Central Bank publishing incorrect arrears figures

[Brendan Burgess]

The Central Bank has admitted to me after a long exchange that their arrears figures are incorrect and have been for some time.

In their Quarterly Report for June 2018, they provided the following information for Unregulated Loan Owners (aka Vulture Funds)

For accounts over two years in arrears:

This is clearly wrong.
The average balance per account is €301,000 which looks about right.
But the average arrears per account is €167,000 which is clearly wrong.

If the average arrears is €167,000, it means that the average scheduled balance is €134,000.

The repayments on €134,000 over 15 years at 3% would be about €900

That means that €167,000 arrears represents an average of 15 years arrears.

As the average loan was probably issued around 2006 the average age of the loan is probably only about 12 years, so even if none of these borrowers paid anything at all, they wouldn't be 15 years in arrears.

You can see that the average arrears jumped by €38,000 over the March 2017 quarter.

As the average payments should be around €3,000 a quarter, the arrears could not have jumped by €38,000.

The Central Bank's initial response was that this was across a number of loan servicers, so it was a trend and therefore correct.

The only possible explanations I could come up with for the error were:

1) That when an interest-only loan was maturing, they considered the full loan to be in arrears.
So a €100,000 loan with repayments of €100 a month would go from being zero in arrears on a Monday to being €100,000 in arrears on a Tuesday. Or, as the way the Central Bank likes to measure these things, 1,000 months or 83 years in arrears.

2) When the Vulture Fund calls in the loan because it's in arrears, they consider the whole loan to be in arrears.
So a mortgage of €100,000 + €10,000 arrears would go from being €10,000 in arrears to €110,000 in arrears overnight.

The Central Bank stopped responding to my emails, so I sent it to Charlie Weston.
A week later, the Central Bank came back to me to admit that their figures are wrong.

The vulture funds are doing both of the things which I thought they might be doing.

The Central Bank agrees that a mortgage past its due date is fully in arrears.

They don't agree with that a loan which has been called in is totally in arrears.

Brendan

 

[Bronte]

This isn't the first time the CB has had wrong figures. Maybe they can't add up. Also I don't really fully understand your post. Particularly the bit about the vulture funds.

 

[Brendan Burgess]

This does not affect the amount owed nor does it affect the interest charged.

The average balance of €301,000 is not affected. It is correct. It is just the arrears calculation, which is a memorandum figure, which is wrong.

Have the vulture funds being using the wrong figures in repossession proceedings?

I have seen some strange figures in the repossession courts for all the lenders. I have frequently noted in my notes that the figures don't add up. I have only once seen a case where the arrears balance equalled the mortgage balance, but that was in a case where no payment at all had been made in 10 years.

But, although the vulture funds may be reporting the wrong figures to the Central Bank, in my experience, the vulture funds have not been claiming that the arrears on a loan of €256,000 are €256,000.

I have heard a report of one case where the borrower had multiple interest-only accounts, and one was past its maturity date, so the lender considered that account to be in full arrears, which made it look as if he had been paying nothing.

Brendan

 

[Brendan Burgess]

Particularly the bit about the vulture funds.

OK, I have edited it. The Central Bank calls Vulture Funds "Unregulated Loan Owners".

It is obvious from the figures for the vulture funds, that the figures are wrong. They could be wrong for the other lenders as well, but this could not be proven from the data.

Brendan

 

[Bronte]

OK, I have edited it. The Central Bank calls Vulture Funds "Unregulated Loan Owners".

It is obvious from the figures for the vulture funds, that the figures are wrong. They could be wrong for the other lenders as well, but this could not be proven from the data.

Brendan

So the CB puts out data that can not be analysed? And you've already spotted that some of the figures are wrong. Surely others, like economists ought to have spotted this, or maybe they don't bother reading CB reports. Who are the reports intended for?

 

[Brendan Burgess]

The Tanager and Start Mortgages issue is a separate error which did affect customers directly

Start Mortgages and Tanager both double counted arrears which resulted in a reduction in arrears for 5,400 customers. Some of these were facing legal action, and the legal action was halted or withdrawn as it was based on wrong arrears figures.

More information here:

Tanager changes its arrears calculations and withdraws legal action in some repossession cases

These corrections can be seen in the Central Bank figures. In one quarter, December 2017, the number of mortgages in arrears over 2 years owned by Retail Credit Firms fell from 4,302 to 2,545 – a drop of 40%. This appears to be the correction by Start Mortgages and not some underlying dramatic improvement.

The Tanager correction came through in June 2018, where the number of borrowers over two years in arrears to vulture funds fell from 5,579 to 4,985 – a drop of 11% in just one quarter.

 

[Brendan Burgess]

This was the Central Bank's official response to the issue:

...Some of these individual ULO portfolios have arrears levels that are much higher than average. The reason for this are twofold. Firstly, some loans are now past the scheduled maturity dates, and, therefore fully in arrears. The maturity dates on these loans range from the early crisis period up to recently, and interest would have being accruing. If the loans had relatively short amortisation schedule then that outstanding balance can still be large. Secondly, it is clear that when loans are in the legal process and the full repayment of the loan is demanded and not repaid by the request date, some loan managers are recording these loans as being fully in arrears. Our research to date shows that this practice is concentrated in a small number of servicers.


While we are comfortable with the first reason with regards matured loans, we do believe that recording loans fully in arrears due to full loan demand is not providing a full picture of the underlying arrears on the loan. The consistent treatment recording of arrears across all loan owners is a priority and we will be clarifying the treatment and requesting revision where appropriate.

 

[Brendan Burgess]

Surely others, like economists ought to have spotted this

First and foremost, the Central Bank should have twigged that these figures were wrong.

This was not a lone wolf in the Central Bank compiling and publishing figures. Everything which comes out of the Central Bank is reviewed by about ten different people - economists and statisticians. Not one of them actually asked themselves "Do these figures make sense?". Not one asked "How can a mortgage which is 15 years old be 17 years in arrears?". Not one of them seemed to ask "How can the arrears rise by an average of €38,000 a quarter, when the repayments should be only €3,000?".

These are the same economists and statisticians who insisted that the average mortgage rate for new business in Ireland was 3.2% when the lowest rate on offer was 4.2% and most mortgages were about 4.5%. Not only did they not ask "How come the average is lower than the lowest available?", it appears that none of them asked themselves "How come I am paying 4.5% on my mortgage when the average rate in 3.2%?".

These are the same economists and statisticians who publish every quarter data showing the number of legal proceedings issued. When I pointed out to them that the figures do not agree with the figures issued by the Courts Service, it appears that it did not occur to either the Central Bank or the Courts Service to cross check their data. The Central Bank's figures are double those of the Courts Service. I suspect that the Courts Service is right.

Brendan

 

[Brendan Burgess]

Séamus Coffey (Arrears is a terrible way of measuring current mortgage distress) and I have long argued that arrears figures are a very poor measure of anything.

You and I could have the same mortgage, the same interest rate, the same term and the same payment history, but I might be two years in arrears and you could be up to date. Yet the Central Bank thinks that this measures something.

I might be in two years arrears because of a problem I had 5 years ago. Although I have met my full repayments every month since, Tanager is refusing to capitalise the arrears to keep the pressure on me. After 6 months of full repayments, AIB would have capitalised your arrears. So you are not in the arrears figures but I am one of the many people still seen as in deep difficulty.

The Central Bank should stop publishing these meaningless and discredited figures and publish the payment records instead. For example, it would be far more useful to see how many people have paid less than the interest on their mortgage over the past three years. And how many people have paid nothing at all in three years.

Brendan

 

[Bronte]

These are the same economists and statisticians who insisted that the average mortgage rate for new business in Ireland was 3.2% when the lowest rate on offer was 4.2% and most mortgages were about 4.5%.

That was it, I remember that now and how amazed I was that 'experts' could get something so basic so wrong and they argued with you for months about it.

You mentioned 10 people look at everything. I bet anything they do things based on a system that doesn't ever question the logic of it. It's called pen pushing. I suppose if they didn't have so many people compiling meaningless figures many of them might not be needed.

 

[mathepac]

Brendan is there a plan to take this information to a wider audience in The Indo or Times maybe? It's deeply disheartening, depressing even, that the array of highly paid pen and paper-pushers failed to do their jobs. Will they hand back their pay?

Fair play for your persistence and your mastery of some fairly simple arithmetic - no AI capable super-computer needed!

 

[Brendan Burgess]

Brendan is there a plan to take this information to a wider audience in The Indo or Times maybe? I

The Irish Times has covered it today

Mortgage arrears publication to be changed by Central Bank

Real level

However, this figure of €834 million has been queried by Brendan Burgess, of the consumer forum Askaboutmoney.com, who says it is overstating the real level of arrears.


“As of the end of June 2018, the Central Bank said the vulture funds had total arrears of €850 million. But, in reality, it’s probably about half of that,” Mr Burgess said, adding that this is due to the way vulture funds calculate arrears.




For example, when an interest-only loan matures, these funds consider the full loan to be in arrears ; second, when a vulture fund calls in a loan in arrears, it may consider the entire loan to be in arrears.

 

[mtk]

I am surprised CBI didn't argue they were just using alternative facts !
My experience of the coprorate world was that many disasters were often presented by MDs etc. as successes or unintended consequences were presented as what was always intended .......point is a bit tangential perhaps.

 

[Brendan Burgess]

I am surprised CBI didn't argue they were just using alternative facts !

This statement from them was not far off alternative facts.

“Recording loans fully in arrears due to full loan demand is not providing a full picture of the underlying arrears on the loan,” it said

That seems to diminish the error as just not providing the full picture. In fact their "unfull" picture doubles the amount of arrears.

Brendan