In the next few years, one of the biggest challenges faced by the domestic Irish economy will be what to do with the tens of thousands of people who are in mortgage arrears now, and the tens of thousands of people who will get into difficulties, but have yet to realise it. So when trying to quantify the problem, we need to have a stab at assessing the ‘known knowns’ as well as the ‘known unknowns’.
The known knowns are rising all the time. Latest Central Bank figures reveal that 128,000 mortgages are in arrears. This figure has been rising rapidly over the past few years, and is likely to keep rising as incomes fall, taxes rise and unemployment continues to grind slowly upwards. The domestic economy, where most of us work and live, is not getting any better – indeed, one of the biggest problems is the debt overhang itself, which is dragging investment and savings.
The picture at the moment shows that 128,416 – or 16.8 per cent – of all private residential mortgages are in arrears. Of those, 45,165 (5.9 per cent) of all private residential mortgages are in arrears of less than 90 days. Some 17,553 (2.35 per cent) are in arrears of between 90 days and 180 days, and 65,698 (8.6 per cent) are in arrears of more than 180 days. The total number of residential mortgages stands at 761,533, so nearly 17 per cent are in arrears already. These are the known knowns.
Now, let’s consider the known unknowns. These are the tracker mortgages, of which there are about 400,000 in Ireland. Tracker mortgages account for close to 60 per cent of the €26 billion in residential loans issued by Permanent TSB. Just over half of AIB’s €27 billion mortgage book is accounted for by trackers, but the prize for King of the Trackers goes to Bank of Ireland, with 62 per cent of its total €28 billion residential mortgage book.
Over half of the total residential mortgages in Ireland are trackers, and 85 per cent of these loans were taken out between 2004 and 2008, so a lot of them are likely to be under water and much more underwater than the average profile. The total value of trackers is now €51 billion. Just to put that into context, if you were to spend €1 million a day, it would take you 139 years to spend that much money.
Trackerville – a new area of suburbs financed by tracker mortgages – is a ticking time-bomb, because all these mortgages are being subsidised by the banks. The trackers are costing borrowers 1 per cent above the ECB rate, so 2 per cent interest per year. Deposit rates for medium-sized sums are higher than that, which is why the banks have to charge higher interest rates on all other loans just to try to claw back some of the money they are losing on trackers.
The vast majority of people with trackers are paying less now per month than they did when they took out their mortgages at the height of the boom, when ECB rates were higher. However, most mortgage durations are 25 years or more. The later the mortgage was taken out, the more chance it has of being longer than 35 years – and some are out to 37 years.
Trackers are time-bombs because interest rates are at their lowest level ever right now. There can be little doubt that, over the course of a 25 – or 30-year mortgage, interest rates will return to their long-term norm for Europe, of above 4 per cent – not least because, if the eurozone economy recovers, there will be a big incentive for the Germans to wring whatever inflation there is out of the system via higher rates.
This will cause mortgage defaults in Trackerville, at a time when we thought it was all behind us. It could be in four or five years’ time – we will be reminded that the biggest mortgages in absolute terms are the trackers so, as normal interest rates rise, arrears and defaults will rise more quickly in Trackerville than in the rest of the country.
This is the challenge: not just to fix the arrears problems now, but to fix the problem in full. It is not just the right thing to do, it is essential, because we can’t have domestic spending recovery without sharing the debt burden.
So even those of you who feel uneasy about the prospect of a grand ‘debt bargain’ must realise that, in the present situation, everyone loses. This is because the economy and your income can’t recover if people are not spending, and people can’t spend if they have too much debt.
In any economy, we are all surprisingly dependent on each other. My spending is your income and vice versa.
In addition, the longer this goes on, the more the banks become zombie banks incapable of breathing credit into the market. A deal must be done right now.
The banks set aside €16 billion in the last capitalisation round to cover bad loans in the residential market. Taking the total mortgage lending book of €112 billion, the implied total default on the entire book is about where we are now in terms of arrears, 16 per cent. However, not all these arrears will be total write-offs, so there is enough cash in the tank now to do a debt for equity at 50/50 right now. This gives the punter a break and the bank an upside option over time.
But maybe the reason the banks have been tardy in moving – after all, they were dressed down by the Central Bank last week – is that they think €16 billion isn’t enough. If it isn’t, we need to go back to Frankfurt and come up with a figure that covers all bases and say to the ECB: “We need more cash and you will have to cough up.”
We know the Germans need a success in Ireland. We know that we can only have success if the total banking problem is solved, and we know that the pending mortgage crisis has not been addressed yet.
Wouldn’t it be sensible to put it all in one big bang solution?
David McWilliams’s new book, The Good Room is out now. He will be hosting www.kilkenomics.com next weekend in Kilkenny
I don’t believe it; i’ve beaten “Adam subscribe” here!
RC
Congratulations
David, Time for you to have a chat with Schäuble instead of all the posturing at Farmleigh today…..Farmleigh….Sure the man will think the country’s loaded! Ireland’s most expensive home?…….:
http://irishecho.com/?p=52243
I know people paying 0,5% above ECB rate on trackers. Variable rate mortgage holders are paying part of the cost of this and the taxpayer is picking up the rest. I dont agree that everyones losing in the current sitaution. The tracker holders have borrowed very cheap money from no tracker holders.
Even if “Seismic Shift” Enda was to come clean with Europe and agree to have “defaulter” written across our foreheads ( as He should have from Day 1), I doubt if the ECB/EU will agree to recapitalise the Irish Banks to the required level to take account of the Mortgage default time bomb you correctly identify. The ECB/EU seems to specialise in post event crisis management not in being ahead of the curve.I have a tracker myself and I am wondering if the Bank would like to “buy” it back at a discount – in other words I have a… Read more »
David, I’d be interested to hear your opinions on a debt jubilee or “quantitative easing for the public” as espoused by Steve Keen. Something maybe where everyone in debt gets a write off of a certain amount, reducing their monthly repayments and at the same time, in the interest of fairness, those without debt would get cash. In the first instance it would reduce the debt burden on people’s backs, those repayments would help capitalise the banks indirectly, while the cash injection to the previously prudent homeowners would see a stimulus to the economy. If this was done in a… Read more »
Of course the mandarins are insulated and we have no statesmen to get on with leading the country out of the mess. No one to build a new Shannon Scheme. Lets not talk about laying off civil servants. Lets put them to work! We have enough in the dept of Ag to double beef output. Enough Windpower to power Germany when they shut down their Nuke plants. are we going to allow the French to build more Nuke plants to make up the short fall_. Surely there are enough people with good ideas to generate enough to earn our way… Read more »
No problem with debt write off but they have to lose the asset.
@patrick Of course there are enough people with good ideas to generate enough to earn our way out of trouble, but those people will never get a chance to do so and the plain and simple reason for that is that the wrong type of people are running the country and those type of people have been running the country since the foundation of the state!!!. Our politicians simply haven’t got a clue and as for that shower of ‘mandarins’ who are actually running the country,well, if you watched the TV programme that went behind the scenes at the Department… Read more »
Trackerville — a new area of suburbs financed by tracker mortgages — is a ticking time-bomb, because all these mortgages are being subsidised by the banks. The trackers are costing borrowers 1 per cent above the ECB rate, so 2 per cent interest per year. Deposit rates for medium-sized sums are higher than that, which is why the banks have to charge higher interest rates on all other loans just to try to claw back some of the money they are losing on trackers. What about the fractional resrve banking system At a 10% reserve the gross income is 18-5=… Read more »
This is simply one of the Biggest rip off’s on the Planet, how can we a country with just over 4 Million of a population have loans from just our top three banks totally 81 BILLION the sums just don’t make sense, we couldn’t owe on land and property purchases 20,250,000.00 each!.
Problem here in Ireland we’re still too busy looking after our selves than thinking of our communities, and with a Dublin based media ‘rural’ Ireland will be brought further down, recession, depression,emigration,drug addiction,crime and suicide and our elite will allow society to go this way.
People are sinking into a quagmire of debt. We need to fix the labour market for the mortgage holder. But it is failing the mortgage holder. The labour market is victim to the agenda of IBEC, and the stupity of public sector union bosses.
The real problem is mortgage holders without sufficient income.
All the talk has been spun into how to save the overburdened homeowner, this is an indirect saving of the Banks who caused the problem with the Fractional Reserve Banking, Mortgage Securitisations etc… dirty dealings, F*@k THE BANKS! Let them sink, even now! They should have been let die in 2008 instead of perpetual life support which we now know does not work, the Banks robbed us and still are and our Government of wannabe statesmen are totally inept having given away or sold all our natural resources and morphed into a vichy government following the surrender of our sovereignty… Read more »
Why did we give the British so much credit for Divide and Rule, the tactic is a no brainer. If we hear that corporation x is getting a subsidy (of course it won’t be called that) of 31 Billion, sure we’re pissed-off but we’ll get over it. But when we hear that some pox down the road will get to keep his/her house as the bank has agreed to take 50% of the house we go into paroxisms of rage. How will we ever get anything done if people let themselves get distracted so easily? Maybe now you can understand… Read more »
I like the notice at the top of the articles page. My first thought was ‘Oh, something new and fresh’. Your menus and sidebar make more sense now and the site is looking well organised. Well suited and booted. Should keep the perfectionists happy I am glad you enjoy the insults too and realise that they are to be expected the way life is turning out in out uber conservative little dear green place. Politics.ie tells us what vicious minds some people have but you know that in here the insults are only half meant and are often regreted after… Read more »
Tracker mortgages are a time bomb yes and will the government do something about it no,not untill it becomes a big problem .
This seams to form a pattern on the government and reflects on the poor performance to date.
The Germans are running Europe and that’s quite obvious and Europe is being controlled and being told to dance to there tune because they are the money people of Europe .
Reckless lending and reckless spending go hand in hand,so people bow to your new masters.
This is depressing. The mainstream press the other day tried to talk up the export figures but the export figures mean not a lot to ordinary people in Ireland. I also read that most home owners in Ireland have little or no mortgage. I am decent at maths but things are not adding up here. Who is right? When you say ‘private residential’ does that include people who bought houses to let? The fact that around 340,000 mortgages were taken out between 2004 and 2008 suggests to me that people were going down the buy to let route when the… Read more »
South Dublin County Council charge 8,000 euros for rates, water rates and discharge licence, on an 800 sq. foot premises. Yes, they charge you for the water and then charge you to put the water down the drain, they call it a discharge licence, it costs 12 cents to flush a toilet. On a profit margin of 5% that means one has to take in 160,000 euros -just to pay the county council. The reason the “new Irish” can run a profitable businesses is that the premises change hands as soon as the officials start knocking on the door looking… Read more »
The central thesis of this article is correct. Mortgage debt is a ticking time bomb. Banks are looking to claw back the money they are losing on tracker mortgages by raising costs across their other products, most notably variable rate mortgages. This is not the only effect the overhang of mortgage debt is having on the economy. As far as I can see the costs of these mortgages are also one of the influencing factors in wages remaining high. People have high mortgages therefore they are fighting to keep their pay at pre 2008 levels. I have no doubt mortgage… Read more »
My business is closed because I cannot afford to
open the door.
The moment I open the door I have
to start paying the council. It is difficult enough
to work without making a profit, however, to work
knowing I will make a loss would be madness.
To add insult to injury the council will send in the sheriff to seize my belongings should I fail to pay them, so my door must stay closed.
Hence 3 people loose out on the possibility of work,
and I try to change this crazy country.
Kropotkin continues … Kropotkin pointed out that the term “survival of the fittest” has been misinterpreted to mean that animals compete against other animals of their own species, whereas that just happens to be the shortest path to extinction. This misinterpretation of facts directly observable from nature has led to the faulty Hobbsian justification of the economic appetite as something natural and evolved, and therefore inevitable, giving rise to the conjectured laws of the marketplace, which in turn favor nonempathic, exclusionary, brutal, possessive individualists. The result has been to enshrine mental illness–primitive, pathological, degenerate narcissism–as the ultimate evolutionary adaptation and… Read more »
The 178,000 euro cost includes the erection,
which would include site clearance, electric
connection etc etc.
I got the figure from the council.
THE BASIC PREMISE IS SIMPLE. YOU ARE BEING SCREWED BY THE BANKS. Not with the mortgages, tracker or otherwise but with the system that allows the central banks control of the currency, that allows central banks and your neighbourhood commercial bank to print unlimited credit , debt based money. When they cock up they should go broke. BUT YOU ALLOW THEM TO BE BAILED OUT BY THE TAXPAYER. THIS PUTS EVERY MAN WOMAN AND CHILD IN DEBT, PRUDENT OR PROFLIGATE, FRUGAL OR FLASHY. WHAT A BUNCH OF STOOPS. THERE SHOULD BE 500,000 OUT ON THE STREETS SUPPORTING BALLYREA SAYS NO!!… Read more »
I am working hard to change things, I am very aware of the financial situation globally and in Ireland . We are in a failed global monetary system. The debt based monetary system is finished, the system is crumbling.. Early in 2010 I wrote a paper to the government suggesting the introduction of a parallel currency of Gold and Silver, which if implemented I believe could/can save the Irish people from financial disaster, as the purchasing power of fiat money collapses. Inflation is the expansion of the money supply. All fiat currencies are deflating at a scale so fast our… Read more »
I reiterate what Tony Brogan asks:
Where is David McWilliams on the issue of odious debt?
What is his position on fractional reserve banking? dead silence here.
What is his position on central bank debt based financing versus debt free currency from Treasury?
Tony, you’ll be surprised how big Langtons is inside, absolutely gigantic, although it looks small from the front.
Absolutely brilliant comments this week. Meat in every one of them. Better than the article actually. This ticking time bomb is that of Status Quo self destruction. We need to recognise that a lot of Ireland is living with its head in the sand. And I find I am one of them a lot of the time. We are a very wasteful and divided nation FULL STOP. The majority of current effort is focused on ensuring everything is stays the way it was for the 10 years before 2007. We throw away wealth simply because we value little beyond the… Read more »
McWilliams writes as if mortgage securitization does not exist when it is the well-spring of all our current economic problems. The fact is that mortgage securitization, disguised as sovereign debt, is holding Europe to ransom using Ireland as a financially-wired suicide bomber. The mortgage security bondholders, who have taken over not only the banks but the central banks as well, have gotten their way so far by threatening to detonate Ireland if the EU leaders do not surrender to their demands. McW and other central-bank-trained “advisors” like Dr. Alan Ahearne (former economics advisor to Brian Lenehan) are urging governments to… Read more »
It is amazing that some of the commentators on here raise major issues with debt relief as a realistic measure to deal with the mortgage problem. The two major issues seem to be morale hazard and potential property bubbles oh and the third one and the best that the lazy football watching drinking paddies get to keep their homes when they brought the whole thing onto themselevs by buying homes that the governemnt and banks advised them to buy. What gobshites they were for not noticing the oncoming US homeloan timebomb, securitisation,packaging as AAA bonds rubberstamping by credit aegencies folloewd… Read more »
The country isn’t “divided” – as mainstream media talking heads like to say – but pissed off. Genuine and legitimate frustration permeates the land from sea to shining sea, and rightly so. Ever since the banker coup of 2008, crony capitalism has been institutionalized as the only real way to make money. -Mike Krieger It’s not only Germany (who’s gold is missing), it’s the United Sates, it’s all of the countries. -“GERALD CELENTE, PATRIOT” The 99% blame the 1%, the 1% blame the 47%, the private sector blames the public sector, the public sector returns the sentiment … the young… Read more »
Hi, When I read this in the SBP what really struck me was something neither written in the article nor left out of it. What really struck me David was the picture of you and the striking contrast between the new picture and the other photograph of you which shows a smiling younger happier person without a care in the world. The new picture shows an older, paler, much more sombre and circumspect individual who looks like he has had a premonition of something bad to come and his wracked by the torment of not being taken seriously by the… Read more »
A little comment from inside the lions cage, it seems fear is leaking from the overfilled trough that is the financial sector…. From Money Morning: A debased currency leads to social upheaval The idea that central bankers could destroy the world might seem a little strong. But they can certainly do a lot of damage to our social fabric. In recent decades, as central banks have slashed interest rates and blown bubbles, we’ve lived through what Dylan Grice of Société Générale describes as a “credit hyperinflation” — possibly the “largest credit inflation in financial history”. While this inflation may not… Read more »
Central bankers have already destroyed the world!
Advising people to buy gold and silver is like advisng kids the ’50s to hide under the table in a nuclear explosion.
If this one comes to a vote it must be soundly defeated
http://www.news.msn.ie/mario-draghi-supports-germany-budget-commissioner-652932-Oct2012/
http://blog.milesfranklin.com/central-banks-really-dont-trust-other-central-banks
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/10/25_James_Turk_-_The_Entire_German_Gold_Hoard_Is_Gone.html
Germany’s gold is long gone. Worse than I expected. I thought little was there and the 50 tonne a year repatyriation was to allow it to be spread out over enough time to accumulate gold that could be sent to Germany.
Any disclosure that the gold is gone and the price goes poof to double and then some. The monetary system would go poof too.
We are close to that point. I repeat from last week…
Get your gold now while there is still some to be had.
Bullion in hand is the only way. Silver is better
From Jim Sinclair on fixing the world economy Jim, I have followed you since your newsletter in the 1970s. I am puzzled by your response to Bill where you talk about the dire results of stopping the fiat money printing. Since the results of stopping are bad you are implying that continuing the fiat until ultimate failure with runaway inflation is better. Is that what you mean to say? Thanks for all you do for us, CIGA Jim Dear CIGA Jim, My job is to tell it like it is. The economy is a drug addict. The creation of money… Read more »
When are we going to stand up and be counted and say enough is enough, when are you going to leave your computer screens. Do you a legal background?, when are you going to help those who do not have the skills, yet they try day in and day out to help people to stay in their homes. During the famine neighbours benefited from their neighbours misfortune, when they bought their land at very low prices when people died or fled the country. Is this what has become of us again. Can we lift the black gloom of despair hanging… Read more »
Sad to see the contrasting comments between this article and the last one which provided lots of hope.
It’s also disturbing to hear about people taking their own lives through hopelessness.
I remember having fears for the future when I started working in the mid nineties. All I can offer as advice is to believe in yourself, try your best and the future will be better.
http://paul.house.gov/index.php?option=com_content&view=article&id=2021:let-the-markets-clear&catid=64:2012-texas-straight-talk&Itemid=69
American report by Ron Paul is an example for Ireland
The following is a review and downgrade of Celtic Residential Irish Mortgage Securitisation No. 16 Ltd which closed to the speculative markets in April 2010, What! I hear you say… yes April 2010! Even in the middle of the greatest economic disaster, caused by the Banks, it was business as usual as late as April 2010 for Ulster Bank the originator of the above mentioned securitisation tranche. The value of this tranche was €1.054 Billion and it was backed by Irish Residential Mortgages which originated in Ulster Bank’s now absorbed subsidary First Active PLC, remember them….? I will post the… Read more »
We are fixing the wrong problem. Central banks and monetary systems will ONLY break the world if people remain attached to the idea of savings = wealth rather than rather than “ability to do” = wealth. Money, fiat or otherwise is merely a communications system to allow trust for any transaction. Having it without “work” is robbery. Right now, the ONLY reason there is a crisis is the imbalance between nations in “ability to do” which is being further exacerbated by former beliefs that “savings” = wealth. This belief goes to the heart of our institutions and stops people from… Read more »
How important is Germany’s gold?
how important is it that most is missing?
how important is it that US supplies are compromised?
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/10/31_Is_This_The_Black_Swan_That_Will_Make_Gold_Skyrocket.html
http://www.marketwatch.com/story/why-do-the-germans-want-their-gold-back-2012-10-31
http://www.mineweb.com/mineweb/view/mineweb/en/page72068?oid=161110&sn=Detail&pid=92730
I have been meaning for the longest time to see If I could put up a blog. The link below should take you to my first effort which is a propasal to monetize a Canadian silver Maple Leaf coin
The process is easily adaptable to any currency or country. I hope it works and send me a comment if you wish
tony
http://www.tonybrogan.com/?p=3
http://www.facebook.com/pages/Debtoptions/211736418893790?fref=ts
Adam and the Kilkenny crew.
I have signed up to attend 11 shows. 1 down and10 to go.
I noticed Sat night had one I wanted to attend. 9.45 pm is “Wrestling the economy back from the banks”.
So I will be at the Langtons pub at about 8.45 to 9.15 and then return at 11.15. I have a Festival Club ticket for Sat night as well which is held at Langtons.
If anyone else wants to attend the Festival Club gathering the ticket can be purchased at the ticket office on John Street accross from Langtons for 5 Euros.
Gold moves from west to east in record amounts.Westerners decide they can’t eat gold so will be rid of the barbarous relic. It is hoped the Easterners will get indigestion. Jim Willie (Hat Trick Letter) THE LONG ACCEPTED INVERSE CORRELATION BETWEEN THE USDOLLAR INDEX AND THE GOLD PRICE IS FLAWED AND SHOULD BE ABANDONED IN ANALYTIC CIRCLES. IT FAILS TO EXPLAIN THE LAST SEVEN YEARS OF GOLD’S PERFORMANCE. THE LACK OF CONNECTION SHOWS HOW ATTENTION PAID TO THE USDOLLAR INDEX IS MISLEADING AND IRRELEVANT. Jonathan Kosares of USAGold focuses his attention in the argument against the correlation on the consumer… Read more »
October 30, 2012, at 11:52 am by Jim Sinclair The Invisible Hand Is A Master of What the Public Ignores CIGA Eric Those frustrated by timing gold have two choices. Remove opinion and emotion by (1) turning off the quote machine and refrain from using leverage going forward, or (2) through mathematical study of money flows, confidence, and time to interpret the market. The latter is much harder than the former. Those expecting gold to transition from the power D-wave decline (DOWN) to C-wave advance (UP), thus, skipping the AB transition fail to recognize the importance of price management by… Read more »
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