The Irish Banking Federation (IBF) members fully recognise the human impact of the mortgage arrears statistics published by the Central Bank of Ireland today. Banks are committed to working with their customers to resolve the situation.
The statistics show that 10.2% of all private residential mortgages are in arrears of more than 90 days. Unfortunately, this is not surprising as the statistics reflect the lag effect of the phenomenon seen in 2011 when a very substantial number of new customers evidenced difficulty in meeting their mortgage repayments; and it is a characteristic of this crisis that an increase in new mortgage arrears in one period will be followed some months later by a deterioration in the number of longer-term arrears. However, it is notable that there has been a reduction in Q1 2012 in the rate at which new customers are going into arrears.
The deterioration in 2011 coincided with the continued economic pressures on customers, the introduction of restrictions on early bank engagement with customers, (such restrictions thankfully relaxed recently), and extensive public commentary around the feasibility or otherwise of some measure of debt forgiveness. In the IBF’s view, these environmental circumstances had a material influence on the number of mortgage arrears which accumulated in 2011 with the knock-on consequences for a growing core of longer term arrears in 2012. The still, un-remedied Justice Dunne judgement also undermined banks’ ability to resolve unsustainable situations, particularly residential investment property loans. As well as the severe consequences for customers, the impact of this deterioration has had very negative effects on banks’ ability to fund themselves, and as a result of the disproportionate capital set aside for loans in arrears, to provide lending to new customers – be they personal or SME. Banks are therefore very motivated to resolve the mortgages arrears crisis.
While most borrowers continue to meet their mortgage repayments, those borrowers facing difficulties are being assisted by their lenders based on individual banks’ recovery strategies and in a manner which reflects direction and guidance from the Central Bank of Ireland which focuses on determining the sustainability, on a case by case basis, of each individual mortgage. The customer support measures currently in place and/or in the pipeline include the following:
- Banks have allocated increased staffing (up to 3,000), IT support and other resources across the sector dedicated to working with customers who are experiencing financial difficulty
- Banks are engaging with such customers at the earliest opportunity – the recent revision by the Central Bank of Ireland of what constitutes ‘unsolicited calls’ is of assistance in this regard
- In consultation with the Central Bank of Ireland, and with reference to the recommendations of the Inter-Departmental Mortgage Arrears Working Group (the Keane Report), banks are currently finalising a new loan modification and resolution strategy (MARS) to assist customers over the medium to long term; they are also preparing new customer outreach programmes to encourage earlier customer contact with lenders. These will be rolled out during 2012 and be fully evident in 2013.
A great deal is being done and will continue to be done by banks, day to day, week to week, to assist their distressed customers and this is evidenced by the almost 80,000 restructured mortgages now in place. IBF continues to strongly encourage borrowers who are under pressure with their repayments to communicate with their lenders early in order to find a workable arrangement that will assist in the management of their financial difficulties. Banks’ own websites provide useful information for customers, as does the website which is provided by the Citizens Information Board and MABS – www.keepingyourhome.ie.
The fundamental position of the banking sector on the proposals for a personal insolvency regime remains that, should secured debt be included, it is done in a way which will mitigate against unintended consequences and minimise both the capital impact on banks’ balance sheets – capital largely funded by taxpayers – and customer impact with respect to repayment obligations. IBF believes it would be untenable to ask the country’s taxpayers to accept banks’ compromising their ability to repay that capital and make an adequate return for the State. IBF also believes that the MARS measures, if fully supported by all stakeholders, have the potential to assist genuine customers in reaching stability over time. To this end, it is critical that any proposals with respect to secured credit are measured and balanced. At a minimum they should, in IBF’s view:
- ensure an appropriate distinction between a borrower with a sustainable mortgage loan and a borrower with an unsustainable mortgage loan
- build on a record of prior ‘good faith’ evidenced engagement with the Mortgage Arrears Resolution Process by the borrower with the creditor, with proposals already put on the table by the creditor taken fully into account
- distinguish between those who cannot pay and have no reasonable prospect of being able to, and those who could pay, but may not want to (particularly if their debts currently exceed the value of their property). The latter non-payer should not be incentivised by a legal framework.
IBF has and will continue to engage constructively with policy makers and key stakeholders in helping in the delivery of a legislative framework that appropriately balances the needs of lenders and borrowers.
Contact: Felix O’Regan, Director Public Affairs, Irish Banking Federation, tel. 6715311
Note: The Irish Banking Federation (IBF) is the principal voice of the banking and financial services sector in Ireland, representing over 70 member institutions and associates, including licensed domestic and foreign banks and institutions operating in the financial marketplace here.