Alan Shatter (Dublin South, Fine Gael) | Oireachtas source

Financial institutions will cut deals because the reality of the current situation is that distressed borrowers are far more likely than not to be in negative equity. That is the reality we are facing. An individual who has a family home that is in positive equity might also have other borrowings against other properties. I expect the personal insolvency arrangement mechanisms set out in this Bill will be used to cut deals in those circumstances, where the overall borrowings are not adequately secured on the totality of the property assets.

If, on the other hand, we are talking about a single property with an equity in excess of what is owed, I do not see any reason that a bank would not seek to ensure it receives the full sum ultimately due to it, whether through repossession or other arrangements. It is not for us to interfere with that arrangement because there are constitutional issues and issues relating to the liquidity of banks and capitalisation. The mechanisms set out in the Bill do not seek to facilitate individuals who have real equity in property and are simply refusing to pay what is due. If it is the case that their income does not allow them to pay, the bank might well decide to enter into some form of arrangement with them. We should bear in mind that the banks have obligations in terms of protecting their capital base and not creating additional liabilities for taxpayers in this country. In that context, I do not envisage any bank concluding that because it has adequate security and the property is in positive equity, it will waive the money owed to it by the debtor. There is no reality in that.

I anticipate that the mechanism we are discussing here will be particularly helpful in circumstances where individuals are in negative equity and their income does not facilitate them in discharging debts, in which circumstances the bank decides it will go for repossession. That situation will be dealt with under the land and conveyancing legislation, with the court being obliged to inquire as to whether the parties have engaged in a non-judicial debt resolution process. I expect the modalities would involve a presentation to the court of the totality of the debtor's income, resources and liabilities and an assessment of whether he or she is in financial circumstances to make a reasonable payment of debt. It will be blindingly obvious in such circumstances that a repossession order would not lead to the bank recovering the debt owed to it in full. Instead of dealing with the application to repossess, the court would be able to propose to the financial institution that the matter be adjourned for a period in order to allow an exploration of a non-judicial debt resolution. The court would not have the power to impose such a resolution, but this approach would create the space to allow for that option.

It is not our intention in this legislation to give individuals who are in positive equity and not paying their mortgage a free pass whereby some of the debt due to a financial institution is written off in a manner that affects its capital position and could ultimately result in the tab being picked up by taxpayers. There is a range of issues attached to that, such as the actual value of the bank, what space we get to at a point in time and whether the State's ownership of banks can be traded in for funding to recoup some of what has been put into them.

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