repay the principal plus compound interest.

As mortgages are settled with banks the money used to do so no longer exists.

It’s impossible under this system for all loans to be repaid.

One solution would be for the central bank to create some digital money for its Government which doesn’t have a corresponding debt at source. At least then it would be possible for all loans to go according to plan.

I agree with the analysis of The Dork of Cork and of Paul Ferguson in general. In relation to technical questions about the banks I can help with some of them, as follows.

@ Joseph Ryan: To answer the question about how banks recognise net interest income, I can only say for the bank I work for, I don’t think the accounting standards are fully prescriptive on this one. The process is that the interest income is recognised then the portion not expected to be recovered is removed and called interest held short. It would be prudent to not expect to recover any of the interest from mortgages past 90 days in arrears but this is not the current treatment. I think on average about 50% is put as interest held short on such mortgages. Corporate Loans are different again and I am not very familiar with their treatment though I imagine a lower amount of the interest is expected to be recovered.

@ Gregory Connor: The provisions figures will be much higher than the arrears figures. The banks will assume that in the event of default they will not recover the full value of the loan and so make a provision for the difference betwen what they are owed (of which arrears is a portion) and the expected recovered amount from future sale of the property.

@ OMF: The arrears are missed payments only. If someone switches to interest only their arrears will not increase due to not meeting the original higher repayment. However they may increase due to interest being applied on the existing arrears – though I’m not sure if this is allowed by the CBI.

Its obviously a political policy tool by the Euro Soviet and their helpers in Dublin castle…….

Everything screams of




The UK is happy to eat the remaining small surplus (for the moment)

/sarcasm on
Banks in Europe are of course up in arms about the amount of money governments are bit-by-bit taking away from people when in their view that money should be used to repay their mortgages and other debts to the banks e.g. coming soon we have new things like €5 if taken to hospital in an ambulance in Spain, legislation in Portugal to reduce redundancy payments (“at the request of the Troika”), new forms of payment to take away household refuse in Greece, etc. These new costs are springing up all over the place and crippling the ability of individuals to give as much as they should be to the banks.

The Irish government will of course be watching all these little acts of theft closely to see which ones they can implement in 2013/2014. €10 to make an emergency call anyone? Sent emails to be charged the same as the postage stamp on a letter?

It all adds up to death by a thousand cuts to those on the receiving end.

Your country bleeds you – and if it isn’t yet, it soon will.
/sarcasm off

But to the subject in hand….. it will deteriorate further and the bottom ain’t in sight yet that’s for sure.

Those already in arrears are not likely to exit (maybe a s, mall number) and they will be joined by new ones as they just simply ‘fold’, unable to keep it going any longer – it’s going to have a dramatic affect on this country when they start to repossess all those in arrears and as sure as eggs are eggs, it’s going to happen one day. Politicians are just trying to delay that day of reckoning. The backlash will be awful. Has anyone ever seen a family ripped apart when they lose their home? I have and it is a pitiful sight. It puts murder in the hearts of those who are affected.

Three messages from this data:
1. Many people have mortgages which are totally unsustainable for them.
2. The banks are ignoring these people and their problem. The banks are moving from inhumane to less than human.
3. Huge mortgage arrears and personal insolvency are blocking any chance of speedy economic adjustment and recovery.

I have nothing but contempt and loathing for the banks. It is a pity individual bankers seem so reasonable when you meet them.

I would liek to think that the Central Bank is now giving the banks the message that the Central Bank is not going to cheer-lead for the Irish banks while they are not addressing this major problem in any meangingful way.

@Colm O’Leary – Yes I realize that the provisions should be higher than the arrears but will the balance sheet loan loss provisions now be increased substantially in the light of recent arrears surprises. This might generate large accounting losses for the banks. Or are the arrears figures “on track” from the system-wide PCAR of 2011, where big loan loss provisions were imposed on the domestic banks for likely future loan losses over a multi-year horizon. Do these loan loss provisions now need to be increased? I know that this is a very difficult question to answer.

John has a selective sense of humour me thinks…….

My response to his light hearted take on “events” – events dear boy.

Was……………….. wiped.

Ah deKrugman

A man who believes there is no resource constraint…….

Its the classic bankers red button – must must must gettttt interest……….

We must hit the Keynesian war button…its our only hope.

Its 1914 again………….

When are we getting those 10 shilling notes John
& do they come with a free rifle to kill the dreaded Hun.

@ Eamonn Moran

There is a famine of credit. Every famine has its own logic . The weak die. There is always enough for the strong.

The people in Leningrad who were most vulnerable were those who came from the countryside. In Warsaw these were Jews deported from small towns to the ghetto; in Leningrad, as Reid shows, they were male boarding school students.

The first Leningraders to die were those who had just returned, still emaciated, from the Soviet concentration camps. The local rationing system imitated that of the Gulag: the strong were fed enough to work; the weak were given less and less.

@ Gregory Connor

I don’t know the answer to that question, it is very possible that the banks need to substantially increase provisions but I don’t know for sure.

Earlier in the year, BOI said the mortage arrears situation was worse than the PCAR base case but not yet at the stressed level which the banks were capitalised to withstand.

I would not be surprised if we are now at or near the stress case levels of arrears. Unless things get substantially worse, however, I do not think the banks will require further capital injections. They will just make little or no post-provision profit for the next decade.

Not that the mortgage book is the only factor in the equation of whether banks are sufficiently well capitalised, but it is a key risk alongside the SME loan book.

I wonder what assumptions for growth were baked into the stressed numbers for those banking losses on mortgage arrears.

What will happen when mortgage arrears in Spain reach similar levels to ours? It’s going to happen.


I forget but you can bet they were nowhere near reality.

Point 1& 2 are uncontested but point 3 has a large element of hit & hope. We should not fool ourselves that large scale write offs funded by other tax payers will have any effect. They would be good for the borrower but bad for the saver or taxpayer who has to pick up the tab.

The banks are moving from inhumane to less than human.

The banks are criminal organisations and always have been. They are acting accordingly.

I have nothing but contempt and loathing for the banks. It is a pity individual bankers seem so reasonable when you meet them.

Ted Bundy was regarded as charming, intelligent and articulate by almost everyone who knew him.

Everyone must understand that bankers, particularly senior ones, are professional confidence artists. This was always cynically true in the past, but is absolutely so now. Bankers are men who gain the trust of others, then exploit it for their own gain, using guile and charm to gain profit from themselves at the expense of others.

Many have compared bankers and other CEOs to “psychopaths”, but this is effectively an exonerating comparison. Banksters are not mentally ill, nor damaged in any way. They are ordinary — very ordinary — people who have made a personal decision to live a life of deceit, fraud, embezzlement and crime.

That so many people are still under their charm shows only how well Banks’ “corporate relationships” and “wine-tasting” classes for employees have paid off over the years(And yes, Banks’ do train their employees in these ways).

If you need protection from such guile, and this type of character in general, you’re best bet is a crash course of Saturday morning cartoons. You will find the one dimensional villains on display to be an excellent model for most professional bankers you’re likely to meet. I am being deadly serious.


But the fact that the central bank has gradated bands in this fashion shows that the problem is systemic and not confined to a rump of people who simply haven’t been paying for two years.

What the bands and figures show is that over the last five years, ~17% of mortgages in Ireland have been slowly falling behind, month by month, and aren’t recovering. Some have built up 90 days arrears, but more are now in the 180 days+ band. This has been a slow, systemic decay which shows no signs of even congealing into anything resembling stability.

Things are not getting better; these people are not paying down their balance.

The link between mortgage arrears and balance reduction is not clear from the way the statistics are presented. Your query about the impact of interest-only on the accumulation of arrears is important. Arrears are relative to the repayment required under the original/modified contract.

Whom of these borrowers are in arrears?

I always think when I see “buy to let” how many were actually ever let. And how were the the banks let lend money to them.


This was an open invitation to the build up of “property portfolios” and imaginative schemes to create other rental income. This is what the political establishment is most unwilling to unpick.

It would be interesting to know how many cases are purchases of single properties e.g. as a pension investment with no offset against other rental income. The answer could be very illuminating.

Here are some figures from a report on the NPPR charge for 2010

“There are 99,000 people with one property, but there are 35,000 people who have between two and 10 properties and who have paid the charge on two to 10 properties. In effect, this means of course that they own between three and 11 properties.

“And the figures go up, 970 people have between 12 and 21 properties; 230 people have between 22 and 31 properties and 100 people have between 32 and 41 properties.”

@ John Foody

If you’ll entertain me I’m interested to hear your thoughts on the implications for the balance sheets of the banks we unfortunately own? Eg Is it safe to assume that the portion missed (of that money attributal to Irish banks), at the very least, is unlikely to be repaid, considering those that recover will be offset by those that don’t in the sub-90 day group. In short, what are your thoughts on how much will the mortgage crisis cost our-banks/us?

The issue for the balance sheets of the banks is not the amount of arrears that are on loans but the size of the loans that are defaulted on. Above I gave the example of a €250,000 loan at 2.5% over 25 years.

After five years of full payments followed by six months of no payments the loan is €214,300 with arrears of €6,730. The bank are not worried about the €6,730. They are worried about the €214,300.

There is still 19.5 years left on the loan. If the borrowers circumstances improve and can resume repayments on the loan the arrears are not a very significant issue. The bank can collect the arrears by extending the term at the end or increasing the repayments at some stage to satisfy the original 25 term. Over 20 years a sum of less than €7,000 is not significant. If the loan returns to performing they can get that back at some stage. Central Bank research from last year concluded that:

“Furthermore, as Kelly (2011) shows, even for those borrowers that do go into 90 days arrears, a sizable proportion (44%) return to performing mortgages over time”

See slide 24 though it is hard to determine this from the paper cited.

If the borrower defaults then the loss is based on the €214,300 balance rather than the level of arrears. Then it is a matter of balancing the defaulted loan plus costs against the supporting asset.

It is impossible to know what the overall costs will be for the banks. It will depend on the level of defaults, house prices and other factors. About half of mortgage accounts in arrears are in the covered banks. Using Table 2 in this paper the following 90-days arrears rates by balance for September 2011 can be determined.

Covered: 8.5%
Non-covered: 12%
Sub-prime: 54%

All of these figures will have increased in the 15 months since but the relative differences are important. The proportion of outstanding debt and balances on accounts in arrears in each category were:

Covered: 63% and 50%
Non-covered: 35% and 40%
Sub-prime: 2% and 10%

Based on those figures it could be expected that around half of the losses due to defaulting mortgages will be in the covered banks. How many mortgages will default? What will be the losses on them? Impossible to say.

Let’s take a pessimistic take on this week’s figures and say that every account in arrears (even those with less than 90 day arrears) and every restructured account is defaulted on and not repaid. That is 180,000 accounts. With an average of 1.27 mortgage accounts per mortgaged household this is a total of around 142,000 households.

So in this scenario we have 142,000 households who default on their mortgages. Of these around 71,000 will be in the covered banks. Using the figures we can see that the average size of the accounts “in trouble” is €177k so that gives an average debt per household for this group of €225k.

Let’s assume that all of these household are in 40% negative equity and that there is a further 10% of the current value lost in costs. The average recovery is then around €125k leaving a loss per loan of €100k.

If the covered bank lose €100k on 70,000 mortgaged houses that is a total loss of €7 billion. Massive but still less than the stress-case lifetime loss projected for Irish residential mortgages in the PCAR of €10.2 billion (though €5.7 billion was provided for under the Central Bank’s three-year projected losses used for the capital adequacy provision).

@Seamus — brilliant analysis in your most recent comment – that looks like a full day’s work! So it looks like the current trajectory is roughly within the tolerance bands of the 2011 capital provisions according to this analysis.

Mortgage arrears. What is the policy other than fingers crossed and a prayer to st anthony never known to fail publish within 3 days? It just gets worse and is a function of time. How tipperary felt all through the second half of the hurling semi final.

@ Seamus C

Thanks for that, I apreciate it. Perhaps I’m thinking too cynically or simplistic but considering we’re a year or so away from the likely sale of the covered banks to the ESM, it seems to me that it’s not really in the states interest to have big losses realised before then.

Seamus’ 7bn has no allowance for ambulance chasing. That is what gives bankers and policymakers and regulators insomnia. Cruelty pour encourager les autres and if that doesn’t work…..

@ SC: “Let’s assume that all of these household are in 40% negative equity and that there is a further 10% of the current value lost in costs.”

The best estimate for the decrease in res property ‘prices’ was -60% from their top (Spring 2007). I think we are near this (after only five-and-half years) and there is some distance to go. I estimated 2015 for a ‘bottom’, but I now believe Spring 2017 may be more likely. And the final decrease in res property will (I guesstimate) range from -70% (best Dublin locations) to -90% (poor rural locations) of their 2007 values. The majority of res properties are not in the best locations. This will skew the ‘losses’.

The assumption is of no increase in interest rates and no decrease in disposable incomes and no increases in any household or property charges for existing borrowers and anyone foolish enough to buy into a falling market. “Buy now and enjoy Neg Equity later!”

Presumably there will be a concerted attempt to significantly ‘goose’ res property values in Q2 2013. The res property market is highly dysfunctional and likely to remain so for some time. Caution is advised.

@ Brian Woods, Seamus, others — Seamus has an assumption that the average loss given default is 44% which seems high rather than low, so it is appropriately conservative as a risk forecast should be. Irish residential mortgage contracts are almost all recourse loans so they are backed both by the property (unless legislation removes or modifies this loan security) and recourse to income and other assets of the debtor. Upcoming legislation could retroactively make outstanding Irish mortgage contracts effectively non-secured (that is, no repossessions or very limited repossessions) and/or non-recourse (no claim on other assets or ongoing income). Either or both changes are difficult to predict but could have an impact. At the moment, most Irish mortgages are non-secured loans, but that is due to a lacuna recent legislation and the Dunne ruling. The troika has requested that mortgage contracts are re-established as secured loans on the underlying property but there might be some wiggle room.

@ Seamus Coffey

Many thanks! Very illuminating indeed! The 99,000 were, unfortunately, the mugs in this game. The Troika are fully justified in insisting that banks – now largely owned by the taxpayer – sort out this mess. It is a paradoxical situation that those other than the 99,000 have much more influence in deciding what is likely to happen.


You cannot assume anything like 99,000 have BTL mortgages, in negative equity or in arrears.

From what its worth (which might not be much) my guess would be around 5000 – 10000 individuals in the scenario you paint.

Any other guesses?

BTW, are there any estimates of the number of individuals employed as mortgage brokers, estate agents, or property investment sales persons at the peak? Reason I ask is that a lot of the ones I met told me they often doing the same thing – no prizes for guessing what!

@Seamus Coffey/Gregory Connor/Colm O’Leary/John Foody

re: The implications for bank balance sheets of OO mortgages.

That seems a very fair analysis (Seamus 5.41pm) of the impact on bank balance sheets, with €7 billion being on high side.

One could look at this another way and attempt to determine the potential income loss from non performing mortgages at say a bank cost of capital of ~3%.
Using the total figure for mortgages with arrears of ~25 billion, with the covered banks making up 63% of that at 3% cost of capital would give a ~.5 billion annual income exposure. Assuming half of the interest is paid, then the net annual income hit to the covered banks from OO mortgages would be approx 250 million.
Not massive by any means.

However that does not means the banks have not got difficulties other than OO or personal BTL mortgages. A look at page 31 of AIB half year results indicates that the commercial mortgages have much more serious % losses.

@Colm O’Leary

Thanks for reply re bank income recording. It seems to me that in order to understand how banks are performing, specifically on net interest margin, that this is a very important subject that is not getting the attention it merits.

@ GC: Thanks for that update at 14/12.

It would shift the moral hazard risk significantly is res property (your home) was set at non-recourse. Lenders might be a tad more careful, but the state would also have to be off the hook for ANY property loan that went pear-shaped. Borrowers should have to put down a CASH deposit (not less than 20% – no exceptions) and they would never get a home loan which was more than x2.5 times their P60 earnings. As I said, the current res property market is hazardously dysfunctional. Major re-restucturings are essential. Improbable.

One of the more important re-structurings would also be to dis-allow any relief on any form of personal or corporate taxation for interest paid – no matter what. The tax forgone is a hidden (but very real) economic cost. Its a sort of subterranean property and land tax paid by proxies (the waged-income folk) rather than by the owners of the asset.

@Seamus et al

On your current estimates to sort this mess out will require give or take c€10bn in write offs.To me this is pie in the sky. Its a massive underestimation.

Sadly this is not the real issue – there are a number of other problems not in the numbers- the fact that those currently not falling into the statistics in terms of the defaulters or those restructured are in my view a somewhat forgotten entity. Sometimes referred to as the coping class. This cohort will only continue to cope if the following factors remain static 1. Interest rates remain at their historically low rates (highly unlikely) 2. Incomes are not squeezed any further from here (highly unlikely)

And their ongoing coping status reverses only if the following happens 3. Employment starts to grow at a 1997/1998 rate once again (highly unlikely) 4. There is a demand for credit once again allowing house prices to rise to start the madness all over again and allow people to trade down (not in the next 10 years). 5. Banks are willing to satisfy any potential borrowing demand (given the capital Basel III conditions – most likely not). 6. The domestic economy starts to grow again (how I know not) 7. The PIB legislation is amended taking the banks veto out (highly unlikely) 8. The write downs required actually happen (highly unlikely)

No doubt there are more but you get the idea. The estimates here and elswhere make no provision for the fact that the coping classes are in no mood to change gear – they fear the worst and in time many many more will sadly join the legions in the stats as presented.

The Govt cannot fix two broken balance sheets at the same time. Its either their own or the households, but not both. Since 2008 they have failed in their efforts to fix both and the present tactics will ensure the results get progressively worse from here.

BTW Gurdgiev believes the rate of increase in these stats is not in fact slowing but going in the opposite direction.

@Brian Woods. A non-recourse mortgage system requires a brutally fast and efficient repossession system. Ireland has the exact opposite and I do not think a non-recourse system is feasible in Ireland in the medium term future. l

At the risk of boring everybody:

Following a little research, the link below gives a very a very short and readable policy document on interest income recognition and loan provisions.
It is from the Cayman Islands of all places.
Note in particular section 5.2.
“When a loan is identified as impaired, a bank should cease accruing interest in accordance with the terms of the contract. Impaired loans should be measured at their estimated recoverable amount. Interest on impaired loans should not contribute to net income if doubt exists concerning the collectibility of loan principal or interest.”

The document is a lot clearer that the one from our own CB on the subject.

Reflecting on the above issues, it is clear that the ‘mortgage arrears data’ from the CB is missing one crucial piece of information from the point of view of determining the effect on the bank’s health or otherwise.
The crucial missing information is the amount of interest (not capital) collected in the period on the full €24.7 billion of mortgages with arrears.
One could thus determine the extent to which the full portfolio of mortgages with arrears was performing or not.

Take for example the following scenario.
Mortgage 200,000
Interest income zero.
Bank reserve 100,000
Value of asset on bank balance sheet 100,000.

In this situation you have a bank producing zero interest income on assets of 100,000.
Expanding on the above example, the important thing from the point of view of the bank is not the mythical value that is put on the provisions, but the value of interest income from the under performing assets.
Developing this theme further, it is clear that banks should be actively pushing to restructure all problem loans into two elements.
A) A performing asset element that produces reasonable interest income (not capital, forget about capital in the short term).
B) A non performing asset, on which no interest should accrue and that should be reserved for 100%.

Just some thoughts.
The Cayman Islands documents is well worth a read for those interested in the subject.

It would of course be wrong to give the impression that one is interested only in the health or otherwise of banks. The human tragedy behind all of the above mortgage cases should be the primary consideration in approaching the whole subject matter.

@ Brian Woods


To my mind, all else being equal their is a direct relationship between the price of credit, the terms of credit, government subsidy/incentives and house prices.

We got cheap, easy and lots of (in the boom) and we got High Prices
We have cheap, diifficult and some now, so we have lower prices.
If we get pricey, very difficult and none, we’ll get even lower prices in the future.

So non-recourse now would mean a further kick to those in negative equity (unless it was applied to current contracts), as would 20% deposits, 2.5 * Incone ratio etc.. but would probably contribute towards a more stable property market with less boom/busts in the medium to long term. We is what we want, right??

I mean look around, property booms are social destructive beasts, they cause turmoil and destroy lives. We should be building toward property been seen by most as a home first and perhaps a hedge on inflation second but not something that will earn/lose more money for the owner/occupier that he/she can make in a year.

We should be asking two questions. How do we help the poor bast’rds that got caught out in this mess and how do we make sure this never happens again. So far it seems we’re scoring poorly on both accounts.

@ JF: “So far it seems we’re scoring poorly on both accounts.”

Yep! Its being (and will continue to be) a heroic and very successful failure.

Unconditional debt Jubillee for all the res property (their family home) owners – no exceptions. The Gov repudiates any liability for these defaults (they are private debts) – and we ‘start’ again.

Very difficult move, since res property prices will halve (at best) and res property (home) mortgages will be like hen’s teeth (as in ye olde days!). The mortgage lenders will be completely on the hook for any defaults (as in ye olde days!). Moral Hazard back where it belongs.

Now all of this depends on the theological mind-set of those who might force the necessary legislation through the Dáil: Puritanical Calvenists or Sumerian Monarchs. If our legislators are of the former religious community the current Successful Failure will become even more heroic and more successful, leading to serious political and social dislocations. Folk should understand this carefully. So far, few do.

If they are of the monarch disposition – we would (following the Jubillee) regress economically to the 1960s (at least) – but the sky will not fall in and we will still have our iPhones, tablets, digital paraphenalia and infrastructures. Dork has a good handle on the 1960s, he’ll explain the outcome.

Our arable lands and temperate climate are our natural resource. It is this we need to exploit (with a low hydrocarbon and zero tax-break inputs). We already possess the knowledge and expertise to accomplish this. Change of economic Model-in-Use is required. Our freshwater supply is under significant strain. We need to deal with this immediately.

We might also have to consider minting our own bi-metal currency which will be legal tender to settle tax liabilities. Euros would still be used – but with considerable caution! There is just one teensey weeney problemo. Our land frontier with that other jurisdiction! The metal currency would leak out like shit through a goose.

Apart from that we should be fine 🙂

@ BW

I can see how official Ireland wouldn’t want to ‘scare the horses’ etc by talking about a Punt Nua at this moment in time, as a 2nd currency I mean. Though it shouldn’t be beyond them to explore the idea of different sectorial currencies. eg ( Furreai Kippu in Japan, or the Saber (

How about a currency to help those people skilled in construction we have sitting at home mon-fri?


Many thanks you for the tip re urls.

On the matter of German politics, if I may.
James Downey in the Ind (Sat) references Merkel saying that ‘years of painful reform, slow growth and high unemployment lie ahead’.
I must say that I was angered to read such a prescription coming from Germany, being the physician is charge of deciding which medicine to use, for a condition that afflicts mostly others, not herself.
It would be a pity if this is not challenged robustly at European level, even to the point of downright refusal to cooperate with such an approach.

The idea that competitiveness and reforms, however necessary or desirable, will arrest the slide to depression makes no sense. Imho QE, though it may help, will not do so either. The money will simply get stuck in banks, will not transfer across borders, and will not be invested in the current environment.
I believe that we have reached a situation where money will have be put directly into the hands of consumers via income or loans for the slide to be arrested. In effect that is what Roosevelt did (via income) with the New Deal.
Some may even laugh at the idea of loans to consumers but QE is simply loans to banks and large financial institutions. One wonders why they should be entrusted to pay back the money, rather than gamble it, any more than ordinary consumers should be trusted.

However, the political narrative is still about competitiveness and reform, useless and dangerous though it is proving to be. But when ideas take hold in Germany, rationality seems to desert the national psyche.

I am also very sceptical about waiting for the Sept 2013 elections in Germany. Why on earth would anybody think that Merkel, having been re-elected on the basis of current policy, would change course after Sept 2013, unless of course she has started to study the performances of the Irish Labour Party.

@ John Corcoran

What do you expect from a donkey only a kick?

The question I would like to ask you is why you expect anything else from politicians and landlords?

The people who you should be demanding support from are the Small firms Association, ISME, The IDA, Retail Ireland, CAI etc.
At the moment they are not making a big issue out of this at all and it is they who could invoke pressure due to their very wide media coverage. Why are they not more animated on the issue of unsustainable rents?

@ JR: It is becoming more apparent (if one is willing to pay heed) that political Realism (a la Saddam, Omar and Bashar) is the ‘only option’ (aka: The Samson Option). Very selfish and very destructive.

Institutions (banks) are not individual persons, hence they cannot be dispossessed in the new-normal course of events. Few folk are willing to object to this and those who are foolish enough to do so expose themselves to some pretty outrageous commentary. Just observe whom are the most silent (least visible) on the issue of impoverishing their fellow citizens. No prizes for the correct quess. Its pathetic.

Gilmore was on the radio yesterday and I was transfixed by his responses and comments. I rapidly formed the opinion that he is delusional; he honestly and sincerely believes his own political drivel.

Labour won sufficient parliamentary voting strength to have ‘forced’ Fianna Fáil and Fine Gael to form a coalition administration. Both would have baulked – then ‘blinked’ – the loot of ‘office’ being too seductive. The lunatic idea that they (Labour) could affect ‘policy’ is to totally deny the actual political policy outcomes of 23 years of Irish coalition governments. Its all about ‘office’ and little (apart from the delusional rhetoric) about ‘policy’. The last time we had a coalition government with a smidgen of genuine policy was the 1973-1977 Cosgrave administration. Even that was a reluctant group – and just look what the outcome of that was!!!

Moral: DO NOT do ‘policy’. Bad career move.

So what are the current bunch up to? Self-destruction? Yep, its back to Realism (the selfish and destructive kind). Citizens beware!

@Eamonn Moran

If you want access to the political liars you have to be an appeaser or a collaborator.

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