Sub-prime mortgage arrears rate four times higher than wider market – McGrath

Published on: 13 February 2015

Fianna Fáil Finance spokesperson Michael McGrath has described as inexcusable the Government’s complete failure to take action to deal with the spiralling arrears crisis in the sub-prime mortgage market.

New figures provided to Deputy McGrath indicate that 18,064 mortgage accounts issued by the sub-prime lenders were in arrears of more than 90 days at end-September 2014. This figure accounted for 15.5 per cent of total mortgages in arrears over 90 days.

Deputy McGrath stated: “What is particularly striking is that the rate of mortgage arrears for those who took out a loan with a sub-prime lender is over 50%. This means that this group of borrowers is 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 they 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.

“While there has been some slowing of the arrears rate in the wider market the crisis there has been no progress in dealing with the specific issues around subprime lenders with the level of arrears now stuck in the 50% region. 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.”

DÁIL QUESTION addressed to the Minister for Finance (Deputy Michael Noonan) (by Deputy Michael McGrath for WRITTEN ANSWER on 12/02/2015

To ask the Minister for Finance the number of private residential and buy- to-let mortgages in the non-deposit-taking, retail credit sub-prime sector; the level of arrears on these mortgages; and if he will make a statement on the matter.

The Central Bank has advised that there is no such regulated category as ‘sub-prime’ lender but that phrase is sometimes used to refer to some non-deposit taking ‘retail credit firms’. Retail credit firms are a regulated category of entities which are authorised to provide credit (in the form of cash loans) directly to individuals. Some firms authorised in this category are mortgage lenders. Retail credit firms have been subject to regulation by the Central Bank since 1 February 2008. A register of all Retail Credit Firms is available on the Central Bank website.

The Central Bank has further advised me that non-bank lenders, including regulated and non-regulated firms, accounted for 5.2 per cent of the total stock of residential mortgage accounts outstanding at end-September 2014 (5.4 per cent in value terms). A total of 18,064 mortgage accounts issued by these lenders were in arrears of more than 90 days at end-September this figure accounted for 15.5 per cent of total mortgages in arrears over 90 days. The outstanding balance on these accounts was €3.8 billion, equivalent to 53 per cent of the total outstanding balance on all mortgage accounts issued by non-bank lenders.

The Central Bank continues to engage with all mortgage lenders, including retail credit firms, in relation to lenders’ mortgage arrears resolution strategies and approaches to dealing with borrowers in or facing arrears.  Early and effective engagement between borrowers and lenders is key to resolving cases of mortgage difficulty.  Where there is effective and meaningful engagement regarding a mortgage difficulty, the data shows that an increasing number of durable long term mortgage restructures is being put in place.

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