By Seán Whelan Economics Correspondent
With all the comment – some bordering on the hysterical – about Department of Finance boss John Moran’s answers to questions on mortgage repossessions at the Public Accounts Committee last week, I thought it might be worth posting up the transcript. This is the official version (that’s why it refers to Judge Elizabeth Dunne as Mr Justice Dunne).
Just for comparison, according to the UK Department of Justice, in the last quarter of 2012, British lenders brought 14,140 claims for mortgage repossession to courts, which issued 10,141 order for repossession (a fall on the previous quarter). During the same period in Ireland, banks took 238 cases, resulting in courts granting 111 repossession orders. 38 properties were actually repossessed on foot of a court order during the period (Central Bank figures).
For buy to lets, in Ireland in the fourth quarter of 2012 there were 66 voluntary repossessions and 22 repossessions on foot of a court order. In the UK, lenders took 38,934 cases against landlords, and got repossession orders in 27,173 cases. In Ireland there are a total of 37,995 buy to let mortgages in arrears (greater than and less than 90 days). So in Q4, UK lenders sought more repossession orders on buy to let property than the total number of arrears cases in Ireland.
The UK Council of Mortgage lenders says there are 11.3 million mortgages there, worth £1.2 Trillion. Of these 157,900 are in arrears amounting to 2.5% of the balance or more.
The unemployment rate in the UK is 7.8%, in Ireland its 14.1%
In the UK last year there were 33,900 actual repossessions. This was the lowest number since 2007.
Here there are 792,096 private residential mortgages worth €110.8 billion. 94,488 are in arrears of three months or more. 23,523 haven’t paid their mortgage for two years or more.
Does anybody seriously think the repossession rate – voluntary and court orders – will not go up as a result of the new arrears regime announced by the Central Bank today?
Here’s what John Moran said last week:
Deputy Shane Ross: I refer to the mortgage issue. Mr. Moran’s review of AIB mentions significant progress being made in 2012, with mortgage arrears increasing at a much slower pace. He says cost re-structuring is under way and that 50 branches have been closed, which he regards as an achieve-ment. He also refers to 2,500 staff departing and significant changes to benefits, which means they are being downgraded. He also regards this as an achievement. Is it likely that there will be more repossessions this year?
Mr. John Moran: On the question of repossessions, we have a technical problem to over-come in terms of the decision of Mr. Justice Dunne, but it is surprising to us that they are so few repossessions in the system, given the extent of the crisis we have been going through. We have had an unemployment rate that has been as high as 15% and it is very uncharacteristic to have a situation where I think our repossession rate is running at less than 0.25%, whereas if one looks at what is happening in other jurisdictions, it is 3% in the United Kingdom and perhaps as much as 4% or 5% in the United States. It would be typical to see in a crisis as severe as we have more situations, both voluntary and, in effect, through the court system, where people decide the economics of paying their mortgage no longer work and that, in effect, the maximum mort-gage they are able to support, given their economic position, is less than the value of the house. When I refer to repossession, I include voluntary surrender. That is not a situation where the person should continue to remain in the house but should try to seek an alternative arrangement.
Deputy Shane Ross: Mr. Moran is correct that there is a technical problem because of Mr. Justice Dunne’s judgement, but it can be solved at the drop of a hat by legislation, which is taking a long time to be published. Do I take from his comments that the Department will encourage the banks to repossess this year?
Mr. John Moran: We will encourage, as we do already, the banks to seek a resolution of the mortgage issue. That will require a large range of options. We have always said there is no one solution to fits every situation. In a scenario where somebody works out the maximum value he or she can support as a mortgage in a sustainable way – I am talking about somebody who when one looks at the medium to long term in terms of the mortgage he or she can repay on a sustainable basis, not a situation where somebody loses his or her job and there is a temporary shock to his or her income – and if the value of that mortgage is less than the value of the property he or she is in, irrespective of whether he or she is in negative equity, that is a situation where essentially there should be a voluntary surrender of the house. It is not one in which there should be a write-off because that would not be in the interests of the taxpayer or the banks and, therefore, not in the interests of those who are currently paying their mortgages.
Deputy Shane Ross: At what point will there be legislation to resolve the Dunne judgement issue?
Mr. John Moran: Our colleagues in the Department of Justice and Equality are primarily responsible for it, but a memorandum is being prepared for the Government to resolve the issue.
Deputy Shane Ross: What is the timetable?
Mr. John Moran: I expect it is a matter of weeks.
Deputy Shane Ross: Once that legislation is passed, it will be a free-for-all in terms of repossessions.
Mr. John Moran: No, first, the technical amendment that needs to take place does not cover all mortgages. That is important. We are seeing the surrender of some houses and some repossessions in the system. Temporary measures were put in place under the code of conduct from the Central Bank to defer the repossession of houses, frankly, until such time as we were able to put in place all of the rest of the machinery needed to resolve so large a crisis. The personal in-solvency legislation is in place; the system is being put in place and will be operational towards the middle of the year. That will be a very important part of the toolkit to resolve this issue and the Central Bank is looking at its code to see what is the appropriate balance, but it is always important to remember that the decisions of the banks should also be made with respect to their profitability. As I said, if there is a situation where somebody has an unsustainable mortgage, it needs to be resolved. Equally, in a situation where the debt is unsustainable, the bank needs to resolve the issue.
Deputy Shane Ross: I take it from what Mr. Moran is saying that he is anticipating a large increase in the number of repossessions in the next year or two. Is that correct?
Mr. John Moran: I have just given the Deputy some statistics. The Irish repossession rate is less than 0.25%, whereas the number in the United Kingdom is about 3%. Depending on how one wants to play with the statistics, one could consider moving from 0.25% to 1% as a very large increase because it would be four times as many, but one is starting from a base which is uncharacteristically and unnaturally low relative to the scenario in other similar situa-tions. I could give the Deputy numbers. I could look at and imagine what would happen and, depending on how I wanted to present the numbers, could describe that, as the Deputy did, as a very significant raise in the number of repossessions because even in moving to a figure of 1%, which is still only one third of the number in the United Kingdom, we would have four times more.
Deputy Shane Ross: To where does Mr. Moran anticipate us moving?
Mr. John Moran: One of the things we have been trying to do…
Deputy Shane Ross: Will we move to a figure of 1%?
Mr. John Moran: I will not pick a number. I have told the Deputy what has happened in other jurisdictions and maybe we might move to those figures. We have had as severe a crisis as anyone else. What we are still missing – the Central Bank may have a better focus on this – is the individual breakdown per customer. That is what is required to answer the question the Deputy posed because we need to know what the position is for each individual borrower because this is a situation where there is no magic wand or which does not have a one-size-fits-all solution. Until such time as one can get the SFS from every customer, including those not currently engaging with their banks to produce it, it is impossible to predict where repossession or surrender should take place.
Deputy Shane Ross: If we make the comparison with the UK and say it is 3%…
Mr. John Moran: One would expect to see more.
Deputy Shane Ross: —– and Mr. Moran is saying it is 0.25% here. Undoubtedly what he is suggesting is that the banks are sitting waiting for this to happen as is the Government and they will kick people out of their houses pretty quickly once the legislation is passed.
Mr. John Moran: No. I think it is fair to say that the situation has not been resolved, but for the 1% we talked about, there are also a lot of people who will in fact see banks move in terms of giving them appropriate relief. We have set out the various types of relief we would recommend, including split mortgages and dealing with interest only for periods of temporary loss of income. There will also be significantly larger numbers of people who will avail of those solutions once the banks start working through person by person where they need to go.
Deputy Shane Ross: It sounds like this debt resolution will be a pretty grim scenario for some people if repossessions are set to increase fourfold.
Mr. John Moran: With respect, I would describe the situation as a grim scenario at the moment for people.
Deputy Shane Ross: That is not what Mr. Moran told us earlier.
Mr. John Moran: With respect to the people who have a problem with their current mortgages and are not able to pay their mortgages, it is not a happy situation. What is required is that the banks engage with those people and that those people engage with their banks. We have seen the Central Bank explain that 70% or 75% of the people, who are currently going through the MARS process, describe it as satisfactory. We also have a large group of people who are not engaging with their banks at the moment, today, and they need to engage. It is only by working between those people, the regulator and the banks that we will finally get to a situation which produces a better resolution for everybody. In some cases that will require people, who are living in houses that are much larger than they are capable of supporting with their income, to in fact potentially trade down from that house or move to rented accommodation, but that is not necessarily, as the Deputy describes it, a grim situation. That is a recognition of their financial position and a resolution because ultimately it is the other people in the country who are paying for those people to remain in those houses as long as they are not paying their mortgages. If they are able to pay the mortgage and if the mortgage that they can support is at least equal to the value of the house in which they are living today so they are paying their mortgage like their neighbours, then in that scenario the bank needs to also resolve any portion of the historical debt that is unsustainable for those people.
Deputy Shane Ross: I take it from that response that we can expect more repossessions – a large increase.
Mr. John Moran: I have already said the repossession numbers are at an unnaturally low level because of the fact that we have been trying to put all of the various pieces in place for a proper resolution of this across the system. Now that those pieces are falling into place the banks can actually move – or should move – forward to resolve more and more customers, to up their level of engagement with customers so that we can seek resolution of it across all the different scenarios and solutions we have proposed.
Deputy Shane Ross: Okay.