Author: Seamus Coffey

It is a little later than usual but the first quarter mortgage arrears statistics have been published by the Financial Regulator.

• Release (.pdf)
• Data (.xls)

There is one additional element in today’s release which is in relation to restructured mortgages.

A total stock of 79,689 PDH mortgage accounts were categorised as restructured at end-March 2013. This reflects an increase of 1.8 per cent from the stock of restructured accounts reported at end-December 2012. Of the total stock recorded at end-March, 53 per cent were not in arrears. Restructured accounts in arrears include accounts that were in arrears prior to restructuring where the arrears balance has not yet been eliminated, as well as accounts that are in arrears on the current restructuring arrangement. New data collected this quarter indicate that 76 per cent of restructured PDH accounts were deemed to be meeting the terms of their arrangement. This means that the borrower is, at a minimum, meeting the agreed monthly repayments according to the restructure arrangement. Meeting the terms of the arrangement should not be interpreted as a measure of sustainability, as not all restructure types represent longer-term sustainable solutions.

The 76% figure is broadly in line with statements made by representatives of AIB and BOI to the Oireachtas Finance Committee last Autumn. 

AIB: “Between 69% and 70% of our 33,700 customers who are in forbearance are affording the new restructured loans we have put them into.”

BOI: “Some 86% of those customers who are subject to forbearance or restructuring are fully meeting the revised arrangements.”

If the restructure is a payment moratorium or a payment less than interest-only then meeting the terms of the restructure is not an indication of long-term sustainability as stated in today’s release.

The number of early arrears (less than 90 days) fell very slightly in the quarter.  The was also small drops in the bounded categories between 90 and 180 days and between 180 and 360 days.  This suggests a slow-down in the number of cases falling into arrears but the number of long-term arrears cases continues to rise.  To convert mortgage accounts to households note that there is an average of around 1.27 mortgage accounts per household in the series.

The total stock of residential mortgage debt continues to fall.  It was €118.6 billion when the series began in September 2009 and now stands at €109.9 billion.  Over the same period the total amount of arrears has increased by €1.5 billion.  The proportion of debt in arrears of 90 days or more now stands at 16.5%.

Nearly 12 months ago a Euro Area Summit Statement declared that:

When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could, following a regular decision, have the possibility to recapitalize banks directly.

Yesterday’s Eurogroup meeting examined this issue.  The statement is here.  The final sentence is:

The potential retroactive application of the instrument should be decided on a case-by-case basis and by mutual agreement.

The EU Commission have recommended to the Council that Latvia be admitted as the 18th member of the Euro area from the first of January 2014. Documents here.

Reports today indicate that the UK Treasury has considered (of extent unknown) a swap with the Irish government of Ulster Bank for NAMA loans which originated in Britain.  Here is an extract from this longer BBC report.

However there is another, more radical option also being assessed by the Treasury. Which would be to simultaneously take out of RBS the most troubled of its global operations, Ulster Bank, with its substantial lossmaking business in the Republic of Ireland and Northern Ireland.

Ulster has £37bn of assets (loans and investments) on a risk-adjusted basis.

One idea would be to transfer Ulster Bank into the arms and ownership of the Irish government, by swapping all or part of Ulster Bank for low quality British loans and investments currently owned by Ireland’s National Asset Management Agency: NAMA inherited these stinky British assets when it acquired the problem loans of Ireland’s reckless banks.

There is a certain logic to Ireland taking control of Ulster Bank while the Treasury runs off the loans made in Britain by over-excited Irish banks.

That said, the chancellor may conclude that the complexities of valuing all the relevant loans and the legal difficulties in transferring ownership may be too daunting.

All the documents for each country can be accessed from here and the general statement from the Commission (“Moving Europe Beyond The Crisis”) is here.