There’s an old anecdote that says if you pop a frog into a pot of boiling water, he’ll hop right out. But if you put your frog into a pot of cold water and heat it slowly, he’ll stay put until the pot boils and he meets his end.
The frog story could describe dozens of things that have been happening in Ireland over the last few years from escalating energy and fuel prices to higher mortgage repayments, and of course, ever increasing taxes … which are all slowly boiling us alive.
Eventually something has to give though, and nothing shows how bad things are like cold hard figures. And so last week the Central Bank published their latest mortgage arrears numbers. The headline on their press release said that 9.2% of mortgage accounts were now in arrears of over 90 days, up from 8.1% in September.
The Central Bank has been very clever about how they’ve presented this. A small increase of 1.1% in mortgage arrears doesn’t sound too bad really does it? In fact, it sounds like things aren’t great, but they are under control.
The Central Bank has been releasing these numbers quarterly since 2009 when they surely knew that there was a problem of epic proportions brewing. So rather than presenting a huge shock to the system once a year (chucking the frog into a boiling pot), these figures come out every three months, and we are drip fed the bad news one little increment at a time. However, I think a longer view of this paints a more realistic picture.
This time last year there were 44,508 mortgage accounts in arrears of three months or more. Now there are 70,911. That’s an extra 26,403 people that have fallen seriously behind on their mortgages in 2011. That’s not an increase of 1% or even 5%.
That’s an annual increase in mortgage arrears of 59%
It also seems that once people stop paying their mortgages, they don’t start again. Of the 71,000 people categorised by the Central Bank as in arrears, 53,000 are actually six months or more behind.
But why are we using three months as our arrears benchmark? In most countries you’re in arrears if you miss just one payment. So last October Michael McGrath TD asked the Central Bank how many people were between one and three months behind. They told him that at the end of June 2011 the figure was a staggering 46,634. No wonder they were leaving that out.
To cap it all off, there are another 36,797 mortgages that have been restructured. And because these mortgages are currently meeting whatever their new arrangements are, they aren’t counted in the arrears numbers.
So put them all together and you have at least 154,342 mortgages that are not behaving as they are supposed to. That’s 20% of all mortgages in the state.
When one in five people carrying a mortgage isn’t meeting the originally required repayments, you have a very serious social problem on your hands.
So what are the banks doing about it? Repossessing like mad surely?
Well, no not really. It seems that only 608 properties were repossessed last year, and a good chunk of those were actually just abandoned by their owners.
So, if you are currently six months or more behind on your payments, it looks like you have less than 1% chance of losing your property in the coming year.
So now the banks are the boiling frogs. They’ve let this go on too long. They simply cannot suddenly start repossessions on this scale. But why would they want to? It’d be a disaster for them. Who’d buy the properties? Where would the money come from? The banks? And if there’s no immediate consequence to missing payments… well, you can see where this is going.
Every quarter the problem gets worse. And every quarter the central bank churns out the same stuff about urging consumers in trouble to contact their lender as early as possible so that they can benefit from the protections of the Code of Conduct on Mortgage Arrears.
The code is reasonable enough, but it only applies to principle private residences and it assumes that all people missing their payments want to keep their properties. It also assumes that a restructuring of some sort is a good solution. However, restructuring generally just puts off the inevitable by lowering or postponing payments for a while. Borrowers still owe all the money and all the interest and that’s that. Wouldn’t some sort of debt relief for people that want to keep their homes be a more workable solution?
But what if some of the people missing their payments don’t want to keep their properties anymore? What if they don’t want to engage the protections of the Mortgage Arrears Code? What if they’ve had enough and just want to cut the millstone from around their necks and move on with their lives? Would it be fair to assume that this could be contributing to the 20% of Irish mortgages that are behind in one way or another?
This is a huge and complex problem, and it has gotten worse every quarter since the Central Bank started publishing the numbers. With 20% of mortgages already in trouble, surely the time to act is now. Or we could just keep on doing what we've been doing, and stay in the pot until it boils.