Fallout from high risk mortgage lending continues

Thursday 23 January 2014 15.08
arrears

Sub-prime loans worth €1.9 billion are in arrears

By David Murphy, Business Editor

It is remarkable how much damage sub-prime lenders did in their short burst of lending during the boom.

These lenders typically offered loans to people who had difficulty getting mortgages with traditional banks or building societies.

The consumers were turned down elsewhere because they had poor credit histories or didn’t have three years of accounts showing their incomes. Sometimes they were borrowers who wanted to consolidated a number of loans into one mortgages.

In return for taking on borrowers who nobody else would accept, the lenders charged higher than normal interest rates – sometimes up to 10%.

Many of these individuals should never have been allowed take on the loans – frequently they did not fully understand the nature of the agreement they were entering into.

Now figures provided by Minister for Finance Michael Noonan in a Dáil reply to Fianna Fáil’s Finance spokesman Michael McGrath show the wreckage these lenders left behind.

They represented 3% of mortgage lending but account for 10% of arrears.

In Mr Noonan’s reply he says six of the lenders account for 17,807 owner occupier loans or about €3.3 billion of lending. Of these loans €1.9 billion are in arrears – that means more than half of their loans are in trouble.

Mr Noonan did not name the specific companies.

But the biggest in the sector were Start Mortgages which was part of GE, Stepstone – a joint venture between Lehman Brothers and KBC – Nua Mortgages, which was part of Investec and Springboard, which was a joint venture with Permanent TSB and Merrill Lynch.

Before Ireland’s mortgage problems became a full blown crisis, most of these lenders pulled down the shutters. Springboard stopped lending in early 2008 for instance.

But their loans remain a big problem judging by the mortgage arrears they have left behind. That has caused havoc for thousands of families.

It is another huge failure by the old regime at the Financial Regulator which was headed by Pat Neary. But Ireland was not the only country where sub-prime lending caused carnage.

For the lenders involved the adage of “high risk, high return” simply resulted in high risk.

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