Extract from: Global Credit Research – 19 Sep 2012
Moody’s predict Irish residential mortgages defaults to peak at 20% in early 2013. However, uncertainty over the full extent of losses remains as a result of the growing effect of moral hazard. Expect defaults on unsustainable mortgage debt to typically result in debt forgiveness rather than repossession.
The key driver of future defaults will be loans originated with high loan-to-value ratios (LTVs) in the run-up to the crisis, which are now in the deepest negative equity.
The current dearth of repossessions and the recently proposed personal insolvency legislation is starting to result in higher defaults due to moral hazard. Borrowers with loans in negative equity are more likely to default even when they have the financial capacity to pay because they stand to benefit most from the legislation. Unemployment has been broadly flat since 2010 and is therefore less of a key driver of recent defaults.
While Moody’s notes that other characteristics will persist as key default drivers, these will be outweighed by the impact of negative equity on future defaults. These key default drivers to date include (1) self-employed borrowers; (2) loans taken out for the purpose of a buy-to-let (BTL) investment; and (3) loans originated outside of Dublin and Cork.
Moody’s report on “Key Drivers of Default in Irish RMBS Pools Will Persist in 2013” is now available on www.moodys.com
Good Financial Housekeeping – If you are in negative equity and would like to explore your options, email info@GoodFH.ie