Central Bank must act to prevent wave of home repossessions – McGrath

Fianna Fáil Finance spokesperson Michael McGrath has stated 2015 will become known as the year of home repossessions unless action is taken urgently to direct the banks to deal with the massive increases in long term arrears cases. He was speaking in response to correspondence with the Governor of the Central Bank Patrick Honohan in which Governor Honohan noted that the Central Bank “continues to have concerns that some restructures offered may not be sustainable.”

Deputy McGrath stated “I expressed my view to the Central Bank that banks were using arrears capitalisation to meet the restructuring targets when this has been demonstrated to be ineffective in many cases. Over a quarter of mortgage restructurings at the end of September 2014 involved the arrears being capitalised but, of these, nearly a third (32%) have re-defaulted, i.e. the arrears balance has increased since the arrangement was put in place.  In essence, arrears capitalisation is proving to be only a sticking plaster solution in many cases.

“Only the relatively insignificant category of permanent interest rate reduction has a lower level of success in terms of customers meeting the terms of the arrangement. By contrast, the split mortgage arrangement has a 96% success rate. The Central Bank has provided some important new information in stating that the official statistics “include some historic arrangements implemented prior to the introduction of the Mortgage Arrears Resolution Targets (MART). Modifications pre MART often were akin to short term forbearance and accordingly are more likely to have re-defaulted.”

“It is essential that the banks are forced to re-open these cases as they are quite likely to be in the firing line for repossession. The banks must not be able to hide behind claims that they have attempted to put a solution in place when it is now clear that the nature of the solution put forward was entirely inadequate in many cases. There has been a significant step up in legal action on the part of banks since the start of the year with warnings of a wave of repossessions coming in the months. If the banks have failed to make reasonable efforts to put in place a workable solution, they need to be made go back and start again.

“I have suggested that the personal insolvency service, which is completely under-utilised, could be adapted to provide a mechanism for dealing with the specific case of the family home. I welcome the actions of the Central Bank in requiring banks to report monthly on progress being made in tackling mortgage arrears. This process would be helped considerably by a clear definition of what actually constitutes a sustainable mortgage. The CSO data published this week indicates that the 35-44 age category is struggling under the weight of a massive debt burden. This is the age category most likely to be impacted by mortgage arrears.

“The window of opportunity to prevent the lives of young families being blighted by losing their home is narrowing. We know the banks will act in their own self-interest. The government and the Central Bank need to force them to take account of the wider social implications of thousands of families losing their homes. This should start with a complete re-examination of the cases of those customers who have been given an inadequate restructuring of their mortgage.”