Mr. Padraic Kissane:

I wish the Chairman, members and fellow witnesses a good morning.

The committee invited me to appear to reflect on my experience of the customers whom I know are affected by the ongoing sale of mortgages, notwithstanding what was said previously. They are collectively known as domestic loans, although they are for both homes and investment. I know that it spreads across to other businesses and areas, as we have heard. I listened to the previous discussion on receivers, which is strongly connected to this issue.

This issue affects both homeowners and residential rental units. Discussions on this matter are complicated, with words such as "morals", "hazard", "NPLs" and "appropriate percentages" used often to confuse matters. There is no doubt that the percentage of loans in arrears in this country is higher than it is in the rest of Europe. The question is why that is the case. Why do Irish people have a greater level of arrears on their loans than other countries in Europe and is it all the fault of the customers? I suggest that in most cases it is not.

There are a number of reasons arrears are so high, examples of which include the price the property was bought at and the levels of lending to facilitate that purchase available at the time; interest rate levels for loans in Ireland, some of which are at 6% or greater; the economic circumstances that befell the country for the past nine years; the treatment by the Government of the residential lending market through, for example, non-principal private residence tax and reduction in interest relief; decreasing or depressed values versus the loan size; decreasing rental yields and, concurrently, a decreasing rental market; the property culture and the atmosphere that existed at the purchase time, where property was the primary topic of discussion in the country; and customers' economic, income and employment position.

All interested parties contributed at the time. For example, the stamp duty rates available for rental purchases and the contribution to the economy made by amateur investors involved in the rental market seem to have been forgotten. The question that should be defined is what, when one takes the issues as a whole into account, is a non-performing loan, NPL. Is a loan not performing because of external factors or is it the customer's fault? That is the question. When one looks at the position at purchase time, the position a few years later was the polar opposite of what the majority of customers and lenders expected at the time of purchase. All were caught in the tsunami of the crash and panic set in but responsibility was deflected. The initial solution offered by the banks was interest-only extensions to loans followed by further extensions and, finally, a sudden shift to demanding payment in full or sell or the banks would sell. In addition, the balance of the loan also had to be paid. An example of shortening the term, which interest-only extensions would have achieved, would be if one borrowed €1 million over 20 years at 0%, that is, €50,000 per year, that same €1 million repayable over ten years is €100,000 a year.

The short-sighted view of interest-only extensions as a solution is staggering. Each interest-only period was actually increasing the difficulty for customers to be able to recommence repaying capital and interest, but it was presented as a solution. It shortened the term of the loan. I cannot understand the reluctance to offer the most obvious solution, namely, term extension and interest reduction, to see how it all played out. It is arguable that it would not present any risk to the banks to retain many of these loans on an interest-only basis for the full term of the loan. All would then be classed as performing loans but with debt levels not reducing. This assumes the interest repayment would be made in full. I cannot understand that not one of the 12 lenders I encountered when dealing with the tracker mortgage issue took the view that it would assess a customer who had borrowed a great deal of money, propose to extend the term on the loan by ten years and reduce the interest rate by 1% to see how it would work out. Not one lender saw this as a solution for any of its customers. All, including our Government, fed from the trough of property in the Celtic tiger years, but when the feed, that is, credit, started running out, panic set in and the world changed, as it did in Ireland.

Properly thought through solutions were as scarce as the credit lines. Solutions that took a long-term view were non-existent and are still not considered in most rental cases. I cannot understand how a bank in the style of a domestic national asset management agency, for example, was not established. If properly established, such a bank could still have a role to play. As a country, we export the profit from the recovery to entities that have done little but wait in the wings until meltdown. They have come in and picked up the assets at the bottom of the market. This is an enormous industry which ironically recreates itself as a market every few years.

At a meeting of the United Nations in 2002, the then British Prime Minister, Mr. Gordon Brown, described vulture funds which make profit from purchasing distressed debts of a country at a reduced price to then make a profit from suing that country as "morally outrageous". The same is occurring here in some instances. If the value of a home, for example, is greater than the loan, full repayment by the sale of the home is the only option given in some cases. What is paid by these funds for the loans is a great mystery as nobody seems to know. If one reviews the websites of the main players in the Irish market, however, the answers are clear. They are queuing up to come here. It is a very profitable business. Is there not a way to control this given the fallout that will occur in the domestic market and, in particular, in regard to farms, both of which are connected, and given the property crisis that exists?

The need for property is clear around the whole country but that need was always there. It appears the market will become such that only the big players are involved in the rental of property. It has been stated that the whole area of moral hazard revolves around these issues and the repayment of debt, but that morality must extend to all. Are other options open to us as a State? If any of these affected customers or tenants is moved out, who picks up that tab? The discount on the loan must be priced to encourage the vulture to buy, but in Ireland it is certainly the case that if a bidding war ensues, there must be little, if any, risk to the vultures. Why is the risk so much greater to the bank for holding these loans?

The European Central Bank, ECB, issued many directions to this country early in this debacle. It seems as though it is involved again, but that may be just how it is being presented by the lenders. The ECB says we must reduce our NPLs and, therefore, it seems selling loans valued at billions of euro to eager vultures is the only solution. Why, for example, can the Government not create the vehicle and benefit from the upturn that the vultures expect to receive? After all, there is a queue of bidders willing to purchase these loans. The question must be why that is the case. What of the tax treatments and benefits that each of the vultures and the lenders receives with add-backs which will benefit the banks for many years to come, as has been confirmed?

The responsibilities for this lies on many desks and some are certainly running from those responsibilities. It should be noted that some of them are customers, but I do not believe the figures are as high as those presented by the banks. I quote one of the vulture funds from its website as an example: "We believe less efficient markets exist in which dispassionate application of skill and effort should pay off for our clients, and it is only in such markets that we will invest." An inefficient market is described as one in which an asset's market value does not always accurately reflect its true market value. That is the game for these funds. The fallout affects not only customers but tenants, the Government, lenders and Revenue, and it can collectively be called a big contributor to the housing crisis. There is certainly room for some more thought to be applied here and in most cases the short-term solutions actually present longer-term problems. A longer-term view needs to be taken, similar to the original granting and intention of the loan. Just because an injury occurred does not mean the idea should be dropped.

I wish to provide some final thoughts for consideration. The shortage of housing in 2010 was missed by most, including the Department of Finance. NPLs became the next subject matter for the ECB. Does this approach drive the sale of the loan book? Why are interest-only extensions not listed as a long-term solution? Repossession is hinted at and is a threat across all spheres of lending. Incentive to reduce NPLs by disposal is put forward as the only solution. Banks are forced to take provisions at the lowest part of the market but the add-backs are not considered. What is an NPL and, more important, who defines it? These questions have never been properly answered. What is the tax treatment for the private investment funds on the profits gained? Why is the market so buoyant in Ireland for vultures? What drives that market? Vultures are in this for profit and it is predominantly short term. Is the position the same in Spain, Portugal and Italy?

On warehousing loans, the question that is not being asked is what happens at the end. Most do not know what will happen with the three-year reviews. If there were more certainty in the answers to these questions, it might solve some of the mystery surrounding vulture funds. What protections are in place? Are those protections certain for investors as well as homeowners? As an example, I know of two homeowners whose loans are with vulture funds.

Both had performing loans, neither was ever in arrears and both were with PTSB. They now want to extend their homes and have approached the vulture funds in question, which have said they are not banks and so can do nothing. These are both tracker mortgages. The mortgagors' only option is to move their loans and pay three times what they were paying in interest.