At the Central Bank conference on distressed property markets yesterday there was an excellent line up of speakers, the event was launched by the Governor who said that ‘Household financial distress is at unprecedented levels in Ireland as can be seen, for example, from the extraordinary rates of arrears on the servicing even of mortgages secured on owner-occupied homes‘.
That line is the one that made headlines, it was designed (intentionally or not) to make a point which various regulators keep making – that banks are not dealing with this problem.
So all we get from this is that mortgage arrears have miraculously gone to ‘extraordinary levels’ somehow and somebody needs to fix that… The justified rage being that we pre-capitalized the banks (recapitalizing would have necessitated the capital being used first not held to the bitter end) to the tune of €64bn.
Matthew Elderfield said it in March of last year, ‘time to face up to reality’. This was echoed in a talk given to the ACOI in October.
Fiona Muldoon famously admonished the banks when she compared them to troublesome teenagers and said they were paying ‘lip service’ to resolutions and called for ‘authentic leadership’. I asked a bank insider who had a go at her later about this and he told me that she didn’t mean ‘all banks’, it was more a case that her statements were for the ones who weren’t pulling their weight.
And of course there is the Governor himself (I’m convinced they take turns on a rotation basis to come out with these statements) gave the ‘aggressive action on buy to lets‘ talk last year.
The speakers in the first half who are all based in the USA (Federal Reserve of Dallas, Atlanta and the IMF) then echoed a similar point – that not repossessing houses is a mistake, and that any system which prevents that from happening is deeply flawed.
The view I found most appropriate was mentioned by Anthony Murphy (Dallas Fed) that ‘housing policy should be about affordability and sustainability, not maximising a persons stay in a property they can’t afford‘.
A key point is this – we have regulators who keep repeating the same mantra, that banks need to ‘deal with this problem’ but they don’t want to tell them what to do because ‘If we tell them what to do, they absolve themselves of responsibility’, which is a classic example of wanting a certain result but being unwilling to create the desired outcome.
Towards the end Alan Ahearn said that Ireland was not like other countries because we had faced massive external macro-economic shocks, and there was some general agreement about that. So I asked a question…
Our policy response was the Code of Conduct on Mortgage Arrears 2009 which gave a 12 month delay on repossessions if the person ‘engaged’ and that term is a very loose one, and was not created by the banks, it was created by the regulators.
The following year this was augmented by the need for a ‘standard financial statement’ which put a bureaucratic buffer in the way, the following year we got the Justice Dunne ruling, so is the protracted problem in Ireland because we are victims of external shocks or just bad at dealing with financial crises?
According to Murphy we have dealt with this problem badly, I asked for clarification – did he mean the banks or the policy makers? He said it was everybody involved.
He has a point, regulation ensured the mortgage crisis dragged out – which is why when we see calls for ‘more regulation‘ it makes me wonder what the desired outcome is meant to be? The delayed resolution was manufactured… we did it to ourselves.
The delayed personal insolvency framework is a political failure when it come to rapid implementation (in particular when viewed in a cost/benefit way against the likes of the rapidly introduced bank guarantee).
Another economist from the Atlanta Fed Kristopher Gerardi said that intervention in foreclosure didn’t change outcomes, it merely delayed the foreclosure.
So simply put, we are dealing with this crisis badly, and occupy the strange logical stance of wanting a result but then legislating in a manner that prevents it from happening!