Shortly, the Central Bank will publish the latest data on mortgage arrears, which will cover the 4th Quarter of 2012. Since 2009, mortgage arrears have only gone in one direction, up! And while the rate of arrears growth has moderated somewhat in recent times, much of that moderation has taken place in tandem with cuts in interest rates announced by the European Central Bank.
At present, over 86,000 residential mortgages are in arrears (90 days past due) and this figure continues to increase despite mortgage interest rates being at a historic low.
When Mr. Patrick Honohan spoke on RTE news earlier today, he spoke clearly, a trademark of his. His frustration with mortgage lenders and how they are dealing with mortgage arrears was clear for all to see. This frustration has been on display for some time, and not just from Mr. Honohan, but some of his senior deputies too!
It would be tempting for mortgage holders (both residential and buy-to-let) to take solace from what Mr. Honohan said today. That would be a mistake. While there is clearly a new focus at the Central Bank to pressure mortgage lenders to ‘do more’ on mortgage arrears, this is likely to be a double-edged sword. The ‘do more’ comments are likely to be a signal as they are a warning to mortgage lenders.
In late 2011, Mr. Honohan delivered a speech where he urged banks to take firmer action on mortgage holders that were on arrears on investment property mortgages. In a way, the speech was the first of a kind, a sort of permission from the Central Bank for banks to get on with the job of being bankers, part of which includes repossession properties where mortgage holders were in default.
It would be easy to mistake Mr. Honohan’s comments as populist, they were nothing of the sort. Instead, they were an important signal that banks must get on with the job, where deals must be struck and properties repossessed. This is banking which is familiar in most other developed countries but not here in Ireland. It is banking that will require adjustments at all levels, both social and financial.
This week, as a nation, we moved on. The evolution of the promissory note into a sovereign bond represented a new direction in how our collective debt will be managed in the years to come. It is fitting that in the same week, a flag was raised on our commercial banks to do the same. What is important is that all players in the national stage fully understand the significance of the message delivered by Mr. Honohan. Actions by our mortgage lenders will have far-reaching consequences.
This week really marked the passing of an age.