New insolvency reforms will protect banks
TANAISTE Eamon Gilmore's description of the proposed reforms to Irish insolvency law as "radical" was wildly over-hyped. With the Government still desperate to protect the banks' mortgage books, last week's package of measures was the absolute minimum the Government could have got away with in regard to the burgeoning personal debt problem.
While the headline feature of the proposed changes was the reduction in the disqualification period imposed on undischarged bankrupts from 12 years to just three, of far more interest to most people was a trio of new, non-judicial, debt-settlement processes.
Although last week's package contained good news for people with non-secured debts such as credit cards and personal loans that they are unable to repay, the news for those with unrepayable secured debts (that is, mortgages) was less good.
Basically anyone with a mortgage which they are unable to repay will be able to apply for a personal insolvency order. If (and this could prove to be a very big "if") the bank agrees, the debt is written down and the reduced amount is repaid over a six-year period. Being tied to a six-year payoff when the bankruptcy disqualification period is being reduced to just three years is at best a Hobson's choice. You might get to keep your home but you are under the cosh for twice as long.
So why did the Government devise an arrangement that is so obviously skewed in favour of the banks?
Look at the numbers.
When one includes the €50bn of loans that have been securitised, the total stock of Irish residential mortgages is over €130bn. With 53 per cent of these mortgages tied up in loss-making trackers, over half of all homeloans being underwater and almost a fifth either being in arrears and/or having been restructured, the Department of Finance is clearly terrified that an excessively liberal personal insolvency regime will encourage tens of thousands of homeowners to seek write-downs on their mortgages, triggering further huge loan losses at the banks.
Sunday Indo Business