The land League movement won a major victory in restricting the rights of landlords in Ireland but a change to the law in 2013, at the behest of the EU, means that the Government has closed a loophole that had made foreclosures on certain mortgages almost impossible. The legal change now makes it much easier for lenders to recover their loans and is designed to cut the troubled banks' debt loads.
Home repossession is a highly charged, emotive subject and perhaps nowhere more so than in Ireland, given its long-standing culture vehemently opposed to evictions and repossessions. "Irish culture is opposed to evictions and repossessions for good historical reasons and that will not change," opined Brian Lucey, a finance professor at Trinity College Dublin. "Culture will always trump strategy," he added but the professor should remember that like God economics will not be mocked indefinitely and when abused too much can destroy empires. So what are the chances of delinquent home owners besting the bankers and ushering in a second banking crisis?
The sums involved are disturbingly high. According to Ireland's Central Bank the mortgages in arrears totalled 117,889, or 15.5% of all outstanding loans at the end of September 2014. While this was a 6.4% decline on the second quarter the number of accounts over 90 days in arrears was 84,995, while those over two years behind, valued at Eur 8 billion, continued to rise and was 7.6% of total outstanding balances on primary dwelling home properties. In addition, at the same time the buy-to-let delinquent mortgages over two years in arrears were 15,435, with an outstanding balance of Eur 4.8 billion, equivalent to 16.6% of total outstanding balances on all buy-to-let accounts. Moreover, the Central Bank's figures do not include the sale of mortgage loans to non-regulated entities, who like sharks smelling blood are now circling to profit from the misery of mortgage defaulters.
The modern Land League of resisters is, as part of its strategy, aligning with politicians to target those industries that have grown up around the mortgage crisis, including hedge funds, private equity, auctioneers and carpet baggers. One such example was when 60 Land League activists were prevented by police from reaching the home of a Dublin accountant said to be working for banks so that they could present him with a wreath commemorating the suicides of people weighed down by debt. The activists are well organized, harnessing cyberspace to interpose their bodies when beleagured home owners text them for help to prevent bailiffs entering their homes. "Our slogan is that we'll be there faster than an ambulance," said Jerry Beades, a former real estate developer who helped found the National Irish Land League last year. The activists' negative publicity is clearly adversely impacting those agencies helping in debt recovery, including disruption of real estate auctions. "From what we hear , they have a problem. They can't get sheriffs to repossess properties and they can't get get auctioneers to sell them," says Beades.
Just how effective the legal loophole was before closure in 2013 can be seen by the fact that despite the six figure number of serious mortgage arrears in the last three months of 2012 there were only 38 foreclosures. Now, however, banks have lodged 10,000 applications to foreclose on homes in the year through to September, four times as many as in the preceding year.
It is natural for aggrieved mortgage defaulters to blame others for their predicament and while there is some merit in taking this stance against lenders who acted imprudently in their exhuberance to lend the borrowers themselves cannot escape some blame for their naivety in financial matters and so should share some of the pain with the banks. That naivety would have been less if economics had been made mandatory in all schools from secondary level and should certainly be made so to prevent history repeating itself. It is an immutable law of economics that every boom precedes a bust.
There may be trouble ahead
It could be argued that already some of the banks involved in the Irish domestic real estate debacle, especially some British banks, have already taken their fair share of haircuts. The Royal Bank of Scotland, for example, while deciding to keep its Ulster Bank going has lost £15 billion since the financial crisis, while Lloyds' latest deal to sell its Irish mortgage portfolio to Goldman Sachs and the private equity group, CarVal, for £1.6 billion has reportedly led to a purchase price of less than half the face value of the underlying assets. Lloyds still has £1 billion of net exposure to Irish non performing loans but just six of Ireland's leading banks represent 90% of the total mortgage market.
Clearly, borrowers should share the pain, especially as, according to one leading Irish bank, up to 20% of the arrears are so-called "strategic defaults" because the borrowers are unwilling rather than unable to make repayments. In a land famed for its chancers such a percentage is not implausible. Both sides are talking tough. AIB, Ireland's second biggest bank by assets, said that their market was preparing to step up enforcement action. "For someone just not paying their mortgage we will take a robust line," said the bank's chief executive. "There is no rent-free option any more." Karl Deeter, of Irish Mortgage Brokers, said the banks need to reconsider repossession of homes in long-term difficulties. "Once people get into long-term arrears it tends to be a one-way journey," he said. Economists have warned that any escalation in the mortgage crisis could force Ireland's fragile banks to raise more capital and delay the country's recovery. Ellen McQuaid, economist at Merrion Stockbrokers, warned: "As things currently stand banks are probably OK but if things continue to worsen on the arrears front then the banks could be in trouble."
It is impossible to calculate how much money is at risk but given the size and longevity of loan arrears the sums could easily run to many billions of Euros if a solution attempt is bungled. It is clearly not an option to allow reckless, naive borrowers to continue their debt welching unscathed. To do so would simply add to the burden of taxpayers and those at risk of more social security cuts.