Perched on a chair overlooking a wood panel-lined room in Dublin’s High Court, a bespectacled Judge Elizabeth Dunne has become all-too-used to hearing from the victims of Ireland’s economic meltdown.
Each Monday, Dunne presides over repossession hearings, with one in 10 Irish mortgages now in trouble. At the end of last year, more than 79,000 borrowers were behind on payments or had loan terms altered due to “financial distress,” the country’s central bank said on February 28.
“Things are getting worse and worse,” said Dunne, as she weighed the case of a couple about ¤114,000 ($158,000) in arrears on a ¤558,938 home loan, one of 74 cases on her list on March 7. “Putting off the evil day is not going to help.”
Irish mortgages account for more than a third of about ¤270 billion of loans that remain with the nation’s so-called viable lenders — Allied Irish Banks Plc, Bank of Ireland Plc, Irish Life & Permanent Plc and EBS Building Society. The country’s new coalition parties are not convinced “that there has been proper transparency or full disclosure by the banks” on home-loan impairments, Alan Shatter told RTE Radio on March 7, two days before his appointment as minister for justice.
“There has been a continual under-estimation of loan impairments in Irish banks over the past few years,” Ray Kinsella, banking professor at the Smurfit Business School at University College Dublin, said by telephone. “I am seriously concerned about mounting loan losses in their mortgage books.”
The bad loans may be reassessed as early as this month when Ireland’s central bank concludes a third round of stress tests on the country’s lenders. The results will determine how much of a ¤ 35-billion international bailout fund Ireland will need to draw down.
A year ago, Irish regulators stress-tested for a 5 per cent loss rate on Irish mortgages. This year’s review “will take account of the deteriorating economic conditions and hence” loan-loss assumptions “may be higher,” said Nicola Faulkner, a spokeswoman for the central bank, by e-mail.
Ireland is suffering after a decade-long real estate boom collapsed in 2007. Already, the state has bought ¤ 72.3 billion of risky commercial property loans from the banks, at an average discount of 58 percent. Irish house prices, which quadrupled in the decade to 2007, have since plunged more than a third. Unemployment has tipled to 13.5 per cent over the same period.
This year’s tests may stress loan books against the unemployment rate rising to 16 per cent, house prices falling 60 per cent from their peak and “negligible” economic growth, said analysts including Jim Ryan and Michael Cummins of Glas Securities, the Dublin-based fixed-income firm, in a note to clients March 9. The central bank declined to comment. More than 300,000 households, or about 40 per cent of mortgages, may find their mortgages are worth more than their homes, so-called negative equity, before the property market bottoms out, said David Duffy, an economist at the Economic & Social Research Institute in Dublin.
