Banks bid to stop deals with insolvency service
BANKS have been accused of trying to stop mortgage holders in arrears opting for new state-backed insolvency deals.
The Insolvency Service of Ireland (ISI) is due to start taking applications for debt deals from Monday.
Its arrival was supposed to the big fix for the mortgage crisis. But now it has emerged that banks are writing to homeowners in mortgage trouble trying to persuade them to take a deal outside the new service.
Letters seen by the Irish Independent show that banks are warning people the state insolvency deals are restrictive, and homeowners would be better off making a more informal deal with the lender.
Homeowners who get clearance from the banks for a state-overseen insolvency deal will be able to get debts written off under one of the three personal insolvency options.
ISI chief Lorcan O'Connor said that up to two-thirds of debts, other than mortgage borrowings, could be written off under the new deals, something banks want to avoid.
But David Hall of the Irish Mortgage Holders Organisation accused the banks of trying to subvert the new insolvency operation – despite the fact, he said, that lenders had a veto which could stop any deal going before the service.
He said banks were desperately trying to persuade struggling homeowners they were better off avoiding a state insolvency deal.
Banks are mostly doing this verbally, but correspondence received by his organisation shows banks making the case against personal insolvency arrangements (PIAs) and debt settlement arrangements (DSAs).
One typical email from EBS, which is part of AIB, states: "The borrowers would get five years under DSA. However, they would be subject to continuous review and any increase in income would be included under the scheme.
"EBS will not be requesting review and also borrowers would not be subject to the ISI guidelines, which are quite severe."
Anyone who gets an Insolvency Service deal will have to restrict spending in line with what is called reasonable living expenses.
These place restrictions on all spending, ban a second car and holidays, and only allow private healthcare in exceptional circumstances.
The head of the Insolvency Service of Ireland, Mr O'Connor, said that it was difficult to know what level of demand there would be for the new service.
Asked if banks would insure there were few insolvency deals presented to his office, Mr O'Connor said: "That would not necessarily be a bad thing.
"It is not how many cases the Insolvency Service has, but how many problem loans are dealt with overall by the banks. If our existence helps that, we will be happy."
Spokesman for the Irish Banking Federation Felix O'Regan denied that banks were attempting to subvert the new state debt deals.
"Banks have consistently stated that the overall objective of engagement with distressed customers is to try to maximise the number of sustainable mortgages and the number of borrowers who can remain in the family home.
"The banks are focused on every avenue of customer engagement, whether within or outside of the ISI framework, to maximise the number of sustainable mortgages."
By Charlie Weston Personal Finance Editor