Sinn Féin bill to give Central Bank power to control mortgage rates

See attached.

I had inadvertently published a draft of the bill a few days ago.

Brendan


Consideration of criteria
2. (1) The Bank shall consider from time to time whether it is necessary to carry out a review of the rate of interest being charged by the covered institutions on standard variable rate mortgages and may issue a direction to a covered institution instructing it to vary the level of interest it charges on standard variable rate mortgages.

(2) The direction referred to in subsection (1) shall only be issued once the Bank hasconsidered—
(a) the current rate which the covered institution impose on standard variable rate mortgages,

(b) any submission from the covered institution outlining the reason for the rate contained in paragraph (a),

(c) the interest rate which has been set by the European Central Bank and any recent changes to the European Central Bank’s interest rate, (d) the profitability of the covered institution,

(e) the viability of the covered institution,

(f) the mortgage exposure of the covered institution,

(g) the impact of the current rate on standard variable mortgage rate holders, and

(h) any other information which is considered relevant for consideration by the Bank.


Direction to covered institutions
3. (1) Having considered the factors outlined in section 2 the Bank may, issue a direction to a covered institution setting out the maximum rate of interest that institution may charge on standard variable rate mortgages.

(2) In circumstances where the Bank, decides to issue a direction pursuant to subsection (1) the Bank must provide the covered institution with a report outlining the reason for the decision to issue such a direction.

(3) Where the Bank decides that no direction will be issued to a covered institution instructing the institution to vary the level of interest charged to standard variable rate mortgages the Bank shall provide a report to the Minister outlining why no action is
being taken.

(4) Any direction issued pursuant to subsection (1) of this section shall lapse after a period of 12 months since the issuing of the direction unless renewed by the Bank.

(5) Notwithstanding the generality of subsection (4) of this section, a covered institution may apply to the Bank to set aside a direction which has been issued pursuant to subsection (1) of this section after a period of 6 months since the issuing of a direction
and if the Bank believes there is merit to such an application having considered the criteria set out in section 2(2) of this Act may agree to set aside the direction.


Reporting requirements
4. (1) The Bank shall report to the Minister annually on the use of the powers provided for under this Act.

(2) The Minister shall have the power to seek interim reports from the Bank on his use or on his failure to use powers under this Act.


Commencement
7. …

(2) This Act shall cease to have effect as and from 31 December 2017.


Interpretation
1. In this Act—

“covered institution” means a credit institution or a subsidiary of a credit institution—

(a) that was specified by order by the Minister under section 6(1) of the Credit
Institutions (Financial Support) Act 2008, and

(b) that had joined the Credit Institutions (Financial Support) Scheme 2008 (S.I. No.
411 of 2008) in accordance with paragraph 5 of the Schedule;

“interest rate” means the variable rate mortgage whereby the interest rate varies to reflect market conditions;

“Minister” means the Minister for Finance;

“mortgage exposure” means the volume of the bank’s distressed residential mortgage book as a proportion of their overall mortgage book; [note that this definition is now redundant and is not used in the revised bill]

“profitability” means the ability of a covered institution to maintain a profit in the market;

“the Bank” means the Central Bank of Ireland;

“viability” means the ability of the covered institution to sustain or maintain growth and development in the market.

I don't think it's that different from the draft I published, so I think that my initial comments still stand

While any raising of the issue is welcome, and while Pearse Doherty made an excellent speech on the Fianna Fáil private members' motion on the issue, this bill does not seem to be thought through. He doesn't seem to have asked the opinion of anyone involved in the Fair Mortgage Rates Campaign. Neither did Fearghal Quinn, by the way.

It should not apply to AIB, BoI and permanent tsb only
Pearse Doherty explained on the radio why interest rates would be controlled at the covered institutions only. He argues that such a restriction would mean that a new entrant to the market would not be discouraged, who might be discouraged if they felt that their rates might be subject to control.

I don't buy this argument at all. If HSBC or Santander is looking at the Irish market, the main deterrent would be our refusal to allow repossessions. This would limit any smart bank to lending a maximum of 70% LTV where this would be less relevant. As Doherty pointed out himself, if they are lending at 2% in the UK, why would they be put off by control of interest rates at 4% here?

I suppose that they might worry that the Central Bank might do something really stupid like limit rates on loans in arrears.

But AIB, BoI and EBS are subject to the disciplines of the market for new business, although, admittedly it's having little effect. The likes of Danske, Bank of Scotland and the private capital funds who own the non-performing IBRC mortgages are subject to no such discipline and would not be controlled by this Bill either.

There should not be a Sunset Clause

7(2) This Act shall cease to have effect as and from the 31 December 2017.

I don't agree with the bill having this clause. This bill gives the Central Bank the power to control rates. It would be hoped that it would never be used. But it should always be available to the Central Bank in case of emergency.

This should not apply to "Standard Variable Rates" only
“interest rate” means the variable rate mortgage whereby the interest rate varies to reflect market conditions

and later
(a) the current rate which the covered institution impose on standard variable rate mortgages,

SVR is a general term and lenders are no longer issuing them as far as I know. The rates are now called Loan to Value mortgages and Managed Loan to Value Mortgages.

The bill should simply refer to "interest rates". Even referring to "variable rates" is not sufficient as banks could scrap their variable rates and just offer high fixed rates.

The above definition is too vague.

The ECB rate is of little direct relevance
The main issue should be the cost of funds to the lender. The ECB has only a very indirect influence on this.

The lender's profitability and viability should not be relevant
If AIB is making huge profits but charging fair mortgage rates, fair play to it. If, AIB is losing money due to legacy issues, they should not be making profits based on the vulnerable variable rate borrowers.

A direction for 12 months is not appropriate
(4) Any direction issued pursuant to subsection (1) of this section shall lapse after a period of 12 months since the issuing of the direction unless renewed by the regulator.

Interest rates have been fairly stable for a long time, but they can change rapidly. The Central Bank should issue any such rule "until further notice". The CB should be able to vary it at any time if the underlying circumstances change.

Peadar Tobin speaking - has 150 families in mortgage distress on his books. Banks repossessed a client after 4 months of arrears.

18,000 IBRC mortgage holders sold to vulture funds.

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Aengus Ó Snodaigh TD

Kathleen Lynch answering on behalf of the government. Reading her speech.

Pointing out the flaws in the bill which I have pointed out in my post.

Lower SVRs for existing and new customers
Lower LTVs
Making it easier to switch

Assurances were received that home owners in NE would be

The issue of a penal bank levy will be considered

BoI has announced cuts in fixed rates available

AIB has announced cuts in variable rates - will apply to new and existing customers

It would not be appropriate to accept a bill before the interest rate cuts promised before the start of July.

It is noted that Fergal Quinn and FF have bills on the issue as well.

What has the government done to include competition?
The bank does not apply the control of fees for three years, to new entrants.

There has been a number of new entrants to the Irish mortgage market in the last year. (Who are they?)

13 May we announced new measures to help people in arrears.

Rehashing CB report on SVRs.

Action on this bill would be "too previous" as AIB and BoI have cut rates.

The Minister has also highlighted the role of government.

"If they keep a high rate, they will lose business to the competition"

Derek Keating (FG) opposing the motion. Notes the absence of FF from the benches.

Jed Nash and Mary Mitchell O'Connor there now.

Michael McGrath speaking - I am not sure how long he has been on.

I have yet to hear any explanation why Irish rates are twice the eurozone rates.

There have been no reductions in variable rates since the Minister met the banks.

The minister should not accept a cut in fixed rates as acceptable.

If the cost of funds increased for the banks, do you think that they would have to be asked to raise their rates? No they would not.

Whether the CB wants the power or not, they should be given the power as there is a clear market failure.

BoI are locking in existing customers for 2 years.

The purpose of this campaign is to cut the SVR in Ireland. The Minister should settle for nothing less.

20,000 mortgages have been sold. They are outside any control by the CB. They are outside the control of the Dept of Finance. If the vulture funds raised their rates tomorrow, there is nothing that the CB or the Dept could do.

Robert Troy (FF) repeating points made by Michael McGrath

Good speaker.

Technical Group - have 15 minutes between 4 speakers - Ceann Comhairle: "Ok, you have about 6 minutes each".
Tom Fleming - Independent - makes Terence Flanagan sound silver tongued.

Paul Murphy: Working class people are being ripped off by profiteering banks. I am disappointed that the bill instructs the CB to consider the profitability of banks.

Finian McGrath:

Thomas Pringle: The profits of the banks equals the additional charge on SVRs.

Woeful contributions from the supporting cast. I'm surprised there weren't more in attendance given the potential votes concerned.

I doubt you'll ever hear an explanation in the dail as to why rates are so high. Honohan's attempts to explain this to the finance committee was dismissed. It is politically untouchable. Those in default and those with trackers have votes too.

Andy836 said:

Woeful contributions from the supporting cast. I'm surprised there weren't more in attendance given the potential votes concerned.

I doubt you'll ever hear an explanation in the dail as to why rates are so high. Honohan's attempts to explain this to the finance committee was dismissed. It is politically untouchable. Those in default and those with trackers have votes too.

Click to expand...

As do those with no mortgage debt at all, which represent the majority of voters.

Agree that the level of debate was pathetic.

Just checked online news. No coverage of the debate at all.

Charlie Weston summarises the bill here:

http://www.independent.ie/business/...powers-to-central-bank-on-rates-31294142.html

Brendan