Vincent P Martin (Green Party) | Oireachtas source

Cuirim fáilte roimh an Aire Stáit. Improving individual accountability in decision-making at all levels, especially at senior level, is to be welcomed. However, I do not see transparency and accountability for the so-called vulture funds. The services of those loans are regulated. The history of the great recession is well-known to us all. Banks over-lent to the residential property sector, driving prices sky high. Increasing prices meant everybody was winning until the music stopped. House prices then collapsed, bringing the economy and the banks with them. When the dust had settled years later, the banks had been bailed out but the debts remained for ordinary house-owners. Those debts continue to be serviced by tens of thousands of people up and down the country.

As interest rates rise across the world, the spectre of further possible mortgage defaults appears again. In Ireland, it is particularly acute for three reasons. First, the level of debt for ordinary people who borrowed in the run-up to the 2008 crash remains very high. Second, most are on variable rates, which means they are fully exposed to interest rate increases. Third, tens of thousands of loans have been sold to overseas investment funds whose business models are opaque - a point I will return to later - and who may well be taking advantage of increasing interest rates. We simply do not know the extent of it.

For borrowers still with the banks, there is some protection. The variable rate offered by the banks is a standard variable rate meaning that the rate applies across its entire book. AIB or Bank of Ireland cannot single out an individual borrower because their rates apply across their books. Borrowers are, therefore, protected by being part of a big group of borrowers. Bank borrowers are usually in better financial condition than borrowers whose loans have been sold. Those loans are often sold for a reason. This means that if bank A increases its rates, the borrower can move to bank B in a competitive market. They are protected by competition. However, borrowers whose loans have been sold are generally distressed books and they do not have that protection. They are largely on their own. It appears that funds do not apply standard variable rates and how they charge rates is only known to them. It is a secret, a mystery. Once a borrower's loan has been transferred to a fund, it is highly unlikely that any bank would be willing to take them on as a customer so they do not have that benefit of shopping around. In many cases, borrowers will have used up their once-in-a-lifetime chance of personal insolvency, hence they represented a distressed loan in the first place. People on safer ground probably still have that one lifeline. In many cases, they will not have used it yet.

In light of that, we area looking at increases in applications by funds to potentially repossess more homes. One thing we know for sure is that property prices have increased so there is a commercial rationale for funds to increase rates, causing defaults, before looking to repossess properties. It might take a year or so but the profits could be very large indeed.We need to act. This House and the Government need to act. We must be in the vanguard of this action. First, we must bring transparency to the process. Funds must be required to publish increases in their rates. That is not too much to ask for and would ensure that the public, and the regulator, can see what is going on. If the regulator does not have the power then the Government should enhance those powers. We know that AIB and Bank of Ireland charge what they charge. We need to know and understand what all the funds charge and that needs to be public information.

Second, where borrowers meet their payments under the old interest rate, then it is entirely unfair to create a default by raising the rate precipitously. In other words, legislation must provide protection to borrowers so that any repossession court proceedings can be defeated where it is shown that the default was caused by such a precipitous interest rate increase. This is not overly burdensome on lenders. They bought those loans at discount and their underlying security has increased. They must appreciate that rates can increase so why should individual borrowers be on the hook for this risk?

Finally, though this is a matter for the courts, we must ask why borrowers have been deprived of bank rates when they entered into their original agreements with banks. That is an issue. Will the Government protect those people?

The individual loan agreements give the power to the banks to amend their interest rates where those rates are variable rates but the power is given to the bank and not to any subsequent owner of the loan. It has been well established in the courts that loans can be sold on and that is not what this is about. It is certainly not established that the new owner can disregard the agreement made between the bank and the borrower. In my view, the borrower is entitled to rely on the original conditions, and the sale does not give the fund a carte blancheto charge interest rates as its likes in a way which is not transparent.