Mortgage arrears: A slowing of the worsening?

The latest arrears data are out (pdf), and the rate of increase has slowed markedly at either ‘end’ of the arrears process. I think this dynamic is worth exploring.

Could this slowing of the worsening represent a sort of ‘lump’ of boom-related arrears, relatively fixed in quantum, that policy makers have to deal with? Or, are we merely seeing a slowdown before another ramping up of the arrears process?

From the release:

The figures for Q4 show a continuation of the divergent trends in early arrears and longer-term arrears. There was a quarter-on-quarter decline of 1.3 per cent in the number of early arrears cases during the fourth quarter of the year. The number of PDH mortgage accounts in arrears of less than 90 days was 49,363 at end-December, or 6.2 per cent of the total stock. However, the number of accounts in arrears of over 360 days increased by 9.1 per cent during Q4. At end-December 2012, 51,352 PDH accounts, or 6.5 per cent of the total stock, were in arrears of over 360 days. Just under half of these were in arrears of more than 720 days. The outstanding balance on these PDH accounts in arrears over 720 days was    €4.8 billion at end-December, equivalent to 4.3 per cent of the total outstanding balance on all PDH mortgage accounts.

By Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

54 replies on “Mortgage arrears: A slowing of the worsening?”

The number of restructured mortgages has fallen in each of the last two quarters.

Q2 2012: 84,941 accounts; €15.1 billion
Q3 2012: 81,634 accounts; €13.9 billion
Q4 2012: 79,852 accounts; €13.4 billion

Anyone know what is this is a function of? Data reclassification? Accounts returning to original terms? Something else?

The total amount of owner-occupied mortgage debt continues to decline. It is down to €110.8 billion from €118.6 billion at the start of the series in September 2009. There was a €0.45 billion reduction in Q4 2012 even with the small ‘jump’ in mortgage lending that took place before the year-end.

This lame government will soon introduce legislation to make it easier for banks for repossess homes… the effect is to reduce these very figures so they can say they have “turned a corner…. green shoots” and all that other propaganda nonsense!!!

Sooner Ireland has its revolution and new politic and fully default on debt that should never have been theirs the better….

A mere 15.8% in arrears by value. We are still within the PCAR stress scenario I think, but moving ever closer towards the banks’ capital limits.

Anyone want to call where the peak will be? Above or below 20%?

@ GGU,

And the increase was not concentrated in the lower end of that range. Big increase in the 720+ category. Up from 20,622 accounts in Q3 to 23,523 accounts in Q4. There are now around 18,500 households who are the equivalent of two years behind on their mortgages. It is hard to see how term extensions, interest rate reductions and the like could be of assistance to this group.

51,000 mortgages in arrears for more that 1 year.

25,000 mortgages in arrears for more than 2 years.

How many repossessions are expected per year in the next five years – anyone care to guess?

Do I recall correctly about 1,000 reposessions in total since 2007 so far, (proper question)?

@ grumpy

There are about 200 forced repossessions a year so your figure is not wide of the mark. My take from the end of this.

In the US 1 million houses were foreclosed on in 2010 and 800,000 in 2011. The figures for the UK were 40,000 and 35,000. Translated into Irish terms the US figure for 2011 would imply 12,000 repossessions a year. The UK figure would be the equivalent of around 3,000 repossessions a year here. In Ireland there were 600 repossessions last year and nearly two-thirds of them were voluntary surrenders.

The repossession rate here is one-fifth that of the UK and one-twentieth that of the US. If the UK repossession rate was applied here for a few years it would clear many of the unsustainable mortgages. We do not need to do anything that hasn’t been done elsewhere, but we do need to face up the problems that are here.

On BTLs:

“• There were 408 BTL properties in the banks’ possession at the beginning of Q4. A total of 88 properties were taken into possession by lenders during the quarter, of which 22 were repossessed on foot of a Court Order, while the remaining 66 were voluntarily surrendered or abandoned.

• During the quarter 42 properties were disposed of. As a result, lenders were in possession of 454 BTL properties at end-December 2012.

From a quick reading of the link, it looks to me like there are about 16 – 17,000 BTL mortgages in arrears of more than 1 year.

These have been going back to the banks at a rate of around 350 per year and sales into the market (mustn’t have a firesale, mustn’t have a firesale…) of a vast 170 per year (yes, I know its Q4 annualised and not exactly fantastically accurate)

At that rate, that’s a century to clear the likely duff BTL assets.

But there will be no fire sale, andf that’s what matters…

Re US foreclosures

http://www.nybooks.com/articles/archives/2013/mar/07/too-little-too-late-why/?pagination=false

The most egregious failure of TARP, however, was that both the Bush and Obama administrations never adequately used the funds to reduce mortgage debt for Americans, even though help for homeowners was a principal part of the TARP legislation. Nearly four million foreclosures were occurring each year. Only in 2012 did the number fall to less than three million.

Bair was determined to address foreclosures. She writes that the Treasury
under Paulson proposed a modest and unworkable plan. But both Bair and Barofsky argue that the Obama administration was hardly better. Its principal new plan, the Home Affordable Mortgage Program (HAMP), set aside only $50 billion to reduce mortgage debt, and little of that was ever used. The White House had promised that HAMP would help three to four million home owners, but both Bair and Barofsky warned that the terms on which the government offered this money were not attractive enough to result in serious loan reductions. A recent report from the Government Accountability Office finds that only one million mortgages have been modified under the federal program.

Asking why Summers and Geithner did not do better, Bair concludes, “I don’t think helping home owners was ever a priority for them.”

It should have been. High levels of debt, including much mortgage debt, have restrained consumers from spending, prolonging the economic recovery. Additionally, house prices have been held down with so many houses “underwater”—worth less than the amount of their mortgages. Had the Obama administration had the will, as Blinder points out, it could have used $100 billion or more from the TARP allocation to buy up mortgages from banks and reissue reduced and affordable mortgages to home owners.

It seems that 37% of all BTL €Mortgages are either in arrears or have been restructured.

Lets hope that these will be ‘tackled’ before families start being thrown onto the road. Lots of people in uniform to be ‘tackled’, I imagine.
Does the State have the bottle?

@Grumpy
“How many repossessions are expected per year in the next five years – anyone care to guess?”
How do you define ‘repossession’ in terms of OO houses?
Do you mean vacant possession?

Say there were a wave of repos. Who would buy the houses? the banks aren’t lending. And the prices go down. More people drawn underwater.
No easy right wing answers here.

Why not adopt the Prof Tol enviro approach and assume everything will be grand in the end -doing anything now would be too expensive.

Seafoid,

there would be buyers. Note the success of the Allsop auctions in selling houses and comm property that are in receivership.

Also, there is latent demand for houses. Ok, latent demand for the right type of homes in the right location – but the demand is there.

Tight mortgage lending won’t help, but there is plenty of cash on deposit, so “a wave of repos” can be sold.

@seafoid

Who would buy the houses? Maybe, just maybe, the prices might have to drop…

A comparison of house prices in Dublin with other major cities would, I believe, show that Dublin is still overpriced relative to the average wage. Avoiding any drop has been a priority of national policy. And the national ideology (that dictates that any rise in prices is cast as a “good news” story in the papers) bolsters the politics. Never mind that affordable housing is in the national interest.

Bank of Ireland said this week on publication of its 2012 results: “Buy to let default arrears (based on loan volumes 90 days or more past due) were 23.36% at 31 December 2012 compared to 20.77% at 30 June 2012 and 16.81% at 31 December 2011. The volume of default arrears in the Buy to let segment has continued to increase primarily reflecting the continued impact on borrowers of rising repayments as interest only periods come to an end and customers move to fully amortising loans.”

In 2006, the craziest year of the bubble, Bank of Ireland said most of its of its buy-to-let mortgages were on an interest-only basis for 10 years!

@ seafóid

TARP was not being used as Congress had been advised it would. So there was already big opposition to it, never mind using it for foreclosures. Bair who was a Bush appointee, did not get on with Geithner.

Alan Blinder has said that politics was a problem:

“Apparently, many Americans view it as unfair to bail people out of unaffordable mortgages. Do you remember the famous Rick Santelli rant on CNBC in February 2009—the one that gave the tea party movement its name? Mr. Santelli was griping about President Obama’s new foreclosure mitigation programs—the ones I just characterized as half-hearted. It would have been a brave politician indeed who pushed to make those programs larger and more generous.”

@seafoid

The assumption amongst the not enough repossessions fraternity, is that the banks are fully entitled to 100% of their cash back, because thats what the credit agreement says. This is nonsense.

When the entire banking industry in the country (including the branches of the international banks were they considered as stand alone operations) go bust effectively within a 6 month period something has gone badly wrong. Yet that annoying fact is rarely it seems considered as importrant in discussing these issues.

Why we have so many people crying about banks not getting their cash back is nothing to do with with the economics of their dire lending decisions its due to the ownership problem i.e. with Govt now wanting to get the best return on its equally dire decisions to firstly Guarantee the banks liabilities and then to take ownership of them on their recap. Two wrongs don’t make it right to believe the banks are entitled to 100% of their cash back. They are not – bad lending decisions deserve to have consequences, yet many believe otherwise. I can’t see how market economists can buy this claptrap.

This is simple suff, from about 2002 until about now property in Ireland was (is) mispriced. Another annoying fact. But its is a fact nontheless. Property is priced (not valued) but priced based on the availability of credit – nothing at all to do with consumers interactions or stuff like a property is only worth what someone is willing to pay for it etc etc. Bladder.

Banks price property based on someones ability to repay a loan. The underlying value is rarely considered especially for housing/apartments. You see the original price does not equal value. (The term LTV is in fact misleading, its actaully LTP being loan to price).

Banks still don’t get this and I know from very recent experiences that not a lot has changed in this regards over the past 10 years.

The ONLY way to get to the bottom of this problem is to find a mechanism that re prices these properties, on a wholescale basis. I have suggested a solution years ago which to my mind is as yet not yet equalled in terms of simplicity, fairness and market stability and that involves finding a model that works in terms of valuing the properties effected and comparing the model valuation with the lending against it, as it should have been based on original LTPs, and writing off the difference – regardless of the fact that the mortgage is being repaid or not.

This pricing and mortgage adjustment would, overnight, right size mortgages, correctly value property and allow banks at that stage to reposses houses (were the restructured loan not being repaid) with loans attached now net of write downs, happy in the knowledge that any future sale would be completed at a price in line with the long run value and written down laon, which means for once and hopefully for all time we move away pricing property in a recourse lending world off the individual borrowers idosyncracies and back to the underlying asset value namely the house/apt in question.

@Yield or Bust — A big problem with your proposal is that it entails a truly enormous (roughly 55 billion euros) transfer from taxpayers to mortgage holders. If you allowed BTL investors to avail as well that would be another 16 billion euros on top of that as a transfer from taxpayers to BTL investors. That is a big number and would probably bankrupt the sovereign. I am assuming that property prices have fallen roughly 50% on average during the crisis. Some of the older mortgage holders would get a smaller windfall but this is the rough costing.

Not sure about fairness, that is definitely a matter of opinion, but the cost would be truly enormous.

BTL is a leveraged investment product. It is a form of DIY hedge fund – only not a particularly diversified one. This applies whether the intention was to get rich quicker than the pro hedge fund guys (something that worked for quite a while), or intended as pension provision.

It is interesting that “Insolvency Practitioners” will have to be employed before someone can get debt written off. The decisions to set up personal BTL hedge funds were usually taken after reading the Sunday property supplement and chatting to some friends.

@Yields or Bust

The assumption amongst the not enough repossessions fraternity, is that the banks are fully entitled to 100% of their cash back, because thats what the credit agreement says. This is nonsense.

If a bank takes possession of a house they won’t get anywhere close to 100% of the loan amount back.

@Seamus Coffey

“I’d imagine there is a certain number of rental tenancies terminated each year for non-payment of rent. Are these people “thrown onto the road”?”

Fair point.
Although it is highly likely that in both the case of tenancies and OO evictions, the State will end up with the rehousing bill.

My concern in all this, is that there appears to be little movement towards tackling what is a really major arrears issue in the BTL sector, where repossession should disrupt neither family or tenant in their living accommodation. [ It would of course not be pleasant for the landlord who has lost on his or her investment, but so be it.]

Imho both a clear distinction and a clear priority should be made in any ‘repossession’ policy to tackle BTL first.

In relation to OO dwellings, my considered opinion is that there should be mandatory, owner to ‘council’ rent after a defined arrears period of say ~two years.
Such a policy would avoid any of the trauma or long term social costs that would by definition go with forced eviction and rehousing elsewhere.

That is what I am getting at when I say people should define what they thy mean by ‘repossession’.

PS
There is now some anecdotal evidence that they are landlord turf wars over tenant poaching, that is not helping the work atmosphere in workplaces where there are large groups of landlords!

I’m with YoB on this one.

The 2002-2008 lending for residential property was truely disgraceful – aided and abetted by the silence and supine acquiescence of government parties, the Financial Regulator, the Gov of the Central Bank – and lots of little helpers. And some folk have the brass arrogance to demand that taxpayers pick up the tab for this! It simply beggars belief.

Our government is an elected dictatorship and could ram the required legislation through the Dáil to free the taxpayer and dump the sh*t back into the banks’ laps. OK, they would promptly go under and there would be thousands of layoffs, but a new banking system would be created and a majority of the layoffs would be re-hired. And no, the sky would not fall in. Two – three years? What’s so hard to understand here? Hump the well being of the taxpayer: pander to the financials. Its maddening.

All existing residential (owner occupied only) would be transferred to a mutual society which would be the only financial institution regulated to provide non-recourse private mortgages. All property values would be re-set. New mortgages agreed – based on ability to pay. Those owners who whinge about this can walk and find their own accommodation – wherever. All other financial institutions would be barred from offering OO residential mortgages. All the OO res mortgages since 2002 should be re-visited and any hinkey documentation may result in prosecution for fraud. The BTLs are on their own on this one.

This mortgage arrears debacle (totally without precedent) is the outcome of some very bad practices. It has to be severely punished. It needs to be taken by the scruff of the neck and thoroughly – and finally, shaken out and sorted.

@Joseph

“There is now some anecdotal evidence that they are landlord turf wars over tenant poaching, that is not helping the work atmosphere in workplaces where there are large groups of landlords!”

Can you elaborate without breaking a confidence – I’m having difficulty imagining an office with gangs of rival landlords facing each other down at the coffee machine?

@All

Anecdotal evidence suggests the banks are not exactly using their initiative with repossessed properties. The policy generally appears to be simply hand over the business to the local auctioneer.

Are they going to up their game and do a bit of easy, effective, free marketing of their own (like publishing a current list on their websites for example) if they have more properties to sell, or is this going to be boom time for auctioneers all over again as business is farmed out mindlessly by state controlled banks?

Phone the likes of BOI and ask for a list of properties they are currently trying to sell and you will be told “we don’t know” or “we can’t tell you”.

Good job they aren’t trying to organise a fire sale.

In these debates there is a widespread assumption that loads of btl houses are owned by guards/ loads of guards own btl houses. I would love to see some facts on who owns these btls. I suspect that it’s much more solicitors/m’luds/doctors than coppers…but that’s an assumption. Any light on this? Would the CB not know this from the banks?
Of course, facts are to right wing simplissimuses as salt to snow….

@Grumpy

Landlords do not all fall into the category of wealthy old men. Many are working in full time positions, with a not insignificant number % in uniform.
Apart from the major cities, the erstwhile commuter belt has some towns with a high proportion of rental accommodation but on the prospect of a never ending boom.
Put the two together and you get landlord turf/price wars.
It was just anecdotal evidence, nothing more. Except that I believe it.
That high % is also more than likely the reason for the slowness in dealing with BTL arrears.

@ Stephen McNena

Regarding yourcomment:

‘Also, there is latent demand for houses. Ok, latent demand for the right type of homes in the right location – but the demand is there’

There are certainly more people renting than there used to be. However, I don’t think we can make the leap to say that equates to latent demand. Couldn’t the shift from buying to renting be a permenant phenomenon?

Lately I’ve been talking to a lot of young 30 something renters. All of whom never had a mortgage and most of whom never want one. One theme that I see reoccuring in them is a fear of credit.

To my mind this phenomem is under rated generally, if you think about it, it’s probably natural, some people have begun to associate credit with social destructive forces like negative equity.

@grumpy the banks can’t walk chew gum,shurly lender liability behoves more transparency..eBay the lot of them.

Government debt is one of the highest in Europe , but private debt is one of the highest in the world. Restructuring mortgages (which is probably unavoidable) will wipe out the banks equities .The banks are state-owned and the State will have to bail them out (again) ,the public debt will explode.

@ Overseas commentator.

Aren’t a lot of the mortgages owned by non state banks? Also, won’t the state banks be the ESMs problem soon?

Ireland–A Democracy or a Propertyocracy?

In a democracy power comes from the ballot box. Politics is like war,there are three things you need to succeed. The first is money,the second is money and the third is money.
The people who provide the vast bulk of money which finances Irish politics are ,the cowboy builders,the cowboy developers and the property interests. They own almost all Irish politicians. The payback for this financing is — a corrupt planning system,no residential rates,mortgage tax relief,section 23/24 etc tax breaks, tax relief schemes for urban renewal,multi-story car parks,students accomodation,buildings used for third level education,hotels and holiday camps,holiday cottages,rural and urban renewal,park-and-ride facilities,sports injury clinics and child-care facilities, and BES schemes. Feudal commercial property lease law i.e. upward-only rent reviews tied to long leases,which the sovereign signed up,on behalf of the taxpayers,were available to all the politicians friends.
Many of this group are alumni of The Galway Tent School of Economics. The politicians look after themselves first-then their property interests. The public interest is irrelevant to the politicians.
When Fine Gael and Labour did their u-turn on on their promise to grant all commercial tenants in existing upward-only rent review leases ,a rent review in 2011 –they were merely being consistent–looking after the interests of their bagmen. Follow the money it always leads to Leinster house.

Welcome to Europe’s only Propertyocracy,home of the greatest bank and property crash in the history of mankind

Note the Finance Minister interviewed on rte indicated he thinks the removal of the ELG does not leave the state with the same effective potential contingent liability but without the fee, because he expects any future recapitalisation of the Irish banks would be met by the ESM.

However, the core EZ countries appear currently to be insisting that any ESM recap of a bank would have to be accompanied by a guarantee from the state that the ESM would not loose any money.

Grumpy,
But if the ESM were to extend money on the basis of a guarantee from any of the peripherals it would push D/GDP ratios to the stratosphere. Ergo, the guarantee would be worthless.

So we have an incentive to make as big a hole in the banks as we can by forgiving as much as we can and the go to the ESM and look for the cash to recap?

I look through this forum on a regular basis. I recognise the value of discussing theoretical economics and how these models may be used to predict the progress (or lack thereof) of an economy.

What frustrates me is any practical and real sampling of the economy. Take for instance, why do economists not go an sample footfall in busy centres, look at numbers of shoppers, see where they are buying, are they buying in more reasonable shops or more expensive shops? Go to the supermarket and see the basket of items, staple goods or ‘luxury’ items.

Take the opportunity to speak with SME’s, retailers etc.

I think you would find the following
1/ People who rely on domestic demand are suffering significantly in this economy. Many people are working through their savings and are now cutting spending significantly.
2/There is no government support, rates, electricity, fuel are inputs controlled by Government, either directly or through taxation, are staying static or rising.
3/ Demand is shrinking and people are putting off any large spending.
4/ Some people have money, but are not inclined to spend It could be fear due to poor economic outlook, saving money in case a family member are unable to support themselves, due to reduced salaries or redundancy
5/ Very heavy debt burden (Mortgages) on sections of population, generally the group who have children and college going students.
6/ Burden of adjustment being carried by population in point 5, as they are working.

Overall, the domestic economy seems to have declined significantly in 2013, why? Could be fear about property tax, water tax, reduction in Public Service salaries.

The Government cannot see this and seem to be disconnected from reality. In terms of economists, it would be great if the analysis was less theoretical and a more practical, to ensure that the current lack of reality in Government can be highlighted

@ SC @ 11.43am
“There was a total stock of 79,852 PDH mortgage accounts that were categorised as restructured at end-December 2012. This reflects a decrease of 2.2 per cent (almost 1,800 accounts) from the stock of restructured accounts reported at end-September. This development was driven by a fall in the number of temporary restructure arrangements, such as payment moratoria, interest only arrangements and other forms of reduced payment arrangement. However, while the total stock of restructured accounts has fallen, the number of permanent restructure types (which include term extension, arrears capitalisation, permanent interest rate reduction, split mortgages and trade down mortgages) increased in Q4 by approximately 13 per cent relative to Q3.”

and

“1 Please note that the introduction of a new collection system in recent months has resulted in some changes to previous quarters’ data. Further details are provided in the relevant sections of the release. In particular, there have been a number of changes to Q3 2012 data, due to reclassification issues. In all such cases, the adjustments made to Q3 2012 data allow us to make like-for-like comparisons with Q4 2012 data, ensuring that all quarter-on-quarter growth rates quoted here are meaningful.”

Have to say that the adjustments are not patently obvious (always raises a ?…if a real improvement, I would be clearly demonstrating that fact if I were Govt /CBI), and I don’t have the time to attempt reconciliation. The numbers (no matter how you read them) are shocking…..However, it is far from clear that the apparent slowdown is anything but driven by reclassification. Good ‘ole smoke and mirrors, and muddied waters to boot. If you want to believe otherwise, you are entitled to do so of course.

@GC

This is my point – the cost, according to your contributions is the real issue, well sadly paying the banks financiers 100% of their investment has ensured that cost now has to borne by the citizens rather than the actual risk taker. The cost is not the real issue in fact – its actually the requirement by regulated entities in their dealing with customers and I quote (once again) from the first principle as required by the CB with regards to customer dealings:

“A regulated entity must ensure that in all its dealings with customers and within the context of its authorisation it:

acts honestly, fairly and professionally in the best interests of its customers and the integrity of the market;..”

The ‘integrity of the market’ bit is a bit of a kick in the balls because with 260k vacant properties on the market it would be a brave man to argue the case for the banks acting in the best interests of the market.

Unfortunatley Gregory you can’t have it both ways – you can’t have the cirizens finance the losses on the banks and then turn around and imply that the rationale supporting the orginal lending decisions made any economic sense and therfore start the process of repossesing peoples homes. In footballing parlance that’s 3-0 to the banks i.e. their businesses are kept alive by the citiizens depsite the normal rules of the market being bypassed, the’re still afforded the opportunity to collect 100% on their original lending decisions and if that doesn’t work they’ll take your house all the while the homeowners repay the banks financiers.

For the love of God don’t start playing the fairness card – because that day is long gone. Surely even you can see that your increase the repossession rate proposition argument is hardly “fair”.

Comparing Irelands low reposession rates with ANY other country is avoiding the rather enormous gorilla in the room i.e. the citizens of the RoI have paid the cost of the banks errand ways in paying for their on going recap and returning their financiers 100% of the investment – no other country has done this – the analysis insofar as county by country comparisons that are reported always forget this rather critical point.

Please stop drawing such comparisons and tell your friends in the DoF to do likewise as I heard Mr Moran suggest similar tripe yesterday.

On this one Gregory you’re wrong.

BTW explain your €55bn number?

I’m surprised by the surprise at the mortgage arrears problem.

Why is there no acknowledgment of the systemic inevitability of loan defaults.

Banks only create the principal of the loan but expect the prinicipal plus compound interest back. It’s just not possible for all loans to go according to plan no matter how prudent banks are etc.

@Stephen McNena

There probably would be wonderful demand for repo’d houses at Allsop prices.
But the banks would be stuffed. And who would pay ?

I remember as a child being out in Connemara beyond Indreabhan and seeing an abandoned petrol station by the side of a road. It was there for years. Relic of a previous economic collapse. Growth that didn’t happen.

The Tiger was bigger, dearer, more ambitious and now that it has crashed the collateral damage is off the scale.

Ireland’s housing boom got far too big for Ireland and it really shows now.
Most of the post 2002 building assumed population growth out to 2020 when Ireland would have a population of 5m .Read any book on the Tiger and what crops up in every one is that “Ireland has finally said goodbye to the scourge of emigration”.

Well now he’s back and he’s looking for revenge.

The country has already shot its load for the sake of the banks. The Government seems to be hoping for the best- hopefully the banks won’t breach their Blackrock loss projections , hopefully there’ll be some growth, hopefully things will work out.

Perhaps the Irish Times business and property journalists might have a solution. They certainly had a fantastic time during the bubble with the income from the property pornography.

@Yields or Bust — I just took your proposal literally of rebasing all mortgages to the change in market values — a 50% drop in mortgage obligations of 110 billion (excluding BTL) is 55 billion. The indirect costs (since the property market, banking system and economy would all collapse) are difficult to judge! Not really possible to get a realistic costing since the proposal itself is too unrealistic to analyze.

To be harsh and direct, the economic viability of your proposal is zero. Let me repeat from my last post that this is not a remark on its fairness — that is a value judgement and I will not express an opinion. But the economic viability of the proposal is zero.

I have to write a seminar talk for Monday, on a different topic, so I must bow out of the discussion.

Anyone fancy predicting where the mortgage arrears issue will be in 2018? I think we’ll still be looking at mortgage purgatory.

Time is a great healer but only if the system is functioning.

@ GC: Your furlough is ‘noted unanimously’.

“The indirect costs (since the property market, banking system and economy would all collapse …”

Come on. This is too farfetched to have a nanogram of credibility. Endure a ‘bad haircut’ sure. But liquidation must be enforced to clear ‘market’. And being an economist – its the Opportunity Cost of keeping the zombies upright and shuffling about.

If the ‘proposal’ is, as you assert, “difficult to judge” and “too unrealistic to analyze”, then what’s with the “… would all collapse” assertion? Something does not compute here.

” But the economic viability of the proposal is zero.” Really? Zero? Hey up!

@ Yob: Apologies for butting in. But those comments are most un-academic.

@seafóid

Let me answer that – by quoting George Santayana…

Those who cannot remember the past are condemned to repeat it.

Apropos Ireland’s mortgage arrears 2018 – expect to be at Phase 4:

http://unpan1.un.org/intradoc/groups/public/documents/apcity/unpan033329.pdf

Phase 1 (1991-94)
: The real estate bubble collapsed, triggering an economic shock. The
government responded typically with economic stimulus packages, such as public works
projects.

Phase 2 (1995-96)
: Signs of instability appeared in the financial system. Even as banks failed
due to financial difficulties, the government failed to come up with a comprehensive policy package that would address financial system issues.

Phase 3 (1997-99)
: The bankruptcy of major banks triggered a financial emergency. Through
establishment of new laws and budgetary measures, the government nationalized failed banks and injected taxpayer money into large financial institutions. Even so, it was unable to resolve the situation.

Phase 4 (2000-04)
: The system again reached a crisis point due to the massive
volume of excess debt held by corporations. The Financial Revitalization Program (“Takenaka Plan”) promoted the disposal of non-performing loans, and the government supplied public funds to tottering Resona
Bank. These measures finally helped bring the crisis to an end.

@ YoB

I would go back further in history

Cad a dhéanfaimid feasta gan credit ?
Tá deireadh na morgaisti ar lár;
Níl trácht ar entrepreneurship ná ar na PDs
is ní bainfear a PR go bráth

Tá ceo ag titim ar an global banking sector
ná glanann le gréin ná lá,
tá smúid ag titim ón spéir ann
is a cuid credibility go léir ag trá

@Seafoid
“Anyone fancy predicting where the mortgage arrears issue will be in 2018? I think we’ll still be looking at mortgage purgatory. ”

1. Approx 150,000 (OO) households, in situ even on Ailesbury Road, but houses now publicly owned, paying income based rent, if there is income, to council or some new quango. Approx 30BN ‘asset value’ bought by State for 10BN. The 10BN cost will be a neat way to avoid a revolt on further capitalization…no cash paid etc etc, a PR man’s dream story.

2. Another 100,000 households forced into mandatory split mortgages, the split being paid to be based on the income.

3. BTLs will have been repossessed or largely ‘resolved’ but nor before major confrontation in courts etc, with many BTL landlords getting out under the fence.

At some point the suits, political, bank and academic will realise that a mortgage or any debt can essentially only be paid from an income sufficient to pay it.

@GC

On the assumption that you’ll have a sneak later in the day let me make the following comments – the calculation as you outline , and I appreciate its a simplistic one, says a lot about your understanding of the issue. Which to me reading of events is pretty low.

The 50% drop as you note is a peak to trough estimate price fall. Quite obviously many thousands of houses were bought long before prices peaked and as a result write downs would in many cases only be minimal. So the €55bn number is off the wall. And you know it.

The real issue here, an you continue to avoid it, is that ALL the banks have gone bust primarily because their own business models failed. They failed becasue the funding market realised that the product they were financing was mispriced and unlike a retailer who gets paid on the day banks get paid over the the term of their loans. Financiers said Oh Jesus the chances of oridnary folks affording these daft loans for the next 25 years is NIL and when the merrygoround stoped (the availability of cheap finance) the shit hit the fan etc etc.

But more than this, not only was the business model flawed most of the loans and developer lending was in direct conflict with the CBI basic consumer code principles – nobody it seems wants to listen to that basic problem. The vast majority of the banks lending was done in direct conflict with the long term maintenance and integrity of the market. In relation to this test, most if not all of the lending over the period can be questioned.If you don’t mind when you get a moment perhaps you might make reference to this, as its rather salient.

Regarding the contention above that Ireland is not a democracy but a ‘propertyocracy’, and moreover, Europe’s only propertyocracy. Unfortunately there is more than a hint of Celtic exceptionalism to this.

In reality, all European states are ‘propertyocracies’ in so far as their constitutions establish the sanctity of property and the distinction between public property and private property.

But even if we were to discard philosophical refinements, the fact remains that the main institutions governing life in Europe -the European Central Bank, the European Commission, major financial institutions and the mass media- are beyond the reach of popular sovereignty.

No doubt that is just the way many economists -particularly those influenced by Hayekian thought- prefer it, since the animal passions of the excitable masses with their Sky TV subscriptions and inability to negotiate the property market might start influencing the process of allocating resources.

The baleful reality is that these days, most of us live under the dictatorship of the monetariat, and many of us treat it as a fact of nature.

Yields or Bust Says:
March 8th, 2013 at 3:09 pm

Of course you are talking way too much sense for the “strategic defaulters” brigade. The fact that all these mortgage products were “supposed to be regulated” but most certainly were not, surely this entitles anyone whose mortgage was not regulated, the right to have damages awarded against them (mortgage enforced) only pro rata to the the validity of the contracts and then the counter point argument, what about peoples right to counter sue for damages against banks, regulators and central bankers who were criminally negligent as opposed to merely reckless? Which I might add, is their get stay out of jail card i.e. we were “reckless” but, “there is no Irish law against being reckless!” What about if they were not reckless and people like Mathews, Stiglitz and others turn up in court and give expert evidence to the effect that they were “criminally negligent” in exposing shareholders, businesses and mortgage holders to huge losses. Through the gross failures of banks and regulators, people are loosing their homes, savings, and investment properties the banks have been “saved” (for the moment), but what about the victims of the folly? I believe that the banks have the greater exposure to being successfully sued than the cannon fodder on the other side. Just as the solicitors were sued the banks can and should be sued also. The disgraceful so-called, because I am worth it, public interest directors should immediately resign and legislation should be put through emergency fashion to accomplish that, just an aside.

Loans were given out based on false valuations, false risk assessments, and utterly useless projections of LTV’s, they were truly tripping the light fantastic, and models used by banks were defunct within 4 years in many cases even less, whereas mortgages given out with the blessings of the banking and their highly professional ‘experts’ were supposed to be robust, well calculated, modeled in such a way that they would be paid back over a 20 – 30 years time frame.

Those who cannot govern themselves, must pay others to do so.

The final bill is not in. The Japan example was available as a warning, but is now a guideline as to how a cohesive society that does not tolerate emigration, and is not under attack by a larger neighbour for the last 500 years, can slow down and fail, majestically.

Inflowing Romanian and Bulgarian migrants will rent and even buy some houses, but mostly, prices will fall and properties will sell. Jobs will continue to be lost as deflation continues throughout this DEPRESSION!

Judging by the size, it will last another thirty years, as the missing capital is replaced by taxpayers and consumers. I see no increase in property prices in this time, nor increased credit. Just as in Japan.

Santayana? Edmund Burke said it first! If you must sing a song, sing an Irish song!

Suppose the government called in the Irish pension funds and encouraged them to kick start the Irish residential property market,which in turn would help their over one million Irish pensioners and their families.
Five pension funds control 85% of the Irish market and they conferred amongst each other and decided on a plan. The plan is that the five funds would put up a five billion euro fund and they would focus on the top end of the market starting with Dublin 4. They would start with Shrewsbury road and Ailesbury road and then move on to Clyde road, Raglan Road ,Waterloo Road and Wellington road etc etc .

They would buy these houses when they became available,refurbish them to a high spec and let them on 35 year ratchet upward-only rent review leases with full maintenance ,reparing and insurance borne by the tenant. Initially embassies signed these leases then large multi-national signed them for their senior executives and high net worth individuals who wanted to live in trophy houses etc. The government rented three, for the Taoiseach, the Tanaiste and the Minister for Finance. The leases themseves were much sought after and changed hands for six figure sums. Over the next number of decades smaller private landlords decided to drop their one year lease and adopted the institutional 35 year lease and eventually they bacame the standard residential lease.
Residential and commercial lease lenghts in all other eurozone countries are the same length. Why not Ireland?.

@Seamus Coffey, regarding your first comment and the “small jump”, are you referring to the total residential mortgages outstanding rising last year from 765K in Q2 to 794K in Q3 ? That is bucking a three year trend and returning back to 2009 levels (unless I am reading the spreadsheet wrong). What is that all about, are the banks lending again, or is it part of the fudging the CBI are doing in data reclassification?

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