Banks that veto debt deals face being overruled by the courts
Courts will be given new powers to overrule banks that have vetoed debt deals, as part of the Government’s long-awaited mortgage package.
Senior ministers are close to finalising a detailed set of proposals which include an appeals process for homeowners whose debt deals have fallen through.
The so-called ‘examinershiptype’ model will be able to enforce debt deals, representing a major step towards ending the banks’ stranglehold on the personal insolvency service.
Personal Insolvency Arrangements (PIAs) are dealt with through the courts already. Therefore this option is unlikely to cause any major additional workload for the court system.
Both Finance Minister Michael Noonan and Tánaiste Joan Burton yesterday gave their clearest indications yet that the banks’ veto is being effectively removed.
Speaking in Galway, Ms Burton said an “examinership-style” process would weaken the banks’ influence on the Insolvency Service.
“First of all, we want to see a process that if necessary allows an examinership-style process that will result in the decision of the bank or the withdrawal of the bank from the personal insolvency arrangement process,” Ms Burton said.
The Labour Party leader said that banks were “pulling the rug” on debt deals when the proposals put forward were often perfectly reasonable.
“Now it seems to me there (is) very little economic argument as to why a bank from either an Irish national perspective or from a bank perspective should pull the rug on a deal where, say, somebody had a mortgage of €1,500 a month but because maybe one person in the house lost their job or their earnings were reduced, very typical in the crash, they could only pay €700 or €800 a month,” the Dublin West TD said.
“That’s a viable arrangement and if the banks refuse viable arrangements, we want, as in an examiner process in business, a process that will allow that individual, that family, that couple to stay in their home,” Ms Burton added.
Mr Noonan said he expected the Government’s mortgage package to be unveiled shortly.
He agreed with Fianna Fáil TD Michael McGrath that the “final say” on mortgage deals should be taken out of the hands of the bank.
The setting up of the new watchdog service has been called for by mortgage campaigners.
David Hall of the Irish Mortgage Holders’ Organisation, who proposed such a mechanism in a submission to Government, told the Irish Independent: “This is the only real option to allow some balance after the catastrophic decision to give the banks a veto.”
Director of policy at FLAC Paul Joyce said that while his preference was for an independent body, pursuing any option other than the courts could be deemed unconstitutional.
He said the system would likely operate in a similar fashion to examinership court hearings, where a judge can overrule a bank that wants to wind up a company and force a rescue package to be put together for a failing company.
Mr Joyce said that banks were allowing few formal debt deals for stricken homeowners. Just 328 of the State-back personal insolvency arrangements (PIAs) have been put in place since the Insolvency Service began operating in late 2013.
This is out of a total of 1,204 proposed PIAs. He said this meant that only a quarter of the deals proposed were approved. A PIA involves a write-down of mortgage debt.
Asked if FLAC was in favour of banks being forced to do deals that would deplete their capital, Mr Joyce said: “Yes, to solve the problem for once and for all.”
But he stressed that not all of the almost 38,000 mortgages accounts that were more than two years in arrears would be suitable for a PIA, as the income of many of these people was too heavily impaired.
Mr Joyce said PIAs involved those who got one having to live on a set level of income for up to six years. And a bank can claw back money if there is mortgage debt written down and the house is subsequently sold.