TDs and Senators get reality check on mortgage arrears
Scale of recourse to legal route to meet ‘sustainable solution’ targets surprises committee
Richie Boucher, Chief Executive Bank of Ireland, arriving at Leinster House, for a meeting with the Oireachtas finance committee, pictured with Pat Farrell, Bank of Ireland’s head of communications. Photographer: Dara Mac Dónaill.
For the best part of five years, Irish banks have been accused of kicking the can down the road on their mortgage arrears. Not any more.
This week’s marathon sessions between the Oireachtas Joint Committee on Finance and our leading bankers dealt with the targets set earlier this year by the Central Bank for lenders to provide sustainable solutions to those customers with mortgage arrears of 90 days or more.
The first milestone was to provide 20 per cent of customers in arrears with a solution before the end of June.
It is fair to say that the large number of TDs and senators who turned out for the near-13 hours of hearings didn’t expect that these solutions would involve so many people being put on the path towards losing their home.
“It became abundantly clear during the committee hearings that the banks are heavily relying on voluntary surrender, threatening letters and legal proceedings for forced repossession to achieve the mortgage arrears resolution targets set last March,” said Fianna Fáil’s spokesman on finance Michael McGrath.
He reckons that, in a bid to meet their targets, the banks took the easy way out and simply fired off of a large number of legal letters to their arrears customers rather than exhausting the various “forbearance measures” available to them.
Mr McGrath, and many of the other committee members, placed the blame for this at the door of the Central Bank for allowing the taking of a family home to be classified as a “sustainable solution”.
Governor Patrick Honohan will get the opportunity to answer that charge when he appears before the committee on September 25th.
Sinn Féin’s Pearse Doherty expressed his “shock” that 14,271 legal letters had been issued by AIB, Bank of Ireland, Ulster Bank and Permanent TSB and that an additional 2,439 requests for voluntary surrender were issued.
The regulator’s targets have forced the banks to face up to the mortgage arrears problem, which has festered since 2008. That’s what we all have wanted for some time. The unfortunate but inevitable outcome of this is the reality that thousands of mortgage-holders will have to leave their home, either by way of assisted voluntary sale or repossession.
TDs and senators argue that this does not have to be the case, that the banks could write off debt and allow people to remain in their family homes by using the capital provided by taxpayers exactly for this purpose.
Exhausting every avenue
All of the bank chiefs acknowledged that there will be some mortgage write-offs but it will only be after they have exhausted every avenue of repayment. There will be no blanket debt forgiveness.
Write-offs threaten their capital buffers and, with a fresh round of prudential stress tests to take place in the first half of next year, all are wary of taking any actions that will require them to raise new funds. In the case of AIB and Permo, this could only involve more taxpayer funding.
Richie Boucher, the chief executive of Bank of Ireland, which is 15 per cent owned by the State, told the committee that write-offs were not part of his recovery plan as this would involve his shareholders having to bear the cost.