“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.
NAMA Wine Lake 
“As of June 2012 there is some €144bn in the banks in home loans across principal private residence and the buy-to-let sectors. Of that, some 167,000 loans are in arrears at a value of €35bn. A further €9bn or 51,000 loans have been restructured and are not in arrears but the vast majority of these restructures are in the ‘treading water’ space i.e. they are interest-only forbearance modifications that over a longer time frame do little to address the ultimate repayment capacity issues.”
€44bn (30% of the mortgage book)…?
218,000 thousand loans…?
Jesus, these figures (new to me) are horrendous… and growing.
Excellent analysis as usual NWL.
I think we should be grateful for this speech. It’s a start, a gentle slap on the wrist. It’s probably a shock to the poor bankers who are not used to criticism from the CBI.
No disrespect to Fiona Muldoon but the speech would have had more impact if it had been delivered by the Patrick Honohan. The decision that Honohan would not deliver the speech reflects the temerity of the CBI position. One pictures a scene of much hand wringing around the CBI boardroom table
…..need to careful, let’s not be rash, best handled quietly, just not the way central bankers behave.
Speeches imploring bankers to do the right thing have never worked. Bankers do what they have always done, look after themselves, waffle and massage the numbers.
Until the CBI puts a time based target on reducing the number of mortgages in arrears on the banks nothing will happen. Even when targets are set the CBI would need to exactly define how progress will be measured. Otherwise our bankers will play their usual games to make the numbers look good.
But it’s a clink of light, a flickering candle in the wind. For now that’s probably the best we can hope for from our bankers, central and otherwise.
Does Labour have what it takes to fix this….it’s their AG.Will they exclude principal private residences,why not a ceiling say 500,000.Why would anyone lend into this environment,stateside they are discussing a “safe harbour” for certain mortgage lending,lenders should have “safe harbor” for buy to let in Ireland,that’s assuming you want any.
“Justice Dunne ruled that a lending institution cannot apply for an order for possession where a mortgage was created before1 December 2009but a demand for full payment was not made by the lender until after that date. Justice Dunne stated that the repeal of the old legislation had created a ‘lacuna’ (effectively a gap in legislation) and it was not for the court to supply that which was not in the 2009 Act.”
http://www.anthonyjoyce.ie/landmark-legal-ruling-find-loophole-mortgage-halt-hundreds-repossessions/
The safe harbour story is in the WSJ,behind pay wall this is a decent summary.
“The potential move, which would be a partial victory for mortgage lenders, is part of a broader effort to write new rules for the U.S. housing market in the wake of the mortgage meltdown. The proposal for the first time would establish a basic national standard for loans, known as a “qualified mortgage.”
As part of its deliberation, the Consumer Financial Protection Bureau is considering providing a full legal shield for high-quality loans that qualify, mandating that judges rule in lenders’ favor if consumers contest foreclosures, these people say.
For a smaller category of loans that still meet the “qualified mortgage” guidelines but carry higher interest rates—a group similar to “subprime loans”—lenders would receive fewer protections. In those cases, consumers could argue in court that lenders should have known that they couldn’t afford the mortgage.”
http://news.firedoglake.com/2012/10/16/cfpb-considering-giving-blanket-safe-harbor-protections-on-most-qualified-mortgages/
@NWL
“For all of our sakes, policy makers need to up their game, and up it quickly. ”
How right you are.
RE: Fiona Muldoon speech:
I am reminded of a saying of the late Con Houlihan;
” All the fine talk in the world, never put a pound on a pig”
Why not some numbers, some breakdown, some target setting.
For example.
There are >€25billion of BTL investors, with we are told approx 35% in arrears,i.e. possibly up to €10 billion of BTL mortgages in arrears.
The question that must be asked is what percentage of these arrears are in respect of properties with some equity still remaining in them. I venture to suggest that it could be significant. The result, of course, is that we have a sizeable number of BTL landlords who simply do not want to crystalize the loss and would prefer to continue on an interest only basis into the foreseeable future.
This also probably suits the banks as they believe that releasing such repossessed properties onto the market would drag prices down.
Ms Muldoon needs to back up her words with actions.
One of the biggest obstacles facing her may be that of the attitude of public interest directors. Dr Michael Somers was on a recent Marian Finucane show and my interpretation of his remarks was that any kind of debt write off arrangement was anathema to him.
How on earth does Ms Muldoon intend to make progress with banks in the face of such opposition.
@NWL
My apologies to Fiona Muldoon. I had read the speech only. There was a lot of data in the slides, which I was not aware of when I made the above comment.
@JR
“Jesus, these figures (new to me) are horrendous… and growing.”
It is certainly not pretty.
There are solutions.
BTL: Take over the properties and foreclose.
Owner occupier in excess of 180 days; Compulsory Conversion from owner occupier to (fully protected) rental occupier, with possibility of buy back.
If that uses up bank capital, that’s too bad. To hell with Basle 11 or Basle 111 and other creditor imposed nonsense ratios.
I have to say that Director Muldoon’s speech warmed my heart.
It was invigorating to not only see the banks public exposed as unrepentant, but as essentially incompetent to boot. I think the image of the Irish bankers as unruly teenagers, in boom and bust, is one which should stay with them forever. These are not mature responsible people; they are reckless gamblers, and feckless managers, prone to fits of angst and petulance when confronted about their behavior.
I would have paid good money to have been in the room to see the bankers squirm at being told off. But more than that, I wish the Central Bank would just dismiss them all for incompetence already.
Reblogged this on Machholz's Blog.
AAhh, my new hero! … FIona has just replaced the gun-toting, moose shooting Governor Sara Palin in my affections.
Here are two speeches she had to follow….her Talking Heads reference was fun,but she may have considered using “burning down the house”
Pat Rabbitte’s is not worth reading-according to him banks are ‘adjusting to the new paradigm’ really he said that.What is it 2007 all over again,how is that lending ‘platform’ coming along……….
http://www.merrionstreet.ie/index.php/2012/10/address-by-minister-for-communications-energy-and-natural-resources-pat-rabbitte-td-to-the-irish-bankers-federation-ibf-national-banking-conference/
John Reynolds is worth a read,his plan is basically raise rates,cuts jobs.
Reading this I actually think Fiona was far too kind.
http://www.ibf.ie/gns/media-centre/news/12-10-16/IBF_President_sets_out_path_to_restoring_confidence_and_rebuilding_trust.aspx
@Joseph Ryan here is one solution for home owners,that is getting some traction over here, its a tad wonkish also linked a rebuttal.
A variation on WSTT’s,debt/equity proposal.
“Under the 60/40 Plan, mortgage loans are restructured into a two-part single mortgage:
Parts A and B. Part A represents 60 percent of the actual mortgage debt, and it operates as a 30-year fixed-rate mortgage. For many areas in the United States, there is enough collateral in the property to accommodate the Part A portion of the loan. This collateral value is enhanced by the homeowner’s income, which provides for the proposed payment schedule. Part B represents
40 percent of the actual mortgage debt, and it operates as a zero-coupon balloon loan in which all payments are deferred until maturity. The collateral for this part stems from the ability of the bank to liquidate the property at the end of the terminal date or upon default of the contract.
The plan also acknowledges the importance of the government to provide further collateral:Part B can be instrumented as an SPV (with some type of FDIC provision) to channel liquidity to the housing market”
Click to access 103-116Santos.pdf
rebuttal:
“Principal forbearance can be a useful loss-mitigation tool, although its value depends on economic circumstances. The 60/40 Plan that Professor Santos advocates is an example of principal forbearance and not a novel concept. Moreover, the 60/40 Plan does not consider a number of important institutional factors that have hampered loss-mitigation activities since the onset of the mortgage foreclosure crisis. Simply put, the 60/40 Plan will not save the housing market.”
http://realestateresearch.frbatlanta.org/rer/2012/04/can-home-loan-modification-through-60-40-plan-really-save-housing-sector.html#more
buy to let-that’s easy,the Irish love a good old amnesty,tax, terrorists,etc.
For six months these mortgages are Non Recourse,hand in the keys and complete a ‘short sale’,allow/encourage the owners to walk away and the banks to ‘foreclose’.
The banks/institutions get the collateral,the current owners are not pursued for any shortfalls.After,the six months ‘cry havoc and let slip the dogs of war’,after correcting the legal loophole on repo’s.
@John Gallagher
The 60/40 plan sounds like it has a lot of merit. It should be considered here.
Rebuttal “Simply put, the 60/40 Plan will not save the housing market.”
The objective is to save the house owner, the bank and overall economy, not the housing market per se. If the owner was allowed to carry the 40% to a new home, then it would save the housing market as well, by bringing the A mortgage down to the a realistic % of the house value today.
Rebuttal: “buy to let-that’s easy,the Irish love a good old amnesty,tax, terrorists,etc. ”
Even though there are racist tones in this rebuttal, some suspect that part of the reason for lethargy in dealing with mortgages, particularly BTL, is that many of the landlords who are in difficulty are in fact members of the policy making elite themselves. Legal people, judges, accounting professional, tax professionals, doctors, consultants etc, SME owners etc.
They are not about to allow a loaded gun to be pointed at themselves if they can avoid it.
@Joseph Ryan,they are federal reserve or ‘fed’ papers principally concerned with the ‘housing market’ keep in mind very modern BK legislation over here.
Lost me on the ‘racist’ component feel free to elaborate,here’s an oldie with the NYFED extolling the success of the Irish tax amnesty.The numbers were typical of the miserable forecasting prevalent in Ireland projection was 50
mio amount collected 750mio.
‘By most accounts,the Irish government has carried out the most successful tax amnesty to date”-link below.
Click to access v14n3article5.pdf
Good piece by Aidan Regan,The Myth of Austerity in the ILR,regarding the positive impacts of the tax ‘amnesty’ in Ireland,obviously different times but decent look back.
http://www.irishleftreview.org/author/aidan-regan/
With regards the lack of political will to tackle the buy to let issues ..oh don’t worry,The Troika has the cojones to do that,events will overtake the govt. here’s Craig in Bloomberg a while back.
“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.”
Do you really think Fiona went on a solo run here,shes hardly a wet weekend at the CB,your puppet master’s work me thinks.
Well done Fiona Muldoon.
The Central Bank has a lot to answer for in terms of sitting on its hand for four years. There should probably have been 2k/2.5k repossessions per year over this time. Instead they have just left the problem grow.
Asset backed lending is a vital part of the credit market. Politicians and regulators have been weak in respecting the ‘asset backed’ element.
It would be interesting to see arrears rates by year of origination. Regulators should use this to sanity check mortgage affordability guidelines. Even though they have been tightened, some of the figures I hear bandied about are worrying. In particular I’m concerned that borrowers fail to consider future pension provision.
In terms of solving the current problem, it’s going to be nasty. But we can’t have our biggest economic collapse without some people getting burnt. Where possible, forbearance measures should be tried. However a huge number of repossessions need to happen.
The idea of debt forgiveness isn’t workable. To make any difference you’d probably be looking at 100k+ of forgiveness. Such amounts would cause those actually paying their mortgages to behave differently.
Ireland is a strange place when it comes to this issue. Images of British landlords tossing out Irish peasants are often brought up. It’s an overlooked inconvenience that these poor wretches were tenants not homeowners. This morning on radio, Leftie Marquis Boyd-Barrett III was giving it socks about debt forgiveness for those in negative equity. I had thought the ‘property is theft’ mantra should apply to him. Obviously not given he is also against property tax. In a country where private tenants can be up to date on their rent and still get evicted. Where landlords are unlikely to show any forbearance to tenants struggling to pay rent, the ‘non-homeowners’ seem to be ignored.
@OMF
Did I miss something at that conference yesterday? Was there an immediate pay cut for any of the bankers attending? Were any of them told to return to their offices and pack their things while a security officer waited beside them and escorted them to the door? The latter occurred when I worked briefly in North America for a US multinational that laid off a large number of staff.
If neither of these things happened then talk is about the only thing that is cheap at the moment. I bet those bankers all enjoyed a nice dinner last night because their jobs are even safer now that there’s a national mortgage crisis for them to manage.
I can’t argue with that. No matter how many tongue lashing they get, I would still prefer to see all the bankers get the sack.
Privileged Technocrats bashing equally privileged Plutocrats!Huh!
Who loses?
Neither of those anyway!
Both gangs in reality exist side-by-side on the elite gravy train.
They already have our money, they call it ‘capital’ and ‘entitlements’ and privileges, paid for by citizens/clients/borrowers – total charade -increased pain heading for the rest of us……
Same conference interesting and excellent presentation by John Moran, both himself and Fiona are great additions to the Irish public sector.
“Finally it can be argued that an effective and appropriate personal insolvency regime can, in conjunction with the regulation of the credit industry and lending practices, play a prominent role in the promotion of more responsible lending, which again should support greater stability in the financial sector.”
http://www.finance.gov.ie/viewdoc.asp?DocID=7399
Meanwhile,John’s illustrious predecessor Kevin “Forrest” Cardiff, busies himself with reports on organic food,up to his neck in sh*t as usual.
http://www.euractiv.com/specialreport-prods-green-planet/auditors-commission-strengthen-m-news-513647
Perhaps he did learn something from his involvement in the disastrous bank guarantee,a proponent these days of audits and monitoring yeah and strengthening them.What a dry wit,deadpan delivery too,for a moment reading this I though he was reminiscing…..
“The Commission should strengthen its monitoring of member states by carrying out the auditor visits that it is required to do. This is something that has not been done for 10 years,” Cardiff stated.
Nice speech, bit vague in the end.
Looks like they’re going to insist on a UK-style forbearance regime for owner occupied mortgages, maybe in line with NRK AM ie. possession orders suspended on payment of the monthly instalments, forget about the arrears for now.
Her threat on BTLs sets up a purge of that sector, but she didn’t quite say it.