A proposed law that seeks to prevent banks from selling problem loans to so-called vulture funds without borrowers’ permission could lead to an increase in repossessions, the Oireachtas Committee on Finance has heard.
Gary Tobin, assistant secretary in the Department of Finance, told the committee that Sinn Féin's 'No Consent, No Sale' Bill could have a number of unintended consequences including higher mortgage interest rates and more repossessions.
"Certainly we are not convinced that for the current mortgage holder this Bill would necessarily do a lot for them," he told the committee. "I think the reality is that if the institutions can't sell their non-performing loans, then the Central Bank and the regulator are still going to insist that they address them. And one of the ways they could address them is by repossession.
“I don’t have a crystal ball, I am just trying to give an honest opinion about what might happen.”
Mr Tobin said the proposal could potentially have ramifications for those looking to buy a house for the first time.
“I think in a situation where secure lending is more difficult, in other words, where the rights of the borrowers are even further protected, it is likely that institutions will price that into the interest rate they choose to charge,” he said.
“The banks feel that they will have to price in the risk associated with this proposed piece of legislation, so that essentially would mean higher interest rates.”
‘Grave concerns’
Mr Tobin said the department had “grave concerns” about the Bill and believes it may be unconstitutional after discussing it with the Attorney General.
It was thought that Government consent was required for the Bill in the form of a “money message”, an approval needed for any piece of legislation that could have consequences for public spending.
However, in a letter to Sinn Féin finance spokesman Pearse Doherty, the TD behind the Bill, the clerk of the Dáil said the "preliminary view" was that there was nothing in the Bill requiring such action from the Government.
However, Mr Tobin said it was the department’s view that a “money message” would be needed were the Bill to become law.
Central Bank deputy governor Ed Sibley told the committee that restrictions imposed by the Bill would be “costly, both by hindering the continued recovery of the banking system and, most importantly, by reducing the ability of the banking system to absorb adverse shocks in the future”.
"Ultimately, these costs will be faced by households and businesses in Ireland, " he said.
Constrain
Mr Sibley said the Central Bank's view is that the proposed law would significantly constrain the ability of banks to engage in portfolio sales, whether of performing or non-performing loans. He said this would then limit their ability to deal with outstanding vulnerabilities from the financial crisis.
“These constraints will hinder the continued post-crisis recovery of the banking system. And, crucially, they will reduce the ability of the banking system to deal with any future macroeconomic downturn and the accompanying deterioration in asset quality.”
Mr Doherty asked Mr Tobin if mortgage interest rates would definitely increase, or likely increase as a consequence of the Bill. Mr Tobin said he believed it was likely and that his views were not a personal attack on the legislation.
“We are here to try and tell truth to power, to tell you what we feel you need to hear, not what you want to hear,” Mr Tobin said.
Mr Doherty said it is his intention that the Bill will pass through report stage in the Dáil, and then through the Seanad before being signed into law by the President.
