Banks not restructuring loans realistically, say brokers

Banks are still failing to agree realistic restructuring plans for people with distressed mortgages, according to a leading industry group.

Brokers Ireland, which represents close to 1,300 mortgage and other insurance brokers, says that, in too many cases, lenders are merely "kicking the can down the road".

One-third of 116,010 restructurings that have been agreed to date involve “arrears capitalisation”. That means missed payments of loan interest and capital, and any other costs incurred by the banks in handling arrears, are added to the balance of the loan.

“This is not a solution but a kicking of the can down the road mechanism, with the painful day delayed indefinitely,” says Rachel McGovern, director of financial services. “ The issue will eventually have to be dealt with.

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“We have always maintained that it is erroneous to classify such mortgages as restructured,” she said.

The comments come as new Central Bank figures show the number of agreements with lenders to restructure distressed mortgages jumped during the second quarter after falling for a number of years.

A total of 7,857 new arrangements on restructuring property loans were agreed in the three months to the end of June. That is up 44 per cent on the number agreed in the previous quarter and 11 per cent higher than in the same period last year.

Payment obligations

Ms McGovern noted that one in five property owners are not even meeting the revised payment obligations of mortgages that have been restructured.

“That points to a lack of realism in the restructures,” she said. She argues that lenders need to face up to the “terrible dilemma” of “stubborn arrears” – those over 720 days, which account for 91 per cent of the €2.5 billion outstanding – with “real solutions”.

“These are people who are not being facilitated with solutions. They are in a bind and unable to get on with their lives.”

The Central Bank figures indicate that 36 per cent of the total stock of private homes that are in arrears were restructured by the end of June.

At the end of June, there were 725,693 private residential mortgage accounts for homes in the Republic, worth €98.2 billion. Of these, more than 9 per cent, or 66,479, were in arrears. That figure represents a decrease of 5,345 accounts over the quarter.

Of those mortgages in arrears, almost 70 per cent hadn’t paid for more than 90 days. The number in arrears over 360 days stood at 35,272, representing a fall of 2,076 accounts over the quarter. Most of these, 28,237, were in arrears for more than 720 days – or two years.

‘Extend and pretend’

Ms McGovern has previously likened the banks’ approach to restructuring as “extend and pretend”, adding that, a decade on from the property crash, many families have still not had their position resolved.

For buy-to-let mortgages, 18 per cent of accounts were in arrears, with 15 per cent of the 118,234 total in arrears of more than 90 days.

A total of 245 properties were repossessed by lenders during the quarter, down from 321 in the previous quarter. The majority, 144, were voluntarily surrendered or abandoned, with the remaining 101 repossessed on foot of a court order.

Non-bank lenders repossessed 47 properties during the quarter, up from 43, bringing the total number of properties in their possession to 430.