Honohan accuses lenders of ‘wishful thinking’ on arrears

Central Bank governor tells Oireachtas committee that banks appear to believe mortgage cases will resolve themselves

The Governor of the Central Bank Patrick Honohan has accused Ireland's main banks of engaging in "wishful thinking" on the issue of resolving the mortgage arrears crisis, saying there seemed to be a belief that many cases will cure themselves.

He said yesterday that banks were not moving fast enough to tackle the problem and the majority of them were opting to go down the repossession or surrender route, with almost two-thirds of mortgage holders in arrears being threatened with legal action.

Of the 35,000 proposed resolutions offered by banks to the end of June, 62 per cent referred to surrender or repossession of property.

Mr Honohan told the Oireachtas Finance Committee that 74,000 of the 98,000 mortgage holders in arrears of more than 90 days at the end of June “were not yet in arrangement” with their lender.

“Despite all of our efforts, and despite real progress in policies, processes and staffing, far too many arrears cases have still remained untreated,” Mr Honohan said.

'Wishful thinking'
"There has been a degree of wishful thinking, a belief that many cases will cure themselves even without energetic action by the lenders."

Mr Honohan said the Central Bank had “no mandate” to prevent lenders proceeding to repossession if borrowers refuse to engage.

“The Central Bank does not have executive or management control of the banks but the Central Bank is using its powers to the utmost extent to overcome the delays,” he said. “The process is working; it is still too slow, but momentum is building.”

He added that the Central Bank was not empowered to insist on debt forgiveness for any particular borrower.

“Relief for an insolvent borrower from indebtedness is determined ultimately through the insolvency procedures for which legislation has so recently been reformed and in a direction which is rightly much more favourable to the insolvent debtor than was previous legislation.”

Mr Honohan told the committee the concept of strategic default put forward by bank chiefs was a “phoney” one.

The chief executives of AIB and Ulster Bank had said thousands of homeowners were strategically defaulting, in that they could afford to pay their mortgage but were choosing not to.

“There are a huge variety of reasons why people are paying other things first. Decided rightly or wrongly, they are going to pay short-term debt first,” Mr Honohan said.

Sustainable solutions
The Central Bank set targets earlier this year for lenders to provide sustainable solutions to customers with mortgage arrears of 90 days or more. Mr Honohan said this process was working.

However, he added, when questioned by Fianna Fáil TD Michael McGrath, that the Central Bank was auditing a sample of the cases to see whether the solutions proposed can truly be regarded as sustainable. He said the results would be published by the end of the year.

Mr McGrath criticised him, saying “you are endorsing the approach of the banks before the audit has been completed.”

Mr Honohan told the committee that a sustainable solution for mortgage holders is “one that is affordable for the borrower in both the short and the long term”.