OFFICIALS FROM THE Department of Finance were pressed yesterday about their assertions that Sinn Féin’s No Consent No Sale Bill will push up mortgage interest rates if passed into law.
Assistant Secretary for the Department of Finance Gary Tobin said in his opening statement to the Oireachtas Finance Committee that it is the department’s view that the Bill “will lead” to “higher mortgage interest rates for consumers”.
Department officials were also pushed to clarify their statements that the Bill is “unconstitutional”.
Donegal TD Pearse Doherty’s Bill aims to give mortgage holders the power to block the sale of their mortgage bank loans to vulture funds.
The Dáil voted by 80 votes to 45 to pass the Bill – the government opposed the proposed legislation.
Higher mortgage rates?
In an exchange between Doherty and Tobin, the assistant secretary told committee members that the Bill “is likely” to result in higher rates.
Fianna Fáil’s Michael McGrath told Tobin his predictions about what would happen to the Irish banking system if the Bill passes were “quite definitive”.
Tobin previously said it would result in higher interest rates and restrict the banks’ liquidity.
However, Doherty pointed out to the assistant secretary that his department made similar predictions about McGrath’s Bill – which sought to regulate vulture funds – and these predictions have not become a reality.
At first, the government was opposed to the Fianna Fáil Bill, but it later backed it and the Bill became law last year.
The same observations didn’t materialise in that case, said Doherty. The assistant secretary maintained the regulation of vulture funds Bill by Fianna Fáil and Sinn Féin’s Bill on mortgage-holders giving consent for their loans to be sold on are not comparable.
He stated the No Consent No Sale Bill is “considerably more radical” as it aims to “prohibit banks from selling mortgages”.
Doherty said six months after the enactment of the McGrath Bill, none of the department’s warnings about higher interest rates have come to pass – if anything, the opposite has happened, he said.
The department has stated that mortgage interest rates “may or may not” rise, said Doherty, “so which one is it?” he asked. The Donegal deputy then accused the department of making such statements “on the back of what bankers tell you”.
He questioned whether the department had carried out an independent assessment in relation to whether mortgage interest rates would rise. The department has not, said Tobin.
Ruffling bankers’ feathers
The Sinn Féin fiance spokesperson said there is no doubt he had “ruffled a couple of feathers” with the bankers with his Bill.
Tobin told the committee that interest rates “will likely” increase, but added that “all we can do is give our advice… all we can say is what is likely to happen… we are here to tell truth to power… to tell you what you need to hear, not what you want to hear.”
“All we can do is tell you what we think might happen,” he added.
There were also back and forth between members and officials over a clarification on the Attorney General’s advice on the Bill.
In his opening statement, the assistant secretary stated that after “consulting with the AG, the Department of Finance is of the view that the interference proposed by this Bill is disproportionate, and therefore unconstitutional”.
Attorney General
McGrath asked if the department it had a written submission from the AG to that effect.
Tobin said there had been “written correspondence” between the department and the AG about the Bill which finds that “there is a serious risk that it could be unconstitutional”.
“I think that is different as saying that it is unconstitutional,” said Doherty.
“We have written correspondence you are conveying that it is likely to be unconstitutional,” added Tobin.
Tobin also said the Bill could result in more repossessions.
“Certainly we are not convinced that for the current mortgage holder this Bill would necessarily do a lot for them,” he told the committee.
“I think the reality is that if the institutions can’t sell their non-performing loans, then the Central Bank and the regulator are still going to insist that they address them. And one of the ways they could address them is by repossession.
“I don’t have a crystal ball, I am just trying to give an honest opinion about what might happen,” he said.
Loans sold to vulture funds
Throughout the committee hearing, the deputy governor of the Central Bank Ed Sibley maintained that protections are the same for mortgage holders whether their loan is owned by a bank or a non-bank.
He said existing arrangements remain honoured when bank sells to non-banks, however, TDs such as Fine Gael’s Kieran O’Donnell questioned such a statement, adding that vulture funds are in the loan business short-term, while established banks lend for life-time mortgages spanning 35 years.
McGrath pointed out the mainstream banks have reduced their non-performing loan (NPLs) books significantly in recent years due to these large-scale sell offs to vulture funds.
Sibley told the committee that in the last five years, the percentage of non-performing loans on the books is around 10%, down from 32% at peak. He said there is still a strong push from the Single Supervisory Mechanism for Irish banks to reduce NPLs in a “sustainable way”.
Targets for banks
The Fianna Fáil TD said the issue of banks having to hit certain targets in reducing their non-performing loans “keeps reappearing”. He asked if Europe has set a target for Irish banks to meet.
Sibley admitted that there is in fact “no formal target”.
“There are no hard targets,” added the deputy governor, who added that the Central Bank has asked the banks to set out clear strategies to bring down NPLs.
“There is no requirements to hit an EU average by the end of 2019,” he told the committee.
Sibley added that the Central Bank expects banks to use the “full toolkit” of options when dealing with its customers, such as mortgage debt write down, mortgage-to-rent and the personal insolvency service.
Endless legislation proposals
Fianna Fáil’s John McGuinness hit out at the against the department and the Central Bank officials, stating that it is the politicians that have to “hear the stress” and witness children crying with their parents in court.
He added that if all the same protections applied to those that found themselves sold to a vulture fund, then politicians would not be bringing forward endless proposed legislation on the issue.
McGuinness said the public come to TDs to tell their story about how there is no one point of contact with these funds. People are telling their story to one person, and have to tell it to someone else tomorrow.
“They have to repeat the same story over and over again,” he said, adding:
“What infuriates me is you give your side of the story without acknowledging there is a real problem here. You cannot paper over it anymore.”
He said the Central Bank states that “the whole world will cave in if we upset the banks”.
“When all fruit fails, bring in the constitution. That is what is going on here,” he said. Referring to Tobin’s earlier comments about speaking truth to power, McGuinness stated:
“I think I am speaking truth to power on behalf of constituents… The banks have all the cards and they are dictating what happens… I don’t think the world is going to fall in if a version of this were to pass in this House.”
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