Govt inaction on sub-prime mortgage arrears inexcusable – McGrath

Published on: 17 March 2015

Fianna Fáil Finance Spokesperson Michael McGrath TD has described as inexcusable the Government’s complete failure to take action to deal with the spiraling arrears crisis in the sub-prime mortgage market, noting that the owners of these loans are now amongst the most aggressive in the market at seeking court ordered repossession.

New figures provided to Deputy McGrath indicate that 19,935 mortgage accounts issued by sub-prime lenders were in arrears of more than 90 days at end-December 2014. This compared to 18,064 at the end of September 2014. The sector now accounts for 18.6% of all residential mortgages in arrears more than 90 days compared to 15.5% at the end of September.

Deputy McGrath stated, “Listening to reports in recent weeks of court sittings around the country, it is clear that sub-prime lenders account for a disproportionate level of legal action being initiated in many Circuit Courts. Some of the details that have emerged are incredible in terms of the practices that are taking place. What is particularly striking is that the rate of mortgage arrears for those who took out a loan with a sub-prime lender is now over 50%. This means that sub-prime borrowers are four times more likely to be in arrears than someone who took out a loan with a mainstream bank. In many ways, this is not surprising given the very high interest rates and income multiples associated with these loans.

“Most of the originators of these loans have now sold them on. We saw in the recent Prime Time documentary that there have been scandalous practices in the sector. While not all cases are as extreme as the ones highlighted in the programme, it is undoubtedly the case that the subprime sector has been bedevilled by shoddy practices and poor regulation. There is a clear need for a specific response to the problems of this sector including clear targets for resolution measures. The first proposal I would make it to extend the Mortgage Arrears Resolution Targets to the sector. Currently, the targets only apply to the 6 main banks operating in the State. In addition, there would be considerable merit in establishing a dedicated mortgage to rent scheme targeting this group of loans which would potentially prevent thousands of families from being evicted from their homes. Finally, the Central Bank investigation in to the sector needs to be expedited as the people affected need practical support now.

“While there has been some slowing of the arrears rate in the wider market, there has been no progress in dealing with the specific issues around subprime lenders with the level of arrears consistently above 50%. In fact, as the figures show, it is going in the wrong direction. Indications from the courts are that there has been a significant ramping up in the number of action for repossession being taken with a large number of these from the subprime sector. This issue is now reaching a crisis point and unless action is taken we will be facing a massive social problem.”

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