# Moody's: Key Drivers of defaults on Irish mortgages



## Brendan Burgess (20 Sep 2012)

Moody's released a report yesterday which has a lot of interesting data and a lot of interesting comments. 

*[FONT=&quot]Sample details[/FONT]*
  [FONT=&quot]Ulster Bank & First Active €19 billion[/FONT]
  [FONT=&quot]EBS : €4 billion[/FONT]
  [FONT=&quot]ILP : €22[/FONT]
  [FONT=&quot]ICS: €3 [/FONT]
  [FONT=&quot]KBC:€12 billion[/FONT]
  [FONT=&quot]BoSI €7 billion [/FONT]
  [FONT=&quot]Total €67 billion [/FONT]
  [FONT=&quot]So no sub-prime loans, but also no loans from AIB or BoI which have much lower default rates than the rest of the market. 
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[FONT=&quot]It includes home loans and investment property loans[/FONT]

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[FONT=&quot]Default means to go over 90 days into arrears
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  [FONT=&quot]*Loans in negative equity are 1.7 times more likely to default *than homes which are not in negative equity [/FONT]
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    [FONT=&quot]Default rate on loans with 150% LTV: 27%[/FONT]
  [FONT=&quot]Default rate on loans > 80% LTV : 14%[/FONT]
  [FONT=&quot]Default rate on loans with LTVs < 80%  10% [/FONT]
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[FONT=&quot]*The self-employed are twice as likely to default*
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  [FONT=&quot]Default rates amongst the self-employed 19%[/FONT]
  [FONT=&quot]Default rates amontst the employed: 9%[/FONT]
  [FONT=&quot]Default rates on buy to let are 1.7 times those on home loans [/FONT]
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*[FONT=&quot]Dublin and Cork have half the default rates in other areas[/FONT]*
[FONT=&quot]Dublin & Cork: 5%[/FONT]  [FONT=&quot]Outside Dublin & Cork: 7.2%[/FONT]

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[FONT=&quot]These relate to benchmark loans only, to make sure other factors are not confusing the picture.  
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[FONT=&quot]A benchmark loan is an owner occupied home loan for an employed borrower which is not interest-only. [/FONT]  [FONT=&quot] [/FONT]
*[FONT=&quot]Interest only loans are defaulting at 1.8 times the rate of capital and interest loans[/FONT]*
  [FONT=&quot]They were typically taken out by borrowers who would not otherwise have been able to afford the monthly amounts on a capital and interest loan[/FONT]
  [FONT=&quot] [/FONT]
  [FONT=&quot]*A loan which had been in arrears in the past, is 2.4 times more likely to go into arrears *again than a loan which was never in arrears[/FONT]
  [FONT=&quot] [/FONT]
  [FONT=&quot]*“Affordability” is not a driver of default.* 
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[FONT=&quot]10% of those borrowing on an income multipe of less than 2,, defaulted comapared to 12% of those with an income multiple of greater than 4. 
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## Brendan Burgess (20 Sep 2012)

[FONT=&quot]The above post contains hard data. This is their outlook. They also asked lenders their views on issues. 
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*[FONT=&quot]Outlook and survey of lenders[/FONT]*
  [FONT=&quot]We expect defaults to peak at 20% in early 2013 leading to net losses of 9.5% . However, undertainty over the full extent of the losses remains as a result of the growing effect of moral  hazard[/FONT]

  [FONT=&quot]The dearth of repossessions and the proposed Personal Insolvency legislation is already reducing the incentives for borrowers to remain current on their mortgage debt[/FONT]

  [FONT=&quot]Lenders will prefer debt forgiveness to repossession , although the majority of lenders surveyed said that repossessions and voluntary surrenders would exceed debt forgiveness.[/FONT]

  [FONT=&quot]We received estimates of only negligible levels up to as much as 40% of current arrears are to borrower who are not truly unable to pay.[/FONT]


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## Delboy (20 Sep 2012)

Brendan Burgess said:


> We received estimates of only negligible levels up to as much as 40% of current arrears are to borrower who are not truly unable to pay[/FONT]



so are they saying 60% of those in 90 days plus arrears are 'can pay but won't pay'?


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## millieforbes (21 Sep 2012)

Delboy said:


> so are they saying 60% of those in 90 days plus arrears are 'can pay but won't pay'?



No, I think the double negative means the opposite, at most 40% can pay but won't pay


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## Brendan Burgess (21 Sep 2012)

It's a poorly worded long sentence. This is what I think they mean. 

Some lenders said that there fewer than 5% are paying less than they could pay. 
One lender said that up to 40% of borrowers are paying less than they could pay.


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## Bronte (21 Sep 2012)

Brendan Burgess said:


> One lender said that up to 40% of borrowers are paying less than they could pay.


 

What do they base this on?


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## Brendan Burgess (21 Sep 2012)

I presume that they base it on the reports from the arrears department. They look at the SFS and feel that people are paying less than they can afford.


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## Delboy (21 Sep 2012)

Brendan Burgess said:


> I presume that they base it on the reports from the arrears department. They look at the SFS and feel that people are paying less than they can afford.



and armed with that knowledge about certain mortgage holders, will they:
a- repossess the house and put it on the market
b- write off a lot of the mortgage debt (thanks to the Irish Taxpayer) and leave them in-situ

i've a feeling it will be  b


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## Bronte (25 Sep 2012)

Brendan Burgess said:


> I presume that they base it on the reports from the arrears department. They look at the SFS and feel that people are paying less than they can afford.


 
Then the question is what level of spending on utilities and groceries do the banks think is reasonable, and here we go back again to the banks idea that people should be left to live on only a dole amount and everything else is to be paid to the bank.  I wonder is that how they come to the 40%.


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## mark12 (26 Sep 2012)

I believe that 50% are won't pays, what i find amazing, is how this comes as a surprise to anybody, people are not robots.
Who on earth, having the alternative of jumping on the plane, is going to pay for something that in many cases they hate, is not fit for purpose, and has no longterm value at all, when they can take a 45 min flight, establish a new life, and still return to Ireland every weekend if they so wish for the price of a taxi fare?

I agree with Brendan, the banks are not repossessing at all, not because they wouldn't, but because they can't sell.
In fact without realising so, the banks are begging for people to stay in and pay half, but even that is not sustainable because people need to see the light of ownership at the end of the tunnel, and the banks are refusing to light it, so many will sadly abandon the ship, and for every family that goes away, one shop will close its doors.

The solution is simple offer people a deal, make them stay not go.


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## Delboy (27 Sep 2012)

mark12 said:


> .....The solution is simple offer people a deal, make them stay not go.



or sell the house at market value to those who did'nt buy a house they could'nt afford during the boom, played things prudently and now want to buy....I would have thought that the simplest and fairest of all of the so called solutions being flung around


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