What are Ireland's banks playing at? According to the latest figures published by the Insolvency Service of Ireland (ISI), they are rejecting more than one in four deals involving mortgage debt brought to the table by personal insolvency practitioners (PIPs).
Late last year, the ISI underwent an overhaul. As part of the revamp, it announced its intention to collect details from PIPs about which banks were rejecting what deals and why. It also offered to cover the costs of PIPs who brought sensible deals to the table, only to see them rejected by banks.
Rejected deals
As part of the overhaul, the rejected deals would have to have been demonstrably beneficial to the banks – or at least more beneficial than bankruptcy. And they are.
The ISI has an admittedly small sample of 47 rejected deals which have cost the banks an average of €100,000 each. ISI head Lorcan O’Connor says the banks’ refusal to sign off on personal insolvency arrangements, which would ultimately save them money, defied commercial logic. He is absolutely right.
As the head of the State’s insolvency regulator, he is not free to speculate as to why almost 30 per cent of all deals involving mortgage debt are rejected – in the UK, the figure is less than 5 per cent. It seems clear the banks are still struggling to come to terms with a world in which debt forgiveness will be the norm. They are afraid to go easy on Couple A in case Couple B comes looking for something too.
This is ridiculous. All the chatter two years ago – before the ISI – of people playing the system and using it to free themselves from debts has been proven to be nonsense.
In the face of intractable banks and public reluctance to use its services, the ISI has quietly gone about its business and deserves credit for weathering some fierce storms.
While O’Connor recognises that processing fewer than 100 insolvency applications a month means it is far short of where it needs to be, it is making progress. It has waived fees, organised information campaigns, developed a protocol to make the insolvency process faster and identified banks posing obstacles to distressed borrowers.
It has also given people mired in negative equity a degree of hope. Many who apply for insolvency will stay in their homes as a result of the ISI. And nearly a third who declared themselves bankrupt last year were able to retain ownership of their homes.
Unshackled borrowers
Many who were not able to stay in their homes will walk away, free from the shackles of negative equity and legacy debt. It is true the ISI needs to deal with more cases. But, as O’Connor said when publishing the new figures, “you can’t look at our activities in isolation. There are more than 100,000 restructured mortgages now in place.”
