Banks ‘cherry picking’ home loan arrears cases for deals
Thousands of homeowners face the threat of repossession because banks are failing to sort out the arrears crisis, a new report concludes.
In an in-depth report from the Free Legal Advice Centres (FLAC) group, banks have been accused of picking off the easiest arrears cases and ignoring those in longer-term arrears.
Homeowners who are only in arrears for a short while are more likely to be offered a deal to lower their repayments than those who are two years or more behind on repayments.
The study, which has been seen by the Irish Independent, says the overall numbers going into arrears are falling, but banks were not dealing with difficult longer-term cases.
The process of resolving the home-loan arrears crisis should be taken out of the hands of banks and a state body should be set up to resolve the issue, the FLAC report by lawyer Paul Joyce recommends.
This body should have the powers to force banks into compulsory write-downs of debt for genuine cases where people can’t pay.
After going into detail on figures in arrears and the number of restructures put in place by banks, FLAC says: “Our overall conclusion is that these efforts are broadly failing and that there is likely to be a substantial spike in repossessions unless far more radical action is taken.”
The report looks at the statistics on arrears produced by the Central Bank and the Department of Finance for last year.
The 12-month assessment found that there is an average of €50,000 owed by 37,000 mortgage holders who are two years or more in arrears. The numbers in long-term arrears are rising. The report outlines how banks have threatened to repossess more than 31,000 homes.
These legal threats to take ownership of homes are classed as meeting targets for dealing with the arrears crisis by the Central Bank.
FLAC found that there were 10,000 new applications to repossess homes made by lenders in 2014.
Allowing banks to clean up the mess is not working and there is a need for an independent authority to take on the job, Mr Joyce’s report says.
He said that close to 50,000 residential mortgage holders with the six main banks had yet to have a deal put in place by their banks to bring down repayments to a level they can now afford.
There are some 17,000 accounts in other lenders – including banks like Bank of Scotland and Start, where the loans have been sold on – that are more than three months in arrears.
Mr Joyce said it was not clear how many of these have been restructured.
The report also found that more people were exiting arrears than the numbers of mortgages that were being restructured.
“It is unclear exactly how and why substantially more accounts are exiting arrears entirely than are being restructured and the relevant supervisory authorities – and the lenders – need to explain this.”
Mr Joyce, the senior policy analyst at FLAC, said the reasons these people have come out of arrears may be down to their improved financial circumstances, or because they got financial help from relatives.
He added that some “won’t pay” borrowers always had the capacity to pay, and began repaying their mortgage when threatened with repossession.
Mr Joyce also questioned mortgage arrears cases being “fixed” when the arrears were capitalised.
This is when the arrears amount is added to the overall mortgage principal.
This means the monthly repayment goes up, not down, which was often not sustainable.