Arrears figures shows mortgage problem has not gone away

So now we know. The Central Bank yesterday published a bulletin on the code of conduct on mortgage arrears. Tucked away towards the back were – for the first time – details on those who have not co-operated with their lenders.

Bankers refer to them as strategic defaulters – those who have deliberately chosen not to engage with their lender in the hope or expectation that they will get a full or partial write-off of their loans. In many cases they are people who could afford to pay the loan but are playing a game of chicken with the lender.

There must also be a large number who have simply decided to ignore the communications from their banks in the hope that the problem would simply go away.

Under the terms of the Code of Conduct on Mortgage Arrears (CCMA) code of conduct, lenders have to adhere to a two-stage process when dealing with borrowers who are in arrears with their mortgage payments and refusing to co-operate with bank attempts to deal with their problem.

Step one involves the lender notifying the borrower that if they do not engage with the bank by a certain date, then they will be classified as not co-operating. This is a warning notice.

If the borrower continues to ignore the lender, they are then issued with a notification. That’s step two.

The data published by the Central Bank shows 21,124 warnings were issued in the first half of 2014. By the second half of last year this was down to 5,173.

Notifications

In terms of notifications issued to borrowers to inform them that they had been categorised as not co-operating, some 14,768 were issued in the first half of 2014, declining to 3,127 in the second half of last year.

About 70 per cent of the warnings turn into notifications, indicating perhaps that these notices spurred the other 30 per cent into engaging with their banks.

This is the first time that the Central Bank has put some meat on the bone in terms of the numbers of arrears customers who are not co-operating.

Three years ago, former AIB chief executive David Duffy claimed 20 per cent of the bank's mortgage arrears customers were strategic defaulters. It didn't sit well at the time with politicians or the groups advocating on behalf of those in arrears but it now seems that he wasn't far off the mark.

There is one other interesting statistic in the Central Bank’s bulletin yesterday.

Over the period from the first half of 2014 to the end of 2015, some 163,962 borrowers at the reporting institutions completed the mortgage arrears resolution process, which is provided for in the CCMA code.

Yet the peak figure published by the Central Bank for residential arrears was 143,851 in December 2013.

This could be down to a lot of people briefly passing in and out of arrears over the period, or it might suggest that there were a lot of borderline cases captured by the process. People who were on the verge of arrears and would have engaged with their banks but ultimately managed to just about stay on the right side of the line.

Borderline

With 770,000 residential mortgages issued by the banks around that time, it would suggest that 21 per cent of borrowers were either in arrears or borderline cases.

It’s a shocking figure and illustrates just how bad things were in this country. They still are tough for the 67,786 accounts that were in arrears as of the end of March, as per figures from the Department of Finance. This number is falling with the passing of each quarter but it remains shockingly high in the context of the Irish mortgage market.

And that's if you accept the official figures. David Hall of the Irish Mortgage Holders' Organisation (IMHO), an advocate for thousands of arrears customers since the crash, has "zero confidence" in the figures, describing them as "utter rubbish".

He cites a 90 per cent failure rate by the banks to contact the IMHO in relation to their clients’ arrears, as required by the CCMA. So he doesn’t buy the narrative that banks are fully in compliance with their reporting obligations.

Mortgage arrears has faded from the headlines as the focus has moved on to the affordability of house buying, or the lack thereof, and what many consider to be rip-off variable mortgage interest rates.

But the problem hasn’t gone away, even if the politicians and some commentators have moved on.