Mortgage arrears rose to new peak of 9% in July

MORE MORTGAGE borrowers found themselves in financial distress as new figures show the level of arrears rose to a new peak of almost 9 per cent in July based on a sample of €55 million of Irish residential mortgages.

Credit rating agency Moody’s said that arrears of 90 days or more in a pool of mortgages, which accounts for almost half of the State’s mortgages, rose to 8.78 per cent in July from 7.62 per cent in April.

This is a further sharp deterioration since the Central Bank said last month that arrears had risen to 7.2 per cent in June. The figures will increase the debate around the need for long-term solutions for indebted borrowers.

Moody’s assesses the performance of mortgages which have been sold on by the banks in securitisation deals as so-called residential mortgage-backed securities (RMBS).

The ratings agency said more and more borrowers were being pushed into arrears due to rising unemployment. Moody’s estimates the number of people out of work will rise to 14.5 per cent this year from 13.6 per cent last year.

Falling house prices will increase the size of losses on defaulted mortgages, Moody’s said, adding that house prices had already fallen 43 per cent from September 2007 to July 2011.

The number of mortgage borrowers in arrears of 360 days or more rose to 2.86 per cent in July from 2.38 per cent based on the performance of 14 Irish RMBS transactions issued by Irish banks.

The rate of mortgages being repaid has also fallen as Moody’s noted that the rate of loan redemptions on the pool of mortgages fell to 4.08 per cent in July from 4.53 per cent a year earlier.

There are about 777,000 residential mortgages in the State amounting to €115 billion in debt.

The amount of loans within the mortgage pools tracked by Moody’s declined by 9.2 per cent over the course of the year, falling to €55.5 billion in July from €58.9 billion the previous year.

Moody’s downgraded 30 tranches of loans in the pool in July due to the cut in Ireland’s rating, the failure to mitigate the risk of disruption in the loans’ performance and the increased likelihood of severe events.

As the level of mortgage arrears continues to deteriorate, a Government-appointed expert group is to report on potential industry-wide solutions for distressed mortgage borrowers later this month.

Central Bank Governor Patrick Honohan has ruled out a blanket debt forgiveness scheme but said that banks were looking at temporary shared ownership arrangements with borrowers.

AIB said last week it was writing off mortgage debts in a few cases but only where houses had been repossessed. Bank of Ireland said it did not have a policy of writing off debt for borrowers who could not meet mortgage repayments.