December 11, 2012 5:03 pm

Dublin makes it easier to repossess homes

Unoccupied homes at a stalled housing development in Dublin©Bloomberg

Dublin has promised its bailout masters that it will give banks the legal power to repossess homes more easily amid a growing mortgage crisis that threatens to derail the country’s recovery.

The controversial measure follows lobbying by banks, which say a “legal vacuum” prevents them repossessing properties and tackling a situation where one in six borrowers has problems paying their mortgage.

The troika of international lenders – the European Commission, European Central Bank and International Monetary Fund – has pushed for reform of repossession laws, saying it is “crucial for Ireland’s economic recovery”.

Michael Noonan, Ireland’s finance minister, said in a memorandum sent to international lenders and released on Tuesday: “We will by end 2013 introduce legislation . . . to remove unintended constraints on banks to realise the value of loan collateral under certain circumstances.”

Dublin’s move was attacked by non-governmental organisations, who warned that many people facing repossession will have nowhere to live.

“This is a social problem for the state because there is no social housing coming on stream and the mortgage to rent scheme is simply not happening,” said Noeline Blackwell at Free Legal Advice Centres. “Lenders will also face problems trying to sell properties in a market that is scraping along the floor.”

Stubbornly high unemployment and lower wages, caused by a five-year economic crisis, have pushed many Irish mortgage holders to the brink. Plummeting property prices, which have halved in four years, mean hundreds of thousands of borrowers are stuck in negative equity and cannot simply sell their homes to escape debts.

Central Bank of Ireland figures show banks made just 961 repossessions by the end of June 2012, a tiny fraction of the number of homes repossessed in countries such as the UK and Spain. This extremely low level of repossessed homes stood in stark contrast to the more than 83,000 mortgage holders in arrears of more than 90 days and another 85,000 householders who had loans restructured.

The Irish Banking Federation blames a High Court ruling in 2011 for identifying a legal loophole in a Land and Conveyancing Act introduced in 2009. This loophole and the subsequent ruling make it extremely difficult for banks to repossess homes where borrowers took out a mortgage before December 1, 2009.

In depth

Ireland fiscal crisis

Irish fiscal crisis

The eurozone crisis has pushed Ireland back into recession even as it plans to exit its international bailout programme by the end of 2013

John Reynolds, president of the Irish Banking Federation, told the Financial Times that this legal impediment had led to a build-up of mortgage arrears by restricting lenders’ options. “It doesn’t do the market any good to have an impediment like that,” he said.

The push to remove the legal block on repossessions is being introduced along with a new personal insolvency regime, which will reform Ireland’s archaic bankruptcy laws and empower banks to write down mortgage debt on a case-by-case basis.

The new law on personal insolvency is due to be enacted next week, although it will be months before debt resolution mechanisms contained in the act become operational. Most banks have said they do not plan to provide struggling mortgage holders with debt forgiveness under the new scheme. They have said they will provide restructuring options to customers.

The personal insolvency legislation does not provide adequate protection to homeowners in mortgage distress because banks have a veto over the process, said David Hall of the Irish Mortgage Holders Association.

“This change to repossessions to remove the legal lacunae that exists will be a further sop to the banks, unless there is a concession in the act to protect homeowners,” he said.

Concerns over home repossession hold a particular resonance in Ireland, where during the 19th century many Irish tenant farmers were evicted from their land by landlords during a period of unrest known as the Land War.

In July Enda Kenny, Ireland’s prime minister, evoked this historical trauma and pledged to tackle Ireland’s deepening mortgage crisis.

“There is probably no time since the Land War when the Irish people have felt so stressed, so anxious about their home and their family’s future security,” said Mr Kenny.

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