Wednesday 23 October 2019

Maurice Crowley: 'This bill will hurt the consumers it seeks to protect'

 

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Maurice Crowley

Having a mortgage market that works effectively is one of the most important ways to ensure we overcome the housing crisis that we all want to see end.

To achieve that, we need to strike a balance between the rights of borrowers to fair treatment and the rights of banks to manage the risk they face in providing mortgages.

Unfortunately, a number of recent legislative proposals could seriously undermine that balance and be detrimental rather than beneficial to the interests of consumers.

Take for example the No Consent No Sale bill 2019 proposed by Sinn Féin, which would require the specific consent of the borrower before the sale of a mortgage loan to a third party.

Its supporters view the measure as providing further protection to borrowers. This is wrong in our view.

Firstly, the legislation will make it harder for banks to raise funding which means banks will have less money to give out in mortgages.

This is because portfolio sales are a necessary and critical component of a lender's ability to raise capital. With this option greatly diminished, if not closed off completely, banks would have less money to lend and fewer people could get the mortgage they need to buy their home.

Secondly, the cost of funding will also increase so banks will have little choice but to increase the cost of mortgages for households. It is already comparatively expensive for Irish banks to fund mortgage lending, and this bill would make that situation worse.

And thirdly, it will make the Irish market less attractive to new lenders, meaning less competition and less choice for consumers than could otherwise be the case.

It should be noted, too, that even in the event of a mortgage sale by a bank to a third party, the Central Bank itself has said that the protections which borrowers have travel with them on the sale of loans to third parties. In other words, all the rights a mortgage holder has with their bank remain if that mortgage is sold to someone else. No exceptions.

While everyone wishes it were not so, non-performing loans are a fact of financial life across Europe. The No Consent No Sale bill would very likely undermine our banks' ability to deal with them, maintain a healthy balance sheet and ensure fairness for all who need, and pay, their mortgages.

As the ECB stated in its recent opinion (18 February) on court orders for possession of principal private residences, "additional costs (to banks) are likely to be passed on to future borrowers and could result in a significant impact on mortgage pricing and availability".

Sinn Féin's bill, although seeking to protect consumers, would have the opposite effect and be very damaging not only for the banking sector but for the very consumers it purports to protect. How does it make sense for such legislation to be promoted?

Take also the example of the Land and Conveyancing Law Reform (Amendment) bill 2019 which would make it mandatory for the courts to consider a homeowner's personal circumstances in repossession cases.

Once again, the intent here appears to be to provide protection to borrowers. However, a very considerable range of measures already protect distressed borrowers here by comparison with other countries - a viewed shared by a number of independent commentators.

As things stand, distressed borrowers are afforded protection under the Central Bank Code of Conduct on Mortgage Arrears 2013, the Mortgage Arrears Resolution Process, the Central Bank's Consumer Protection Code 2012, the Land and Conveyancing Law Reform Acts of 2009 and 2013, the Consumer Protection (Regulation of Credit Servicing Firms) Act 2018 and the Personal Insolvency Act 2012 and 2015.

Arising from our body of law, once repossession cases get to court, our courts process provides a protection to borrowers, one which is over and above that available in other jurisdictions.

The full legal process for repossession in Ireland is considered to be one of the longest if not the longest in Europe.

It can typically take as long as three-and-a-half years here, considerably longer than in such countries as Denmark and the UK, where it takes only 18 months.

This has the effect of undermining a lender's access to its security or collateral which is the very basis of secured lending at more favourable rates than ordinarily apply to unsecured lending.

In effect, the Land and Conveyancing Law Reform (Amendment) bill 2019 would likely exacerbate the already protracted nature of court proceedings and increase the associated legal costs - including those of borrowers in mortgage arrears.

However well-intentioned, these legislative proposals do not serve the interests of borrowers and will make a difficult situation worse for those hoping to get on the housing ladder.

They will make mortgages more expensive, harder to get and discourage new entrants from coming into the market. It is vital that TDs and Senators bear these points in mind when considering these flawed proposals.

Maurice Crowley is acting CEO of the Banking & Payments Federation Ireland

Irish Independent

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