The front cover of the Indo today is a piece entitled: ‘Central Bank figures ‘overstating’ number in mortgage crisis‘.  The piece argues that the issue of mortgage arrears is not as problematic as it might be assumed from the figures.  Noting that 77,630 mortgages are more 90 days in arrears at the end of March 2012, the argument is that the “figures include several types of borrowers who are no longer in trouble [such as] those who missed payments long ago and have since resumed paying normally; those who fell behind and agreed ‘restructuring’ deals with their banks to lessen monthly payments; those who have successfully done more informal deals to work through their mortgage problems.”  So, is it the case that the mortgage crisis is overstated?

My answer would be no, it’s not overstated: there is undoubtedly a crisis.  In all these cases, the mortgage holder is still 90+ days in arrears and still has the capital and interest to pay down over the life of the mortgage.  They might be meeting the restructured payments, but their mortgage is still in trouble until it is back on the correct payment schedule and the arrears paid down.  The Indo piece also suggests that the 77,630 includes people who have restructured and are not in arrears on the new plan.  It does not.  The Central Bank figures are clear on this.  It breaks down like this:

116,288 accounts either in arrears of over 90 days or restructured and performing as per new schedule (15.2%), of which:

77,630 are in arrears of 90+ days (10.2%) a proportion of which has restructured but nonetheless are still 90+ days in arrears (41,054 mortgages are restructured and are in arrears of varying lengths, both more and less than 90 days).

38,658 are restructured and are performing as per new schedule, though this is an impaired schedule that will have to be re-regularised at some point.

More worryingly:

59,437 of mortgages are 180+ days in arrears at end-March 2012, equivalent to 7.8 per cent of the total stock.

In 11,378 cases a formal demand has been issued (but where Court proceedings have not been issued)

In 3,080 cases court proceedings have been issued to enforce debt/security on a mortgage

The Indo also claims that “The Central Bank figures — which show that more than 10pc of households are in arrears — also fail to capture a “significant” improvement in payments that some senior bankers claim they have seen.  This is because the quarterly reports focus on households that owe more than three months of mortgage payments. This means that a change in arrears cases won’t be reflected in the figures for three months.

The Central Bank data shows that the figures for those in 90+ days in arrears has been consistently growing over the past number of years.  The figures at the end of June will give us some indication as to whether things have improved, but it seems unlikely given the trend for people is to slip in 180+ days arrears rather than out of the +90 days, and even then it is more likely that they will become restructured rather than impair free.  To claim that a restructured mortgage is one that is not in trouble is incredibly disingenuous; it is restructured precisely because it is in crisis.

In terms of the restructuring there are a number of approaches being taken:

Interest Only Payment  27,798
Reduced Payment (greater than interest only) 13,854
Reduced Payment (less than interest only)  11,390
Term Extension   9,667
Arrears Capitalisation  9,576
Payment Moratorium  3,400
Hybrid  3,831
Deferred Interest Scheme  178
Other  18

One other thing to note about the Central Bank data is that it relates to a “mortgage on the residential property which is or will be occupied by the borrower as his/her principal private residence”.  It does not include buy-to-let or buy-to-flip mortgages related to property the holder is not living in.  It would be very interesting to know about arrears and restructuring with respect to these mortgages, which in 2007 were 27% of all new mortgages.  The suspicion is that these are in just as bad a state as residential mortgages.

There is no doubt that having 116,288 (15.2%) mortgages in arrears of 90+ days or restructured constitutes a crisis.  1 in 6 mortgages in the state is in some form of trouble.  The restructuring of payments is helping households, but just because a household is now managing to make payments does not mean the mortgage is now performing as it should – it is either still in arrears or the payment is not on schedule to pay off both the capital and interest owed.  I’m not really sure what the Indo is hoping to achieve with the article, other than to make a bad situation seem better than it actually is or to try and bolster confidence in the banks.   I doubt it’s made anyone who continues to struggle with paying their mortgage feel any better.

Rob Kitchin