# You will be able to watch Governor Honohan live at the Finance Committee today



## Brendan Burgess (25 Sep 2013)

http://www.oireachtas.ie/viewdoc.asp?fn=/documents/livewebcast/DVR-Flash-Committee4.htm


"Matters relating to the economy including mortgage resolution, banking and credit provision"

Brendan


----------



## Brendan Burgess (25 Sep 2013)

Fair play to Honohan

He is appearing on his own.

Progress is slow, but it's gathering pace. 

What is the goal of the CB

Prudential and Consumer 

The Mortgage ARrears targets were drafted using the Prudential powers, although there will be a side benefit to the consumer 

Quantitative targets were introduced in March. 

June figures are in - audits have started. 

Sustainability guidelines on website - although ther for 3 months, despite our prompting, there has been no public comment on them.

A sustainable arrangment which is affordable for the borrower in the short and long term and provides visibility to what happens security at maturity. 

Why are legal proceedings so important 

3 modes 

first mode - payments restructured
second mode - PIA  
third mode - only where first mode cannot be reached. - repossession 

Notable, but not suprising, 60% have met the third mode. 

Why? 

Subject to verification by audit, most involved protracted arrears with limited cooperation - 
Neither the lenders nor the CB expects repossession to be necessary or preferred.

*CCMA is a strong measure to protect consumers 
*CB has no mandate to prevent repossession where banks follow the CCMA  
If they are not following the CCMA - the 

HOme loans would be the biggest source of losses after developer loans
we are surprised how slow the banks have been in getting their arms around it. 

Other schemes are not ideal - 

*Debt forgiveness - *we are not empowered to give it for individual customers 
PI legislation is much more supportive of over indebted borrowers - including those with multi-debts 

PIAs can be avoided by the banks coming to arrangments.

*Split mortgage
*Can be a sustainable solution 
Lender can take account of future financial situation 

Banks have begun experimenting with other approaches
UB approach seems to have most of the ingredients for a sustainable mortgage 

We won't put a  narrow straitjacket on solutions 

*Should the banks be doing more? 
*Far too many arrears cases have not been treated 
74k of 94k not dealt with? Why
The Dunne case
The moratorium and CCMA are likely to have contributed but have been used by lenders as excuses 
CCMA now streamlined  and Dunne judgement 

More important - the banks have organised themselves at scale  since 2011 

I believe that there is a gap between the CB and some of the banks 
Teh CB wants to be sure about the liability for the shortfall or the warehouse
Some banks feel that uncertainty will increase their recovery.
CB disagrees - we feel that certainty will improve the recovery.
There has been a degree of wishful thinking on the part of the banks  that some cases will fix themselves without restructuring. 

The process is working, but is slow and is recovering. 

Thank you.


----------



## Brendan Burgess (25 Sep 2013)

*Chairman Ciarán Lynch 

*The last time out, you were hesitant about issuing targets. Why did you change your mind? 

Honohan: We don't want to rely exclusively on targets , or any one target. 

Lynch: You have achieved two objectives
1) 
2) 

Honohan: By the way, the Troika loves targets.  Stuff gets done. Sometimes in an unsatisfactory way. 

Lynch: But letters seem to be defined as a resolution process. I think it's a commencement. Not a resolution. 

Honohan: The bank has had no correspondence from the borrower - the letter is the only way to initiate a solution - but it's only the beginning , not the result. 

for one bank, of the cases where they have sent the letter, 80% are more than one year in arrears, 50% are more than 2 years in arrears. 

*Sustainability 
*Lynch: AIB, BoI and UB say that they are prohibited from going into resolution process into retirement. For example, someone with positive equity who can pay the interest in retirement, can't be made unsustainable 

Honohan: They are wrong  "the age limit is 70, unless there is evidence that a longer age can be justified" 

Lynch: Is your positioning softening on this? 
Honohan: This is a complicated area - 
We did not roll out our sustainability guidelines in March,because... 
We have tried to get this wording to accommodate as many cases as possible 
This is a new area, so there will be misunderstandings. 
No other countries have a scheme like this.
These rules will change as the situation evolves 

Lynch: Planning something for 20 years for a 30 year old is not approprate. The resolution process can be much shorter. 

Honohan: We want clarity. 

Lynch: The UB concession mortgage. Is that an acceptable process? 
Honohan: We would like a bit more clarity but we like it. 

Lynch: we would like to see consistency. - For example with aib there is no interest on the warehouse. Bank of Ireland are charging interest. However, boi are looking at distinguishing between trackers and SVRS  - 
Are some of these solutions/approaches not sustainable? 

Honohan: Some are not going far enough
Lynch: Can you give me an example 
Honohan: The BoI split mortgage does not give sufficient clarity at the end. The rate of interest is not the Key. what happens at the end is key.

(BB view: Honohan is wrong on this. The interest rate is the most important issue. BoI should not be giving interest rate ) 

Honohan: I have been too  forthcoming in discussing individual banks


----------



## Brendan Burgess (25 Sep 2013)

*Michael McGrath

*Honohan: Let me clarify. We are not endorsing any of the approaches of the banks. We are auditing them at the moment. 

McGrath: You are giving the impression that you are endorsing the banks

Honohan: I don't mean to endorse them. 

McGrath: No one objects to the banks issuing legal letters where teher is over a year's arrears or non engagement.  But we are coming across cases where they have issued letters for a few hundred euro arrears.

A key issue: You have both prudential responsibilities and consumer protection
You are more concerned with prudential issues. Your definition is a prudential definition.

There is no definition of a sustainable mortgage from a consumer point of view ( BB: Great - someone is reading my briefings) 

Honohan: This is a pincer movement. We are getting them from the targets and the 
McGrath - where is the definition 

HOnohan:  The definition is there in the targets.  They are modes not a description 
More support from MABS would be great for the borrowers.

McGrath  *Strategic Default 
*You have made no comment on this. The CB should verify if it's 20%.  All you have to do is to examine a sample of files in detail 

Honohan: You have written to me about it.  It's interesting.
It's a phony concept. There is ahuge variety of circumstances 
1) They can't pay all their debts - so they pay the short term debt first - is that strategic default? That is people managing their affairs the best they can
2) They may be not adjusting their spending 

We have been doing some research, but it won't tell you what the percentage is

Will all those in arrears now be fully paid? Most will. 

McGrath: You should be challenging the 20% figure. It's a slur on people.  

Final issue: The tapes. It's not up to me to reach conclusions as to whether any criminal action took place in Anglo or elsewhere. But it should be referred at least. How did you arrive at the conclusion not to refer?  
Honohan:  My grandfather would be horrifed at the headline "CB sees no wrong" . Why did we put out that statement? We owe it to the public not to pretend that we have sufficient new evidence of criminality, when we don't. We are not slow to go to the Gardai. We have nothing new. that is all it means. 
We wanted to communciate with the public. 
(Anglo Tapes bit continued in this thread http://www.askaboutmoney.com/showthread.php?p=1352216#post1352216)


----------



## Brendan Burgess (25 Sep 2013)

*Ciaran O'Donnell 

*Inconsistency / Bank of ireland  

Only 19  Splits from BoI

You are on record saying that they have adequate capital to deal with writeoffs. 

*Honohan
*Inconsistency is ok. They will end up with the same result. 
CO'D: ptsb are doing Assisted Voluntary Sales on people with less than 90 days arrears 

Honohan: Some are more effective. ptsb are ahead of the average. I expect the diversity to converge 

Do the banks have enough capital?  They have loads of capital. so that is not a barrier to dealing with the arrears. Will they need more capital? Yes because the requirements are rising all the time? 

BoI split mortgage: Doesn't seem to do much.


----------



## Brendan Burgess (25 Sep 2013)

*Pearse Doherty 

*Using up most of his time on the Anglo tapes 

You are the top dog. You can force the banks to do stuff. The MoF said yesterday. "letters threatening legal action cannot be considered a sustainable solution" . 

The banks are running rings around the CB. 

Why are youse not doing more? 

*Honohan
*I am satisfied that our approach is correct. Some say we should not be interfering - I don't agree. The banks say that we are pushing them around - you say they are running rings around us.  

They were happy with short term solutions. 

Did other countries do it better?  Yes, a bit better.  One bank, has got results_ ( I presume he means ptsb?)  _


----------



## Brendan Burgess (25 Sep 2013)

*Deputy Kevin Humphries 

*Was there a meeting with the EU, IMF and CB over two days?  is KPMG and E&Y doing a health check? 

Honohan: Yes

We will break the stress testing into three stages 
Part 1 will be before Xmas. 

hUMphries - KPMG were auditors of In. ey were auditors of Anglo. 

Honohan: Blackrock is involved in validating our methods. We are doing a lot in-house. Phase 1 is not the high end phase. This is the basic data validation 

Humphries: Is the work important? 

Honohan: of course . We also have the Boston Consulting Group overseeing it.


----------



## Brendan Burgess (25 Sep 2013)

*Senator Hayden 

*Buy to let sector 

Significant increase in receivers appointed 

74% of solutions were surrendered or legal action.  significantly more than owner occupied.

20% of the housing sector  is rented. 

Receivers are trying to remove tenants. 

IBF said it is ok for tenants to pay receivers 

No Code of Conduct on buy to let mortgage arrears. 

Your own comments on this sector have been very gung-ho. 

*Honohan
*You are more concerned about tenants, and not landlords? 

I don't know the answer to this question. It's not part of our mandate to protect non financial consumers. 

The borrowers could be treated as consumers. 

I dont' agree that forcing sales of buy to lets will result in disturbance to tenants?  I don't think that this comes within our remit?


----------



## Brendan Burgess (25 Sep 2013)

*Stephen Donnelly

*Thanks for your openness 

In my opinion, this process is not working. 

Some of the Chief Executives  have told us "as a matter of banking policy we will not engage in writing down debt"

Arrears is not the problem. What you are proposing will hide the symptom. The problem is the level of debt relating to income. 

If we can mandate debt for equity 
If we can stop Bank of Ireland charging interest on the warehouse


The new Central Bank gives you powers "if the bank is conducting its business in a way to harm customers" 

Do you now have the power to direct the banks "you must use debt for equity" or must the Oireachtas give you more powers. 

*Honohan *But we can't lock them into : You must do this. You must do that. 
We do have the powers. If we need more, we will ask for them.

What are you doing about the lottery. If you are with boI you are in trouble. If you are an AIB customer, you are ok. 

Donnelly: What are you doing to get consistency
Honohan: I don't want it.

Donnelly:  Sustainable and affordable. Split mortgage. The banks will take a 50% of any increase which is a 76% marginal tax rate.


----------



## Brendan Burgess (25 Sep 2013)

*Joe Higgins

*
*Higgins: *You consider no write down for those in negative equity. 
You were instrumental in bouncing the Irish government into a bailout. 

The bondholders got sorted out. The borrowers are paying for it.

A program of write down to the current value of people's homes would release billions into the real economy.

*Honohan
*I did not bounce the government into doing something that was bad. I encouraged the government into action quickly before things got worse. 

Very large sums of money which was borrowed was put into the banks to help them sort the mortgage crisis. 

*Higgins* - billionaire bond holders - speculators - gambling - back of the working classes - austerity - 

*Honohan - *I agree with a lot of what Ashoka Mody says. But I disagree with the timing. Let's get the adjustment done, so we can start moving again.


----------



## Brendan Burgess (25 Sep 2013)

*Dara Murphy FG
*Will you give the banks targets for specific solutions e.g. 20% split mortgages
No more than 20% repossessions 

*Honohan: No 

*DM
Where the warehouse is stil there when someone reaches 70

Honohan: We are guided by Insolvency Service 
stupid to allow banks take the house.


----------



## Brendan Burgess (25 Sep 2013)

That is enough for me. I don't expect them to ask anything new.


----------

