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Saturday 18 November 2017

Banks reject 25pc of proposed debt deals with families

Lorcan O’Connor of the Insolvency Service. Photo: Tom Burke
Lorcan O’Connor of the Insolvency Service. Photo: Tom Burke
Charlie Weston

Charlie Weston

Banks have been told to stop living in the past and start doing deals with financially-stricken families.

The warning from the head of the State's Insolvency Service came as new figures show lenders are rejecting one in four formal restructure arrangements put to them. Each vetoed deal is costing banks an average of €100,000.

Permanent TSB emerged as the mainstream bank most likely to reject deals.

Some 400 deals were done in the first three months of this year, the Insolvency Service said.

A total of 129 of these were personal insolvency arrangements (PIAs), which involve the write-off of mortgage debt.

But campaigners warned that deals were not being done fast enough to cope with the massive numbers deeply in debt.

Some 31,000 homeowners have been threatened with repossession by the six main banks.

David Hall of the Irish Mortgage Holders Organisation said: "There is nothing dramatic in these figures. More needs to be done to deal with the mortgage crisis."

He said the service needs a complete overhaul, claiming it was becoming irrelevant to the debt crisis. The rate of PIAs being done was so slow it would take a lifetime to clear up the over-indebtedness.

He said banks and debtors were still reluctant to use the new service.

Mortgage campaigners said the banks prefer to do informal deals they have control over.

They are also turning down deals where borrowers have not engaged with them for years, even though they end up losing money by leaving debtors with no option but to be declared bankrupt. This is because the lenders are bitter about mortgage holders ignoring them.

Banks were warned by the Insolvency Service that each rejected deal costs them an average of €100,000.

Insolvency Service director Lorcan O'Connor accused the banks of "defying commercial logic" by rejecting four out of 10 deals put to them by insolvency experts.

Banks have a veto in debt deals. To be approved, a debt deal involving mortgages, must be voted for by lenders representing 65pc of the value of the mortgage borrowings.

The Government is planning to introduce an appeals mechanism where banks that reject formal insolvency deals will have to set out their reasons for vetoing the scheme, as reported by this newspaper last month.

Mr O'Connor called on banks to stop voting down deals in creditor meetings, especially where relations have soured between bank and borrower.

"Lenders have to stop looking back and start looking forward. What happened in the past is irrelevant. Commercial logic should suggest more yes votes in creditor meetings."

He said banks were turning down deals because they fear setting a precedent, and encouraging a surge of copy-cat deals being demanded by over-burdened householders.

And he admitted that the new service, which is just over a year in operation, was not doing enough deals given the scale of the debt crisis. But he said it took a similar service in the UK three years to get up to speed.

The figures issued by the Insolvency Service show that subprime lender Start rejected eight out of 10 debt arrangements.

This was followed by Permanent TSB and its offshoot Springboard, which turned down almost half of the deals proposed.

There were 66 bankruptcies in the first three months of this year, taking the total to 610 since the bankruptcy term was reduced to three years. Mayo and Kerry have the highest number of bankruptcies per head of the population.

An analysis by the Insolvency Service shows in seven out of 10 bankruptcies people lose their homes, many had surrendered their homes before bankruptcy.

Irish Independent

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