The Government’s role in the mortgage problem
By David Murphy, Business Editor
The nightmare of mortgage arrears is perhaps the most urgent problem facing Ireland.
Central Bank Governor Patrick Honohan has accused banks of making slow progress on the issue and has, in particular, told the financial institutions to begin repossessing buy-to-let properties from delinquent borrowers.
Ministers too, are happy to wag their fingers at the bankers.
However Jim Brown, the Chief Executive of Ulster Bank, has pointed out that both the Central Bank and the Government have yet to live up to their commitments on the issue.
He said “focus is required on three key areas: Government must legislate on the Dunne ruling, an effective credit register across all customer debt must be created, and clear direction must be given to customers in difficulty to prioritise their mortgage head of unsecured debt.”
The so-called ‘Dunne ruling’ was a judgement by Justice Elizabeth Dunne which exposed a legal loophole and blocked banks from repossessing homes in cases where the mortgages were issued before 2009. As the boom-time loans were all given prior to 2009, the judgement stopped the banks in their tracks.
This issue is also a priority for the Troika. It has mandated the Government to sort the problem out before the end of the first quarter of this year as part of the bailout.
Until the Government does so banks simply won’t be able to repossess buy-to-let properties, regardless of Professor Honohan’s demands.
However it is not the only item which has been on the to-do list for far too long – the credit register is also a big issue for banks.
One of the basic problems with the Irish banking system is that lenders have no way of knowing how much potential customers have already borrowed from other financial institutions. A register would give an overview of the total debts of any individual, which would be critical in terms of resolving problems for over-stretched borrowers.
The third issue Mr Brown raised is the requirement to give direction to borrowers to prioritise mortgage debt ahead of other liabilities.
It’s not clear if this instruction would come from the Government or the Central Bank, nor how the message will be communicated, however banks see it as important as many in arrears already have difficulties with other debts, such as credit card borrowings.
Directing them to pay their mortgages first will be unpopular with other creditors – but it is an important step in the right direction.
With those issues outstanding, it’s clear that it’s not only the banks which need to get moving to the resolve mortgage arrears problem.
While politicians may take a jaundiced view of taking advice from the chief executive of any bank, including Mr Brown, there is much the Government and the Central Bank can do to help ease the crisis.