Repossession of a home is not always a bad thing

 

Analysis:Last October at the Irish Banking Federation conference, the Central Bank’s head of banking supervision Fiona Muldoon caused some consternation when she addressed the elephant in the room.

The banks were paying “lip service” to making progress on resolving problem mortgages, she said. “I see too much ‘give the Central Bank exactly, literally, what they asked for’ and not enough true dialogue and meaningful engagement to find a solution. I see way too many ‘extend and pretends’ masking as solutions.”

Central Bank figures show there were 167,000 mortgage accounts with €35 billion of debt in arrears at the end of June 2012. With the number of unsustainable mortgages growing at an alarming rate, it would appear logical that the rate of repossessions was following suit.

In fact, quite the opposite is happening. In the first six months of last year 265 orders for possession were granted by the courts – down almost 32 per cent on the same time in 2011, when 390 orders were granted.

On one level this is good news as it means people are not being thrown out of their homes by banks anxious to recover at least some of the losses they made as a result of a disastrous punt on the Irish property sector during the boom.

But although it is nearly always emotive, repossession is not always bad.

Earlier last year the governor of the Central Bank, Patrick Honohan, said increased repossession of buy-to-let properties would “facilitate the improved functioning of the property market and getting closer to a market-clearing price by bringing to the market many of those properties which at present are implicitly hanging over it as an excess supply”.

Muldoon was more forthright in her criticisms.

“‘Wait and see’ has become the strategy of choice. In that regard, my question four years in is: what is it that we are waiting for on mortgage arrears? The hope for an economic recovery, hope that house prices will come back? This is the stuff of denial. Hope is not a strategy – any more than anger.”

Progress in tackling buy-to-let loans was even slower than on home loans, she said, and this was “where the emotional issues surrounding the family home are not even in play”.

What was needed was “authentic leadership” and “some courage to act”, she added.

This year, repossessions will climb. The troika has insisted the Government remove legal impediments constraining banks from repossessing properties tied to bad loans.

Changes in the law will make it easier to target the buy-to-let sector and when the personal insolvency legislation is up and running by the middle of this year there will be more repossessions.

There will also be more people who will lose houses but regain a degree of financial independence by walking away from debts they could never hope to repay.

Only then will the market start working again.

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