# Central Bank and Insolvency Service to meet Oireachtas Finance Committee



## Brendan Burgess (23 Apr 2014)

The ISI will be before the Finance Committee next Wed morning, 30th April.

The Central Bank will be there that afternoon. 

If you have any questions, you should ask one of the members of the Committee to put those questions to them. 

List of Committee members 



Brendan


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## Brendan Burgess (30 Apr 2014)

The Insolvency Serviced will be on at 10 am this morning and the Central Bank at 3pm 

You can watch them live here

http://www.oireachtas.ie/parliament/watchlisten/live-flashplayer/committeeroom3/

Brendan


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## Brendan Burgess (30 Apr 2014)

Interesting comments from the Official Assignee

1)"The Armageddon of 8 years that people have been talking about is not correct" 

 He won't generally seek an Income Payments Order for 5 years from the end of the three year period. 

He will "discount" the first three years if he applies for it at the end of the three years. 

2) However, if the bankrupt has not been cooperating he will get a 5 year payments order at the end.


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## Brendan Burgess (30 Apr 2014)

I can't sell a family home.  I must get the permission of the bankruptcy judge, who can delay it. 

 I have done a Key Post on this 

http://www.askaboutmoney.com/showthread.php?p=1384183#post1384183


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## Brendan Burgess (30 Apr 2014)

Governor Honohan's introductory statement 


"concluded" is an Orwellian term and I think of these as confirmed rather than 
concluded. 

The process is working more or less to target, although the targes are limited

Key issues arising in our DEc 2013 audit

1) Communications with customers were often verbal 
2) Short term loan modifications are still too common
3) Affordability assessments not on record 
4) A limited number of breaches of CCMA - e.g. sending out letters too early

CCMA is a consumer protection process
The Targets review is a prudential process


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## Brendan Burgess (30 Apr 2014)

*Ciarán Lynch *

Your definition of sustainable mortgage is that the loan must be paid off within retirement. 

Honohan: Correct but we are not limiting it. 

Ideally that the property would be wholly owned by the borrower, but that will not always be the case. 

Solutions can go into retirement.  If the household into retirement can service it . 

There are circumstances - We will leave you in the house as long as you can service the payment and we will sell it at death. 


CL:  Case study 50 year old in positive equity who can afford interest only. 
Is that sustainable 

Honohan: It could be but it would not be idea for everyone. 
We don't want banks to give out interest only loans from the start 

The banks were assuming that we were against interest only forever. We are not. the banks were using this excuse. 

CL: Do the banks understand that interest only is acceptable. 
Are you sending out a clear mortgage, but you can pay interest only into retirement, that the CB is giving these the green light.

Honohan: In principle that is fine. 
There is no international standard.  We are developing this as we go along.

[At end of CL's questions] CL: Will you clarify all this through issuing a statement? 
Governor: I see no problem with that.  

CL: What about achieving targets through sending out legal letters? 

Honohan: We are satisfied that the legal letters were necessary in the vast majority of cases - where the borrowers were not engaging and sometimes where the assessment showed that the mortgage was unsustainable. 

CL: 
How have you been getting on with the Credit Unions and other unsecured borrowers 

Honohan: There are a lot of routes for distressed borrowers 
The bank and the borrower have an incentive to do a deal before using one of the insolvency regimes.
To accelerate this we tried a pilot programme - to get the CUs and banks working together - how can we allocate money to secured and unsecured debt. 
We drew on StepChange a British charity to operate the pilot
We found a lot of resistance from Credit Unions who felt that the banks would get an advantage . That they would get repaid better by staying outside such arrangements.  I don't think that they are righ.
Only a few CUs participated.


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## Brendan Burgess (30 Apr 2014)

*Michael McGrath:*

There are dramatic inconsistencies about the way the banks treat people e.g the different terms of split mortgages . that is unfair to people

Governor: Not our aim to achieve consistency. but to achieve minimum, but high, standards. We are not telling them how to do it. 

Some borrowers will get an even better treatment than our minimum. 

Banks will learn from each other. 

Which bank would you like us to choose to model our approach on? 

I get angry international bankers saying "The Irish have violated international banking practices" which, of course, we aren't. 

The different rhetoric from different banks, may reflect the differences in style

McGrath: It's not just rhetoric.  the practices are different on the ground. 

Honohan: Agreed. I am not minded, at the moment, to limit the solutions.  We have our own views on which are the best practices. 

McGrath: What about unregulated mortgages? Are you happy to preside over them? 

*Honohan: I am not happy with this situation.  I preside over regulated banks, so it's out of our control. We have communicated that unhappiness. 

*McGrath: To clarify, do you have any role where they voluntarily comply? 

Honohan: We keep an eye on it.  We are unhappy with the situation.

McGrath: May I ask about the court case yesterday...

Chairman interrupts:  The Oireachtas, and its committees do not comment on court cases or court verdicts, so keep your questions and answers within that constraint.


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## Brendan Burgess (30 Apr 2014)

*Senator Paul Coughlan 

*What about unsavoury practices of the three lenders who are leaving the market?   Especially the cleanup of SME loans. 

Honohan : I have heard allegations about this and would be happy to hear more. 

*Kieran O'Donnell 

*50% of the proceedings for some institutions, are legal letters. Are you satisfied with this?  Banks have met their targets because they issued legal letters. 

Will the upcoming stress tests impact upon the way you deal with arrears? 

The Positive Equity Paradox - they are more vulnerable than those in negative equity. 

Honohan: When we introduced targets, we warned that there would be unintended side effects.  But the consequence of those letters will be engagement with the banks which will result in sustainable solutions. 

O'Donnell: A lot of these were sent out in the last few days of the quarter. They were like cramming for the exams. 

Honohan: I partly agree with you.  But I am not upset by it as the letters had to be sent anyway. The banks were doing nothing with these guys. 

The targets have generated momentum - 50% have solutions.

I don't think that the banks have adjusted their behaviour and portfolios in anticipation of the upcoming stress tests.  They have done this adjustment already - since even before the Troika. 

I am concerned as you are with the positive equity. The best solution would be to continue on. I don't like seeing cases where positive equity is the cause of people being thrown out.


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## Brendan Burgess (30 Apr 2014)

Mary Lou McDonald : Which banker expressed anger and what was it about? Honohan:  A foreign banker said that the PIA regime undermines the idea of secured debt 

MLMD: You are taking a hands off approach and you have a hands off mentality . You are happy with the issuing of legal letters. You seem to imply that it's good for the borrowers. 

Honohan: I can't take that comment seriously. I can't believe that you said I am taking a hands off approach.

MLMD: How many of the repossession letters were for those who had engaged

Honohan: We don't have exact figures ,but it's around 4;1; 5;1

MLMD: Some people are intimidated by banks. They are asked to engage, where they have no legal or financial advice.  The dimension of the distressed person should also be factored in. 

Honohan: I agree that people are intimidated by banks and are distressed when they receive this letter.  I reject your suggestion that we don't care. 

MLMD: I sense a level of flippancy in your manner and presentation 

[ I don't know where she is getting it from. I think it's because she is not on top of this stuff - BB] 

Honohan: I don't know where you get this. I always crack jokes.  

MLMD: That does not sit well with me or with the people I represent.

[unfortunately Honohan lost his rag, so this will probably feature on the TV coverage, not the excellent stuff which would help borrowers keep their homes - BB]

Honohan: The lenders should be more transparent about what treatments are available to enhance a sense of fairness.


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## Brendan Burgess (30 Apr 2014)

*Kevin Humphreys

*BoI seemed to take some pleasure in telling us that they would not approve any PIAs. 

Honohan: I am disappointed and I think that they will change their views. They will have to comply with the CCMA.  They need PIAs to meet their targets. .. if that's not too flippant for Deputy McDonald. 

Humphreys: Boucher stated his policy clearly to us recently. The ISI said that they are not happy with this. You are not happy with this. 

HOnohan: I will try to get him to adjust as quickly as possible


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## Brendan Burgess (30 Apr 2014)

*Senator Aideen Hayden *

I welcome your clarification on interest only for those in positive equity. 

On Buy to Lets:
3,700 Receivers appointed
 We need a code of conduct for Buy to Lets to protect the tenants.   
Receivers are not respecting the laws of the land

I am personally seeing that the CCMA is falling down where people are deemed not cooperating where a couple has split up and one is not cooperating.

The definition of sustainable solutions needs a lot of work.  We need some independence in this process. 

The Ombudsman is not providing a level playing field.   

Mortgages are not negotiated freely. The banks pay for the legal fees and valuation when a mortgage is taken out. 

Under the CCMA, a borrower can't find out why the mortgage is unsustainable.

*Honohan 

*The behaviour of the Rent Receiver is not regulated by us.


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## Brendan Burgess (30 Apr 2014)

*Stephen Donnelly 

*I am disappointed in your opening statement. I believe that you are taking a hands-off approach. You allow them to define what a sustainable mortgage. Banks are allowed to categorise customers are non-cooperating.  There is no consistency. BoI rate of legal action is two to four times the rate of the other lenders. 

*Honohan *

Maybe my statement appears more complacent than I intended. 

The process is generating results. Deals are being done. Some more effective than others.  Viable solutions are being offered. 

I am afraid to use any words ... in case I offend Deputy McDonald... but things are unpleasant. 

*Donnelly 
*
We have to be careful about anecdotes. Is it acceptable to you that BoI doesn't offer 0% on split mortgages. 

Honohan: We set a standard and we don't find it unacceptable that there are differences between solutions 

Donnelly: There is an obvious problem of unfairness between the ways people are treated . Why not impose a solution.

Honohan:  If we impose a one size fits all, there could be a constitutional challenge. .
.
Donnelly: Why not tell BoI that they should charge 0% on the split mortgage?  The banks are bullying borrowers into deals. 

BoI is two to four times the rate of legal proceedings as the others.


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## Brendan Burgess (30 Apr 2014)

*Heather Humpheys 

*Why not show some more flexibility towards Credit Unions? 
They should be allowed to lend emergency money to borrowers who have rescheduled their loans. 
The CUs are facing inordinate delays in getting responses from the CB? 


*Honohan 

*Restrictions are overstated - they usually apply to loans over €10,000 - sometimes €30,000.  The average loan is €6,000.

We are expanding our staff in the Supervision of Credit Unions.


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## Brendan Burgess (30 Apr 2014)

Sean Barrett: The maximum mortgage should be reduced to 80% LTV and 2.5 times loan to value 

The banks lent irresponsibly and the borrowers should benefit from this. [ didn't understand his point?] 

Setanta Insurance:  I am tired of bailing out insurance companies. I hope we don't have to bail them out. 

Do we have rules that your colleagues don't play golf or dine out with bankers?

*Honohan 
*I do meet the public interest directors from time to time 

Mortgage limits such as LTV is the way to go, although there is controversy over it.  We will look at this in the longer haul. 

On Setanta:  Although the CB had no information on its balance sheet, we were aware of its growth. In November last we were concerned and drew this to the attention of the Maltesers who did take action.  If we hadn't done anything, it would have been a bigger hole. 

The Insurance Compensation Fund pays out for Irish risks.


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## Brendan Burgess (30 Apr 2014)

*Arthur Spring 

*March 2011 - how much was required in recapitalisation for AIB and BoI . Were there terms and conditions?   Bank of Ireland claims it has returned the investment at a profit. 

We recapitalised the banks for the public and not for the shareholders. 

They should engage in debt write-down. 

I don't think it's acceptable that someone will be paying interest only for 30 years.  [ After all the earlier common sense, Spring undoes it by talking nonsense - BB] 


Honohan: The recapitalisation was to create a reserve, and not to write down certain loans. 

Spring: There are 30,000 of my generation in over two years arrears. I want to see the money put in the bank to be used to write down debt. 

[Wasn't Spring a banker?  He seems to know nothing about banking. BB] 

How would recapitalisation of the banks help the Irish mortgage holder.


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## Delboy (30 Apr 2014)

Spring was an Anglo Irish banker so that's probably an accurate comment Brendan!


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## 110quests (30 Apr 2014)

Brendan, these are very informative summaries of today's proceedings. I watched much of it but unfortunately missed the session re interest only repayments with Ciaran Lynch.

Do I understand from it that banks should /could be offering long term interest only to retirees? But that they choose not to or prefer to ignore the fact that it can be a solution?

My own situation where I am paying cap plus interest and which is deemed sustainable, leaves me after all other expenses with E60 per month.  

Should I press my bank for interest only after hearing  this today or do banks bother to take on board what Mr. Honohan says at these committee hearings.

Is it likely that Mr. Honohan will follow through on what was said today ie  remind  banks that long term interest in particular cases is a sustainable solution. ? Thank you.


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