The rescue of financial institutions and government reluctance to encourage the seizure of homes with non-performing loans has limited the rise in homelessness but created other problems. A slow restructuring of loans did take place. But the resolution of thousands of hard cases, involving unmanageable arrears and individuals who refused to engage with their lenders, is now threatening social disruption.
Nobody is prepared to take responsibility. Irish banks insist the European Central Bank is forcing them to reduce the level of their non-performing loans by selling to so-called vulture funds. This is denied by the ECB. It says other in-house options are available. Fianna Fáil drafted a Bill to give the Central Bank additional powers to regulate investment funds. And the Government reluctantly agreed to facilitate it, subject to possible amendments. The response from the Central Bank was equally unenthusiastic. It warned of unintended consequences because lending systems normally involved some level of repossession.
In a separate development, the ECB was accused in an academic study of denying a fair trial and legal aid to people facing the loss of their homes in court. This study found Irish owners had not been legally represented in seven out of 10 repossession cases. It did accept, however, that the courts had provided significant support for those involved and repossessions were low, overall, as noted by the OECD.
A surge in loan enforcements by investment funds chasing quick profits would lead, inevitably, to a rise in homelessness. And because buy-to-let mortgages are involved, compliant tenants might also lose their homes. That is the scenario the Government has been running from in its efforts to balance two competing imperatives: to protect borrowers from abusive practices while, at the same time, encouraging investors to buy distressed loans from its banks.
Following the tracker mortgages rip-off, out-sourcing this unpopular work to international investors would suit the banks. But, with a general election on the horizon, it may not be that simple. Public concern has grown because of the planned disposal by the majority State-owned PTSB of some 18,000 mortgages, even as other institutions are likely to follow suit. Details of the PTSB offering revealed serious administrative incompetence or a wilful refusal to cleanse its balance sheet.
Twenty-eight per cent of its home loans were non-performing, five times the European average, while some customers had not engaged with it for up to seven years. How could such a situation have been allowed to fester? For some of those involved – determined non-paying individuals and buy-to-let landlords – there will have to be a day of reckoning.