Will the recently announced state-backed mortgage resolution process work?

 On 13th March the Central Bank announced new measures to incentivise/force the banks (namely: ACC, AIB, Bank of Ireland, KBC Bank, Permanent TEB and Ulster Bank) to meaningfully address the growing debt issues affecting more and more households today.

Will it work? In short no, not in isolation and without borrowers getting specialist independent advice.

Targets: The recently announced plans envisage that the banks will have agreed permanent and sustainable solutions with 20% of their borrowers in arrears by the end of July. That figure is to increase to 30% before the end of September and 50% before the end of 2013. The key words here are ‘permanent’ and ‘sustainable’ and herein lies the difficulty. Banks’ default negotiation strategy has and remains to ‘squeeze’ as much funds from a borrower on a monthly basis as possible, that’s their job. However, this innate approach adopted by banks is at odds with agreeing permanent and sustainable solutions with distressed borrowers. What is needed is where an independent third party, independent of both the bank and the borrower takes a holistic approach and fairly and consistently asses each borrowers income and expenditure and then proposes sustainable monthly repayments to all the borrowers creditors (banks) simultaneously. Without such a holistic, independent and consistent approach, one side has an unfair advantage over the other, and from experience this leads to borrowers agreeing to monthly repayments that are neither sustainable nor consistent with an equitable and holistic approach for all their debts. What makes this system even more one-sided, if clients choose to appeal their banks decision, the appeal is handled internally by the very bank that made the decision in the first place. In addition, there are neither sufficient rules as to how this internal appeal is to be conducted nor any established principles to guide the appeal in the first place nor any transparency as to how the decision was derived at in the first instance.

The establishment of the Insolvency Service of Ireland (ISI) under the Personal Insolvency Bill, 2012 which will involve the immanent authorisation of independent Personal Insolvency Practitioners (PIPs). These PIPs offer borrowers the prospect of negotiating permanent and sustainable solutions with their respective banks. While banks have a veto (vote) over such formal schemes of arrangements, in practice, this veto may not be as powerful as many currently believe.


Living Expenses

The foundation to any such permanent and sustainable solution between banks and borrowers will require an agreed format on what are reasonable living expenses. What the same banks deem as reasonable living expenses varies between customer types. For example, banks adopt one set of living expense guidelines for clients looking to get mortgage approval and a different set of guidelines for clients seeking to restructure their debt commitments. Thus, the suggested living expenses soon to be published by the ISI under their remit of operating the personal insolvency legislation will be fundamental to developing a fair, equitable and consistent approach to finalising permanent and sustainable solutions for banks and borrowers alike. Borrowers will need to conduct a detailed and forensic analysis on their income and household living expenses, many will require independent advice and assistance to conduct such a detailed and critical review.


There is no silver bullet to Ireland’s debt crisis. While the recently announced macro targets set by the Central Bank of Ireland are a help and a step in the right direction, but on a practical level it will require much more than these macro targets for the reasons as outlined above to finally start resolving Ireland’s debt crisis. The new personal insolvency option offers many overly indebted individuals the best chance of finalising permanent and sustainable solutions where they are somewhat protected from heavily resourced and increasingly specialised banks through this independent process.

Larraine Griffin is a senior manager with Prima Finance’s Debt Solutions and can be contracted on www.primafinance.ie or at lgriffin@primafinance.ie or on 1890 456 700.