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| Irish Legacy of Leniency on Mortgages Nears an End | Irish Legacy of Leniency on Mortgages Nears an End |
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| DUBLIN — Ben Gilroy, one of tens of thousands who over-borrowed in the giddy property boom that preceded Ireland’s economic collapse, has made no mortgage payments for two years. But he says he does not worry that he will lose his home any time soon. | DUBLIN — Ben Gilroy, one of tens of thousands who over-borrowed in the giddy property boom that preceded Ireland’s economic collapse, has made no mortgage payments for two years. But he says he does not worry that he will lose his home any time soon. |
| “I still deal with my lender, and they threaten with legal action now and again,” said Mr. Gilroy, whose electrical business failed in the crisis. With no income since, he has no hope of paying off the €310,000, or $398,000, loan on the four-bedroom house in Navan, north of Dublin, that he shares with his wife and three children. | “I still deal with my lender, and they threaten with legal action now and again,” said Mr. Gilroy, whose electrical business failed in the crisis. With no income since, he has no hope of paying off the €310,000, or $398,000, loan on the four-bedroom house in Navan, north of Dublin, that he shares with his wife and three children. |
| The lender is “only threatening by letter at the minute,” said Mr. Gilroy, who is betting the odds are in his favor, for the time being at least. Although there are more than 143,000 delinquent home mortgages in Ireland, foreclosures have been so politically and legally difficult that, in the last three months of last year, they numbered 38. | |
| That could change. | |
| Under pressure from the international lenders who agreed to a €85 billion, or about $109 billion, bailout of the Irish economy in 2010, the law is being amended to overturn a legal ruling that has been restricting banks’ right to repossess property. As Ireland’s fellow euro zone member Cyprus may be about to learn, bailouts come with strings that can bind for years to come. | Under pressure from the international lenders who agreed to a €85 billion, or about $109 billion, bailout of the Irish economy in 2010, the law is being amended to overturn a legal ruling that has been restricting banks’ right to repossess property. As Ireland’s fellow euro zone member Cyprus may be about to learn, bailouts come with strings that can bind for years to come. |
| Besides pushing for changes to property-repossession law, Ireland’s creditors, collectively known as the troika — the European Commission, the European Central Bank and the International Monetary Fund — has also prompted the government to introduce the country’s first property tax in more than 15 years, a measure intended to raise €500 million a year. | Besides pushing for changes to property-repossession law, Ireland’s creditors, collectively known as the troika — the European Commission, the European Central Bank and the International Monetary Fund — has also prompted the government to introduce the country’s first property tax in more than 15 years, a measure intended to raise €500 million a year. |
| Unlike Cyprus, where wealthier depositors are being forced to help pay for ruined banks, the Irish government picked up the tab for its broken lenders before it, too, had to seek help. | Unlike Cyprus, where wealthier depositors are being forced to help pay for ruined banks, the Irish government picked up the tab for its broken lenders before it, too, had to seek help. |
| More than two years after the bailout, officials say that the dead weight of debt, mostly in bad property loans, is still hanging over the economy, stifling confidence and suffocating recovery. New rules that take affect later this year are designed to help troubled borrowers and cut their debt loads. But critics fear that the latest tightening could nonetheless cause thousands of Irish households to lose their homes and hamper the broader recovery efforts. | |
| If people cannot make their mortgage payments, it is unlikely that many will suddenly be able to pay property tax bills. Mr. Gilroy has refused to open his assessment but thinks it would demand an additional €300 a year. | If people cannot make their mortgage payments, it is unlikely that many will suddenly be able to pay property tax bills. Mr. Gilroy has refused to open his assessment but thinks it would demand an additional €300 a year. |
| No one anywhere likes to lose their home, of course. But repossessions strike an especially resonant chord in Ireland, which has an acute memory of forced evictions under British rule. | No one anywhere likes to lose their home, of course. But repossessions strike an especially resonant chord in Ireland, which has an acute memory of forced evictions under British rule. |
| “Being a country with a long history of colonial oppression, people being evicted touches a bit of a raw nerve with a lot of people,” said Paul Joyce, senior policy analyst at Free Legal Advice Centers, a rights organization that campaigns on debt and other issues. “The notion of people being put out of their homes is not one that sits too easily in Ireland.” | “Being a country with a long history of colonial oppression, people being evicted touches a bit of a raw nerve with a lot of people,” said Paul Joyce, senior policy analyst at Free Legal Advice Centers, a rights organization that campaigns on debt and other issues. “The notion of people being put out of their homes is not one that sits too easily in Ireland.” |
| Mr. Gilroy, who represented a new party, Direct Democracy Ireland, in a parliamentary election Thursday — finishing fourth — came to prominence in part through You Tube clips of verbal confrontations with officials trying to seize properties. | Mr. Gilroy, who represented a new party, Direct Democracy Ireland, in a parliamentary election Thursday — finishing fourth — came to prominence in part through You Tube clips of verbal confrontations with officials trying to seize properties. |
| He admits he was naïve in not checking the repayment terms on his mortgage, which he sought in a hurry to buy the house he coveted in 2008, a time when newly listed homes were often being snapped up within days. But his borrowing was not reckless, he said, adding that he had accepted a loan with high repayments on the basis that he could switch after six months, something he discovered too late was impossible. | He admits he was naïve in not checking the repayment terms on his mortgage, which he sought in a hurry to buy the house he coveted in 2008, a time when newly listed homes were often being snapped up within days. But his borrowing was not reckless, he said, adding that he had accepted a loan with high repayments on the basis that he could switch after six months, something he discovered too late was impossible. |
| “After three and a half years of not missing one payment, I was eventually broke, the business was failing, house prices were dropping,” said Mr. Gilroy. He said he and others would need 70 to 80 percent knocked off their mortgages to make them remotely affordable and reflective of current property prices. | “After three and a half years of not missing one payment, I was eventually broke, the business was failing, house prices were dropping,” said Mr. Gilroy. He said he and others would need 70 to 80 percent knocked off their mortgages to make them remotely affordable and reflective of current property prices. |
| He blames his plight on “criminal activity by the bankers” and “stupid” policies by the government which bailed out the banks at the taxpayers’ expense. Many other Irish share his anger, Mr. Gilroy contends. | He blames his plight on “criminal activity by the bankers” and “stupid” policies by the government which bailed out the banks at the taxpayers’ expense. Many other Irish share his anger, Mr. Gilroy contends. |
| Bankers see things a bit differently. | Bankers see things a bit differently. |
| They complain that many borrowers who could make payments have stopped, either because their properties are now worth less than the loans that financed the purchases, or because they hope some debt eventually will be written off. Felix O’Regan, spokesman for the Irish Banking Federation, said some “strategic defaulters” had stopped mortgage repayments even as money for expensive vacations or private schooling was leaving their accounts. | |
| “We have sufficient anecdotal evidence from our members to leave us in no doubt that there is a level of strategic default in the market,” he said, declining to estimate the numbers. | “We have sufficient anecdotal evidence from our members to leave us in no doubt that there is a level of strategic default in the market,” he said, declining to estimate the numbers. |
| Mr. Joyce said that when he appeared in the media to make the bankers’ case, “a lot of people would text in or tweet or e-mail ‘I acted responsibly, I didn’t take out more credit when I could have, and I’m paying to the best of my ability.”‘ | |
| That is because many of those who resisted the temptation to borrow in the years of easy credit feel that they should not have to subsidize people who often borrowed to buy rental properties, or for vacation homes in Spain or Bulgaria. | That is because many of those who resisted the temptation to borrow in the years of easy credit feel that they should not have to subsidize people who often borrowed to buy rental properties, or for vacation homes in Spain or Bulgaria. |
| The government now says it plans to push legislation overturning a ruling in July 2011 by a High Court judge that cast doubt on the legality of repossessions processed after 2009. The new law would be aimed at reducing the backlog of delinquent mortgages. | The government now says it plans to push legislation overturning a ruling in July 2011 by a High Court judge that cast doubt on the legality of repossessions processed after 2009. The new law would be aimed at reducing the backlog of delinquent mortgages. |
| In Ireland at the end of last December, nearly 95,000 mortgage accounts on private homes were delinquent more than 90 days — 11.9 percent of the total. For buy-to-rent property loans held by landlords, the figure rose to 18.9 percent, according to the Irish Central Bank. The outstanding balance on mortgage accounts delinquent more than 90 days was €17.5 billion. | |
| By international standards, Ireland has been slow to act on the problem. An analysis last year by Davy Research, part of a company that provides stock brokerage, wealth management and financial advisory services, estimated a 54 percent peak-to-trough drop in house prices and unemployment of 14 percent. | |
| That was approximately parallel to one of the worst-hit real estate markets in the United States — the state of Nevada — where housing prices declined by more than 55 percent and unemployment hit 14 percent. But in Nevada, Davy found, the peak rate of delinquent mortgages hit 9.3 percent in the fourth quarter of 2009. | |
| “The current Irish arrears rate of 10.2 percent and rising is now well above peak rates in comparable United States housing busts,” the report said. “A key difference between the U.S. and Ireland is the number of foreclosures” — 10 times higher in Nevada, the report said. | “The current Irish arrears rate of 10.2 percent and rising is now well above peak rates in comparable United States housing busts,” the report said. “A key difference between the U.S. and Ireland is the number of foreclosures” — 10 times higher in Nevada, the report said. |
| Struggling Irish borrowers know that if they give up their homes or have them repossessed, the sale values of most would be much lower than the prices they paid, leaving them with big outstanding debts. | |
| Some of those who will never be able to repay loans are in a legal limbo, waiting for a new insolvency law that takes effect in June. It creates a framework meant to help debtors come to terms with their creditors. The guidelines will also mean that people can emerge from bankruptcy after three years rather than the present 12. | |
| But the new guidelines are aimed at helping people who are intent on consolidating and eventually paying off their debts, and will depend on banks and other creditors being willing to compromise with borrowers. Or it will make it easier for people to declare bankruptcy. Either way, the banks themselves expect more repossessions to take place. | |
| Earlier this month Ulster Bank’s chief executive, Jim Brown, told the Irish news media his bank was likely to repossess more than 1,000 homes per year once the loophole was closed. Mr. Brown was not available for an interview for this article, but the bank said in a statement it “remains committed to working with any of our customers who are experiencing difficulty and who engage with us on a genuine basis to find a solution.” | |
| This month, too, the Irish Central Bank issued guidelines to the country’s six largest banks setting target dates by which they should agree to work out sustainable repayment solutions with struggling borrowers. But a significant number of those who have already negotiated softer repayment terms with their banks remain in mortgage arrears, according to the central bank’s figures. | |
| “The big fear that the state has,” said Mr. Joyce at Free Legal Advice Centers, “is that the balance sheets of the institutions are so damaged in terms of mortgage provision that the write-offs will be so considerable that they could question the solvency of the institutions themselves — even though they have been provided with capital by the taxpayer.” | “The big fear that the state has,” said Mr. Joyce at Free Legal Advice Centers, “is that the balance sheets of the institutions are so damaged in terms of mortgage provision that the write-offs will be so considerable that they could question the solvency of the institutions themselves — even though they have been provided with capital by the taxpayer.” |
| And in a depressed economy, the banks might consider the mere threat of repossession more effective than actually seizing the property. In the last three months of 2012, the banks managed to sell only 178 of more than 900 properties that they had repossessed or that had been surrendered voluntarily. | And in a depressed economy, the banks might consider the mere threat of repossession more effective than actually seizing the property. In the last three months of 2012, the banks managed to sell only 178 of more than 900 properties that they had repossessed or that had been surrendered voluntarily. |
| Davy’s analysis warned that dumping on the market the €6 billion to €7 billion worth of buy-to-rent properties the banks had already repossessed might simply “pose the risk of further residential property price falls.” | Davy’s analysis warned that dumping on the market the €6 billion to €7 billion worth of buy-to-rent properties the banks had already repossessed might simply “pose the risk of further residential property price falls.” |
| Many mortgagees, clinging to homes they can no longer afford, embrace a similar argument. | Many mortgagees, clinging to homes they can no longer afford, embrace a similar argument. |
| Seamus Sherlock, who is separated from his wife, has for the last seven months literally been barricaded in his three-bedroom farmhouse in Country Limerick, usually with at least two of his five children. They are waiting out an eviction threat. | |
| Mr. Sherlock said he bought the house and 50 acres of land in 2002 but was unable to keep up payments on the €300,000 loan after he was prevented from carrying out his main plan for the land — cutting turf from a peat bog for fuel — by environmental restrictions. The economic crisis has made it even harder to make the farm viable, though he said he had lodged more than €10,000 with a lawyer as a form of security deposit and wanted to resume mortgage payments. | |
| “Throwing people out of their homes is not the answer,” Mr. Sherlock said. “There’s nobody to buy these houses.” | “Throwing people out of their homes is not the answer,” Mr. Sherlock said. “There’s nobody to buy these houses.” |