The Irish Times view on non-performing loans: delay, indecision and deferral
The Government and the regulator need to ensure that the current rules are fully enforceable as ownership moves offshore
Forward planning is vital if the housing needs of an aging population are to be met close to amenities and transport services. Photograph: Rui Vieira/PA Wire
Irish banks have been under pressure to reduce the non-performing loans they hold and sales of loan books to so-called vulture funds are increasing, most recently by Permanent TSB and Ulster Bank. This is the latest episode in what has been an ongoing story of delay, indecision and deferral in dealing with this issue.
As banks got back on their feet after the crisis, there appeared to be a tacit understanding between them, the government and the regulator that the issue of non-performing loans would be allowed to drag on. The banks faced a mess which they appeared incapable of dealing with. The government feared the political fall-out of moves against borrowers in arrears. And the regulator – the Central Bank – while nudging the banks on, has only recently succeeded in getting some acceleration in real solutions, such as the mortgage to rent scheme, being offered.
This delay has left the loan books of the banks still weighed down by non-performing loans. Selling them off to major funds is an admission that the domestic banking system cannot deal with the non-performing loans in a reasonable timeframe. It is a sad reflection of operational ineptitude, and reflects political reticence and uncertainty in the face of the emotive issue of the circumstances in which banks should repossess homes.
Significant new protections have been put in place for borrowers in recent years and the Central Bank is again examining the issue, with some suggested legislative changes having been proposed in a number of Bills. Borrowers do retain protections when their loans are sold, even if there is some scope to debate the powers of the Central Bank when the ultimate ownership of the loans moves offshore.
Evidence so far suggests the domestic banks are actually more likely to take repossession proceedings against homeowners than the funds.The short time-frame in which such funds typically look for returns and their likely disregard for domestic political controversy may cause problems for some borrowers. Others may well find the new owners more willing to do a deal and write off debt. Those who make no effort to pay and have not engaged with their bank cannot expect the same protection.
From a policy point of view, the Government and the regulator need to ensure that the current rules are fully enforceable as ownership moves offshore. The essence of a mortgage market is that the bank or financial owner can exercise its security after the borrower has been given every chance to repay. But 10 years on from the crisis, the circumstances in which a financial institution should be allowed repossess a home remain under debate and the housing options for those who lose their home remain inadequate. We still have work to do to solve this issue.