Wednesday, 26 February 2014
IBRC Mortgage Loan Book
I welcome the Minister of State. I have just spent the past two and half hours discussing the sale of the Irish Nationwide loan book via the IBRC at the meeting of the Oireachtas Joint Committee on Finance, Public Expenditure and Reform. We are talking about 13,000 mortgages. We need to step back from the issue and say, as the Minister of State and I know, that property rights are deeply ingrained in the psyche of Irish people. One hundred years ago we had absentee landlords and now we are about to be sold-off again - and some might say by necessity - to absentee landlords. The very least that we must do is to protect and respect the Irish homeowner. In the Constitution property rights are ranked second highest, right after the right to life, and I am up there with my support of those rights.
I ask the Minister of State to ask the Minister for Finance to ensure that Irish homeowners are given the first right of refusal and a window of time to buy back their loans, if they so wish. At the meeting earlier we heard from the special liquidator who said that 10% of the 13,000 people wanted to buy back their loans. That means that 1,300 Irish people want the right to buy back their own home loans and perhaps set up a new mortgage with another Irish bank or institution. It is only fair and right that they are given the opportunity.
We also learned, at the meeting, that some of those Irish people who have home loans are prepared to offer more to the Irish Nationwide and the IBRC than a foreign bidder will give. That will not do the State creditor any good because the State and NAMA own more than 70% of the loan book. In light of what we have learned today, I ask him and the Minister to think seriously about giving a window of time to the Irish person, the Irish homeowner, the mother, father or individual, who wants to buy back their home loan. We have heard that it will take another two months before the deal is completed. Please give them all at least a month because we all know that it will take a bit of time to qualify, etc.
If people do not wish to buy back their home loan then we need to know home loans that sold to a foreign bidder have the protection of Irish law and practice, including the code of conduct on mortgage arrears. Last night we learned, and we learned again today from the special liquidator, that the code is voluntary. That is still progress but it is not written on paper. We often use the phrase "it is not worth the paper it is written on". However, the code is in word only and is not written on paper. The code is an act of goodwill but the Minister of State, who is a very wise man, will know that it is valueless. It needs a statutory basis which I shall deal with. Mr. Edmund Honohan, the Master of the High Court, has said that the green fields of Ireland will change hands and the secondary market for mortgages will grow. Plus, Ireland needs to regulate for a secondary mortgage market and recognise that mortgages will be bought and sold abroad.
Earlier in the committee room Ms Ann Nolan, from the Department of Finance, said that the Minister was looking at legislation. That is great but this matter is so urgent that we must consider introducing emergency legislation so that none of the 13,000 people involved will be subject to abuse, higher surcharges, higher interest rates, etc. than they would have had to pay here.
The Minister of State will know that the Ulster Bank is in trouble and is looking at selling out here next year. That is only the beginning. Mr. Honohan said: "The need for legislation was broader than the Irish Nationwide problem. Securitised and judgment mortgagees are not regulated by the Central Bank or covered by any consumer code." Therefore, we need to get on with the business of regulating and protecting all homeowners. Those are my two requests and I look forward to hearing the Minister of State's answer.
I thank the Senator for raising what is a very important issue. I am aware that the liquidator and colleagues from the Department of Finance appeared before the Joint Committee on Finance, Public Expenditure and Reform today. It was a useful exercise. I saw some of the engagement. I am aware that the Senator asked one of the officials from the Department of Finance about the question of legislation. I will repeat what the Minister for Finance, Deputy Michael Noonan, said in the House last week, which was repeated to the Senator today by an official from the Department of Finance: that if successful bidders row back from the voluntary commitment obtained by the liquidator, the Minister, Deputy Noonan, will act quickly and decisively for the purposes of enshrining rights for people who find themselves in this situation. I repeat that in the House this evening as the Minister repeated it last week. As Ms Nolan told the Senator today, that is the firm position of the Government and we do not intend to change our position on that.
In relation to the proposals that mortgage holders be given first right of refusal to purchase their loans, it is worth pointing out that such an opportunity exists at par in the case of the liquidation in IBRC. I think that is the correct course of action in the case of IBRC. The special liquidator has written to each individual mortgage holder in this regard. I understand from the appearance of the special liquidator before the Oireachtas committee today that approximately 400 IBRC mortgage holders have repurchased their loans to date.
There is no legal impediment to this course of action by the special liquidator, and the terms and condition of many mortgages, including non-IBRC mortgages, allow for redemption at par value. The terms and conditions of the redemption would not be affected by the sale of any loan book. There has been some discussion in the Oireachtas and the media in recent weeks about the suggestion that IBRC mortgage holders who have the financial capacity to do so would be given the exclusive opportunity to buy their mortgage loans at a discount. There has also been the incorrect suggestion that this opportunity was offered to larger corporate borrowers in IBRC and that individual borrowers secured debt write-downs in certain circumstances. I take this opportunity to state for the Senator and other members of the House that I have been informed by the special liquidator that no IBRC borrower is being provided with an exclusive opportunity to buy back its loans at a discount. To direct the special liquidator to give this opportunity to any borrower or group of borrowers could affect the value of assets in the bank and could leave the Irish taxpayer open to legal challenge, future costs and financial risks. That issue was highlighted today by the special liquidator in the evidence he gave to the committee, part of which I saw, where he said that the firm independent advice open to him and his colleague in terms of maximising the assets for the purpose of the taxpayer was to go down the route as he had suggested. That was the firm advice given to him by way of his independent powers and the role and function given to him by both Houses of the Oireachtas through legislation passed last year.
Again, in the case of IBRC, the obligation on the special liquidator is to ensure that maximum value is extracted from the loan sales process for the benefit of all creditors of IBRC, including the State. The sales process plan and the timeline for the sale of the residential mortgage portfolio has been developed following professional advice and in light of requirements for a robust and credible sales process in that context. The special liquidators have obtained this independent advice from PricewaterhouseCoopers, PWC, in respect of the residential mortgage portfolio. The special liquidators have decided that the residential mortgage would be subdivided into four tranches with a view to maximising market interest and return within the timelines set out in the ministerial instructions. Obviously, in the case of future loan sales by other banks operating in Ireland, it would be a commercial and operational matter for the board and management of the institution to decide on the sales process. As part of this consideration, issues such as individual mortgage sales and discounts would be considered.
Turning to the code, as recently explained, the application of the CCMA to unregulated entities is something the Department of Finance is investigating in conjunction with the Central Bank and the Attorney General's Office. This matter is legally complex and it could affect contracts already entered into. It needs to be carefully considered. I remind the House that it makes commercial sense for buyers to adhere to the CCMA, as evidenced by previous sales in December 2013. Lloyds banking group sold its Irish residential portfolio of about 2,000 mortgages to Apollo Global Management. Apollo Global Management met the Central Bank and the Department and indicated clearly that it intended to voluntarily adopt the CCMA in managing the acquired loans. Apollo Global Management believes following the CCMA is in the best interests of both parties, and it forms part of its core strategy. I was delighted hear last night that the special liquidators had announced that an agreement had been reached with the phase two bidders for the IBRC mortgage book. The agreement provides that, if successful, in acquiring the portfolio the phase two bidders will ensure that the relevant acquired mortgage loans are served in accordance with the terms of the Central Bank's code of conduct on mortgage arrears.
The special liquidators were aware of the anxieties of mortgage holders, as we all are, and had noted the concerns expressed in recent weeks by the Minister for Finance and other Members of the Oireachtas. I welcome this positive announcement and remind the House that the Government has always been clear about ensuring that mortgage holders retain the protection of the CCMA. The Government's firm objective is to ensure that mortgage holders in Ireland are afforded the protection of the CCMA. As the Government has previously stated, if it becomes evident that the voluntary application of the code in the case of IBRC and other non-regulated entities is not delivering the requisite protection for mortgage holders in arrears, it will bring forward the required legislation. Work on draft legislation is already under way.
I am delighted to hear that work on draft legislation is under way. I was really concerned when the Minister of State said that if foreign bidders or non-regulated entities rowed back from the voluntary code the Minister would act quickly. In another conversation I would say "Why wait until then?" because that is very poor practice. Suppose we had another Government or another Minister that was not as concerned about people's homes. He or she might not act that quickly, so we do need more protection. I seek clarification on one point because I do not understand this. Perhaps the Minister of State would comment on why we should wait until an entity rows back from the code. The Minister of State said in his response: "I understand from the appearance of the special liquidator before the Oireachtas committee today that approximately 400 IBRC mortgage holders have repurchased their loans to date." Is there a right to repurchase? I know there is nothing to prevent it but I thought they were not allowing it. That was how I understood it today.
On the first issue, the Minister for Finance gave firm commitments last week which, unfortunately, some people deliberately chose to ignore. Those firm commitments were highlighted again by Ms Nolan at the joint committee today on behalf of the Department of Finance. I think it is important that we do not talk ourselves into an emergency.
I am answering the Senator's question. I seek the same protection I gave the Senator. The Senator asked two questions, and I will reply to them, if I may. It is important that we do not talk ourselves into an emergency for whatever reasons people might choose to do this for their own ends. In regard to the question referred to in my opening remarks, my understanding is that the position has been set out by the liquidator that an offering has been made in circumstances of on-par mortgages. I understand there are four special tranches within the loan book - performing, non-performing and two other categories that I cannot recall - so that provision has already been made. Again, that has been in the public domain for quite some time and there is nothing particularly new in it. The objective for the State - as the Senator well knows, because she supported Bill, as I did, when it came through both Houses - was to make sure that in so far as these are assets, the State maximises the return. That is the only ambition of the Minister for Finance, Deputy Noonan. Second, in circumstances where people's homes are on the line, as is the case for this particular mortgage book, the objective is to make sure that we afford the same protections that apply to other mortgage holders through the CCMA.
I greatly welcome that, as the special liquidator told the Senator today in the committee, after two weeks of intensive negotiation, two potential bidders for the next tranches of the loan book have confirmed they will sign up to that. Were that sale to proceed - this is without prejudice until such a time as a sale does proceed - and were any difficulty to arise, the Minister stated last week, Ms Nolan stated today and I now am telling the Senator that the Government will proceed with legislation to ensure those people have the protection both of the code and, second, of the case law in which the High Court has ruled in circumstances where financial institutions have been attempting to move people out of their homes. The case law from the High Court has been clear in respect of obtaining protection for people in a circumstance in which they have been engaging with the bank and have been attempting to work out a solution that is fair and equitable for the purpose of the institution and their own purpose. This is case law, these are precedents and this is precisely what has happened in the Irish High Court by way of all these matters that have come to the attention of the courts. This cannot be set aside either and, consequently, by way of the case law and the voluntary code, the Government hopes the protection will be given to these people because it does not want them to be adversely affected by the sale of the loan book. While everyone accepts the State must of course maximise its take, because there are significant assets left over by way of the liquidation of the IBRC process, it must be done in a way that is fair for all. The approach the Government has taken in this regard is correct and if further action is required, further action will be taken.