Tuesday 21 November 2017

Debt-relief plan 'leaves taxpayer far too exposed'

Experts warn that 300,000 will be encouraged to default on loans


More than 300,000 people in negative equity will be encouraged to default on their mortgage by the Government-proposed insolvency laws, ministers have been warned this weekend.

Leading property and financial figures have greeted the Government's plan to amend the bankruptcy rules with derision, saying the taxpayer is far too exposed to the threat of moral hazard.

It has also emerged that banks are now engaging in limited debt forgiveness "on a case-by-case basis" on foot of an order from Finance Minister Michael Noonan and Financial Regulator Matthew Elderfield.

This is in stark contrast to the refusal by Mr Noonan and the cabinet to commit to such a scheme last summer.

While there has been broad welcome for the spirit of the Personal Insolvency Bill -- proposed by ministers Alan Shatter and Michael Noonan -- considerable criticism is being voiced about the inclusion of mortgage debt in the proposals, a measure not tried anywhere before.

Angel Mas, President of Genworth Financial's European Mortgage Insurance operations, has said there is a risk that those who are stuck in negative equity will now be tempted into abandoning their mortgage by the options being proposed by the Government.

Speaking to the Sunday Independent, Mr Mas said: "It cannot happen that people who can pay choose not to pay. This new law makes possible the likelihood of performing people turning into delinquents."

He added: "It is all about incentive. And with this there is an incentive not to stay in a performing mortgage. The new proposals are a negative for the banks because secured (mortgage) debt is included, which means it is a big negative for the taxpayer."

Mr Mas warned that if the mortgages currently in negative equity were to fall into delinquency, the cost would be as high as €20bn.

While Mr Mas has said the principle of the bill deserves support, that of trying to end Ireland's debt crisis, but warned the "devil will be in the detail", and the Government must avoid any unintended consequences.

Leading legal figures have also criticised aspects of the bill, saying that the measures will do little for those struggling with their debt.

Barry Lyons, of Lyons Kenny solicitors, criticised of the debt relief certificate, which deals with unsecured credit card and overdraft debt under €20,000.

He said the measures will make no practical difference to how such cases are handled.

"There is a very cynical view of this new legislation within the industry -- these measures will make no practical difference to what exists currently," he said.

Mr Lyons also disputed the claims that people will be able to emerge from bankruptcy after three years.

"This is not three years," he said. "The terms and conditions attached are so restrictive, it will be an eight-year process for most."

Despite receiving over €30bn in State capitalisation since 2008, the banks were steadfastly opposed to the notion of including mortgage debt in the proposals ahead of the announcement.

Fianna Fail is calling for measures to be included to force the banks to comply, rather than leaving it voluntary as is currently proposed.

On debt forgiveness, Mr Noonan has said that the banks have been forced to put in place strategies and policies for dealing with people in distress. He said that includes debt write-offs in some cases.

"The Government never set its teeth against debt forgiveness in any circumstance," he said. "But what we said was that one has to realise that if the bank, AIB, which is wholly owned by the taxpayer, is to forgive people, then taxpayers will have to pick it up."

"There would be no general programme of debt forgiveness. We are, however, in favour of debt forgiveness on a case-by-case basis."

Sunday Independent

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