Banks need to move on mortgages
After a broadside from the Central Bank, the banks need to start resolving the situation of the many thousands who are hopelessly overborrowed on their mortgages
THE ROCKET OF a speech the Central Bank’s head of banking supervision fired at bankers at their conference on Tuesday confirmed what many customers suspect – banks are not tackling the mortgage crisis fast enough.
Fiona Muldoon, the director of credit institutions and insurance supervision who is just six months in charge of banking, castigated the bankers for wallowing in humility for past mistakes and for not focusing on fixing them.
She said at the start of her speech to the Irish Banking Federation on Tuesday that even though she was there as an invited guest of the bankers, she hoped to “provoke” them a little, “maybe even vex you”. This she did in spades with a 20-minute speech. She compared the banks to troublesome teenagers, saying they had waited to be told what to do and didn’t like it when the Central Bank did the telling.
They had paid “lip service” to the idea they were dealing with troubled mortgages and they had to “get busy fixing”, she said.
“What is needed now is authentic leadership not humility; some courage to act. No one is arguing for an overnight avalanche of available resolution options offered to thousands and thousands of borrowers,” she said. “There just needs to be a proper beginning – step by measured step.”
This all wasn’t just rhetoric. Muldoon gave detailed figures showing inaction by the banks.
Of the 169,000 home loans consisting of €31 billion in debt in arrears at the end of June, no arrangements were in place for 84,000 mortgages, consisting of €15.4 billion in debt. This was out of a total of 762,000 mortgages and €112 billion in debt.
More frightening than the state of the home loans were the new figures showing an even more distressed picture on the country’s 150,000 buy-to-let mortgages, comprising debts of €32 billion.
Arrears of 90 days or more, reflecting the greatest distress on non-performing loans, were running at 20 per cent or 37,000 mortgages and an eye-watering 29 per cent by value or €11 billion.
No formal arrangements were in place on €8.3 billion worth of buy-to-let mortgages on 27,000 accounts which were in arrears.
Muldoon’s host, Irish Banking Federation chief executive Pat Farrell, said the banks had to turn themselves “inside out”, from being lenders to debt collectors.
“It is a huge cultural shift and a huge operational shift,” he said. Bankers have also had to deal with “a schizophrenic message” where they were initially told not to repossess houses but “do whatever you have to of a short-term nature to keep people in their homes”.
John Moran, secretary general of the Department of Finance, said that there were situations where repossessions had to take place and that people might have to “trade down” if they had unreasonable expectations around their standard of living.
“I don’t quite accept that there has been a pressure on banks not to repossess properties,” he said.
He told the conference earlier that there would have to be a “dramatic write-off of debt” for households with unsustainable debt that they could not pay.
Privately, bankers were flummoxed by Muldoon’s comments as they felt they weren’t in sync with what the Central Bank had been telling them in meetings. They say they are working through the problems case by case – in line with the Central Bank’s timetable – and they have already agreed short- to medium-term forbearance such as interest-only payments and term extensions for 85,000 customers.
But Muldoon’s views were supported by debt advisers who are desperately trying to agree long-term deals for customers.
“Find me someone who has received one of these long-term forbearance products and I will give an award,” said David Hall, director of Irish Mortgage Holders Organisation, which advises borrowers in difficulty.