Mortgages arrears and repossessions up, but is the true situation still being disguised?

A couple of weeks ago here, I explored the curiosity of the burst in Ireland’s bubble not leaving a trail of mortgage defaults and repossessions. I compared Ireland’s experience with that of Nevada (US state with a population of 2.7m where property prices are 56% off peak and 70% of mortgages are in negative equity and unemployment is over 13%) and where there were 180,000 repossessions in the last 12 months compared with less than 500 in Ireland.

Today sees the publication of our still relatively-new Financial Regulator, Matthew Elderfield’s quarterly report on mortgages in which I think we are beginning to see that the cracks caused by the bursting of our property bubble together with GNP contracting by 17% from 2007 to late-2009 (with further falls forecast for 2010), “the deepest and swiftest contraction suffered by a western economy since the Great Depression”. However the figures are understood to hide the true scale of the stress facing mortgage holders because they exclude those mortgages where banks have restructured loans, for example, by allowing borrowers to take a payment holiday, pay interest only or extend the term of the mortgage. These have most recently been estimated in January 2010 at 30,000 with that figure increasing by 3,000 per month according to a report in the Independent in April 2010. Might it be reasonable therefore to assume that those over 180 days in arrears have already exhausted the restructuring option and are heading for default?

With respect to impaired mortgages, the table below shows the figures from the last three quarters. Incredibly until the present Financial Regulator was installed in January 2010 (appointment announced in October 2009), the State did not collect or publish comprehensive statistics on mortgage arrears so there are only three quarters available. The table shows that arrears continue to climb steadily in number. Again to what extent the figures are meaningful is debatable because restructured mortgages are not shown which might be disguising the underlying level of stress. Repossessions are up very slightly but still point to well below 500 per annum.

The Financial Regulator is reported to have raised two ancillary concerns

1. That banks may be exploiting the situation of those in arrears by forcing them to abandon tracker mortgages in favour of standard variable rates. “We do not believe that this practice complies with the code which requires firms to act in the best interests of their customers and to recommend suitable products only”. It is to be hoped that the Regulator will robustly deal with any cases where the weakened circumstances of the borrower are exploited to enhance the bank’s financial prospects. UPDATE: 30th June, 2010. The Irish Independent reports that the expert group set up to examine ways to help mortgage holders experiencing hardship has confirmed the practice of banks strongarming borrowers in distress to change from tracker mortgages to other products in return for help with restructuring the mortgage.
2. The challenges of managing arrears and repossession will not be easy, as there will be a tab to be picked up somewhere, possibly by taxpayers in general. He said “we need to recognise that the cost of any support will be borne by those neighbours who avoided excessive borrowing themselves or are gritting their teeth and meeting their obligations”

Quarter 3, 2009 statistics from the Financial Regulator are available here. Q4, 2009 is here and Q1, 2010 here.

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