MORTGAGE ARREARS may be “the biggest legacy issue” from the financial crisis, according to the head of financial regulation at the Central Bank, Matthew Elderfield.
The number of borrowers missing monthly mortgage repayments increased again in the first quarter of the year, Mr Elderfield said, citing updated statistics to be released by the regulator today.
Addressing the Insurance Institute of Ireland, Mr Elderfield said there was “no silver bullet solution” for mortgage arrears due to the so-called “moral hazard” issue and the costs involved in providing support for struggling borrowers.
“We must be careful that any approach doesn’t provide financial incentives for the arrears problem to get worse,” he told a packed gathering at the RDS in Dublin.
“And, in seeking to assist households in difficulty, we need to recognise that the cost of any support will be borne by those neighbours who avoided excessive borrowing themselves or are gritting their teeth and meeting their obligations.” Taxpayers would have to bear the cost of any support mechanism over arrears, he said.
Some 3.6 per cent of borrowers, or close to 30,000 mortgages, were at least 90 days behind on repayments at the end of last year.
Mr Elderfield, who is a member of a Government-appointed group seeking ways to help those in arrears, said they were working on a solution, but warned this would be difficult. “There is a need for a sense of realism as to what can be achieved given the financial constraints affecting both government and the banks,” he said.
The banks will require “significant Government support” to meet the regulator’s new capital requirements, he said.
Mr Elderfield said he was concerned by reports that some banks were offering incentives to customers who switched from tracker mortgages to higher-cost variable rate loans when restructuring mortgages which were in arrears.
The Central Bank should not have to pre-approve new products but disclosure outlining the potential risks to customers “could be more straightforward”, he said.
In response to a query about checking investment products, Mr Elderfield said he was cautious about increasing the regulator’s workload, and he didn’t want the regulator to become “a skip where every financial issue is dumped”.
He warned financial firms to handle any complaints seriously, and said it was important that they “do not fob off customers”.
Some lenders “are not moving with purpose” to fix governance and risk management problems revealed during the crisis, another senior regulator at the Central Bank said in a separate speech.
Jonathan McMahon, an assistant director general for financial institutions supervision, said it was “equally concerning” to see business plans containing return-on-equity forecasts in the late teens and early 20s.
“These levels of reward cannot be realised, in this market, without a degree of risk,” he told a banking conference in Paris yesterday.
The regulator plans to visit the retail banks to ensure they change how they pay executives to balance rewards for growing loan books with deposit-gathering.
Strategies will be assessed to ensure banks broaden lending so earnings are not reliant on property, and they can maintain credit standards in a competitive market.
“We will intervene if we are not satisfied that a strategy is well conceived,” said Mr McMahon.
The regulator’s plans for the supervision of the banks will be published on June 21st, he said.
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