THE OIREACHTAS FINANCE Committee released a report on mortgage arrears during the week that probably got less airtime than it should have thanks to a Country & Western crisis. The political narrative following its release is becoming a familiar one from most sides of the spectrum: banks getting heavy with people who are not paying their mortgages is a Very Bad Thing.
At the outset I would say that this is a very complex issue. There is no typical mortgage or arrears case. There are over 70,000 mortgages in arrears of over 90 days, with people ranging from hard-pressed families to buy-to-let landlords and people heading for retirement who re-mortgaged their homes among the substantial cohort.
There is no silver bullet. But the tone and the message emanating from politicians on all sides, from government parties to opposition, is much the same. Banks can do anything except put those in arrears under pressure or, heaven forbid, repossess a house.
The level of political consensus on this point, whatever the disagreements about individual policy measures, is striking. “Groupthink” is the euphemism that tends to get used about this sort of universal agreement, and the word cropped up a lot in any report into the collapse of our property and banking sectors in the first place.
What should lenders do?
It is not very popular to suggest that banks should repossess a house, or that they should send legal letters to people who aren’t paying their mortgages. It wasn’t very popular pre-2008 to suggest that our economy was heading for a brick wall. Now as then, one senses that any talk of repossession is a quick route to ridicule.
Negotiated settlements are all well and good, and we are seeing an increase in such moves by banks. But not every situation among the 70,000 or more mortgages in arrears can be settled this way; and ultimately, banks have their hands tied firmly behind their backs if they can only deploy carrots without the real stick that is in every loan contract being on the table.
The fact is that there are some mortgage arrears that will only be solved by banks getting heavy and ultimately repossessing some houses. Yet there has been something akin to shock and disgust at the notion that they will target first the houses that rise into positive equity in our recovering property market.
The realities of re-mortgaging
So too the notion that people will have to pay off mortgages into their retirements is raising eyebrows. The Chairman of the Finance Committee, Ciaran Lynch, said (without so much as batting an eyelid) that a vulnerable group would be older people “who bought their houses in the ’80s and who substantially re-mortgaged during the 1990s and 2000s.”
It is clearly offensive to politicians that older (voters) should carry debt onto their pension books.
Not a thought given to the fact that re-mortgaging one’s home 10, 15 or 20 years after buying it will increase your risk of just such an occurrence. Politicians are painting the picture of little old dears paying off mortgages, rather than folks who make conscious decisions – in this or any other cohort – who will need to pay down their debts, come to some agreement or surrender their assets.
I know a common riposte here is that, well, bankers this and bondholders that and Germans the other. I agree completely with the sentiment. Ireland got screwed over by foreigners and financiers who were far cannier than we or any of our hapless politicians and civil servants ever were. Admittedly, no banker, bondholder or German signed the multiple dotted lines it takes to mortgage or re-mortgage a property, but we certainly are bearing more than our fair share of the pain.
Our banking system is now entirely public sector
When you boil it down, though, even if we had burned bondholders and hung bankers and all that, we’d still have the problem of people not paying off their mortgages for one reason or another. And our banking sector is entirely public sector now, in terms of where it needs to go when money is required to fund write-offs and write-downs.
Every penny that banks cannot get back through restructured loans, repossession and sale or any other means needs to come from the tax payer.
At best, this will mean increased borrowing by the State and higher debt interest payments every year.
All justice and cries of ‘it should be this way or that!’ are well and good, but none of them will pay for a mortgage that a bank simply has to write-off.
Dragging out the misery
We can’t go turfing people out left, right and centre. But we cannot rule out every single heavy-handed approach to solving the arrears crisis. To do so is to go down the road we did during the boom, when any talk of any sort of slow down or cooling of conditions was ruled out immediately and forcefully.
We’re not going to solve this problem in any way that will be entirely nice. But by extending and pretending that nothing is wrong with our internationally minuscule repossession rate, for example, we will simply drag out the misery and perhaps spread it round to the already well-pressed public purse.
Aaron McKenna is a businessman and a columnist for TheJournal.ie. He is also involved in activism in his local area. You can find out more about him at aaronmckenna.com or follow him on Twitter @aaronmckenna. To read more columns by Aaron click here.
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