One in five mortgages in arrears are subprime loans

Subprime mortgages now account for almost one in every five mortgages in arrears, according to Department of Finance figures.

The figures obtained by Fianna Fáil finance spokesman Michael McGrath show that almost 20,000 mortgage accounts issued by subprime lenders were in arrears for more than 90 days at the end of December 2014. The figure of 19,935 is an increase of 1,871 cases in only three months, as it compares to 18,064 in arrears for more than 90 days at the end of September 2014.

Subprime, a small segment of the market, comprises 18.6 per cent of all residential mortgages in arrears for 90 days or more. A subprime mortgage is a type of loan granted to people with poor credit histories who may not be able to qualify for conventional mortgages. They are issued by retail credit firms authorised to provide credit but, unlike the six registered banks in Ireland, not licensed to accept deposits.

Inexcusable record

Mr McGrath complained that the Government had failed to take action to deal with the “spiralling arrears crisis in the subprime mortgage market”. He said this was inexcusable.

He also said it was clear that the companies which issued these loans were now among the most aggressive in the market at seeking court-ordered repossession.

“Listening to reports in recent weeks of court sittings around the country, it is clear that subprime lenders account for a disproportionate level of legal action being initiated in many circuit courts.

“Some of the details that have emerged are incredible in terms of the practices that are taking place. What is particularly striking is that the rate of mortgage arrears for those who took out a loan with a subprime lender is now over 50 per cent.

“This means that subprime borrowers are four times more likely to be in arrears than someone who took out a loan with a mainstream bank.

“In many ways, this is not surprising given the very high interest rates and income multiples associated with these loans,” he said.

He pointed to the difficulty of many of the loans having being sold on by the original issuer.

Shoddy practices

“It is undoubtedly the case that the subprime sector has been bedevilled by shoddy practices and poor regulation. There is a clear need for a specific response to the problems of this sector, including clear targets for resolution measures.”

Mr McGrath said mortgage arrears resolution targets should be extended to this sector. At present, the targets apply only to the six main banks.

“In addition, there would be considerable merit in establishing a dedicated mortgage-to-rent scheme targeting this group of loans which would potentially prevent thousands of families from being evicted from their homes,” he said.

“Finally, the Central Bank investigation into the sector needs to be expedited as the people affected need practical support now.”

The Department of Finance said the total amount of arrears within the subprime lending sector was €4.6 billion, equivalent to over 50 per cent of the outstanding balances on all mortgage accounts issued by those lenders.