Alternatives to loan sales must be priority
In recent weeks there has been much discussion surrounding the ‘No Consent, No Sale’ bill proposed by Sinn Féin’s Pearse Doherty.
This bill requires that the original lender has consent of a borrower before a mortgage may be sold to a third party. This clearly stems from well-grounded fears that vulture funds which purchase loans will move to seek increased payments from borrowers in financial difficulty. If such payments cannot be made, the prospect of repossession and the loss of family homes increases.
Somewhat ironically perhaps, in light of the composition of the forces gathering to oppose the bill, this proposed legislation draws heavily from a ‘voluntary’ code first issued by the Central Bank in 1991.
The bank now says that this code, which it never applied in practice anyway, is “not relevant or appropriate” and that it intends to revoke it.
Mr Doherty’s bill is also opposed by the Government, the Department of Finance, the ECB, and the Banking and Payments Federation of Ireland, among others.
The reasons relate to perceived threats to the health of the financial system and liquidity of Irish banks. If these banks cannot pool so-called non-performing loans and sell them on, the argument goes, it will make it more difficult for them to maintain and access capital.
New lenders will be discouraged from entering, fewer new mortgages will be available and the cost of existing ones will increase.
The extent of these forebodings appears somewhat dramatic. There are perhaps more substantial threats — Brexit and likely future increases in ECB interest rates.
There is also a familiar ring of economy versus society apparent. Patience with borrowers still in long-term arrears has clearly worn thin among the establishment, for whom the rules of the market dictate that the show must move on. The ECB saying non-performing loans must be reduced may provide cover for the domestic regulatory authorities.
They may all, however, be argued to have very short memories. When the Central Bank imposed absolutely no controls on mortgage and Irish consumers were borrowing unsustainable amounts, the ECB had little to say.
As the Department of Finance watched stamp duty accumulate from increasingly risky property speculation and public housing ground to a halt, where were the dire warnings?
That was then of course, this is now. When the boom turned to bust, the tide went out for large numbers of borrowers whose incomes disappeared or significantly reduced. Many have recovered but not to the extent required to fully pay those mortgages.
Instead of grasping that reality and acting decisively by writing down those mortgages to sustainable levels, we dithered. The primary reason then as now — bank liquidity.
A very limited Personal Insolvency Act functioned so poorly in its early years that it had to be amended in late 2015 to limit the creditor veto and allow debtor appeals in home mortgage cases.
The Codes of Conduct on Mortgage Arrears 2010 and 2013, while providing a useful framework for engagement between lender and borrower on agreeing restructures, gave lenders far too much power to determine outcomes with no comeback for borrowers.
Recent decisions in personal insolvency appeal cases have shown that the courts are balancing the property rights of creditors with the statutory rights of insolvent borrowers to remain in occupation of the family home while returning to solvency.
A growing number of expert personal insolvency practitioners, insolvency lawyers, money advice specialists, and debtor advocates are working together to boost the number of solutions, but State investment in delivering greater numbers needs to be ramped up. There remains a significant problem of engagement with some borrowers, many of whom are worn out after years of battling over-indebtedness and, regrettably, not all will stay in the family home.
However, there are viable alternatives to loan sales and repossession. We need to explore these as priority. Borrowers are owed that much.
