The government is increasing the pressure on banks to speed up settlements with distressed mortgage holders, and increase their lending to small businesses.
Enda Kenny, the taoiseach, and Eamon Gilmore, the tanaiste, have agreed a twin-track strategy to force banks to increase mortgage restructuring on family homes and to finance small business growth. About 125,000 mortgages are in arrears, with about 75,000 of them restructured so far.
The coalition government leaders have also agreed that legal obstacles to house repossessions, identified by the High Court last year, will not be addressed by new legislation until a personal insolvency law is in place, government sources say.
“We are trying to strengthen the hands of distressed mortgage holders in their negotiations with the banks,” said one government source. “The [law the banks want] would strengthen their hand in terms of dealing with people in distressed mortgages. Everyone realises there’s a gap, but it is not a priority to fix it.”
The government is to increase the frequency of meetings between senior executives of the recapitalised Irish banks and its Economic Management Council (EMC), which comprises the taoiseach, tanaiste, minister for finance and minister for public expenditure. The banks will be summoned again early next month to inform the EMC if they are on course to meet the €3 billion lending target to small business set by government for 2012.
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The government is also expecting a robust constitutional challenge to the new personal insolvency law once it is enacted. Last week the taoiseach challenged ministers at a cabinet subcommittee dealing with mortgages to examine the legislation meticulously and ensure it fits with existing statute.
“This will be tested line by line in the courts and it has to be carefully scrutinised in terms of detail, how it is drafted, and how it links in with other legislation,” the government source said. “The stronger the legislation, the more incentive for the banks not to bring these cases to the courts, and to reach settlements outside.”
Kenny told ministers he wants a Personal Insolvency Bill published in April, and passed before the summer. Government and banking sources differ on the number of distressed mortgages which have not yet been restructured by the banks.
Launching a report into the government’s first year in office earlier this month, Gilmore and Kenny agreed that their single greatest regret so far is the delay in dealing with mortgage defaults.
Echoing government sentiment last week, Patrick Honohan, the governor of the Central Bank, said the watchwords for addressing the problem were “early engagement, fair procedures, tailored forbearance or rescheduling adapted to individual debtor circumstances and which respect the current and future ability to pay”.
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This “sufficient response”, he said, “has not yet been achieved by the banks”.
The banks insist they have allocated unprecedented resources to tackling distressed mortgages and are using innovative approaches such as “mortgage to rent” and “split mortgages”, whereby part of the debt is parked for a period.
Pat Farrell of the Irish Banking Federation said: “Banks are devoting significant resources to assisting customers in financial distress with their mortgages. Some 75,000 mortgages have been restructured by the banks and that is a phenomenal amount of support when you consider that every case takes time to find what solution will actually work.
“The banks have over 2,000 people supporting customers and helping them to restructure mortgages, applying a range of solutions to help those in difficulty.”
Government sources say the number in mortgage arrears now stands at 70,000, although the banks say only 45,000 mortgages remain to be restructured.
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In a speech to Limerick Law Society last week, Honohan said it was “now past time” for the banks to deal aggressively with buy-to-let borrowers whose houses were purchased purely as investments and whose mortgages are in default.
Farrell said the banks were prevented from realising their security on mortgages by a High Court decision last July, in which Judge Elizabeth Dunne found a “lacuna” or gap in the Land and Conveyancing Law Reform Act 2009.
In passing this act, the Oireachtas repealed 1964 legislation and failed to transpose powers into the new act that would have allowed lenders to repossess properties whose mortgages were taken out before December 2009 but which went into arrears after that date.
The Department of Justice said “options to respond to the High Court judgment are being considered in the light of advice from the office of the attorney-general” but gave no indication of how soon proposals might emerge.