Cantillon: Who’s afraid of the big, bad strategic defaulter?

Just how strategic are the banks being over the highly sensitive issue of strategic defaulters?

Bank of Ireland chief executive Richie Boucher spoke at length about the issue to analysts and the media yesterday as the bank released its interim results. He obviously didn't compare notes beforehand with his counterpart at AIB, David Duffy (pictured).

On Thursday, Duffy estimated that one-in-five of AIB's mortgage defaulters fall into the strategic, or 'won't pay', category. He offered little by way of evidence, however, to back up his claim. This is perhaps because little of such evidence exists, as has previously been acknowledged by the Central Bank governor Patrick Honohan.

Boucher, too, claims the issue is a growing problem for Bank of Ireland. But how does he know? When pushed, he admitted that “it is not something for which we have statistical evidence”. He was unable to say how the bank defined or tracked its level of strategic defaults, referring repeatedly instead to people “who refuse to engage with the bank” over their mortgage arrears.

But just because an indebted customer has their head buried in the sand, does this automatically mean that they are choosing not to repay their mortgage even though they might be able?

“Some people are making a choice, cynically [not to repay their mortgage],” said Boucher. When pushed on how the bank could make such assertions without any evidence to back them up, Boucher said: “If a customer is not engaging, there could be a variety of reasons. It is a pretty daunting thing for someone psychologically. It’s human nature to put off difficult tasks.”

It is not possible, Boucher said, “to break down the numbers [of strategic defaulters] scientifically”.

But it should be possible, if the banks are going insist on pushing this as an issue. Nobody wants to be a chump and end up paying for their dishonest neighbour’s mortgage. But it is incumbent upon the lending institutions that benefit from whipping up public anger on this to prove the problem exists in any material sense.