“Ladies and gentlemen, thank you for asking me to speak to you. I am conscious that I am your invited guest and so I will start by saying, that today I do not intend to speak of comfortable matters.” Fiona Muldoon, the Central Bank of Ireland’s Director of Credit Institutions and Insurance Supervision speaking at a banking conference on 16th October, 2012
It’s been just over a year since President Clinton dropped the clanger at the Global Irish Forum that mortgage debt was the biggest problem facing this country – THE biggest problem. A week or two after that, the Keane report was finally published in which a range of policies were examined. And since last October, mortgage arrears have continued to climb though the pace seems to be relenting, the Personal Insolvency Bill has been published which places banks in the gatekeeper position deciding who can, and who can’t, seek bankruptcy, and the banks themselves are getting more shouty about borrowers strategically defaulting on loans so as to secure better deals should some form of debt-forgiveness scheme be introduced. But for all intents and purposes, if President Clinton were to give an assessment of progress in government and banking policy since last October 2011, it would be withering.
It was no accident yesterday that the Central Bank of Ireland’s (CBI’s) Fiona Muldoon delivered an uncomfortable speech at Irish Banking Federation national conference in the Shelbourne hotel yesterday. She berated assembled bankers for their “wait and see” approach which is seeing a deepening of what has become known as the mortgage crisis. She appears to call for decisive repossession action with respect to delinquent buy-to-let mortgages and for a step-change in the approach to borrowers and their family homes.
But this is the Central Bank which has up to know displayed a shyness about action which has suggested on here that the CBI is being held hostage to fortune with its stress testing last year which assumed a level of loss at the banks that the CBI doesn’t want to see exceeded, lest it trigger the need for further capital injections at the taxpayers expense. This is the Central Bank which agonised over the Personal Insolvency Bill lest it make bankruptcy too easy, which again, might result in a hole in banks’ balance sheets which required further taxpayer bailouts. So why the apparent change in heart?
Industry sources are today suggesting that the risk of strategic default, particularly in the buy-to-let area, now outweighs the benefit of historical inaction by the banks. We are shortly going to get buy-to-let mortgage arrears data from the Central Bank for the first time, and the betting is that it will show an abysmal current situation AND an accelerating deterioration. If this interpretation is correct, then it is testimony to the failure of government and regulators to put in place credible solutions to the mortgage crisis, a failure that has allowed a situation develop where borrowers generally are actively considering or indeed actually effecting default, not because of inability to pay but because of an expectation of debt forgiveness amid government dithering.
For all of our sakes, policy makers need to up their game, and up it quickly. The view on here remains that we reform bankruptcy so that we have a tried-and-tested scheme, borrowed from any advanced economy – the UK and US for example – which allows banks to individually deal with borrowers in distress, to assess their individual financial situation, but which allows borrowers the sole discretion to pursue bankruptcy in which practically all assets are sold to pay off debts. Given the severity of the crisis that has been allowed develop, we probably need special measures to keep families in average family homes, otherwise the State ends up paying for alternative housing. But we need these policies, and we need these policies implemented now.
We don’t need one of Ireland’s greatest friends to tell us the mortgage crisis needs to be tackled now.