Home Repossessions Set to Balloon
Sixteen months after the Dublin government committed the state to underwriting the six main banks’ total deposits and loans, and half a year since the introduction of the NAMA initiative - the issue of home repossessions has come to the fore. Billions of euro have been invested in the banks, eleven to be exact. Not a cent has gone into helping people talked by the banks, developers, estate agents and government policy into buying overpriced houses at the peak of the boom.
Most of these people are now sitting in houses with massive negative equity, trapped in extortionate long-term fixed rate mortgages, and saddled with 30-year debts that they are struggling to repay in the current climate of wage cuts and job losses.
All of these people will have been pleased to hear the government announcement at the start of February that it is committed to helping homeowners struggling with mortgage payments. However, the ambiguity about what form this help will take and the fact that the government is not talking about implementing any plan until the summer, is no help. The only ‘help’ on offer for the past year has been a moratorium on repossessions, but that has run out now and only applied to the six guaranteed banks anyway. Almost one home a day was repossessed last year following proceedings by non-guaranteed banks.
As it stands, missing even one mortgage repayment can land you on the records of the Irish Credit Rating Bureau as a bad creditor.
The repossession issue is becoming very topical in light of Permanent TSB’s Standard Variable interest rate hike from 3.19% to 3.69% on 1 February. Most economic commentators have pointed out that this increase is the first of many. The fact that Irish banks are borrowing on the wholesale market at a rate of 5.6% to supply mortgages at 3.5% is unsustainable, they say. Even Brian Lenihan has said the raising of interest rates is a commercial necessity for privately run banks.
So - the elephant in the room - why are they private commercial entities when it comes to some aspects of their business, but problems for society and the Exchequer when it comes to bail-outs, recapitalisation and the toxic loans on their banksheets?
DOUBLE STANDARD
It is this double standard that is upsetting the public. They see a government, even now after everything that has happened in the economy, willing to allow taxpayers to carry the can for all the banks’ mistakes, but have no say over the operation of those banks.
Because ask anyone on the street do they think the young family up to their necks in debt should be financially helped by the state to avoid ending up on the street, or the board of directors who lent too much to risky speculative ventures, and you know what the answer will be. Nationalising the banks would have allowed the government to both deal with the internal problems and ensure that homeowners were not shafted at the same time.
All the indicators are that an avalanche of repossessions is on the way. Recent figures from the Moody’s agency show close to 6,400 people stopped paying their mortgages more than a year ago, and the live register continued to climb throughout 2009. The Financial Regulator said before Christmas that more than 26,000 homeowners are in arrears of three months or more. Most of these people have mortgages with the six main banks, which, from February, can initiate legal proceedings against them again.
There will be some legitimate anger directed at some individuals’ decisions to go for mortgages for houses that were out of their reach, but individual choice aside, the banks granted people mortgages who never had a hope of repaying them. This type of activity is something any inquiry into the banks will have to examine.
ASSISTANCE NEEDED
For now, it is important people start to get the help they need. There are many measures out there that will work but don’t amount to a ‘free-ride’ for those who got in over their heads. That’s important because, while we have to be conscious of the demographic of people who were left with no choice but to pay exorbitant sums for a home in the last few years, we also have to be conscious as taxpayers that many people did not buy houses beyond their means but chose to either buy sensibly, save or rent until the property market evened out.
The government has said it is commissioning a team of experts to tell it how best to handle the situation, which sounds suspiciously like a foot-dragging exercise. The fact is, a number of countries have their mortgage support schemes up and running already and any or all of their measures could easily be adopted.
In Britain, for example, the government is running a dedicated website specifically for troubled homeowners that offers numerous solutions and contacts depending on individual situations. These include a Mortgage Rescue scheme, run by local housing authorities (organisations that manage housing for local councils) that offers everything from financial help, to shared equity loans and ‘government mortgages to rent’, when the government buys some of your house and rents it back to you. The scheme has conditions, such as people who meet priority needs (pregnant women, dependants, old age pensioners, etc), households who earn less than £60,000, and not owning a second home.
The site also offers Homeowners Mortgage Support, which helps if your household has had a temporary, unexpected drop in income. This allows people to delay some of the interest repayments on a mortgage for up to two years.
This is the kind of specific acknowledgement and assistance that people who are struggling to meet their mortgages and face repossession need. The government sending out Minister for Communicating-smoke-signals-in-a-smug-fashion Eamonn Ryan is not enough.
It took the government all of one evening to decide to guarantee the banks €440 billion. It took them three weeks of debating in the Dáil to pass the NAMA legislation, which will give the banks €54 billion. And it’s taken them a relatively short period to invest €11 billion between Anglo-Irish, AIB and Bank of Ireland. It shouldn’t take another six months to give worried homeowners a helping hand.
Discussion
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Comment by: karl deeter
Mar 10th 2010 at 17:03
If the banks were nationalised they would either stop lending (one way of not creating loss leading loans) or they would also have to raise rates, otherwise it becomes a transfer from taxpayer to borrower. The idea of credit moving once a bank is nationalised is false, credit can be reigned in but not forced out, that is where the ‘pushing on a string’ analogy comes from.
When we bailed out the banks there was no ‘discounted/loss-leader products guaranteed’ caveat, banks serve a societal good in terms of their infrastructure, if anything, we should have nationalised the infrastructure and let the banks shut down, or only protect the valid going concerns (ie: not Anglo)
We have a highly subscribed mortgage interest supplement (which is a taxpayer to bank transfer), and that is working at acceptable levels, hence our repossessions last year were c. 440 properties (including those that were abandoned and investment properties), and c. 3 mortgages per 100,000 whereas in the UK it is 200 per 100,000 so our problem as a comparative percentage is minuscule, and yet you quote the UK system which is highly restrictive as a solution without relating the fact that they have a much larger problem in terms of repossession specifically.
The UK system and the brand new Scottish option are not answers of themselves, economic recovery is, the whole system in every country is predicated on this identical feature.
There is a ban on repossessions on family homes for 12 months once the borrower engages with the lender, that is a blanket bomb non-solution but will certainly ensure that people are not being turfed out in their masses. Banks don’t want to have to realise the loss, once a loan goes to civil bill that impairment has to be realised rather than just reported.
Back on the topic of righteous indignation, like it or not, banks have a central position in developed nations, while you might feel that home-owners are being treated second class and that the state moved rapidly to save banks, I can tell you this: the USA didn’t crumble when lots of houses were foreclosed, but nations do crumble when their banks go under. The current Central bank gov. wrote a paper on this very topic about controlling the fiscal costs of banking crises, personally I have been to Argentina and Uruguay and seen the results and studied the topic, sadly, individuals come a distant second when it comes to bailouts (I believe individual rights and freedoms are at the very centre of democracy and civil society - but that is a different matter).
There is also a price being paid for the guarantee, and banks will be levied to the end until they pay the money back, shareholders, many in retirement have been all but wiped out, look at the shareholder register, the majority is held by private individuals, these are not nameless institutions in far flung places, further dilution awaits, the idea that ‘the banks must pay’ is correct, they are paying and they will continue to pay in the future, it seems however, that unless they are shut down and people shot that a certain cohort will never be happy with what banks do, the same cohort tend to overlook the role that societal greed and rent seeking played, or the role that failed regulation played, it isn’t just about banks.
Comment by: Sceptic
Mar 10th 2010 at 20:03
” If the banks were nationalised they would either stop lending (one way of not creating loss leading loans) or they would also have to raise rates,”
Karl, The banks are not nationalised and both these things are happening already. What exactly is your argument then because non-nationalised banks are now your fears incarnate.
Comment by: karl deeter
Mar 11th 2010 at 17:03
@sceptic the point is that nationalising the banks won’t change anything, what it will do is politicise lending: the comment was to undo the myth that state ownership would actually solve anything from an ongoing operational standpoint
Comment by: joannespain
Mar 11th 2010 at 21:03
Karl, you could argue that lending has been politicised for years - if it is politicised in favour of SMEs, future tech industries etc, rather than FF affiliated property speculators - would that be such a bad thing? Clearly this government would not change anything about Irish banking, either nationalised or private - a new government elected on the commitment to overhaul a nationalised banking system is not beyond the realm of possibility (or at the very least to establish a state bank and let the current banks go it alone post the end of the guarantee).
Comment by: Cass Flower
Mar 13th 2010 at 12:03
Interesting discussion. Would Sinn Fein support nationalisation of part of the housing stock ?
I don’t think the banks are going to be in any position to support anything, themselves included.
The one thing we should be able to do know as a nation is to provide everyone who needs one with a decent home.
We are awash with vacant houses.
I’ll be linking this interesting article for discussion on politicalworld.org.
Comment by: joannespain
Mar 14th 2010 at 03:03
Cass a chara, 44,000 on the housing waiting list and (what’s the recent figures….) 170,000 empty properties. Are SF in favour of nationalising housing stock? By that do you mean, are we in favour of nationalising what NAMA is aquiring with taxpayers’ money to house people in need of a home? Abso - bloody-lutely. Are we in favour of nationalising those empty housing estates while simultaneously building the infrastructure (ie, schools, transport etc) needed, and thereby creating jobs for the unemployed construction workers? Again, absolutely. Why, in a first world country, in the 21st century, do we have people living on the streets and languishing on housing waiting lists? only FF and the Greens have the answer…