This morning, the Financial Regulator and deputy Governor of the Central Bank of Ireland, Matthew Elderfield has released data for the April – June 2012 quarter on Irish mortgage arrears, restructures and repossessions. Overall there are now 83,251 accounts in arrears for more than 90 days, up 5,621 or 7% from the previous quarter and 27,488 or 49% from a year ago. Here’s the detail:
(Click to ENLARGE)
In addition to those accounts in arrears, there are at least 40,221 accounts which have been “restructured” which means they may be paying less than contracted, may be paying interest only or indeed may be paying nothing at all.
For the first time, the Bank is publishing data on accounts in arrears for less than 90 days, and it says “45,165 accounts in arrears of less than 90 days at end-June 2012. This figure reflects a fall of 2.4 per cent since end-March, when there were 46,284 accounts in short-term arrears”
The data this morning means that 16.2% of Irish mortgages are in arrears for more than 90 days or restructured, possibly not making any payments. And that 22.1% are in arrears or restructured. The mortgage crisis is getting worse.
However the pace of increase has slowed down, and the quarterly increase in arrears over 90 days of 5,621 is back at 2010 levels of increase. Also those getting into short term arrears – which would be expected to influence future 90-day plus arrears – has reduced. So the mortgage arrears problem is getting worse but the pace at which it is getting worse has slowed down, and this is now the second quarter of deceleration, so we might have the beginning of a trend. It is perhaps the only bright spot in an otherwise dismal set of numbers.
The view on here is that there is a latent mortgage crisis in Irish banks and that the 68% increase in impaired mortgages recorded in the Bank of Ireland accounts for the first six months of 2012 is just the beginning of banks recognising the scale of the problem.
Repossessions have reduced slightly from 170 in Q1, 2012 to 146 in Q2,2012 and in an Irish context, repossessions are practically non-existent. The belief on here is that the recently published Personal Insolvency Bill will not substantially affect repossessions as the bank remains the ultimate gatekeeper in deciding if someone can pursue bankruptcy.
Compared with our neighbours in the UK, we can see that there is little appetite in Ireland to deal with the mortgage crisis where people are unable to repay their mortgages. Despite our mortgage arrears rate being a staggering five times that of the UK, our repossession rate is less than a quarter of the UK rate – in other words, you are 23 times more likely to have your home repossessed in the UK compared with Ireland.
Last October 2011, President Bill Clinton identified the mortgage crisis in Ireland as being the “number one” economic challenge facing this country. Nearly a year on, with a next-to-useless Keane report and minor tinkering around the edges of forbearance measures, and the publication of a largely useless Personal Insolvency Bill, we are really no closer to dealing with the reality of property declining by 50% from peak, unemployment soaring to 15% and take-home income being reduced. The risk for dangerous unintended consequences – like strategic default in anticipation of “proper” measures – mean the Government needs to get to grips with the problem now.
NAMA Wine Lake 
Not Alone Does Govt Fail To Face Up To Household Debt They Squander Scarce Money On Useless Reports That Are Never Acted On Anyway . Why Haven’t They Pursued ECB About Illegal Instruction To Pay Unscured Bondholders. It Seems They Would Rather Leave 80.000 Homeowners In Limbo Than Do What They Were Elected To Do,
“Why Haven’t They Pursued ECB About Illegal Instruction To Pay Unscured Bondholders”?
Because that would tend to turn light on the chain of events that made it so. ie. Irish government proclaim and promise that they alone will fully pay unsecured bondholders come what may in September 2008. (The key ‘stroke’.). Thus unsecured bondholders from all over Europe begin to flock to our shores putting other European banks at high risk of collapse. Thus action had to be taken by these others, engendering a new paradigm Europe wide with respect to unsecured bondholders. Later, when Irish guarantee runs out, the damage has already been done. It is not possible to unwind what the Irish government has wrought. They thought in September 2008 they could act in isolation. It was such an unpredictable and Oirish thing to do that nobody was able to catch them and stop them. But the rest of Europe is a lot wiser now to our gombeenism and insular thinking. It won’t be allowed happen again.
Why is the repossesion rate so low in ireland?
Is it legislation, Bank strategy or something else?
thanks
I’d imagine the repossession rate is low because there is no ready market for repossessed homes. anything repossessed would then drag down the banks balance sheet even more, and hiring property management services to manage unsold repo property would be costly.
I think another reason would be that in such s small country it couldn’t be done anonymously, which would raise the spectre of retribution.
Re ‘or something else’: There is no political will to increase repossessions, leaving aside the question of whether this would help or hinder things.
More repossessions would not sit well on the Government’s hymn sheet. The line coming from FG/Labour is that things are getting better since they took over, in spite of any evidence to support this claim. The counter-productive approach seems to be ‘Say it enough times & it might come through’.
It would be hard for FG/Labour to continue saying things are getting better if a very tangible occurrence such as a big increase in repossessions was documented and widely reported.
Once more, whether something is good or bad for the country becomes almost secondary, and the prime concern remains the political fallout of actually bringing the idea forward.
@Karl
I’d suggest the reason why repossession rates are so low is because the banks realise they are the primary architects of this disaster and with underwriting standards so poor the banks would no doubt find it difficult to stand up in court and argue their case without being laughed out of town. Better to keep the head down and hope the problem goes way seems to be the way they are dealing with the issue.
From my understanding of events those institutions bringing these repossession orders seem primarily to be of the sub prime variety-these sub prime types were very late to the lending party in the case of the RoI and their roots are not that terribly well established making it somewhat easier to go for the kill.
@NWL
It certainly is a big problem and getting worse:
June 2012: €24.0 billion in arrears out of total €111.9: 21.4%
Dec 2011 : €23.2 billion in arrears out of total €112.6: 20.6%.
If one includes all arrears plus restructured but still performing (not in arrears) the figures are as follows:
June 2012: €32.6 billion in arrears/ Restr out of total €111.9: 29.1%
Dec 2011 : €31.0 billion in arrears / Restr out of total €112.6: 27.5%.
From Table 2 of release.
@NWL
Bill Clinton was right – this is our biggest issue bar none.
The argument that has been suggested here an elsewhere that negative equity is not really the problem but unemployment being the real culprit is wearing very thin. Irish property in all its forms be it commercial, mixed use or residential was mispriced for about a decade. The problem was and still is in the pricing. We don’t have a toxic asset problem we have a toxic pricing issue. To borrow a phrase – it’s the pricing stupid. Along side daft property prices sits equally daft mortgage loans and today’s numbers are simply confirmation of that ongoing fact.
Based on the recent Daft.ie rental yield survey house prices on average are more likely than not to fall by an additional c30% from here for property to form anything approaching a bottom. This will see peak to trough declines for the market as a whole at about 65% to 70% of peak prices. The current supply overhang, the BTL disaster and falling rent allowances will see average gross yields for the market as a whole get to over 7% from here and that requires a further fall of c30% in the 3,4 and 5 bedroom category of houses to be priced right relative to long run average yields and equivalent risky asset markets. This will happen.
Commentators no doubt will suggest that in the round these arrears numbers are bad, but the rate of increase is slowing so there is hope. I disagree. The rate of increase has slowed primarily because tracker rates have fallen to almost unbelievable lows and that is the measure, which is keeping these numbers from complete disaster levels. This is no comfort – food and energy prices are set to rise significantly before the year is out in US dollar terms – with the ongoing Euro issues still very much alive and a likely further downward shift to the value of the Euro will mean these price rises will be felt very hard across the zone. With rising inflation a by-product of these food and energy price rises and yes you guessed it, under the ECB mandate base rates will be rising before too long. If that scenario plays out the 22% of mortgages either in arrears or restructured goes to 25% at a minimum save a change in the ECB mandate.
The cocktail of bad property news to me gets worse, a lot worse, before any sign of a turnaround.
There is only one solution to this problem and I really mean one solution and that is a mass debt forgiveness event. We can debate until the cows come home the fairness or otherwise of such a policy move but the fact remains mortgage costs are going to rise significantly from here as ECB rates rise in tandem with inflation and if nothing is done then the domestic economy spirals a lot lower and with it all the ongoing issues which we’re very familiar. We need to right size mortgages to realistic property prices and we need to do it fast all other ‘solutions’ are just waffle and avoiding reality.
@Yields or Bust. This is the most insightful and “on the money” comment that I have read on this subject. You are so right!
interesting recent comments from your real leaders,there appears to be some legal confusion regarding repo’s.
assume above numbers exclude to B to L ?
“A well-functioning repossession framework is important to maintain debt service discipline and to underpin the willingness of banks to lend, which is crucial for Ireland’s economic recovery,” Craig Beaumont, the IMF mission chief for Ireland, said in an e-mail response to questions.”
http://www.bloomberg.com/news/2012-08-19/irish-bailout-masters-press-for-rental-home-seizures-mortgages.html
@John Gallagher
re Craig Beaumont comments:
I think it is unfortunate that Mr Beaumont did not make a distinction between owner occupier and buy to let repossessions in his remarks. Perhaps he did not intend any distinction. If so he is mistaken. There is a huge difference.
In repossessing buy to let, nobody is thrown onto the street and there would be little public objections to such a policy. There is ample evidence of significant net worth individuals holding on to properties and playing tough with the banks. The losses need to be recognised, by foreclosure if necessary, while protecting the right of existing tenants.
In the case of owner- occupier dwellings, there would be outrage at repossessions and evictions. Contrary to such a repossession policy being “crucial for Ireland’s economic recovery”, it would in fact derail completely any hope of recovery. And rightly so. It would be akin to setting a match to a powder keg of cultural memory. Any government that pursued a repossessions and eviction policy of owner-occupier dwellings would not last a month and would deserve to last less than that.
The judgement of any person who proposes such a policy is equally suspect.
@ Joseph Ryan in fairness to Craig,the answer was related to the buy to let segment of the market,which is a car crash.
Irish people need to have a bit more financial maturity,repo’s are going to happen,but there are some legislative issues/challenges.
Interesting political dimension to it will the Govt. try to limit the new legislation to buy to let ?
The Dunne decision.
“Before December 2009, lenders used a 1964 law as the basis to repossess homes. This was repealed and replaced in 2009, which due to a drafting oversight, applied only to loans taken out after Dec. 1 2009.” link above.
Maybe people are underestimating how many distressed homeowners would gladly walk away from the bricks and mortar dream that has landed their lives in quicksand. Repossess: go ahead, make my day.
Also, this malarky of restructuring and interest only periods etc. is shown not to work. People end up paying more, for longer, for something worth less….and end up defaulting , later and for a greater amount.
I wonder if the govt tied an immigration help package in with a repossession package how well it would go over. Sell out I’d say. Creative west coast thinking and all.
Well said. I ain’t waiting. I am wiping the slate clean in the UK. I might return in ten years with 100k and buy a sweet gaff in Dub Surbs!!
To quote Comical Mickey – “Like a rocket!”:
http://www.japlandic.com/2012/08/irish-central-bank-mortgage-arrears.html
@WGU. WOW! A picture paints a thousand words. Kudos.
@WSTT – Cheers!
More and more homeowners are trapped with underwater mortgages with bleak prospects when it comes to unloading their greatly devalued homes.
Short sales – or selling homes for less than their outstanding mortgages – aren’t particularly cheerful prospects for either homeowners or banks, but they’re often the best solution to severing the ties between a homeowner and a property that he or she can no longer afford to, or want, to stay in.
The process for conducting a short sale involves a complicated and fraught negotiation between banks and homeowners – a process that few homeowners are able to handle, often because the banks have little incentive to approve a sale that will mean a loss of income.
It is time that the status quo and the balance of power in negotiations was changed to the benefit of the homeowner.
If at all, lenders will only agree to a short sale only when they are convinced that a loss on the property is inevitable. A lender will then weigh the cost/benefit of a short sale versus a foreclosure. To persuade a bank to consider a short sale, the borrower needs to demonstrate evidence that the mortgage cannot be paid and that the property cannot be sold for what is owed on the property.
A short sale – walk away with no deficiency and without owing the bank, or reduce the amount of the loan to reflect the value of the home and in consequence reduce the mortgage. They are the choices.
Eventually, the penny will drop with the banks.
The surprise is not that 22% of mortgages are in arrears, but that so many people are continuing to pay their mortgages and have not chosen to send the banks “jingle mail’ and left.
Jingle Mail (also known as strategic mortgage default) is the phrase used by banks and agents to describe homeowners who simply walk away from their homes and mail the keys back to the bank. The banker can hear the keys jingling in the envelope from a distance so even before it’s opened, he knows that for this loan the overvalued mortgage payments are at an end.
Will homeowners be willing to leave even if they can afford the payments? Yes, because the government’s and the bank’s program for mortgage loan modification is an abject failure. The programme is not working because the banks are not willing to face cutting the principal owed on the mortgage balance to a realistic amount.
As the new year dawns and we begin to feel the real budgetary effects of the Troika deal, many of our fellow citizens will be mailing back keys. For a high percentage of the homeowners with material negative equity, thoughts will turn to action because Jingle Mail will give them a new life elsewhere.
I am lucky in that I do not need to send any “Jingle Mail” but next month, I celebrate my 49th birthday and as I approach the end of my fifth decade on this planet, it is becoming increasingly obvious to me that fate in the form of an accident of birth placed me on a carbuncle on the edge of Europe.
We talk about being at the centre of Europe – no, we are not, Poland is. Russia, one of the world’s most wealthy countries – is a country that is hardly recognised as being in Europe at all – is at the other end. The difference between the two ends is that Russia is booming and growing, while we (no matter what Comical Pat says) don’t even have functioning banks and are still contracting in an ever deepening downward spiral. This is the norm (mean) for Ireland. We never had real growth in our economy. Except for the 15 years from 1991 to 2006, I have lived my 48 years in an Irish recession.
So, for many reasons, before the year is out – and even without the incentive of an underwater mortgage, I will be buying a one way ticket, as many of my ancestors did. My only regret is that I did not do it as a youth.
The reasons?
There are opportunities and choices in the wider world, even at my time of life.
I would like to wave goodbye to our politicians and their petty parish pump politics.
I have had enough of political sleaze and banking corruption. And I’m fed up fed up to the back teeth reading about corporate greed in Ireland.
The high cost of living is about to get higher. The country’s finances are a mess and are unlikely to recover for many years to come. And you can add to that the prospect of further higher taxes.
Put those negatives against the lure of a better climate. I’m tired of endless grey winters and no summers, a more laid back lifestyle with better business and work opportunities. And they even have banks, would you believe!
You can still get more property abroad for less money in many places than you can in the Ireland. Combine that with wide open spaces, mountains and perhaps even a sandy beach – and of course sunshine and it’s a “no brainer” Oh, and I’ve always wanted to take up surfing.
Mostly, I have had enough looking at dour glum faces and listening to talk about NAMA, politicians, the Troika, Angele Merkel, Seanie Fitzpatrick,the banks and the economy. More importantly, I’m also tired tired of chasing around to make ends meet.
I don’t know where yet, but one thing is certain before this year is out, I am leaving for somewhere with a more balanced sense of values and of life.
If there was a wagon train outside today, I’d be on it. And if it was necessary, I’d be sending the bankers “Jingle Mail” before I left.
@wstt Congrats on the decision – I hope it all goes well.
I spent years living in sun & it’s only family ties that keep myself, herself & our young family on this island.
Re Ireland at the heart of Europe: That we have politicians who say this & expect people to believe it is a damning indictment of the general population. To say Ireland is at the heart or Europe is like saying Skellig Michael is at the heart of Ireland.
@wstt
hot off the press.
Click to access ShortSalesPRFactFinal.pdf
btw short sales in Ca are often arm’s length negotiations on the part of the homeowner. The Bank,realtor and buyer work it out. Mail the keys, its over, many don’t even open the mail after that point. They just show up for the settlement signing.
Talking of household debt forgiveness, since the end of 2008, Iceland’s banks have forgiven loans equivalent to 13 percent of gross domestic product. According to a report published recently by the Icelandic Financial Services Association, they eased the debt burdens of more than a quarter of the population.
Iceland’s mortgagors were given a helping hand following an agreement between the government and the banks, which like those in Ireland, are controlled by the state, to forgive debt exceeding 110 percent of home values… Yes, that is correct – any debt over 110% of a home’s value was forgiven.
Unlike Ireland, Iceland is a little country with big cojones. Once it became clear back in October 2008 that the island’s banks were insolvent, the government stepped in, ring-fenced the domestic accounts, and left international creditors in the lurch. New state-controlled banks were created from the remnants of the lenders that failed…… now why didn’t we think of that?
Household debt restructuring in Iceland is well under way but surprisingly the number of applications for debt relief under the agreed measures (involving mortgage writedowns to 110% of the property value) has been significantly lower than expected. With a population of 300,000 people, the Office of the Debtor’s Ombudsman received some 3400 applications for debt mitigation. The three Icelandic commercial banks have almost completed the household debt restructuring process at this point.
We need to learn from others’ successes. Our politicians and the DoF have made the mistakes of amateurs – they were financial neophytes. We acted from fear and not from strength and we suffered the consequence. We should have emulated Iceland long ago, but even though we are late in the game – we still have time and the 110% debt forgiveness threshold is a good place to start.