Fianna Fáil private members' bill on debt settlement

Brendan Burgess

Brendan Burgess

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Fianna Fáil has today (Wednesday, 12 October) published a bill to establish a Debt Settlement and Mortgage Resolution Office


Deputy McGrath stated, “This Bill is based on the recommendations of the Law Reform Commission’s Report on Personal Debt Management and Debt Enforcement of last December and the associated draft Personal Insolvency Bill. However, we have decided to extend the scope of the Personal Insolvency Bill to include the growing problem of mortgage debt.

...

“In relation to mortgages, a borrower may apply to the office for a Mortgage Resolution Order in respect of the family home. Following a thorough process involving the borrower and the financial institution, the office has the power to impose a binding Mortgage Relief Order to restructure the mortgage. The Bill proposes to afford the office a number of options which can be included in the Order, including:
  • interest only payments for up to 4 years
  • extending the period of the mortgage by up to 20 years
  • a repayment holiday for up to 12 months
  • an adjustment to the interest rate to bring it in line with market rates
  • a debt for equity swap
  • participation in the deferred interest scheme
  • in the event of voluntary surrender, that the financial institution lease the family home to the borrower at a market rent.


The Order will be binding and gives the borrower the certainty and space required to work through their financial difficulties so that they can retain their family home.
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First of all, the LRC report hardly mentions mortgages at all, so the LRC's draft legislation will have to be rewritten to accommodate mortgage arrears. So FF's highlighting of this is to be welcomed.

My understanding of the Irish constitution is that we simply can't tell one party to a contract to amend that contract. Citizens and companies have property rights. So a Mortgage Resolution Order could not be imposed on a lender.

If we could overcome the legal order, would it be a good idea? It would be a good idea for some of the borrowers facing difficulty for the moment. But it would kill off the mortgage market completely. Foreign institutions would not put money at risk lending to Irish house buyers if a state body could simply set the mortgage rate.

So it's unconstitutional and it's a bad idea.

interest only payments for up to 4 years
extending the period of the mortgage by up to 20 years
a repayment holiday for up to 12 months
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70,000 mortgages have been rescheduled. The lenders are doing this already. There is no need to legislate for it. Extending a loan by up to 20 years is madness. Borrowers circumstances change and if they can return to their original mortgage schedule they should.

an adjustment to the interest rate to bring it in line with market rates
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This is the most dangerous proposal. The government should not set interest rates. However, I note that the Financial Regulator has discouraged lenders from increasing their Standard Variable Rate which I thought was a worrying development.

One big problem is that it is alleged that some lenders put up their rates for some individuals. The Irish Nationwide used to do this. They would have an attractive rate for new business but would not pass on market rate cuts to existing clients.

It might be worth considering requiring the lenders to publish a standard variable rate and borrowers would be charged this rate + or - a fixed % based on the risk. So everyone gets the same rate rises or falls.



a debt for equity swap
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As explained in this post, these do not apply where there is no negative equity. They are a smart sounding name for debt forgiveness.


participation in the deferred interest scheme
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Our advice on the first Expert Group on Mortgage Arrears was that lenders could not be compelled to participate in such a scheme. Given that all lenders are participating in the scheme or have something at least as good, there is no need for legislation on it.

in the event of voluntary surrender, that the financial institution lease the family home to the borrower at a market rent.
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So I have the right to hand back my house and rent it from the institution.
 
I think that FF has wasted an opportunity for constructive participation in the discussion on mortgage arrears.

The LRC Bill is not adequate and FF should be coming up with constitutional and good ideas for amending it.
 
The banks only exist because of the monies given to them that were borrowed on behalf of the electorate, some of whom are their customers.
If the customers hadn't supported the banks through the government the banks and the Irish economy would be in ruins.
I think it entirely reasonable that people are protected from draconian attitudes on the part of some banks.

I have little faith in the free market system - unregulated speculation and gambling is a haven for thieves and rogues and this is why we are where we are today.
I don't agree with a blanket scheme supporting everyone - its quite clear some people gambled with their sole domicile on the market and lost.
However the games banks are playing with the interest rates to compensate for the tracker mortgages need to be stopped.

It is entirely in the public good that these fools who drive their businesses into the ground are not allowed cause hardship and havoc once again to suit their balance sheets.
Contract law has been placed above equity by the courts for some time now and I think this needs to be rebalanced in favour of a fair deal for all participants.
I think will force the banks into using a more sustainable model which will ultimately have better results long term for the economy and thus the banks.
 
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Government is going to refer FF bill to committee stage. Seems it believes its a valid and worthy proposal. Mortgage holidays are also being mooted to allow time for people to pay down non-mortgage debts - seems this would work is they could structure repayments within a debt settlement process which would probably require principal write downs by unsecured creditors depending on indebtedness.
 
Mistake in combining LRC report and mortgage arrears problem

I think FF made a mistake piggybacking on the LRC's Report. The Report deliberately excluded mortgage arrears from its proposals. It offers very comprehensive reforms in the area of personal debt (though admittedly it does have lots of flaws - responsibility for the debt resolution process would be given to what would essentially be private contractors, and the need for 60% of creditors to give their approval before the debt resolution process can begin).

Mortgage arrears is a whole different ballgame and as a stand-alone topic it needs as much attention as all of the rest of the LRC Report put together.
 
Hi mccabe

But the two issues have to be linked. It will be messy but it will have to be done.

There is no point in someone going through a debt resolution process for their ordinary creditors if they come out the other side with a home with an unsustainable mortgage.

Some people are making repayments on their mortgage at the expense of other creditors.

Others are paying their other creditors at the expense of the mortgage lender because the Mortgage Arrears Code places such restrictions on the lender.

They have to be solved together.

Brendan
 
I agree with you Brendan, there is no point introducing personal debt legislation if it doesn't cover the mortgage arrears problem. It is regrettable that the LRC neglected to cover this topic. The same time and resources they devoted to personal debt needs to be devoted to mortgage arrears and a similarly detailed and practical plan must be drawn up. I think it was reluctance to stand in the firing line that stopped the LRC from doing that and it's a real pity.
 
I think it was reluctance to stand in the firing line that stopped the LRC from doing that and it's a real pity.
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I doubt that this is the reason. I suspect that they started working on the report years ago when mortgage arrears was not a problem. So they were in the wrong frame of mind.

They had a consultation in early 2010 and you will see my submission here

I think that it was too late for them to change direction at that stage.

Brendan
 
I take your point but considering the resources behind this Report I still think that it was foolish to miss such an opportunity to really and comprehensively address the mortgage arrears problem. I see you tried to emphasise to them the need for mortgage arrears to be considered in your submissions.

I'm beginning to be swayed by your arguments against writing off negative equity or any sort of debt forgiveness. I your idea of a borrower earning a qualified fresh start after 5 years. This may well have been discussed already today but a coalition of social justice and housing organisations (FLAC, New Beginnings, VdP etc) published a 9-point proposal on mortgage arrears (did anyone see these? thoughts?). They talk about a "Debt write-off - [FONT=Calibri,Calibri][FONT=Calibri,Calibri]Insolvent debtors should pay to the best of their ability for a limited time period and remaining debt should then be written off. " This sounds similar to the qualified fresh start idea.


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