Phoenix Project Presentation to Finance Committee April 2Nd 2014

PHOENIX PROJECT PRESENTATION TO FINANCE COMMITTEE APRIL 2ND 2014

Phoenix Project Ireland was founded in 2008 out of an enlightened heartfelt concern by members of the public as to how the mortgage arrears problem is causing genuine human distress,family breakdown ,illness and now social upheaval in our communities.

We are funded principally by donations from the public .

We provide legal,qualified financial, emotional stress and social welfare entitlement and housing advice to all distressed borrowers who contact us ,free of charge.

We are in a uniquely independent position to comment on this problem as we are a specially formed, single focus organization providing a combination of services free of charge and all of our Donors focus is to save the family home.

Since our formation we estimate that we have had contact with more than 20,000 distressed borrowers from all over the country and since last August when the MART and 2013 MARP started to take effect we have already had 3000 contacts. Most people who contact us attend at least one meeting at our offices at Portaoise where they can meet one or all of our professionals and also access free Personal insolvency advice .Other contacts are by phone or email .

Our main concern is the vast number of family home loans at risk and unfortunately ,in our experience,the risk to homes is growing rather than improving since the much heralded Personal Insovency Legislation 2012, MARP Code revisions 2013 and Central Bank Targets for resolution 2013 have been in place.

A recent survey of resolution offers made to our clients since last September shows that more than 33 % of people have received voluntary sale/surrender offers,14%threatened repossessions and 3.35% are already in the court repossession process which implies 50% will lose their homes.(see attached Phoenix Stats)

Central Bank March report fails to mention or acknowledge this same large percentage of people offered voluntary surrenderand likely to give up their homes or have them repossessed over the coming months.Of the restructured loans that CB report concentrates on, at least half are still in arrears and most are temporary and we are seeing banks undermine temporary restructures more and more, which means that CBs own stats show that future repossession numbers are set to grow beyond 50% of 140,000 in arrears.( See attached Phoenix analysis of CB stats)

Banks need only pay lip service to theMARP and MART codes simply because of a serious lack of checks and balances.

Central Bank(CB) and Department Of Finance(DOF)don’t audit banks figures or reports.DOF figures are not subjected to even bank quality control.

Worse than that Government and CB have encouraged distressed borrowers to engage and provide truthful disclosure of their financial information( which will assist banks in selling loan books and properties)at the outset of the marp with a promise of protecting their family home.We have seen tens of thousands do this in good faith and continue to be denied resolution by banks who despite much rhetoric are not under any pressure to properly perform or report their part of the Resolution bargain.

This is made even easier for them because distressed borrowers cannot afford to defend themselves

What has happened tothe promised solutions?

Personal Insolvency Legislation

We and many others in the field ,are of the view that more than 50 percent (and certainly two thirds of those we put forward )of distressed borrowers income is so low they do not qualify for Personal Insolvency.Also PIPs are reporting very strong resistance by banks to proposals that have protection of family homes at their heart ,particularly if there is any positive equity at all in the home.

MARP Codes

Since 2009 2 government committees,Cooney and Keane provided reports to tackle this unprecedented crisis and MARP codes were introduced ostensibly to protect the family home.At the heart of these reports were a focus on resolution and resolution options.The Keane report provided a list of resolution options and some detail on these.

The most recent code 2013 provides at STEP 4: RESOLUTION Provision 39-

39. In order to determine which options for alternative repayment arrangements are

viable for each particular case, a lender must explore all of the options for

alternative repayment arrangements offered by that lender. Such alternative

repayment arrangements may include:

a) interest only repayments on the mortgage for a specified period of time;

b) permanently reducing the interest rate on the mortgage;

c) temporarily reducing the interest rate on the mortgage for a specified period

of time;

d) an arrangement to pay interest and part of the normal capital amount for a

specified period of time;

e) deferring payment of all or part of the scheduled mortgage repayment for a

specified period of time;

f) extending the term of the mortgage;

g) changing the type of the mortgage;

h) adding arrears and interest to the principal amount due;

i) equity participation;

j) warehousing part of the mortgage (including through a split mortgage);

k) reducing the principal sum to a specified amount; and Code of Conduct on Mortgage Arrears

l) any voluntary scheme to which the lender has signed up e.g. Deferred Interest Scheme.

And at Provision 40. -A lender must document its considerations of each option examined under Provision 39 including the reasons why the option(s) offered to the borrower is/are appropriate and sustainable for his/her individual circumstances and why the option(s) considered and not offered to the borrower is/are not appropriate and not sustainable for the borrower’s individual circumstances.

TRANSPARENCY OF RESOLUTIONS IS THE BIG ISSUE

Central bank gave all banks a derogation on providing the Data required by Provision 39 until December 2013 although no similar derogation was afforded to the reported 15,000 borrowers whose loans were deemed unsustainable during the period July to September 2013 and who were asked to surrender their homes immediately.

We are not satisfied that all banks have complied with this request yet.

Furthermore Central Bank have confirmed to us that, in their view , there is no obligation on banks to furnish their considerations of each option to the distressed borrower underprovision 40.

.We ,on behalf of our clients have attempted to access thisprovision 40 data on individual files pursuant to Freedom of Information Acts but so far we have been unsuccessful.So it is beginning to look like the codes which held so much promise over the last 5 years are beginning to breakdown as follows;

•Banks are under pressure to report resolutions to CB

•Prov 39;The banks can pick any resolution options they want as long as they publish them (but even if they fail to publish the distressed borrower has no rights and CB are enforcing no sanctions)

•Prov 40;Once they publish resolution options they have no obligation to communicate their detailed consideration of the application of these options to the individual whose family homes and future is affected by these considerations.

•We see a disturbing pattern emerging of banks setting up their entire resolution strategy around positive equity and splits..Splits and the few well reported write downs are available only to those in serious negative equity with age and income sufficient to pay back loans over extended term .Most of these have review provision to allow banks discretion to sell if equity improves.

Unsurprisingly because of this CB assisted narrow interpretation of Provs 39 and 40 there is no transparency or clarity for us or any other professionals in the field ,not to mention the tens of thousands of unrepresented and unassisted distressed borrowers ,on what resolutions are available to whom.

•We are also very concerned by provision 6 of the CCMA which provides - ;Where a lender sets targets or offers incentives to staff dealing with borrowers in arrears or pre-arrears, the lender must ensure that such staff targets or incentives:

a) do not impair the quality of communication with the borrower or how the

borrower is treated by the lender; and

b) take into account compliance with the requirements of this Code.

We consider this interpretation of 39 and 40 and provision 6 acceptance of bonus payments in Arrears Supporttotally contrary to the spirit and letter of CCMA 2013 where at Provision 56 the Code provides;

56. Where a borrower is in mortgage arrears a lender may only commence legal proceedings for repossession of a borrower’s primary residence, where: a) the lender has made every reasonable effort under this Code to agree an alternative arrangement with the borrower or his/her nominated representative;

Questions for Banks and Central Bank

As most distressed borrowers cannot afford independent professional advice and support and DOF and Central bank continue to refrain from meaningful audits of these bank statistics and methodology for arriving at restructure /resolution decisions we believe it is only right and proper that your committee should make the following detailed enquiries of each of the banks and Central Bank;

•List the Restructure options each bank offers,how they work and set out the detailed criteria they adopt to offer each of these resolutions and how these are affected by valuation and equity? .----ie their considerations pursuant to provision 40 of the CCMA 2013 and similar provisions in previous codes.

•Estimate ,based on all the SFS reports it has over the last 5 years how many of its customers are in arrears it calculates is eligible for each option? If so how many? If not-why not?

•How many letters demanding voluntary sale has each bank sent and why are these not included in DOF and CB reports?

•Can the committee ask for comprehensive data on each banks incentive schemes for mortgage arrears staff per Provision 6 of the 2013 Code

Answers to all these questions will help in the following way;

Distressed Borrowers will be able to see if they qualify for a restructure or not

Taoiseach and Ministers will see what we see every day—large numbers of distressed borrowers offered no resolution other than Voluntary Surrender or Voluntary Sale AFTER YEARS OF HONEST ENGAGEMENT.

Once when these numbers are analysed properly will government be able to calculate the number of family homes likely to be lost and its social,economic and financial consequences for the state.

Engagement and Moral Hazard-

We would appeal to all public representatives to stop believing that the only reason people are losing their homes is due to a failure of engagement. Banks have spent the last 5 years changing their management of mortgage arrears from Branch based to impersonal call centre based remote units that work to unknown criteriae and make reasonable engagement impossible .They deem clients non co-operating ,cynically and unfairly and we can give examples.

Case by Case resolution is a myth. There is no concern for individual circumstances and we find all letters setting them out get ignored or sent to the Complaints Department.

Human Issues-Moral Hazard is over stated and ill defined,when it comes to ordinary home owners and we do not see people who can afford to pay ,not paying to get a write down, as so often claimed.Unfortunately banks,supported by CB, seem to believe that the sanctity of future mortgages will be threatened if ordinary people who can’t afford to pay are allowed to stay in their homes.

Housing Issues;These people did not create the problem and we in Ireland need to ask ourselves and our Central bank if we want to apply humanity and enlightenment to this problem before it gets out of control or do we let the bonus and target driven Greed is Good philosophy dominate the future of our family homes where we could see them sold off to investors for less than many people can afford to pay if given reasonable resolutions and find one tenth of all our home owners homeless and dependent on overflowing housing lists.This is the greatest concern of those 50% without resolution we see every day now .