10 thoughts on “Honohan: Adverse selection and moral hazard in forecasting and limiting arrears and loan losses on mortgages”

  1. I’ve said it before and I’ll say it again:

    The size of the arrears disaster in the Irish banks should be seen as indicative of continued poor management within the banks – full stop.

    They screwed up the lending side of the business when blowing the bubble – and now they’ve screwed up the recovery side of the business after the bubble burst.

    Zombie banks – that’s all they are.

  2. It was the governor’s job not to hand a veto to banks. Why am I reading in by Sunday newspaper that “only one in seven qualifies for debt deals”. This is the solution after kicking the can down the road for 5 years? Well obviously it is not a solution.

  3. Banks are as WGU says failing on this. See piece in the examiner Saturday on BTL forbearance.

  4. No sign of the word ‘manageable’. What is it Lex always says about $uckups?
    Admit, be humble, declare the full whack, keep it short, move on.

    The banks did none of that.

  5. Interesting.

    ‘banks with a large market share will partly internalise, and take account of, the systemic damage caused by widespread unresolved debt distress and excessive repossessions. ‘

    …’ But the lack of clarity about the consequences of accumulating arrears has likely contributed to moral hazard for the lender, as growing numbers of stressed borrowers decide for whatever reasons to deprioritise mortgage servicing.’

    “Wait-and-see” erodes the remaining life-time resources of the household available to service long-term debt, it heightens aggregate economic uncertainty, and can have spill-over effects on the behaviour of others, ultimately undermining the functioning of the economic and financial system.’

    Hee haw. Stall alarm. Banks unable to maintain airspeed. Political will insufficient to turbocharge recovery of householder debt. Sovereign default risk rising.

  6. quite a few US ref’s most a bit dodgy,todays numbers..
    “U.S. properties foreclosed in the third quarter of 2013 were in the foreclosure process an average of 551 days, up 5 percent from 526 days in the second quarter and up 44 percent from 382 days in the third quarter of 2012. New York and New Jersey continued to have the most protracted timelines, 1,037 days and 1,014 days respectively. Florida (929 days), Illinois (828 days) and Connecticut (693 days) also substantially exceeded the national average. The shortest time to foreclose was in Maine, 160 days, followed by Texas, Alabama, and Virginia, all with averages under 190 days.”
    http://www.mortgagenewsdaily.com/10102013_realtytrac_foreclosures.asp

  7. On reading the speech it seems that the Central Bank has worked hard in trying to analyse the various data sets from the banks books of mortgage loans in order to better understand the nature of the borrower difficulty and the data set to which the particular distressed borrower falls into. This has to be welcomed.

    What is not welcomed however is the underlying tone by the CB, and by the banks themselves with regards to the CBIs own Consumer Codes.

    Both the CBI and the banks continue to believe that lenders who blatantly broke the CBIs own Consumer Codes at origination of these mortgage deals are still entitled to 100% of their money back. This stance beggars belief.

    It is very evident from listening to the CB and Honohan in particular, that the CB is simply not concerned that the banks it regulated and who acted way beyond and consistently broke the CBI Consumer Codes were in any way at fault. Why Honohon is never questioned on this colossal oversight is beyond me.

    The CB suggesting as it does that credit terms for all mortgages issued in the period under review (largely between 2001 to 2008) should be honoured in almost every respect, suggests a massive double standard. One rule for the banks and another for the end consumer. This is wrong.

    Proper and fair regulation ought not to have the ability to make such a determination. Either the original deals were done properly or they were not i.e. the banks adhered to the codes or they did not.

    With the CB not making or wanting to make any reference to this issue leads one to the belief that the CB considers the original lending deals above board and in compliance.

    We all know this stance is patently wrong but I have never once heard the Prof. indicate that banks, where it can be shown, who acted outside the remit of the CBI Consumer Codes, should as a consequence have to bear the lion’s share of losses if a particular deal has gone wrong. The tone coming from Honohan is that the CBI will do whatever is possible to assist the banks in getting to the problem child borrowers, weed them out and kill them off. It’s as if the end buying property consumer is almost completely at fault for the entire mess.

    I’d suggest to the good Prof. to revisist his job description. He is the prime regulator however his stance over the past year or so has not been that of Regulator but rather as acting as the Govt chief analyst in determining the state of the bank’s mortgage books. That is not his job. Regulators should seek to find fault with those with whom they regulate and fix the errand offender. Fixing the errand offender in this case means banks have to come clean and lose money. Repeat: lose money. Until that particular penny drops we wait for the good ship lady luck to deliver us from this stasis. Luck is never a good strategy to depend on.

  8. @Yields or Bust

    “… banks have to come clean and lose money. Repeat: lose money.”

    Precisely.

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