Problem mortgages cannot be dealt with in the dark
In time-honoured fashion the Irish banks appear to have chosen to do things the hard way when it comes to facing up to the losses in their residential mortgage books.
It is only now, with the Personal Insolvency Act hanging over them, that they seem to be showing any real enthusiasm for doing what has to be done. This week they are all scheduled to sit down with the Department of Finance and the Central Bank to agree programmes for working through non-performing residential and buy-to-let mortgages.
To be fair, it should be pointed out that the Government and arguably the Central Bank have been somewhat complicit in the banks’ foot-dragging. It was not until sentiment towards the Irish sovereign appeared decisively to have taken a turn for the better that the Government felt confident enough to push the banks into writing down mortgages.
The banks also deserve some slack. No bank in the world, no matter how well run, is equipped to restructure up to one-third of its mortgage book. Never mind doing it while having to deleverage its balance sheet and deal with the transfer of its commercial property loans to Nama.
Anyway, we are where we are. Indeed, it’s arguable that the delay in addressing mortgage debt may have helped some people, particularly if the economy has finally turned the corner.
But as we embark on this odyssey of mortgage debt restructuring it is worth bearing in mind that the interests of the banks, the Government and mortgage-holders are still not aligned. Mortgage-holders need write-downs, the banks want to preserve capital and the Government continues to have a foot in both camps.
It is important then that there is transparency in the process, particularly in the restructuring deals done. This is firstly to ensure the banks are dealing fairly with people and secondly to allow people make informed judgments as to whether they should take whatever deal is on offer from the bank or instead go down one of the new routes available under the insolvency Act.
It is very unlikely that the banks will make public any sort of granular information about arrangements they are coming to with borrowers. Even if the banks were so minded, many of their customers would object as they value their privacy ahead of any common good achieved by making public the terms of their deals.
There is, however, the option of making settlements reached under the insolvency Act public. Doing this would provide a benchmark against which people starting down the restructuring road could make informed decisions about the deal on offer from their bank and the alternative.
Under the insolvency Act the new insolvency service is required to keep a register of agreements reached under the legislation. Fifteen thousand people are expected to avail of the Act in its first 12 months. The structure of the register and what information it contains are not specified in the legislation and will be decided by the Minister for Justice.
If the comments of Lorcan O’Connor – the incoming director of the service – are any guide to the Minister’s thinking, the register will contain only the names of people who have reached settlements.
Strong competing arguments of privacy and the common good are at play. But the dangers of not making detailed information on settlements available in some fashion – anonymised is an obvious solution – are significant.
The most obvious is that it puts mortgage-holders at a significant disadvantage to their banks in terms of knowing what is the likely outcome should they choose to reject a bank’s proposal and go down the Personal Insolvency Act route. It will also enhance the gatekeeping role of professional insolvency practitioners who, it must be remembered, are not charities.
The Minister for Justice has to decide whose side he is on: the banks’ or that of the 100,000 people with problem mortgages who will be confronting their worst nightmare this year.