DUBLIN — Jason and Orlaigh O’Connor secured a half-million-euro mortgage 11 years ago to buy the family home from Orlaigh’s ageing parents, even though Jason had to work overtime to meet the repayments and Orlaigh had no regular income.
Now, with barely a dent made in the principal and their account 75,000 euros in arrears, the couple face the prospect of never being able to pay back the loan.
The O’Connors’ case is typical of a situation stymying Irish efforts to deal with some of the most stubborn home mortgage arrears in Europe, after the 2008 crash halved house prices and led to the most expensive bank rescue in the euro zone.
While Ireland’s economy has recovered, clocking the fastest growth in Europe for four straight years, a push to purge the soured loans has stalled – a legacy, critics say, of forced evictions of peasants by absentee landlords in the 19th century that sowed a national aversion to repossession.
Shane O’Sullivan, director of operations at Permanent tsb, which has the highest non-performing loan (NPL) ratio in Ireland at 26 percent, said the bank managed just 80 evictions last year.
“Consumer protection is very strong in Ireland and in the legal system there is a healthy bias in favor of homeowners in the courts,” he told a March news conference.
Data from the Central Bank of Ireland shows Irish lenders have reduced their NPL stock by more than a third to around 14 percent since 2013, when the number was 32 percent, the worst in the euro zone. The regional average is around 4 percent.
The most intractable issue is home loans, many owed by homeowners who refuse to engage with lenders.
Of the 100 billion euros of Irish residential mortgages now outstanding, 10 billion euros are deemed non-perfoming, or in arrears of more than 90 days.
About 6.5 billion euros’ worth are more than two years past due, of which 3 billion euro are more than five years in arrears. The value of the last category rose more than 10 percent between June 2016 and June 2017.
Morgan Kelly, an economics professor at University College Dublin who is credited with predicting the scale of the crash, says the average first-time buyer in Ireland borrowed eight times average annual earnings in 2006, more than twice the 3.5 times currently mandated by the central bank. The average new house cost 10 times average earnings, with secondhand houses in Dublin changing hands at 17 times earnings.
A decade earlier, by contrast, first time buyers took out a mortgage equal to three years’ earnings on average, and the average house in Dublin cost 4 years’ earnings. Faced with the impossible multiples, the O’Connors said they did what many were doing at the time: they fudged the numbers.
GE Capital Woodchester Home Loans, a sub-prime lender, agreed to the loan without documentation from Orlaigh to prove that she could afford her share.
“They said I would need to self-certify, and I asked what that meant,” she said. “Just pick a number, they said.”
GE Capital Woodchester’s parent GE Capital sold the lender at a loss to Australian non-bank lender Pepper Home Loans Group and got out of Ireland in 2012 under the weight of 600 million euros in loans. GE Capital declined to comment for this article.
On March 16, the O’Connors were in court to ask for more time to reach a deal with Pepper, which wants to take their home away.
“This is the third time we’ve been called to court. We couldn’t make the last one because my father was very ill in Galway. He has died since,” Orlaigh said.
The last few years have been tough. Jason lost the technical job he held for 13 years and for a while no money was coming in. Overwhelmed, the couple refused to deal with Pepper.
Jason is back working now but for less pay, and the couple struggles to make repayments of 2,000 euros a month, which falls short of the 2,500 euros that is due. “The paperwork arrives at your door. Boom, you’re up in court,” she said. “But what the hell do we do? We are paying Pepper, we don’t have the wiggle room to pay for a solicitor. We have to fight this alone.”
A spokeswoman for Pepper said it is committed to engaging with customers to identify solutions which are appropriate and sustainable for their particular circumstances.
The O’Connors are counting on the courts’ reputation for leniency.
Since 2009, repossession orders have been granted on 2,721 private dwellings, just 0.4 percent of the total stock of residential mortgages. Another 5,474 surrendered voluntarily. In Northern Ireland, a mortgage market one-third the size of Ireland’s and operating under British law, courts granted five times that number in the same period.
Of 54 cases before the county registrar the day the O’Connors were in court, repossession orders were granted on three. Most were adjourned until later for technical reasons or to give the parties time to come to an arrangement.
Others were allowed to apply for a government mortgage-to-rent scheme, where homeowners surrender their property so that it can be sold to a housing association that allows them to stay on as a tenant.
Under pressure from European Central Bank regulators to free up capital and improve profitability, Irish banks are seeking to circumvent the courts by offloading their NPLs to private equity groups and distressed asset funds, or “vulture funds”, as critics call them. Politicians such as Michael McGrath, finance spokesman for the largest opposition party, Fianna Fail, accuse the banks of “outsourcing their dirty work.”
Fianna Fail used its influence over the current minority government led by Irish Prime Minister Leo Varadkar to extract a promise of tougher regulations this year, including widening the central bank’s regulatory scope over private equity buyers.
The banks have started to scale back plans to sell off their non-performing loans. While that will draw out the process, it will also allow the sales to go ahead to appease regulators and free up capital, Davy Stockbrokers said.
The banks were responsible for the mess and should fix it themselves, not sell it forward, opposition politicians say. “The banks were throwing money at people,” said Richard Boyd Barret, a member of parliament for the small People Before Profit party. “They were strong-arming people to take money, and that was the only way you could get on the housing ladder.”