Ireland has a serious problem with mortgage arrears. While the economy is showing signs of recovery it keeps hitting a bottleneck when it comes to this issue. The supply of money and the ability of people to play a full part in the economy are greatly hindered by the overhang from our property bubble. It is impossible to realise our full potential until the issue is dealt with. We should not wait until it gets to crisis point. We should start tackling the problem now.
Political parties, the government, banks and others have proposed many long term and 'big ticket' answers to the crisis. These are of course vital in handling the issue and ensuring a proper debate. However, while we are debating and planning for years from now, ordinary people are struggling every day. We must realise that their struggle is also part of our greater economic struggle. If we can help them to deal with the issue then we can increase the money flow, improve market confidence and start to return our economy to some sense of normality. The problem is that while we are focussed on what major reforms might be made or what legislation introduced we are not doing enough of the simple things that could make a big impact.In Ireland we recently had a very worthwhile campaign for positive mental health that spoke about 'the little things'. Many of our citizens face huge distress daily due to this mortgage crisis and there are many little things that we could be doing right now to ease their plight and help speed up the process toward their recovery.. I have spoken with many people on this issue and listened to the complaints of many who are trying to engage but find the system is stacked against them. This frightens people. It makes them ignore the problem and puts off any chance of sorting out large numbers of cases. As a result I have put together five simple steps we can take right now. These steps will not change the world. They do not require enormous work. They just need some common sense and if they are implemented they will ensure that more people engage, that they feel safe doing so and that they can and should do so quickly. Ireland needs to sort out this backlog. Banks need to engage customers at a much faster rate than they do and the process needs to be something that allows consumers feel protected too. These steps will not end the problem but they will make a strong first step to rebalancing the perceptions. They will enable faster and clearer engagement and as a result I am confident they can play a big part in helping to deal with the crisis.
1 Credit Rating AmnestyMany people have what is called 'single bank debt'. These are people who have fallen into arrears on their mortgage but have no other major debts. The property crisis in Ireland was a very unusual and poorly managed period in our history. Many people had to buy homes and then the worst economic crash in our history followed. While people are hoping to recover they face a big problem. If they need a car to get them to a new job they cannot get a bank loan. If they set up a business they cannot get loans based on their poor credit rating. However, for many this poor rating relates to their mortgage debt. Under this proposal the government will agree that any customer that returns to full mortgage repayments or settles a long term deal with their bank on their mortgage will have their credit rating restored immediately rather than waiting years as is the case now. This will encourage people to see the benefits of a deal and will ensure that those who are lucky enough to see some light at the end of the tunnel are not punished for years to come. It will recognise the unique nature of what happened in this property crash and the failures of the state too. Most of all it will allow people to get back to normal life and help to increase the money flow in the economy..
2 Certificate of AffordabilityA major problem for all those engaging with banks is the huge amount of paperwork and delays. It should be noted that many of these people are trying to hold down a job or run a small business while also dealing with the banks as if they had nothing else to do. The Banks on the other hand say that they have too many clients to meet them all. Banks have told customers that they cannot meet them until they are assessed for a deal. These delays are choking the system. Instead the government can authorise Independent agents and assessors to meet with a customer. To go through all their financial information with them and discuss their budgets in a non adversarial fashion. At the end of this meeting the assessor can provide the customer with a 'Certificate of affordability'. This certificate will independently vouch exactly how much a customer can afford to pay each month. This can be provided to the bank and the bank can immediately decide whether full repayments should be made, interest only payments, split mortgages or whatever other option they think matches the figure. It would replace the current system of Standard financial statements and supporting documentation that must be posted in and queries asked after. That process is full of delays and misunderstandings and interest is accumulating on a loan while this is happening. This new approach will ensure that a customer can sit and talk to someone and know immediately how much they can afford having brought all details with them. It ends the backlog of paperwork that is strangling efforts to get faster movement on agreements.
3 Communications Protocol
The government must issue a standard communications protocol to the banks. Customers have told me that at present banks call the customer and start by asking the same questions every time, even within days of each other: 'Are you making a payment today? When will you make a payment? Your arrears amount to X and we must inform you that you could lose your property if you do not keep payments up.' Such a start to any phone call does not encourage engagement. It is also clear that banks consider these phone calls to be engagement for their part. One customer told me that when she could not speak on her mobile due to poor reception the caller said 'Ok are you refusing to take our call?' This is not acceptable. Equally, while the bank considers the phone call to be sufficient engagement, several customers have told me that when they wish to make a complaint they are told that it must be made in writing. Numerous people have said that their contributions to phone calls or requests are routinely ignored and they are told to put it in writing if they want to make a point. Worse still, an email is often not sufficient and it must be by post. A protocol must rebalance this and ensure that if a bank makes a phone call it becomes a two way engagement and the customers comments, complaints or issues must have the same validity as the banks.
4 Dedicated Customer Contact
A major complaint from people in arrears is the difficulty in contacting any one person. One individual told me that they had 8 phone calls in 12 weeks and every one of them was from a different individual. Banks use a large call centre to sift through the information and ask people to simply contact a dedicated unit. This is not good enough if we are to allay the fears of those who feel hunted and afraid of losing their home. Banks should be instructed to provide all customers in arrears with a dedicated personal customer contact. This should be one individual that they can build some kind of trust with. Someone they can ask questions of, clarify matters and who gives them the information they need. This contact will ensure that their questions are answered while at the same time not needing to go over old ground on every call. The feeling of having to explain ones situation again to a new individual is tiring and creates an impression that nobody is listening. Customers also report getting conflicting information from different contacts in a unit.
5 Rent Allowance
Finally, there are some cases that unfortunately will not see immediate resolution. Many of these people live with the constant threat of losing their home. Should the bank repossess a house an anomaly occurs. The family, if evicted, will probably have to go to the council and seek accommodation. Rent allowance will be provided at that stage. However, if the family had received rent allowance before their eviction it would have enabled them to pay the bank and stop repossession. This would work out better for the family first and foremost. It would work out better for banks that do not need to sell houses and incur charges and risks in line with this. It would work out better for local authorities who do not have to add more people to an already over burdened housing list. This is a measure for very specific and special cases yet it could have a reasonable impact where local authorities, banks and the homeowner work together. If needs be the local authority can even take a stake in the house to protect itself if that is required.
The mortgage arrears crisis is not a problem we will solve easily. However, we cannot keep kicking the can down the road. We need to face some realities. This is a major issue in our economy. If we don't get people engaging with banks and deals reached in shorter time frames then this problem is going to get worse and the action needed will have to be more dramatic. In our banking Inquiry we have heard how the real issues started years before the night of the bank guarantee but the by the time we got to that night it was all about the least bad option. We do not want to make this mistake with mortgage arrears. We cannot wait until we reach a point where something drastic must be done because we didn't do the little things properly well in advance of that. I believe that these proposals present a reasonable, fair and open argument. I believe the pragmatism of them can be seen by all sides and that therefore we can agree to implement them and start dealing with the issue properly.