This morning, the Financial Regulator Matthew Elderfield released the mortgage arrears data for quarter one of 2011 together with enhanced information on restructured mortgages. The headline is that mortgage arrears are still rising and the pace is increasing slightly. Here’s the data together with as much historical data as is available:
(Click to enlarge)
In short arrears are up more than 10% relative to the previous quarter and up 55% compared with quarter one of 2010. Some 6.34% of all mortgages are over 90 days in arrears and the pace of increase is increasing slightly (the total in arrears increased by 0.68% in Q1, 2011, 0.53% in Q4,2010, 0.513% in Q3,2010). Repossessions in the quarter were at their highest level since these current records began but at 140 are still minute compared to other jurisdictions eg US and UK – forbearance measures by banks and our lack of a modern bankruptcy mechanism might the reasons for this low statistic. The restructured mortgage data is new and I extract here the table from the report published today:
Of interest is that not one mortgage that has been restructured, has been a tracker where the borrower has been forced to take a standard or other mortgage product as a condition of a restructuring agreement. Or if that isn’t the case, the Financial Regulator hasn’t deemed it noteworthy to include such a heading. The under-reported scandal of banks being able to strong-arm vulnerable mortgage holders into surrendering valuable tracker mortgages for standard variable mortgages as a condition of agreement to any restructure has long been a bug-bear on here.
Also it is not quite clear how many restructured mortgages are included in the arrears figures. The report indicates that there are presently 62,936 restructured mortgages and of these 36,662 are not in arrears indicating that 26,274 are in arrears, though some of these may be less than 90 days in arrears.
So if you were to ask the question “how many mortgages are in some difficulty today?”, you’d have to add the arrears of 90 days+ (49,609) to some restructured mortgages (at least 36,662) to give you at least 86,271 or 11% of the total mortgage book. There are reportedly some 16,000 mortgages in receipt of some form of State mortgage assistance, some of these may be included in the arrears/restructurings but some may not.
NAMA Wine Lake 
But if a borrower is in default it is likely that their preferential deal would be removed. You can’t expect banks to restructure the loan and also re-instate the original tracker mortgage.
However, I will admit, that the banks should be forced to cancel the tracker mortgages and offer 75%*+ of the value of the differential to be used for debt repayment. This would crystallize the losses for the banks but would “clean-up” their P&L going forward.
*the discount to fair value been the inability to crystallize the gain by the borrower easily in any other market (plus the freedom it gives borrowers to crystallize over the life of the mortgage, as oppose to their repayment schedule or moving of property.
@jj, “You can’t expect banks to restructure the loan and also re-instate the original tracker mortgage.” I think you can expect borrowers who are in difficulty to be provided with independent financial advice which will set out the cost of sacrificing a tracker mortgage, could be €100k+ over the life of an average mortgage with 20 years left, depending on how interest rates move in the future.
That is a fair comment – I do think it would be “fairer” and actually positive for the lenders to crystalize these “potential” losses.
It would be a continuous drag on results into the future and analysts are already discounting it (and losses are expected).
My argument is that the government should introduce legislation at a level with some assumptions and those losses for the lenders/gains for the borrower should be past on.
This would create a little freedom for the borrower (and I have two friends who have refused to move jobs, and area because a) would lose the tracker mortgage and b) the negative equity mortgage is not transferable.
We need a flexible workforce for employment prospective (one of the above is unemployed and won’t move for fear of losing tracker mortgage).
Also we need to clean the p&l of the banks going forward if we ever think we are going to get external money into them.
Total arrears balance of about 63,000 mortgages totalling about €11 billion. I see you argue it should be higher but lets take that figure for the moment.
A 50% shared ownership would cost the State/Banks about €5.5 billion in loan balance that they are not collecting in the first place. Not that even, as you would have to deduct the buy-to-let mortgages, which should not concern the State from a social point of view.
The existing mortgage arrears problem is therefore “solvable” in a human and realistic way for as little as €5billion. But for idealogical reasons this idea cannot even be contemplated.
The same State is prepared to pump up to €70 billion into banks largely to solve the problems of developers commercial loans and to make sure bondholders get their money back.
I have to ask, whose country is this?
“The report indicates that there are presently 62,936 restructured mortgages and of these 36,662 are not in arrears indicating that 27,274 are in arrears.”
Sorry to be picky but I think it should read 26,274 are in arrears.
@TSC, you’re right, error now corrected.
The problem with any debt forgiveness schemes that I’ve seen is that they all end up with one big problem i.e. estimating or trying to calculate what amount of debt needs to be written off to leave the mortgage balance ‘affordable’.
This is the critical issue. Your definition of affordability will/ could differ significantly to mine and the write down in any event will, in all probability, still leave the mortgage holder in negative equity so the mess remains but this time its really personal. Up until now its been a mixture of market driven dynamics and immense individual problems. Lets not complicate the problem any more than required.
So in virtually all cases I believe the proposed models are flawed even before the off as the definition of affordability varies widely.
Far better in my view to go back and get to the root of the issue which was a monumental mis pricing error of the residential property asset class by the banks in the first instance.
Solve the mis pricing problem and let the banks take the hit for the greatest mis selling mortgage scandal ever visited on a developed economy over the past 100 years and we’re half way there.
Issues regarding ownership of the banks, costs and fairness of any scheme are in some respects yesterdays issues. Today we need solutions, any solution proposed won’t be fair to all. You’ve been warned.
The only scientific way to solve this issue is to go back and reprice the asset class as it should have been at the time the purchase was made, based on a long run rental yield metric using rental data for the house or its nearest equivalent in the vicinity at the time of purchase.
Reprice the property using the long run average market yield in Ireland since records began at a capitalisation rate of 7%.
Recalculate what the mortgage should have been using the same LTV used on the original mortgage.
Using the model mortgage balance deduct what has actually been paid off the mortgage in the intervening period and then compare the current actual mortgage balance with the model mortgage and write off the difference.
This is not complicated. Its long division and subtraction and very achievable.
It would be good if the regulator split these by origination year and LTV bands. One thing you can see is that the average balance of arrears is 193k versus an average balance for performing loans is 145k.
Using count based arrears understates the stress. There’s probably a good number of small pre-bubble mortgages that, on a count basis, are equal to a jumbo 100% IO 2007 bazooka mortgage. So the 6.3% arrears rate should read 8.3%.