The taxpayer loses no matter who ‘wins’ in Ireland’s long overdue ‘Mortgage War’

EIGHT years ago, Morgan Kelly predicted the thengathering mortgage crisis would put Ireland on the cusp of a social conflict on the scale of the Land War – but with one crucial difference.

“Whereas the Land War faced tenant farmers against a relative handful of mostly foreign landlords, the looming Mortgage War will pit recent house buyers against the majority of families who feel they worked hard and made sacrifices to pay off their mortgages, or else decided not to buy during the bubble and who think those with mortgages should be made to pay them off,” wrote the economist, whose musings I miss terribly.

“Any relief to struggling mortgage-holders will come not out of bank profits... but from the pockets of other taxpayers.”

I’ve been waiting for Morgan’s Mortgage War ever since.

We saw spectres of the opening salvoes last week when Permanent TSB announced its plans to sell up to 18,000 home loans, with the most likely buyer of its distressed debts a so-called vulture fund.

I’ve been waiting for the war since the early part of 2007 when I started covering the High Court’s weekly repossessions list.

In the early years of the crisis, I cried foul at the hundreds of cases coming before the courts, many of the borrowers victims of reckless lending by the banks.

I warned repeatedly there would be mass repossessions on a scale not seen since the Famine and the Land War. I was wrong.

I was wrong because there have in fact been very few repossessions relative to the scale of mortgage defaults on both principal dwelling homes and buy-to-let properties.

Rather than evicting families from their homes, judges showed incredible compassion and forbearance towards borrowers, most of whom never turned up in court or engaged with the banks.

If there was even a whiff of co-operation on engagement, it acted as a near-complete break on eviction. Even where an eviction had been ordered, judges granted lengthy periods of breathing space to give families a vital chance to get their affairs in order.

The manner in which banks lent to certain borrowers was, in my view, de facto criminal. And yet the debt had to be dealt with.

Banks didn’t want to go near the politically toxic solution of eviction.

They still don’t, which is why they are lining up largely foreign private equity funds (the vultures) who aren’t regulated by the Central Bank to do the dirty work for them.

Defaulters were better protected when we were in the hardest of economic yards.

As long as property values were depressed, the banking sector – aided by politicians – kicked the mortgage resolution can far, far down the road.

And that worked when the vultures fed off the carcasses of distressed commercial property debts – we didn’t mind the blighters then.

My own sympathy/empathy gauge started to shift when I saw the impact of the grotesque extend-and-pretend inaction on mortgage arrears.

These included borrowers who had not made a mortgage payment in four or five years, some because they could not do so and others who refused because strategic default seemed an entirely plausible course, which it was.

Some court rulings added to the stall but even where personal insolvency laws kicked in, banks vetoed many realistic deals while, ironically, many in the vultures’ lair found they could cut deals.

In his 2010 prediction, Kelly addressed the issue of strategic defaulters. “If one family defaults on its mortgage, they are pariahs: if 200,000 default they are a powerful

political constituency,” he wrote. Thus it has proved.

Much of last week has been consumed by a phony political furore over the failure to regulate the vulture funds now poised to consume the last of our distressed debt funds which, inevitably, includes soured home loans that have not been tackled in 10 years.

THE cries, for me, are hollow as the Central Bank asked the Government to allow it to regulate such funds seven years ago, only to be told the saviours of nonperforming loans might get scared and take flight, leaving the banks worse off.

In 2015, the Government regulated the credit servicing arms of the vultures. A move intended to protect consumers, the funds nonetheless call the final shots.

For all the furore last week, many acknowledged a scenario where borrowers have not paid for seven years was no solution for the debtor or taxpayer who has shouldered the cost of the bank bailout.

Many spoke of moral hazard and how unfair it is for many trying to get on the property ladder as well as those who paid their mortgages all along.

As Morgan predicted, we’re beginning to see the opening shots of the long-awaited Mortgage War. It did not need to be this way. Had the banks and State dealt with the issue in-house – which, as in any credit economy, includes repossession as a solution – we would not need to turn to the vultures to do the toxic work for us.

The failure to act has caused distress for those in default. But relieving those debtors out of the pockets of other taxpayers is no solution at all in a war where the taxpayer loses no matter who wins.