New research on households in long term arrears

Great work by Robert Kelly and Fergal McCann, pdf here, abstract below:

The resolution of the long-term mortgage arrears (those in arrears greater than one year; LTMA) crisis represents one of the key policy challenges in Ireland today. In this Letter we highlight the range of economic and demographic characteristics associated with the experience of LTMA in Ireland. Our analysis suggests that unemployment shocks, changes in mortgage affordability, the accumulation of non-mortgage debt, higher originating loan-to-value ratios and weak housing equity positions all have an important explanatory role. We also outline repayment patterns among households at differing levels of mortgage arrears. It is shown that in 2014, over three quarters of those in LTMA had continued increases in their arrears balances. This contrasts with those in the early stages of arrears, where less than half of all borrowers had arrears increases.

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Author: Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

7 thoughts on “New research on households in long term arrears”

  1. The persons responsible for our residential mortgage bubble – and subsequent mortgage repayment distress, were the then serving officers and enlisted personnel of the financial institutions that originated these toxic mortgages in the first instance. I’ll repeat this below – just to try and emphasise the issue.

    ” … originating credit conditions are important drivers of subsequent mortgage distress.”

    They sure are, but just try not to mention this to the current officers of our financial institutions. They would throw a wobbler. The mortgage loan originating officers simply discarded all the known, and 99.5% effective measures, to ensure that residential mortgages DID NOT get into arrears and go on to default. This was a deliberate and ultimately a disasterous policy decision of the higher echelons of the financial institutions – to seize, and grow, market share.

    ” …[suggesting] that vigilance must be maintained among lenders and policy makers to ensure that cases of household financial distressed are resolved early and rapidly.”

    You mean to say they ‘took their eye off the ball’? They sure did, and now look at the social and financial disaster that characterise that (deliberate?) negligence. The senior executives of our financial institutions will never exercise vigilance (in mortgage lending) unless and until they are forced, by statute, to do this. Voluntary vigilance is not worth the political smoke its written with. Now if those Irish residential mortgages had been non-recourse … Yeah!

    The persons responsible for our residential mortgage bubble – and subsequent mortgage repayment distress, were the then serving officers and enlisted personnel of the financial institutions that originated these toxic mortgages in the first instance.

    Please repeat this statement until it becomes characteristic of your understanding of the Irish residential mortgage disaster.

    Thanks to messers Kelly + McCann for their work. Not sure it will have any positive effect. But one can always be hopeful.

  2. It seems to me as though a good proportion of the LTMA cohort would be equivalent to subprime elsewhere – ie people that would not under well managed banks have been offered a mortgage. When people needed to stretch out repayment mortgages to 40 years to get the payments down to something manageable there was a failure of duty of care on the part of the banks.

  3. “Non-bank entities now hold 47,461 mortgage accounts for PDH and BTL combined. Of this number, 20,338 are in arrears of more than 90 days, with 13,050 of these in arrears over 720 days. This represents almost 25 per cent of all mortgage accounts in arrears of more than 720 days.”

    These are mainly US (vulture or or maybe kinder!) entities. Expect lots more cases in the courts after the election.

    “At end-September there were 15,275 BTL accounts in arrears over 720 days, with an outstanding balance of €4.6 billion, equivalent to 17.4 per cent of the total outstanding balance on all BTL mortgage accounts.”

    Wonder what is going on here?

    In 2014 the CB published research which showed that 70% of BTL mortgages were trackers.

    Rents in Dublin are close to the Q4 2007 peak and the ECB rate has fallen from 4.25% in July 2008 to 0.05% in Sept 2014.

  4. @MH

    ZIRP level interest rates don-t fix the problem of people or companies that took on excessive levels of debt. You just end up with zombie companies who are kept going artificially and have no chance when rates rise, with pretty similar results on the individual level. Loans have to be written off and restructured, not iterated Hotel California style.

  5. MH:

    Fair point. The figures show that arrears on trackers generally are lower than on variables, but not by as much as one might expect. Some fine day the ECB rate heads north again.

  6. *Some fine day the ECB rate heads north again.*

    I think Mayo will win the All Ireland before that happens

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