Graph of the Week
On Thursday, the Central Bank of Ireland published data on owner occupier mortgages, which confirm that the mortgage crisis is intensifying though at a slower rate than previously. Nearly one in four owner occupier mortgages in the State is in arrears or has been restructured. Minister Noonan previously said that under the right conditions, the Irish economy could take off like a rocket and here is Japlandic’s response incorporating the latest mortgage arrears data. It shows that actual arrears over 90 days have risen to €1.4bn on loan balances of €16.5bn.
(Graphic above produced by Japlandic.com, contact here)
Racial Slur of the Week
“chinky Orange bastard” William Magee, chairman of the Sandy Row Amateur Boxing Club in Belfast which, during the week, published a 57-page report on sectarianism in boxing in 2000-2010, and who claimed “one of our best boxers, a lad from a Chinese ethnic background, was called a ‘chinky Orange bastard’” The report is not online. Following the fantastic success of two Belfast boxers, Paddy Barnes and Michael Conlan, in the recent London 2012 Olympics and the announcement of €4m of Assembly funding for the sport, it is to be hoped that the noble sport of boxing becomes an inclusive activity that generates pride in all communities.
Budget 2013 conniptions of the Week
It’s still three months away but Budget 2013, which An Taoiseach Enda Kenny thinks will be the toughest of this government term – I suppose if the Coalition collapses in 2013, he might be right! – but already kites are being flown and shot down at an impressive rate.
“Fine Gael backbenchers –backed by Agriculture Minister Simon Coveney — are threatening open revolt if Education Minister Ruairi Quinn includes assets like farmland and business premises in means tests for college grants, under an overhaul of the current system. Money held in savings accounts and second homes may also be used in the means test, and farmers and the self-employed may be forced to show their earnings for the previous three years if their children are to qualify for grants.” The Irish Independent reporting on what may strike many observers as strange, protests that illiquid assets against which loans can be obtained shall not be used in means-testing college grants.
The Irish Department of Finance published the latest update to the Memorandum of Understanding with the bailout Troika. Unlike the May 2012 edition where Minister Noonan sneaked in a commitment to repay NAMA debt, this edition doesn’t appear to contain changes. But that hasn’t stopped the traditional media ringing alarm bells on the content of the forthcoming budget in December 2013. This is in fact what the MoU says, and remember there is one more Troika review between now and December and as the MoU says: “the Government may substitute one or more measures with others of equally good value”. It’s not over until the fat man sings at the start of December and even then, he will require a majority to support the subsequent enactment of the budget.
Political Party of the Week
The Democratic Unionist Party (DUP). On a serious note, the largest party in Northern Ireland can be justifiably proud of two achievements this week. On Wednesday, Maurice Morrow (otherwise known as Lord Morrow, pictured above) introduced a Bill aimed at tackling Human Being Trafficking (HBT) and prostitution, in Northern Ireland. The Bill seems to place the needs of the victim – the trafficked individual and the prostitute – at the heart of the proposed new legislation. It would also, as in Sweden, make paying for sex a crime which shifts criminality away from the prostitute. Accompanying the Bill, is a consultation document. The Bill itself entitled “Human Trafficking & Exploitation (Further Provisions & Support for Victims) Bill” is online here, and is a fine piece of work by the DUP which deservedly has cross-party support, and is even finding support on this side of the Border.
On Wednesday also, Sammy Wilson of the DUP (pictured above), the Northern Ireland Minister for Finance and Personnel, launched a new house price series based on all stamp duty returns. The new series which will be published on a quarterly basis has catapulted Northern Ireland well ahead of the Republic for transparency in property prices, as the new series captures all transactions – mortgage and cash. Meanwhile the CSO may/or may not publish an overall total for the cash component of the residential property market when it publishes its mortgage-only index next week.
Quotation of the Week
“I refuse to answer that question” developer Jerry Beades in response to a question from Ireland’s very own Judge Roy Bean, otherwise known as Mr Justice Peter Kelly in a case where Bank of Scotland was pursuing a summary judgment for €9.7m of loans. The question was whether or not Jerry had received the loans from BoS, and it seems Jerry picked the wrong forum to plead “the Fifth” because (1) this is Ireland and we don’t have a “Fifth” and (2) in a case where a bank is pursuing repayment of a loan, the very least that a borrower can expect to be asked is whether or not he received the loan. Judge Kelly was having none of it and awarded the bank the summary judgment it was seeking.
“It would not be a case of getting rid of the isles, but of transforming unused terrain into capital that can generate revenue, for a fair price” Greek prime minister Antonio Samaras speaking to France’s “Le Monde” newspaper, putting the best possible spin on proposals to sell off Greek islands
Order of Lenin
“Today, we honour his civilian legacy. The brilliant Minister for Finance. The outstanding organiser who brought Lenin himself to Ireland to see how the National Loan worked” Comrade Enda Kenny marking the 90th anniversary of the death of War of Independence/Liberation hero Michael Collins at the site of his killing at Beal na mBlath in county Cork.
“Enda Kenny was this year’s orator at the annual commemoration ceremony at Béal na Blá last Sunday and he engaged in the usual acclaim of the “fallen hero” – to be fair to Enda that was a cliche he avoided. Michael Collins, he said, was “a reformer, a thinker, a moderniser (who would have been) pro-Europe”, “brilliant minister for finance”, “thoughtful”, “disciplined”. And an extraordinary claim: “The outstanding organiser who brought Lenin to Ireland to see how the National Loan worked.” Lenin was never in Ireland.” Comrade Vincent Browne whose ripe old years and left-leaning tendencies might mean he had first-hand knowledge of Vladimir Lenin (1870 – 1924) and his travel itineraries.
“It mistakenly stated that Lenin came to Ireland but should have stated that it brought Lenin’s attention to Ireland to see how the National Loan worked” Unidentified comrade spokesperson for Enda Kenny
“The outstanding organiser who brought Lenin’s attention to Ireland to see how the National Loan worked.” The original speech on the Government website MerrionStreet.ie has been airbrushed from history and the corrected version replaces it. Hmm “airbrushing” and the Soviet-era, reminds us of the fate of poor old Comrade Yeshov who had fallen foul of Comrade Stalin
“Strange days indeed, most peculiar mama” Comrade John Lennon – maybe that’s who An Taoiseach was referring to.
Our Sh*t doesn’t Smell of the Week
The sad fact about Irish traditional media is that it is universally suffering from the double whammy of, on one hand, an increasingly crowded marketplace which includes the presence of trans-national media and on the other, an economy which nosedived nearly 10% and which is at best bouncing along the bottom. So revenues from circulation (print), advertising (print and broadcast) and sponsorship have plummeted whilst costs have remained stubbornly high despite retrenchment. On here, a particular target has been the woes at IN&M, but that’s mostly because that group more than others takes pot shots at its rivals, when in fact, all media companies are struggling.
On Friday, the Irish Times reported its results for 2011 with the headline “Irish Times posts €2.5m operating profit” though if you delve deeper into the article you will find that the loss after tax ballooned by 63% from €1.1m to €1.8m. Though I suppose who can blame the IT when IN&M routinely tells you about its €80m operating profit in 2011 but neglects to mention the after tax loss of €41m. Even RTE has gotten in on the game headlining its €17m deficit in 2011, but burying the true loss of €69m coming on the back of its pension costs. TV3 is unapologetically hyping its own financial performance of profit after tax of €68m in 2011 but neglects to tell you about the €80m loan from Anglo which has been “parked”, and without the parking of which there would have been a loss.
On Thursday circulation figures were published for newspapers distributed in Ireland which showed an average decline of 8%n weekday sales over the past 12 months and a decline of 9% in Sunday sales over the same period.
NAMA Wine Lake 
“Fine Gael backbenchers –backed by Agriculture Minister Simon Coveney — are threatening open revolt if Education Minister Ruairi Quinn includes assets like farmland and business premises in means tests for college grants, under an overhaul of the current system. Money held in savings accounts and second homes may also be used in the means test, and farmers and the self-employed may be forced to show their earnings for the previous three years if their children are to qualify for grants”.
The farmers’ lobby’s complaints are in fact good news. More, please.
Also: “It would also, as in Sweden, make paying for sex a crime which shifts criminality away from the prostitute.”
I know this is outside your central area of expertise (and mine!), but it is unworkable madness to attempt to criminalize the willing-buyer-willing-seller activities. Decriminalization-plus-regulation would be a much better way to go, as with many other “vices”.
Maybe the ‘arrears’ are actually a silent wave of Irish jingle mail.
Bloodless stones turned to pebbles on foreign shores. Pushed inland by the waves.Landed.
@sf ca writer. An interesting (and poetic) observation. I wonder how much of it is “silent” jingle mail? Homes, particularly apartments, left abandoned and the occupants gone? If that is the case the banks have a bigger problem than they think. Whatever chance they have of recouping some of the arrears from incumbent borrowers, they have no hope of collecting from those that send them jingle mail (silent or not) and leave.
It ties in with an anecdotal comment made to me by a publican in Dundrum, who complained that his turnover had fallen away because the apartments down the road were emptying out. He claimed that people were leaving them and emigrating. The apartment blocks were adjacent to the Dundrum Town Centre.
I love a graph. It paints a picture in mathematical terms that words could never express. And Japlandic has produced as good a graph on the mortgage crisis as I have seen. All we have had as a solution to the biggest problem that faces the economy is political noise.
The fact that approximately 25% of home loans are in arrears or have been restructured would indicate an assumption that at least twice that amount (50%) must be underwater. The only accurate way to ascertain this is to calculate the homes sold in the last eight years, and obtain an calculation from the banks of the average percentage mortgage provided. That’s unlikely to happen. Housing values are still declining, throwing more homes underwater and there is no recovery in sight.
For the past 4 years, the policy has been to impose a political solution to a maths problem. It hasn’t worked – and it won’t work. Ireland simply has too much home mortgage debt to pay back. There is only one solution – and that is for the banks to write down that mountain of debt and relieve the mortgagors of it.
Unfortunately, this solution is currently off the table, because writing down those unsustainable debts could cost our insolvent banks more billions and would possibly lead to a further recapitalisation of one or more of them.
Avoiding this clear policy choice has helped cause our economy to fall into a Japan-style “zombie bank” torpor, with debts carried on the books at full value – when everyone knows that they will not be paid back at par.
Excess mortgage debt is preventing an economic recovery. The housing market’s vicious deflationary cycle demands serious policy action to match the scale of the challenge. Falling house values will lead to foreclosures, which further damage housing values in an ever descending spiral.
Homeowner is a misnomer. Mortgagors are essentially “renters with debt” and following the trajectory shown in Japlandic’s graph, we can expect to see more mortgages in default over the next decade. The subsequent foreclosures will impact housing values further, reduce consumer purchases, and will cause increased local taxes. Not a pretty picture.
The proposals on the table to solve this problem aren’t inspiring. The meager mortgage settlement deals cut via politically dramatic but ultimately impotent negotiations are meaningless in the context of the scale of the problem.
Both the borrowers and the housing market will continue to suffer until our political leaders acknowledge the depth of the problem; realise that it is not a political football and deal with it as a mathematical problem – and I don’t mean that they should suggest that underwater borrowers turn the front walls of their houses into advertising hoardings a la Ryanair.
We need some serious discussion about how to write down mortgage debt. Some proposals would reduce principal, while giving the banks an equity appreciation stake in the home. Others. regardless of how policy-makers reduce the debt, would force the banking system to appropriately value mortgage debt.
Only then will we head down a pathway to a healthier banking system, and begin generating the jobs that will restore Irish employment. Anything less will simply continue the deflation and uncertainty in the housing market and the wider economy.
It’s time for Michael Noonan and the banks (including Comical Pat) to be honest with the Irish public, and openly recognise this as well. If not, they need to go back and study 3rd Grade maths again.
You may have misunderstood the politicial incentive:
http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2012/08/bad-incentives-in-politics.html
If the problem to be fixed is the banking system, the banks will remain wards of the state indefinitely. Unless the € unravels.
that graph from japlandic says it all… how bad will the problem get?
Simple Sums.
5% unemployment = 150K
current 15% unemployment= 450K.
300K people lost their jobs since ’08.
That doesn’t automatically mean that 100% of them had mortgages or that 300k mortgages are in bother but I would imagine that a fair few of them had and a fair few of them are.
And that’s just the ‘current’ unemployed, doesn’t include the ‘bloodless stones’ or the 1000’s just about hanging on at the moment.
@JR, thanks to our CSO the unemployment figures in this country are routinely mis-stated. We have 14.8% unemployment which equates to about 310,000 people. We have a separate measure called the “Live Register” of all those who receive employment related benefits and this totals 460,000 today and the biggest component within that will be the 310,000 unemployed. The 14.8%, the 310,000 are the internationally comparable unemployed figures.
@WSTT
The graph is the current surreal state of Irish banking writ large.
I initially did the graph and trashed it about 5-times-in-a-row because I thought I was making some fundamental mistake.
There are two things that make it surreal:
1. How is it possible for the “Less than 90 days” & “Between 90 and 180 days” arrears to appear to have peaked and now be declining whilst “Over 180 days” continues to take off like a rocket? “Less than 90 days” looks to have peaked in March 2010 with a declining peak in June 2011 and “Between 90 and 180 days” peaked in December 2011 – yet “Over 180 days” has no correlation to this.
2. How does someone go from zero to 180 days in arrears without passing through the intervening stages? The graph should be like a series of waves with peaks in “Less than 90 days” starting to appear in the “Between 90 and 180 days” 3 months later and then starting to pass those peaks into the “Over 180 days”. The classic example of this is the ARMs resets in the US – all the losses hitting the banks were completely measurable by looking at the reset dates on the various ARMs:
The only way you can have a graph where nothing happens sub 180 days but an explosion in arrears past 180 days is by deliberate manipulation by the banks.
The banks are obviously keeping the numbers below 180 days artificially low and then abandoning anyone over 180 days. This is both a national disgrace and indicative of how the banks now run their “business”.
My guess is the banks have stratified the Principal Private Residence (PPR) and Buy-To-Lets (BTLs) – actively managing the PPRs sub 180 days and allowing the BTLs to rot.
Anyone “Over 180 days” in arrears should be looking at default – there is no way they are coming back – so the €1.4 Billion of actual arrears on mortgages of €16.5 Billion is another very definite hole in the banks. There was a time when this number alone would be enough to sink the banks – guess these numbers don’t matter as much when Comical Mickey’s got your back.
As an aside, I wonder if Laura Noonan will be as dismissive of these figures?
http://www.independent.ie/national-news/central-bank-figures-overstating-number-in-mortgage-crisis-3147111.html
What do her “senior bankers” have to say now?
@WGU, The 90 and 180 day segments were an anomaly that stuck out like a sore thumb. I asked myself exactly the same questions as you did – and then gave up. I could not understand the low levels compared to the “past 180 day arrears”. But you have given the obvious and only credible answer – the banks are deliberately manipulating them. I apologise for my naivety – something I thought that I left behind years ago.
And well done, I salute your insight.
@WSTT
The latest Davy report on Mortgage arrears bears my theory out I reckon:
http://www.davy.ie/content/email/mortgage20120817.pdf – PDF
€11 Billion worth of mortgages in 90+ days arrears – which is about 70% of the overall €16.5 Billion 180+ days arrears.
According to Figure 6 of this Central Bank paper the BTLs were 25% of the accounts in 90+ days arrears:
http://www.centralbank.ie/stability/Documents/Mortgage%20Conference/Session%203/Paper%201/Paper.pdf – PDF
So 25% of the accounts are responsible for 70% of the arrears!
I guess we can now see why Paddy Honohan was telling the banks to get their fingers out with BTLs!
@nwl, thanks for that, figures re-jigged to approx 200K unemployed since the tiger self-banjaxed. dammed statistics, still a lot of people in bother.
as an aside, but definitely ‘of the week’, banks falsifying signatures on loan documentation…
“It also emerged that a letter sanctioning the loan appeared to be signed by Mr McG and Mr F and their wives. But a handwriting expert retained by ACC later confirmed that the couples’ signatures were false.”
from
http://www.independent.ie/national-news/first-probe-into-claims-of-forgery-at-lenders-complete-3210208.html
We’ll forge documentation, use it in court to assist our case and then do a little bit of investigative work after a HC Judge has referred our actions to the DPP.
The defendants still get landed with a judgement and a third of their legal costs.
Graph does not make sense.
The increase in “>180 day” debt per quarter should be less than the amount of debt in the “91-180 day” debt from the previous quarter. However the 2012 Q2180 debt increased by 142K while there was only 82K in the previous quarter pipeline. 60K appeared from nowhere.
Debt should age. This graph is the wrong shape. This is a special case of a pipeline graph as used to measure sales figures, production line capacity and many other uses. Looks like debt is being entered into different stages without passing through previous which makes analysis worthless. A functional pipeline graph tells you what’s coming down the tracks.
It’s possible that restructured debt is popping in an out of different quarters as restructuring arrangements break down. It should be graphed otherwise and the CBI is at fault here.
Graph does not make sense (Part II)
I reiterate Ian’s comments and was just reviewing the magnitude of virgin long-term delinquents—compare June 12 to Dec 11 and there were over 280,000 ADDITIONAL accounts over 180 days delinquent—which is well above the number of TOTAL delinquent accounts in Dec 11 and March 12 data (for zero to 90 AND 91-180 days). I suspect Ian is correct that restructurings are breaking down and borrowers go from current to long term delinquent in the data.
In addition, the graph highlights that once an borrower goes delinquent there is little evidence of curing—–suggesting the provisions in the financial statements under-estimate the eventual loss.
Dennis
It would be very interesting to properly investigate the sudden jump in that graph.
Did people very suddenly become unable to pay, or alternatively, was it a meme in our society that started to take hold?
‘Can pay, won’t pay’?
Was it around this time that we started to witness the newspapers and RTE and the Irish ‘celebrity’ economists build up some steam pushing the agenda?
A quick search around this time reveals –
The Irish Celebrity Economists:
http://www.irisheconomy.ie/index.php/2011/08/22/lack-of-debt-forgiveness-not-realistic/
http://www.guardian.co.uk/business/ireland-business-blog-with-lisa-ocarroll/2011/sep/07/ireland
The National Rag:
http://www.independent.ie/national-news/homeowners-will-be-stuck-in-negative-equity-for-14-years-2864836.html
http://www.independent.ie/business/personal-finance/property-mortgages/defend-our-homes-new-group-aims-to-have-mortgage-debt-written-off-2879116.html
The mentality taking hold generally:
http://www.neighbours.ie/forums/showthread.php/26686-RTE-documentary-research
To cap it off, something to make people mad:
http://www.dailymail.co.uk/news/article-2033422/You-went-property-mad-sneers-Bertie-Ahern–says-crash-arose-people-overstretched-themselves.html#ixzz1WyetfLdt
The point is, that graph is indicating something completely unrelated to job losses and pay cuts.
@WGU, If I understand what you are saying – There are 30,000 buy to let loans with an average borrowing of €384,000. None of them are making repayments. So there is (30,000 * €15,000) €450 million per annum in rental income being sidelined by the banks’ borrowers.
The income is received as rent, so either the income is needed to keep up payments on the primary home mortgage, or it is being deliberately withheld. The only reason that a landlord would do this is because he realises that the game is up and he is so underwater that there is no point in throwing good money after bad – just keep hoarding the income for as long as possible.
Either way, half a billion euro is being added to the domestic economy annually – something that the banks are not doing. If they did, there would be less need for this sort of scavenging.
I tend to disagree with Albert Einstein when he said that “Relativity applies to physics, not ethics.” I do believe that if the banks were dealing with the problem that they created in a moral manner, people would respond in kind. But who could ever call our banks ethical? No, this Is more of a pre-emptive strike – a case of “Do it to them, before they do it to you”. It’s only going to get worse. The banks will eventually write down these mortgages, because the alternative – foreclosures on a massive scale and the consequent bloodbath in prices – will hurt them even more.
@WSTT – Excellent!
What this shows, is that the professional landlord is acting as the fabled Homo Economicus – the “rational economic actor” – should.
Anyone over 180 days in arrears (and also those over 90 days in arrears) should be thinking only rationally, and not emotionally – just as the banks would.
As I posted some months ago, a businessman I know with several BTL properties in Dublin hasn’t made any repayments on his loans for over 12 months. Instead, he is using the rental income from tenants to pay down a particular mortgage on which he had given a personal guarantee. All the BTL properties are in very ‘rentable’ areas. During the boom years personal guarantees were not always sought by the lender – one institution in particular had loose lending practices. This bank has not moved to seize the properties but they have written to him asking him to submit a ‘plan’. I’ve no idea how these loans are being treated in the bank’s books. I can only imagine that many BTL investors – even if they have given guarantees – are doing the same thing.
Irish law does in fact provide a protection nearly identical to that of the American Fifth Amendment. I have forgotten what Mr Beades was up to, but getting away with refusal to answer questions is not easy, even in the USA, unless there is a non-imaginary possibility of the answer being self-incriminatory.