MORTGAGE DEFAULTS continued to increase in January, according to a new report on the performance of mortgage-backed bonds by ratings agency Moody’s.
Some 3.3 per cent of the underlying loans in mortgage-backed bonds have been unpaid for more than 90 days, according to the Moody’s index.
This compares with a rate of 1.7 per cent the previous January, it said. However, the rate was little changed on December’s figure, indicating that the rate of new delinquencies is levelling off.
Some 0.8 per cent of the loans in the bond portfolios were in outright default, up from 0.3 per cent a year ago. This was a slight increase on December.
Despite what Moody’s called “a rapid deterioration” in the quality of the loans over the past year, there have been “only marginal repossessions and losses” reported, it said.
This reflects government policy of obliging banks to hold off on legal proceedings in cases where borrowers have defaulted on their mortgage.
Data from the Irish Courts Service shows that out of 800,000 outstanding mortgage loans in Ireland, 29,000 have gone unpaid for more than 90 days and 397 properties have been repossessed as of the end of 2009.
Moody’s associate Georgij Ludmirskij said the policy of encouraging lenders to pursue options such as payment holidays or temporarily reduced mortgage payments when dealing with distressed borrowers was “a slow and highly selective” enforcement process.
“Ultimately, the losses realised from the defaulted loans will be higher if the expectations of further house price declines are confirmed,” Mr Ludmirskij said.
Moody’s said house prices have fallen 31.5 per cent from the peak reached in March 2007, and it expects them to continue falling until the end of 2010.
“The contracting economy and negative credit growth point towards further declining demand for housing and further drops in house prices,” according to the agency.
While low interest rates may have helped borrowers to keep up with their loans, Moody’s said it did not expect demand for credit to increase until the labour market starts to recover in the second half of the year.
The size of the outstanding mortgage-backed securities in the bond market monitored by Moody’s was €42.9 billion as of January 2010, up from €39.3 billion a year earlier.
The most recent figures from the Financial Regulator indicate a slowdown in the rate at which households are getting into difficulty, although the absolute number continues to rise. The figures show 3.6 per cent of mortgage accounts in arrears in December compared with 3.3 per cent in September.
According to the regulator, the number of borrowers in arrears is around 20 per cent lower than the number of accounts, as it is possible to have two or more mortgage accounts on the same property.
The Government has formed an expert group under the chairmanship of Hugh Cooney to work with Government on responses to the problems of mortgage arrears and other personal debt. It started work this month.
