Foreign predators poised to swoop on our bad debt
Distressed borrowers have gone through enough. It's time to cut them some slack
YOU have a better chance of your loans being written down if you are not in arrears than if you are. The financial crisis is being played out in the private sector and it's about wealth redistribution. It's the closest thing to a wealth tax that we'll ever see. But it works in the opposite direction to what you'd expect. It takes from the vulnerable and it gives it to the rich, who take advantage of the predicament we are in.
The most recent controversy is about the way in which KPMG, the liquidator for Irish Bank Resolution Corporation, will sell off the residential mortgage book of the Irish Nationwide Building Society.
Many speculative investors got 100 per cent-plus loans to buy investment properties. They alone went mad during the Celtic Tiger. They are most likely to cut deals to have their loans written off, but not those in mortgage arrears who really need help.
The loan book at the IBRC, where the INBS loans are now, has been divided up between performing and non-performing, and further divided between Principal Dwelling House loans and buy-to-lets. Residential mortgages at the INBS have a higher than normal level of non-performing loans in arrears – as much as 50 per cent of the loan book.
The problem with the liquidation is that the foreign institutions are most likely to buy up these loans, but they are not subject to financial regulation in Ireland. That means mortgage-holders are not protected by the Central Bank's Code of Conduct on arrears.
But the code only protects those it deems to be co-operating. If you have arrears, you are deemed not to be co-operating, unless you have an agreement with your lender on repaying the arrears. Most people are screwed from the start. The banks told us every case must be looked at on its own merits, but then they try to set standard rules for all. That's why it doesn't work.
Then they invoke breach of contract and repossession ensues. Since Minister for Justice Alan Shatter changed the law last year, the banks sought to repossess to get the Central Bank off their backs. The Government has set the standard.
It's the Government's fault. They've turned it into a fee-fest for the professional elite.
Lenders don't want to do anything they don't have to. Why should they cut deals with customers when the taxpayer can pick up the tab? The rich list has the names of those who are getting the big write-downs. They cut deals with banks that are starved of cash. But they'd be foolish not to take advantage, especially while the Government sits idly by. The big corporates are cutting deals too, as their loans come up for sale. They have the resources to bid.
In 10 years we'll have one of the poorest nations, with most people crippled by loans to buy overpriced homes.
If the Government and Financial Regulator were asleep on the job then, they are in a coma now.
Maybe distressed borrowers shouldn't be worried. Their new masters are in the money from day one. Maybe they can even do deals to buy out their loans at a discount after the takeover. I wouldn't hold my breath.
If the mortgage protection code doesn't work, at least personal insolvency and bankruptcy could for some. It's all we have until things get better. It wouldn't take much for the Government to intervene, but that's against the advice of the professionals and the EU.
The Central Bank and the Department of Finance are working to avert a disaster, as foreign predators are poised to take advantage of our bad luck. But they are fighting an uphill battle and working against their own plans that the EU laid down.
We can't have a fair solution when the EU wants something else and the Government is willing to go along with it. Most people don't want debt forgiveness, but if write-downs are on the cards why shouldn't the needy and vulnerable get them too?
The Government can set the rules even though the liquidator is in control. All it has to do is fix the protections that are afforded to existing mortgage holders to the loans that are sold on.
It's about time someone cut distressed borrowers some slack. There are no uncooperative borrowers, just people looking for solutions – which lenders won't give. There is nobody to hold lenders to account, not even the Central Bank. It's time to deliver what they promised. Nobody should be left behind.
James Fitzsimons is an independent financial adviser specialising in tax and financial planning