The front page headline story in yesterday’s Irish Independent was “Central Bank figures ‘overstating’ number in mortgage crisis” by Laura Noonan. Inside the paper, there were two further stories by Laura on the same topic, one of which is this story titled “Gloomy, ill-informed ‘experts’ are talking through their hats”.  I couldn’t find the third story on the Independent’s webpage but two’s enough to get the jist.

The front page story says that

OFFICIAL figures on the “mortgage crisis” overstate the number of households in real trouble

An objective definition of “real trouble” would be pretty hard to find, so it’s hardly surprising that the Central Bank figures don’t provide a good measure of the number of people with this status. What they do measure is exactly what they say they measure: Arrears. They show that, as of March, 18,193 mortgages have cumulative arrears of over 90 days and 59,437 mortgages have arrears of over 180 days. Is being over half a year behind on your mortgage payments in “real trouble” or not? I guess it’s in the eye of the beholder but, from my point of view, it’s not a good position to be in.

Other issues with the figures are raised by the Independent as follows:

An investigation by the Irish Independent has revealed the Central Bank’s figures include several types of borrowers who are no longer in trouble … these figures include:

– Those who missed payments long ago and have since resumed paying normally.

– Those who fell behind and agreed ‘restructuring’ deals with their banks to lessen monthly payments.

– Those who have successfully done more informal deals to work through their mortgage problems.

In other words, an investigation has revealed that the figures on arrears measure arrears. If you fell behind on your mortgage and are now making your monthly payment, you may be included in these figures. And, indeed, many of the people included in these figures will recover to pay off all of the arrears. Laura Noonan may believe that “gloomy ill-informed experts” have left the public “with the impression that one in 10 mortgages isn’t being repaid and will never be paid” but I don’t know of a single person, gloomy or otherwise, that ever said that this is what the Central Bank figures measure.

An alternative investigation might also have revealed, however, that the Central Bank arrears exclude

• People who have restructured their mortgage before they ran into arrears. The Central Bank figures show an additional 38,658 mortgages that not classified as being in arrears have been restructured by moving to interest only, reduced payment or arrears capitalisation. Many of these mortgages may prove unsustainable if people cannot come up with the money to start paying down the principal.
• People who are paying their mortgages in full but are suffering serious deprivation as a result.
• People who are in arrears on buy-to-let mortgages. The Central Bank’s Macro-Financial Review (page 35) has reported that the rate of arrears on these mortgages is about twice what it is for owner-occupied property.

So a balanced investigation into the arrears figures could have come up with other factors that contribute to the figures understating the scale of the problem.

The Independent also claims that the figures are misleading because they show a worsening of the arrears problem when the situation is actually improving.

A large number of senior bankers right across the industry who spoke to the Irish Independent now insist the situation is improving ..

The Central Bank figures — which show that more than 10pc of households are in arrears — also fail to capture a “significant” improvement in payments that some senior bankers claim they have seen.

This is because the quarterly reports focus on households that owe more than three months of mortgage payments. This means that a change in arrears cases won’t be reflected in the figures for three months.

Since the last set of figures only goes to the end of March, the “latest” surge in mortgage arrears could be due to an increase in people running into trouble late last year, and not a fresh crisis.

In fact, it hardly takes much investigation to figure out that an improvement in mortgage arrears in the first three months of the year could have showed up in the data. The figures show a slow but steady increase in the number of people that are more than 90 days in arrears.  This must mean there were some people who were less than 90 days in arrears in December but who added on enough arrears to appear in the figures.

More worryingly, the fraction of people who are more than 180 days in arrears is steadily increasing. It is possible that some of these people that have racked up larger amounts of arrears are now moving in the right direction even though still in the 180 days plus category. But I’m more inclined to believe the negative trends in the figures than to trust the banking sector sources cited in these articles.

The inverted commas (“mortgage crisis”) in the opening line of the front page story suggests that the Irish Independent believes there is no such crisis. Personally, I believe there is a very serious problem and trust the evidence that suggests it is getting worse over time. But then I suppose I’m just gloomy, ill-informed and talking though my hat.