Today’s report of steps being taken by AIB to address the circumstances of
mortgage borrowers in distress is welcome. To date the monthly
arrangements relating to a substantial number of home loans have been
modified by banks to assist individuals and families in difficulty by
agreeing temporary arrangements for interest only payments or partial
capital and interest payments and, in some instances, the temporary
suspension of payments. It is estimated that in the region of 80,000 home
borrowers have been assisted in recent years by such debt forbearance
arrangements agreed with financial institutions.
As we have progressed to the enactment of radical new Insolvency
Legislation, I have repetitively stated the importance of financial
institutions not only engaging in debt forbearance but also, in appropriate
circumstances, engaging in debt forgiveness where it is clearly warranted
and where there is no realistic prospect of an individual being in a
position over time to discharge in full debts for which they are liable,
including secured home loans.
Todays reported comments of Garry Stran, Head of Arrears Unit in AIB’s
Financial Support Group Division, that the bank will offer customers who
work with them and who find themselves in such circumstances, mortgage
restructuring which includes the possibility of a portion of debt
forgiveness or capital writeoff is welcome. It is clear that any such
arrangements can only apply to those who truly cannot pay as opposed to
those who will not pay and that there cannot be “wholesale debt
forgiveness”. It is, however, of crucial importance that debt forgiveness
be an option available and applied by financial institutions in dealing
with the circumstances of individuals under enormous financial stress and
who are in reality effectively insolvent.
The Insolvency Bill 2012 will be enacted through both Houses of the
Oireachtas by the 20th of December. The provisions contained in it for
individuals in substantial financial difficulty to enter into a Personal
Insolvency Arrangement provide a practical legal structure for debtors,
with the assistance of a Personal Insolvency Practitioner, to enter into
agreed arrangements with creditors, which include arrangements relating to
home loans. Constructive engagement in this process will assist insolvent
debtors in addressing their financial difficulties and enable creditors
including financial institutions restructure financial arrangements in a
manner which is realistic and facilitates debt recovery. For debtors it
holds out the prospect of their continuing to occupy and own their family
home and of real hope for the future.
The Insolvency Act 2012 will become operative early next year. It is, of
course, open to financial institutions to continue to enter into
appropriate debt forbearance arrangements with customers in difficulty and
where an individual’s circumstances clearly demonstrate debt forgiveness is
insufficient to properly and fairly address an individuals financial
difficulties, to agree to some portion of debt write off by way of debt
forgiveness. I expect other financial institutions to take an approach
similar to that to which AIB is committed as confirmed yesterday by Garry
Stran.