Devil is in the detail where mortgage crisis is concerned

Alan Turing was not like most men. Turing was a genius: he solved one of the hardest scientific problems of his era, and in the process developed the theory of the modern computer and helped begin the search for artificial intelligence.

Turing even built some of the first mainframe computers. Turing helped end World War Two by breaking submarine codes, saving thousands of lives. In many ways Turing helped define the modern era. And despite his genius and his service to his country, Dr Alan Turing died alone and shunned by a society that criminalised his homosexuality. He was 41.

This year is the centennial of Turing's birth and the world is rightly singing his praises, if much too late for him to hear them. Turing combined a deep insight into abstract theoretical problems with an engineer's need to build the solutions to those problems, to make the solution effective, in every sense of the word.

The last sentence of the last paper Turing ever published ends by ridiculing 'the inadequacy of reason unsupported by common sense'.

This inadequacy is my subject today. We have lots of logical, reasoned arguments flying around the place where 'reason' is supposed to supplant common sense.

Take last week's kerfuffle about whether or not the figures on mortgage arrears released by the Central Bank overstated the true mortgage problem on the ground. The reasoned argument (in place of any analysis) was that the Central Bank's figures included several types of borrowers who are no longer in trouble, for example, households who missed payments at some point in the past, and have since resumed normal payments; those households who fell behind and agreed 'restructuring' deals with their banks to lessen their monthly payments somewhat; and those who have successfully done more informal deals to work through their mortgage problems. The Central Bank's figures don't look at household income. Some top bankers apparently agreed the problem wasn't as bad as the figures suggested, and so the experts had gotten it wrong.

This is a great example of argument (or reason) ahead of any common sense. The facts are pretty clear. More than 10pc of residential mortgages in the State are in some form of distress, 77,630 at last count, to be exact. That number of people could fill Croke Park. Some of these mortgages have been restructured -- that's French for going 'interest only' or paying less than the normal monthly payment -- but all are more than 90 days in arrears. Even worse, 59,437 mortgages are in arrears for more than 180 days. These mortgages are truly underwater. Common sense says the problem won't get sorted out until those who can't pay are dealt with in a structured (and hopefully humane) way.

The Central Bank figures are very careful to note that these are only residential mortgages, not buy-to-let or other investment-grade mortgages. Common sense would say things are almost certainly worse in that section of the market and, indeed, the Central Bank has estimated that almost 17pc of buy-to-let mortgages are more than 90 days in arrears. The problem is likely much worse in the aggregate when looked at through the lens of a bank's balance sheet. Again that's common sense. The more of these loans that don't fully repay, the more capital the banks will require either from the private markets, or the troika, or of course, the taxpayer.

Common sense, backed up by serious research, says a combination of factors drive mortgage arrears: the interest rate on the mortgage, unemployment, house prices, with the addition of rental rates for the buy-to-let sector. What has happened to unemployment rates? They have been roughly constant at just over 14pc since 2010. What about interest rates? Variable rate customers have endured large increases in their interest payments, and indeed it is this section of mortgage holders that have found themselves proportionally more in arrears than others, such as those on trackers or fixed repayments. What about rental rates? They have sunk. And we all know what has happened to house prices.

There is a mortgage crisis. You can believe me; believe the figures; or even your lying eyes. They will tell you a version of the same story. Common sense requires that we recognise the scale of the mortgage debt problem, and expect our policy makers to deliver a solution of the same scale. The mortgage debt problem is getting slowly worse, there are no easy solutions, and no bankers' opinions will affect the outcome of a process begun in 2007 as the property bubble burst.

As a country we await the publication of the Personal Insolvency legislation as a large step toward resolving the problem. If the Bill is guided by common sense as well as reason, it has the potential either to maintain or disrupt a horrible status quo for those in mortgage arrears and ultimately the taxpayer, on whose shoulders much of the burden for any solution rests.

Published in the Irish Independent.