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Settin record straight on mortgage arrears

Posted by jj on May 31, 2011 at 13:16:32:

An interesting article that was in Sunday Business Post on Sunday - many, including my parents, tell me about hard luck stories of people who had their homes repossessed. Here are some facts (And not taking away from the hardship of the individual cases).

Contrary to some reports, there are support mechanisms in place for those who are struggling to meet mortgage repayments.

Edmund Honohan’s comments and the reaction to them convey the impression that ordinary Irish working people were being hounded out of their homes by the banks. Nothing could be further from the truth.

Contrary to the impression given by Edmund Honohan, the facts are

In 2010, 102 people had their homes repossessed against their owners’ wishes.

Only 71 of these were customers of the mainstream lenders, while 31 were customers of sub-prime lenders who probably should not have received the loans in the first place.

More homes were either surrendered or abandoned than were repossessed against the owners’ wishes – 262 vs. 102

There are far more borrowers who would like to surrender their homes than there are lenders trying to repossess homes against their owners’ wishes.

In 2010, 838 court proceedings for repossession were issued, of which the mainstream lenders accounted for 498. Most of these will be settled without reaching the repossession stage.

The lenders adhere to a Mortgage Arrears Code which obliges them to facilitate their borrowers as much as possible.

Any borrower, no matter how awful their situation is, who engages with their bank should have no fear whatsoever of legal action, much less repossession.

Despite 15% unemployment, despite major cuts in salaries, despite increases in taxes and despite the extraordinary high amounts borrowed at the peak of the market, almost 90% of borrowers are still paying their mortgages according to their original schedule.
Most of the 90,000 borrowers who are in arrears or who have restructured their loans will get back on track, given enough time and forbearance from their lender.

The Expert Group on Mortgage Arrears, of which I was a member, produced a set of recommendations designed to give those in arrears every chance of getting back on track. These recommendations have been implemented already and are making a difference:

Lenders cannot impose penalties on those in arrears.
Lenders cannot exploit the arrears to get the borrower off a cheap tracker mortgage
If the borrower can pay 66% of the interest on the mortgage, the lender must defer the balance for up to 5 years
Lenders cannot contact borrowers in arrears more than three times a month

These measures will give those who are struggling at the moment the maximum chance of getting back on track even if it does take some of them 5 or 10 years.

The most important thing about the Mortgage Arrears Code is that borrowers who engage with their lender should have no fear of losing their homes.

Although most of those in arrears, will recover in time, there are as many as 20,000 borrowers who have no hope of getting back on track.

It is in the best interests of these borrowers to recognize this and deal with it as early as possible. It is not in their interest to struggle on for years with the balance of the loan ever increasing due to unpaid interest. Lenders and the government must develop a strategy to deal with these cases covering their housing needs and covering how the shortfall will be dealt with.

While it is inevitable that these people will lose their homes, it does not mean that they will be made homeless immediately. They and their lenders can agree a timeframe for selling the house. The lenders have agreed in principle that borrowers, who qualify for local authority housing, will be allowed to stay in the house for a reasonable period of time until the local authority finds them alternative accommodation.

The biggest issue to be dealt with in these cases is what to do with the debt left over when the sales proceeds are not enough to pay off the mortgage in full. As these borrowers had no hope of paying the mortgage, it is likely that they will have very limited means and will not be able to pay off much of the shortfall. They are effectively insolvent and the banks and the public should accept this. You can’t get blood out of a stone.

There is nothing to be gained by leaving these people excluded from economic activity with an unpayable debt hanging over them. Legislation is planned to introduce a debt settlement system where people with unsecured debts would pay off as much as they can afford over 5 years, after which time, the lender would write off the balance.

These insolvent borrowers cannot wait for the law to be changed. The government should tell the state owned banks to implement these changes immediately and encourage the other lenders to do likewise. Let me repeat, there is no additional cost to the banks or to the taxpayer in this. They are just facing up to the fact that this money is uncollectible anyway.

There are good measures in place to help as many people as possible to get back on track. A better solution is needed urgently for the hopeless cases. But it is unfair to those in serious arrears to suggest that there is an easy solution.

Brendan Burgess is a consumer activist and was a member of the Expert Group on Mortgage Arrears and Personal Debt

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