Stephen Donnelly: An outrageous act of vandalism and sheer stupidity
Why won't Coalition let families bid on mortgages instead of selling them off abroad at half price?
Published 16/02/2014 | 02:30
The Government is about to throw 13,000 Irish families to the vultures.
In just a few weeks, their mortgages, taken out with Irish Nationwide Building Society, are to be sold to the highest international bidders. But the Government, in an act of raw stupidity and vandalism, is expressly forbidding the families from bidding for their own loans.
The mortgages will be sold off in batches of several thousand, and bought by foreign fund managers, eager for a home for their clients' money. The performing mortgages will be bundled together and sold at a discount of about 10 per cent. The less attractive ones, like those in arrears or serious negative equity, could be sold at discounts of 50 per cent or more.
For the purposes of this article, let's assume that John manages a fund on Wall Street, and is one of the lucky buyers. Here's what's coming for the families. Let's say you've a mortgage with €300k left to pay on it, and that you're fully up to date on your payments. John has just bought your mortgage for €270k – but you still owe him the full €300k. You'll still pay, and John will bring €30k in profit back to New York. You could have refinanced the mortgage
with an Irish company and would have been delighted to pay the €270k, or even more. You'd be better off, the Irish bank getting your business would be better off, and with more money in circulation, everyone else would be better
off too. But this Government won't let you do that. Because you're not like John.
Let's take another example. Let's say you borrowed €300k, and due to job loss or wage cuts you're in arrears. You haven't taken a holiday since 2006, you can't provide for your kids as you'd like to, and you haven't slept properly in months because of the stress. John has just bought your mortgage for €150k – but you still owe him the full €300k. You can't afford the payments on €300k, but you could easily handle payments on €150k, so an Irish bank might very well give you such a mortgage. Or you could sell the house, let's say for €200k, and pay the €150k from that, with €50k in the bank to start again. In one move, you and your family get to restart your lives. As before, everyone in Ireland wins. But this Government won't let you do that. Because you're not like John.
Instead, you owe John €300k. If your home is in equity, John is likely to discuss repossessing it. When you make noises about the Code of Conduct on Mortgage Arrears, John will inform you that he isn't bound by any of that nonsense, because he's not a regulated bank. So, you know, start packing your bags. And if you go quietly, he tells you, he may consider writing down a bit of the residual debt. Or not.
If you're in negative equity, John will work out a plan that takes as much of your money off you as possible for the rest of your life. He may never get the full €300k from you (though he may ultimately get more), but anything he gets over €150k is profit – so he'll squeeze. And because you're not covered by the same consumer protections that your neighbours are, he'll squeeze hard.
You might pick up the phone to an outfit like Grant Thornton, New Beginning or the Irish Mortgage Holders' Association, and get the ball rolling on a Personal Insolvency Arrangement. This, at least, would get you and the family free of your debts in six years. Only, in the new insolvency legislation, the main creditor can veto any proposal. And in this case, that's John.
Myself, Shane Ross TD and Catherine Murphy TD met with some of the families recently. They are normal, hard-working people. They are angry and they are afraid. And they have every right to be, because they're being sold down the river by their own Government. They have two requests. One: please let us bid for our own mortgages. Two: please extend consumer protection, as it exists for mortgage holders with Irish banks, to all mortgage holders in Ireland.
In October, I asked Finance Minister Michael Noonan if he would allow these families to bid for their own mortgages. He refused. It turns out the Special Liquidator, KPMG, sought advice on the matter from PwC. And that advice was to sell the mortgages in bulk. The Special Liquidator, Minister Noonan explained, believes that doing it this way (in other words, not allowing the families to bid) "is the most efficient method of disposal and the one which is most likely to maximise sales realisations for the Special Liquidator having regard to the public interest".
On Tuesday, I put the same question to An Taoiseach Enda Kenny during Leader's Questions. He read out the same reply.
So we have two reasons from the Government for why it's screwing 13,000 Irish families. Reason one: it's efficient. Much easier to get a few Johns in a room and sell the lot in a few hours.
This is an outrageous position for the Government to take. The State is taking a hit on the mortgages anyway, by selling them at a discount. But rather than pass that benefit on to Irish citizens, it is passing it on to people like John, and his clients.
One group of consultants does a report for another group of consultants, and that's reason enough for Minister Noonan and the Taoiseach to wash their hands of the affair. Their mantra from day one has been that mortgage solutions must be dealt with 'on a case-by-case basis'. But not in this case. Here, it seems, they just couldn't be bothered.
Reason two: it'll raise more money. This is wide open to challenge. I've requested the PwC report from Minister Noonan. If he agrees to provide it, we'll see what level of analysis has been done.
In his response on Tuesday, Enda Kenny gave some big talk about not spending another cent of taxpayers' money on Irish Nationwide. A noble sentiment – though notably absent when Fine Gael voted over €5bn of taxpayers' money into the dead bank. And absent again just 20 months ago when his Government paid out hundreds of millions of euro of taxpayers' money on a bond issued by Nationwide in 2007, long before any guarantee was in place. Another John, somewhere, was given our money – money he never loaned us, money we never owed him.
The public is reacting with vitriol to what's happening to these families. We are used to people venting their frustrations about the Government's abject failure to tackle the mortgage crisis. But the reaction to this has been different – it has been raw fury.
There is a sense that this is more than incompetence, that it is in fact deliberate and malicious. It's probably also because it's so real. Abstract economic concepts can be hard to get worked up about. But everyone can tap into the fury they would feel if their own Government sold their mortgage to some random foreigner at half price, without being allowed to bid on it themselves. Telling these families that it's simply more efficient to do so is pathetic.
Stephen Donnelly is an independent TD for Wicklow and East Carlow