Ireland: Bleak houses

Jamie Smyth explains Ireland’s household mortgage situation to the FT readership in this Analysis piece.

17 replies on “Ireland: Bleak houses”

From the article – Bank of Ireland, which is the only main Irish lender to escape state control, has ruled out debt forgiveness, saying it cannot act irresponsibly with “shareholders’ and depositors’ money”.

No comment.

Many Irish res property prices are like pyrite infested structures. Sagging slowly and inevitably. Ho hum!

I guesstimated a ‘bottom’ of sorts in Q3 2015, but since the financial chicanery in the private sector has continued it may not be until 2017. And I have some doubts even about that date. Declining wages/salaries; increase in the looting (sorry, interest) rate; more property charges levied on incomes; increased energy costs. That looks promising for price stability? Ho hum!

An Irish bank ‘cannot act irresponsibly with shareholders and depositors money’. Yes they can. Yes they have done so – and worse, they continue to do so.

Generally a good piece. The individual cases used are almost always not reflective of the genuine distressed cases where real assistance is needed. That is repeated here.

The belief that all restructured mortgages in arrears “have fallen back into arrears” is not true. Many of these mortgages had arrears on them when they were restructured. The arrears statistics do not tell us how these mortgages are performing relative to the restructure. Back in November BOI claimed that 86% of their restructured mortgages were meeting the new terms with AIB/EBS claiming 70% for the same measure.


Sadly in most cases a restructure is an interest only option which is an exercise in dillusion but allows the bank claim to the CBI that they are meeting their targets. These interest only restructures will eventually come back to haunt both the bank and the borrower simply because the original mortgage was unsustainable at birth. Basing a long term bet on an improvement in house prices and incomes which will allow borrowers get out from under this negative equity come perpetual quasi insolvency cloud is stupid squared.

The dogs in street know that this problem is only solved by significant principal write downs – no other solution stands any hope of working. We should be focusing our efforts in devising a method/model which makes write downs a reality. Repossessing homes is equally not the answer.

@ YoB,

On modifications (same link):

“That is not to suggest that these modifications will be successful. Around half of the modifications involve a payment moratorium (4%), a payment less than the monthly interest charge (15%) or a move to an interest-only repayment (35%). The majority of these borrowers may be performing in line with the adjusted terms but these changes can only be a short-term stop-gap solution.

These modifications can offer relief to a borrower in temporary difficulty but unless the borrower can resume paying the full interest and at least some capital they will not be effective in the long run.”

This is one of those “A day late and a dollar short” article.

It has the point-counterpoint approach:
– Mortgage debt arrears is the blight of the land… but the amount of repossessions is negligible.
– The troika insist on the law being tightened up… but, culturally, Ireland is different, so it won’t make any difference.
– The banks are dandy according to the stress tests… but, in the real world, no one believes them.

Quotes from a mortgage broker on banking policy???

And a “What the difference between Iceland and Ireland?” cliché shoe-horned in at the end.

Someone phoned this one in.

The more interesting observation would be… why now?


Thanks for the link.

From it

“If the mortgage cannot be modified to create the reasonable expectation of full interest payments and at least some regular capital repayments in the medium term then the mortgage is likely to be unsustainable. Such mortgages should be ended via formal repossession or schemes such as Mortgage-to-Rent. If the banks are left with a shortfall after setting the value of the surrendered house against the mortgage, this balance should be written off after a short period.”

Are you suggesting that where the bank can’t come to a workable arrangement with the current borrower that the bank should repossess and eventually write off the difference between what a sale eventually delivers and the current loan?

If that is the case why repossess? Is it to pretend that the bank was legally correct in this arrangement (when we all know that they breached pretty much all of the consumer codes in lending the first instance) or teach the borrower a lesson? I’m at a loss to understand why if the bank is eventually willing to take a hit, under your model, why does it have to put the current owner through the trauma of repossession and all the legals that go with it only to eventually admit within their own financials that they mispriced the house in the original deal.

@ YoB,

There is no good solution. I’m not sure how you can view a proposal to write off €X thousand of debt as being designed to “teach the borrower a lesson”. It is to allow people who have a debt they can never repay a clean break.

The banks will obviously be trying to find the best solution for them. In many cases that could be term extensions, interest-rate reductions, split mortgages etc. These are gains for the borrower but the incentives to deliberately position oneself to try and benefit from them, although present, are not overwhelming. Around 25% of borrowers in arrears remain in positive equity.

And what then for the people for whom the above modifications are going to be ineffective, even out to a 50% split mortgage with no interest on the shelved portion. I think we are both in agreement that these loans will never be repaid. I would guess there is around 20,000 of these (+/- 10,000).

If the property is suitable for their accommodation needs a mortgage-to-rent scheme with a housing agency is a possibility (but uptake on these remains low). In some cases the property will not be suitable and the borrower may wish to move elsewhere. In both cases the excess, such that it is, should quickly be written off.

Why not write off the debt and allow the borrower to remain in the property? The banks are free to do this if they wish and they may choose to do so in some cases. The problem is that it may be possible for a borrower to temporarily position themselves to benefit from this permanent solution. The repayment incentives are already skewed and the potential is that such a scheme would contribute further to that.

I have looked into the US approach to these kinds of problems both in the 1930s (the Home Owners Loan Corporation) and the present day (the Home Affordability Modification Programme). I’m not saying the approaches were entirely right but neither adopted the debt write-off approach you advocate.

“There is no good solution.”

The most equitable solution is a mandatory ‘mortgage to rent scheme’ after a period in arrears.
The OO and family continue to live in the house at council rent schedules, which in turn are based on income. System gaming is eliminated, the banks are forced to take the valuation loss on sale to the councils and most importantly social disruption in the form of schooling for children, job dislocation and unnecessary and vindictive retribution is avoided.

Any other system is subject to manipulation and gaming by both banks and mortgagees.

Even if the property was on Ailesbury Road, I would favour such a scheme.

Last night I attended Fishamble’s production of ‘Forgotten’, written and performed by Pat Kinevane. The evening was in support of the Simon Community. Afterwards I chaired a post-show discussion including the Dublin CEO Sam McGuinness and asked a few questions.

Each day the Simon Community check certain key central areas of Dublin to keep track on the numbers of people sleeping rough, followed later by the soup run.

Homelessness at the moment is generally not former owners being evicted. It was described as being more as coming from a stressed situation where points of weakness had been found and had ultimately pushed people out. A stressed situation might be, for example, increasing unemployment in a household, rising rents and/or developing addiction issues. All interlinked.

People make their way to central Dublin for companionship and services.

Finding emergency accommodation and supported accommodation for people sleeping rough is only part of a process to help people regain their own capacity sense of self reliance to cope. Supports and human contact are required.

I asked the classic question about if/why NAMA housing hadn’t become available and was answered that (a) it was in the wrong places, and (b) it hadn’t really opened up.

Sam McGuinness did say that he couldn’t understand the lack of other houses and schemes. Readers of the blog will know about developments avoiding providing social houses and there is now an acute lack of social housing in Dublin (and possibly elsewhere). He had some things to say about politicians and stopped himself. Basically some have stayed steadfast and some have not. The Simon Community have moved into securing fit-for-purpose accommodation as a response to this.

In light of the lack of social housing, the increase in rents and the discussion above, I agree with Joseph Ryan about the importance of keeping people in accommodation.

Readers who fancy supporting the Simon Community can go along if they wish to Fishamble’s ‘Forgotten’, tonight at The Samuel Beckett Centre, TCD. Phone ahead because it’s looking full.

The surveyors/auctioneers i.e the property professionals are a self regulated organisation which in Ireland means no regulation. These property professionals were responsible for three practices which created the bubble.

First the valuation error i.e valuing all 5 euro notes as 20 euro
Second the feudal commercial property lease law organised by a cartel.
And third,ninty five per cent of all property sold in the state is sold by surveyors/auctioneers.
They controlled where the property advertising money was spent. Almost all of it was spent with the broadsheet media and the Irish Times, the mouthpiece for the property industry and owner of , got the lion’s share. These property professionals. controlled the Irish Times property propaganda and all the other broadsheet media property propaganda. They had enormous influence in these papers editorial policies.

This third item was the fatal one–the media faciltating this propaganda. There were other useful idiots like the soft landing economists etc etc

We need to put each stressed mortgage under a forensic examination to see how it was given. Unless, and until this is done, all schemes (like all!) for writedowns, writeoffs etc., are totally useless.

If there was any chicanery (or fraud) in any of the loan documentation – then the culprit carries the can. That is, if a lender gave a borrower x5 salary (however arrived at) that loan was unsustainable and is forced down to a payable level. If the borrower gave false info (about anything) – they must be held to account. What’s so hard to understand here?

Fourth item would be 4 years of ineffective economic policy. Austerity didn’t deliver growth and pushed many others over the edge. That Marie Fleming assisted suicide case is very like the mortgage mess. Il ne faut pas encourager les autres. Policy remains disjointed and based on the hope that something will come up. It probably won’t.

Surely a full anaylisis of the mortgage problem should include some acknowledgement that it’s just not possible for all loans to be repaid.

From there the option of providing money into circulation to make it possible for all loans to repaid should be explored. Deal with defaulters how you like once they can pay by earning money from an adequate money supply first.

Resolve this quickly and the banks go bust with property falling maybe 30-50%.

Do it slowly and the Depression drags on, but Ireland gets bragging rights … Brian Woods Sr is correct about the scrutiny. We call it the legal system….

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