Betrayed by Victorian era debtors’ prison mentality

Last week, thousands of Irish families had their mortgages sold, at large discounts, to foreign companies. As a result, many men, women and children will be needlessly evicted, many lives will be needlessly destroyed, and the profits generated in the process will leave the country. All of this could have been avoided by the Government. Instead, in a combination of secrecy, stupidity and spite, the Government embraced it.

Here’s what Finance Minister Michael Noonan said: “This is a hugely successful outcome for the Special Liquidators which provides further strong confirmation of the renewed confidence of international investors in the Irish economy and its future prospects.”

Not so ‘hugely successful’ for the tens of thousands of Irish citizens who have just been betrayed by their own Government, mind you. The two funds that bought the mortgages, LoneStar and Oaktree, specialise in buying distressed debts around the world at discounts, and then collecting as much of that debt as possible. Something, by all accounts, they’re very good at. Both companies are based out of the US, both will be looking to maximise profits in the next few years, and neither has to comply with the Code of Conduct on Mortgage Arrears (CCMA).

Imagine how galling it must be. Your mortgage of €250,000 is in arrears because you’ve taken multiple pay cuts since 2008. Your Government sells your mortgage to a foreign debt firm for, say, €75,000. The firm sees that your house is worth €300,000, so they evict you, sell your home, and pocket €250,000.

The key point here is that the Government refused to let the mortgage holders bid on their own mortgages.

When I asked Michael Noonan why, he cited a PWC report done for the Special Liquidator (who came from KPMG … the same firm that acted as Irish Nationwide’s auditors during the bubble … you couldn’t make it up). The PWC report advised that the mortgages should be sold in bulk, in order to maximise the sales price. Reasonable enough, but did the advice take account of the impact on the mortgage holders? In selling State assets, were the interests of the citizens of the State being considered?

I asked Minister Noonan for the report, but he refused on grounds of commercial sensitivity. He later admitted that neither he, nor any of his officials had read it. So I asked the Taoiseach if he would release the report to the Dail. He ignored the question. So I submitted a Freedom of Information request to the Department of Finance for the report. The Department replied, weeks later, that it didn’t have it and couldn’t get it (yet somehow it was able to deduce the extent of its commercial sensitivity). So I asked the Special Liquidator, at a Finance Committee hearing, if it would release a redacted version of the report. It agreed, but no report was forthcoming. So the committee staff chased it up. The Special Liquidator wasn’t sure it had given any such commitment, apparently. So it was sent the transcript of the committee meeting, in which it agreed to provide the report. So, also several weeks after the initial request, it did. Just in time for the mortgages to be sold, coincidentally.

The report, part of a package of work PWC was paid €518,000 for, was heavily redacted, but is still insightful. It states that the criteria for determining how to sell the mortgages were identified “in discussions with the Special Liquidator”. In the appendix, it provides a list of those criteria. All quite sensible things like potential interest from buyers, associated risk, impact on total sales achieved, impact on the timing of the sales, and so on. What is striking, however, is that there is absolutely no mention, whatsoever, of the interests of the mortgage holders.

So here’s what’s just happened. In nationalising Irish Nationwide, the State ended up owning about 13,000 Irish mortgages. In other words, a group of Irish citizens owed money to the rest of us. The Government was happy to sell these loans at large discounts to foreigners, but not to the Irish citizens who hold the mortgages. By way of explanation, it cited a report it hadn’t seen and wouldn’t share. It handed responsibility for the sale to the same company that audited Irish Nationwide during the bubble.

Many of the mortgage holders report that they couldn’t get meetings with or even replies to letters from the liquidators. The foreign funds got access. Last week, those mortgages were sold to two debt funds not regulated in Ireland. The funds have promised to obey the CCMA, but there will be no oversight of this and there will be no penalty if they don’t. The Government has heralded all of this as a “hugely successful outcome”.

So that’s government secrecy and stupidity accounted for, but what about the spite? Several weeks ago, I asked the Government to pause the sale, to allow for a counter-proposal to be developed to the sales process, that would both return the same, or more money, to the State and allow the families to bid. The Government refused. It would seem that the problem wasn’t just that it couldn’t figure out how such a process might work. It seems it didn’t want the families bidding, even if it resulted in a better outcome for everyone. This fits with the Victorian-era debtors’ prison-type mentality we’ve heard from the Government from day one.

It is a consistent theme of this Government, and the last, that when it comes to banking and finance, the welfare of the citizen is ignored in the interests of the institution. The ill-fated guarantee of 2008 was made to protect the Irish banks. The pressure many believe came from the European Central Bank to pay the bondholders was in order to protect the European banks. The Insolvency Service of Ireland, ISI, has completed just four deals involving mortgage debt. Why? Because the banks were given a veto over all proceedings. The deals will be kept secret to protect the banks, but the details of the borrowers will be available for all to see.

When it comes to restructuring unsustainable mortgages, the Government is giving the banks free rein over citizens – hit your targets, but how you hit them is up to you. Make sure the offers are sustainable, but how you define ‘sustainable’ is up to you. You must have an appeals process, but what that looks like is up to you.

The Irish Nationwide mortgages were sold without any consideration given to the citizens involved. They were sold by a Government not even willing to discuss an alternative. This outcome, heralded by the Government as “hugely successful”, is in fact just another betrayal, and another sad chapter in the story of a Government obsessed with protecting institutions over citizens while getting gold stars from abroad.

This Article originally appeared in the Sunday Independent on April 6, 2014.