The failure to repossess people’s homes may be contributing to the duration of the economic crisis, a conference organised by the Central Bank heard yesterday.
A banking expert with the International Monetary Fund told the conference that those states in the US that have a record for quickly foreclosing on mortgages in arrears are recovering more quickly from the housing crisis.
Michael Moore, speaking in a personal capacity to a conference called How to Fix Distressed Property Markets, held in Dublin yesterday, said the figures supported the view that faster foreclosures contributed to the quicker resolution of housing and mortgage crises.
Another speaker, economist Anthony Murphy of the Federal Reserve Bank of Dallas, said the lack of repossession of houses in Ireland by the banks was “crazy and really strange”. A former academic with UCD, Mr Murphy said that while the level of foreclosures in the US might be too high, the level in Ireland – zero – was too low.
Mr Moore said the rules in the US force banks to recognise deteriorating loans promptly and to take them off their books. This keeps the level of non-performing loans on the banks’ books at very low levels.
It would be very unusual for the type of high levels seen in Ireland to exist in a US bank, he said. He said that one of the advantages of prompt repossession was that it removed the option of strategic default.
Household distress
In his opening remarks to the conference, the governor of the Central Bank, Prof Patrick Honohan, said household financial distress was at unprecedented levels in Ireland. This was evidenced by the extraordinary rate of arrears on household mortgages.
He said that early on in the crisis, because of the danger that some creditors might pursue distressed debtors in an aggressive manner, a code of conduct on mortgage arrears was introduced.
He said the Central Bank was “ramping up” its engagement with the banks as they seemed to be behind the curve in addressing the arrears problem on a sustainable basis.
