Senior Government Ministers and officials will sit down at the Economic Management Council (EMC) next week to try to agree finally on a package of measures to deal with the mortgage arrears problem. A final announcement is expected before the end of the month.
The political nightmare involves repossession cases coming up in courts around the State over the next year, when the Government is trying to engineer a relatively trouble-free run-in to polling day. The approach will be to make clear that as much as possible is being done to allow people to stay in their homes, but that those who don’t engage in negotiations with the banks will have to take their chance in court.
The Government is considering three main areas. None is a silver bullet. The crunch problem remains that someone, somewhere has to pay the bill and if it isn’t the homeowner, then it will either be the banks – two of which are still State owned – or the State itself , via exchequer subsidy.
The key solutions to be considered are the following:
This one is a nailed-on certainty.
What it will involve
Banks and the Government will engage in a campaign to ensure those in arrears know their options, both in terms of dealing with their bank or going into the personal insolvency process.
What it will mean
Giving people information is always useful. The banks privately complain that they have written repeatedly to those in arrears and that information is widely available. Better information will help some to decide, but it is unlikely to affect the hard core who ignore all calls to talk, or those who are so deep in arrears that possible solutions are limited.
Insolvency regime changes
This is also certain, though some of the details have yet to be finalised.
What it will involve
Relatively small numbers of people have been using the new insolvency arrangements. In particular, the effective veto that the banks have on personal insolvency arrangements (PIA) is seen as a block. A new oversight or appeal arrangement will be put in place to monitor this, though it remains to be seen what powers it will have.
Removing the banks’ veto is not seen as an option – partly because it would interfere with constitutional property rights. However, new legislation is expected to be introduced to weaken the veto. This will change the voting rules in PIAs, which currently give banks an effective veto by ruling that those holding 65 per cent of a household debt – and at least 50 per cent of secured debt – must support the scheme. Moves are also expected to streamline the personal insolvency process.
Under the insolvency regime, those who do not qualify for PIAs because of the extent of their debts can choose bankruptcy. A big issue is whether to cut the bankruptcy period, now three years, to one year, to bring it into line with the UK. This has got strong support from Labour, but may be more relevant in dealing with business and other debts than to those in mortgage default, unless the homeowner wants to give up their home and start again.
What it will mean
Changes to the insolvency regime are likely to be most relevant to those with a range of debts owed to different borrowers and not mortgage problems on their own. Many who opt for bankruptcy will still be in danger of losing their homes – this happens in about 70 per cent of bankruptcy cases to date – so while these measures may help borrowers deal with debt, they are not directly aimed at cutting repossessions.
Mortgage debt schemes
There will certainly be moves in this area, with a key aim being to get banks and borrowers to sign up to longer-term solutions and to keep as many people as possible in their homes.
What it will involve
Banks are already being pressed to offer longer-term solutions to borrowers. In practice, this means offering products such as split mortgages, where a portion of the mortgage is parked and interest is not paid on it. This can deal with cases where borrowers can still meet a significant chunk of the repayment. The bigger problem is homeowners who can only make a limited contribution and can never realistically repay a large amount of their loan. A mortgage-to-rent scheme, under which such homeowners lose their property and rent it back from a local authority or housing association has been bogged down in complications, though it is getting some sign-ups.
The Irish Mortgage Holders Association (IMHO) has proposed an alternative mortgage-to-lease scheme under which homes would be purchased by a new vehicle and leased back to buyers. It also called for State subsidies to help people pay split mortgages.
The likely solution involves two initiatives. One will be to change the rules on the mortgage-to-rent scheme, which has restrictive limits on the house value and the income of the household. This will involve extra government spending on rent supports. Under this, the homeowner loses ownership.
A new scheme is also being considered which would involve the homeowner retaining ownership and some form of State subsidy to help pay the mortgage, based on a formal arrangement with the bank which would agree a restructured loan size. The State, possibly via the local authority, would take a secondary charge on the property and the subsidy would be paid to the bank.
What it will mean
The key political call is how far to go to stop repossessions in cases where households have negotiated and are paying what they can – but this amount falls well short of what is due. The improved state of Government and bank finances and the political reality of an election approaching means more is going to be done.
Mortgage arrears: The facts
There is no single source of statistics on the mortgage arrears crisis. But a picture can be put together using a few different sources.
1 Central Bank mortgage data This set of figures is the most complete. It covers all the banks and the most up to date figures are for the end of last year. They show that a total of 110,366 of homeowners’ mortgage accounts were in arrears at the end of the 2014, some 14.5 per cent of all outstanding mortgage.
Accounts in arrears for over three months totalled just less than 79,000, of which a hard core of almost 38,000 are in arrears for over two years.
The figures show almost 115,000 mortgage accounts held by homeowners were classified as restructured. In more than 36,000 of these cases, the mortgage is still counted as being “in arrears”, mainly because of historical debt not being paid at the moment, and also because some homeowners cannot meet the revised repayment terms.
A wide variety of restructuring arrangements have been offered to homeowners. In more than a quarter of cases, these involve capitalising arrears – putting arrears into the amount still to be repaid.
Extending the mortgage term, or splitting the mortgage and agreeing to park a portion of it for a period without interest being paid account for a combined total of another third of the solutions, with other arrangements including a move to interest only, a payment moratorium for a period and others.
2 The Mart figures The Central Bank set new targets in March 2013 for the banks to resolve mortgages in arrears, the so-called Mortgage Arrears Resolution Targets (Mart), which apply to the six main domestic lenders – AIB, Bank of Ireland, Permanent TSB, Ulster Bank, KBC and ACC.
The latest figures, for December 2014, show that just under 78,000 “solutions” are in play for homeowners with mortgages in arrears, of which just under 31,000 include possible loss of ownership of the property and the rest involve some kind of restructure of the mortgage.
The banks say that, in many cases, court papers are issued to try to get borrowers to engage . So only a proportion of the court cases are likely to actually result in repossession, they say. Not included in the figures are arrangements between mortgage-holders and lenders outside the six named, including subprime loans.
3 Court figures The number of court actions has jumped, and about 8,000 civil bills have now been issued by banks seeking repossessions. Even if many do not end in repossessions, the total is certain to rise steeply.