Joint Committee on Finance, Public Expenditure and Reform debate -
Tuesday, 8 Apr 2014

Mortgage Arrears Resolution Process: (Resumed) Ulster Bank

Chairman

We will proceed with No. 7 on today's schedule, matters relating to mortgage arrears and the resolution process. Before commencing business, I remind members, witnesses and those in the Public Gallery that all mobile telephones must be switched off to avoid interference with the broadcasting of the meeting.

I will move on to the formal part of the meeting and welcome the representatives of Ulster Bank. We are joined by Mr. Jim Brown, chief executive officer of Ulster Bank, Mr. Stephen Bell, chief risk officer, and Mr. Jim Ryan, head of branch banking in the Republic. The witnesses are present to assist the committee in the examination of mortgage arrears and the progress in putting in place solutions aimed at resolving difficulties in that sector. I thank Mr. Brown and his staff for the written material they provided to the committee in preparation for today's meeting.

The discussion will begin with opening remarks from Mr. Brown, following which questions may be put by members to the witnesses as appropriate. It is important that we manage our time well this afternoon. To derive maximum benefit from the meeting, each member will have a strictly limited time slot within which questions may be put and replies given. Questions from members and the witnesses' replies to same should be clear and concise.

I advise the witnesses that, by virtue of section 17(2)(l) of the Defamation Act 2009, they are protected by absolute privilege in respect of their evidence to the committee. If they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. The witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable.

I invite Mr. Brown to make his opening comments.

Mr. Jim Brown

As the Chairman mentioned, I am joined by my colleagues, Mr. Bell, chief risk officer, and Mr. Ryan, head of branch banking for the Republic. I thank the committee for the opportunity to provide an update on Ulster Bank's progress in the areas outlined in its invitation to us. I will go through that invitation quickly, then respond to any specific topic that the committee wants to discuss.

I would like to say a few words about Ulster Bank at the outset. We are the No. 3 bank in the Republic of Ireland and the No. 1 bank in Northern Ireland. We are building a substantial market share in a number of key areas, including mortgages. Our clearly defined strategy is based on building a really good bank for our customers and addressing our legacy issues. Our strategy is working. We expect to return to profitability this year. Our customer focus is evident in our approach to the resolution of mortgage arrears. We provide transparent and equitable solutions that are tailored to the individual customer's circumstances. Our focus is equally evident in our approach to existing or new customers who are looking to buy or move.

During our last appearance at this committee, we set out our approach to assisting mortgage customers who are in arrears. We recognised the need to comply with regulatory targets. We explained that we were focusing on getting appropriate solutions in place for our customers, based on what is affordable after reasonable living expenses are taken into account. We have invested in people and systems. The range of supportive, fair and affordable solutions that we have developed enable the vast majority of customers who engage with us to remain in their homes. I am happy to report that our customer-based approach is working. Over 2,500 customers have moved out of arrears since we last met. Our innovative "economic concession" product continues to be the most popular structural solution for our customers. It features a discounted interest rate of as low as 0.5% over varying durations of up to seven years. The particular rate and duration are based on what the customer can afford. We also offer other options, including split mortgages, capitalisations and term extensions.

As we have told the committee previously, our starting point on this matter remains that there is a cost to living in a home and that customers need to engage with us. We recognise our responsibility to work with them to find the most effective solution that allows them to remain in their home where possible. Recent research on the Ulster Bank mortgage book shows that paying the mortgage is more affordable than paying the equivalent rent in the same community, particularly when more progressive restructuring methods are considered. This requires engagement, however.

Ulster Bank does not offer debt write-off. Writing down arbitrary amounts of debt for a small number of people while they remain in their home is not something we will do. We do not believe that it is an appropriate solution as it raises as many questions as it purports to resolve. We believe the write-down or write-off of debt is an unhelpful distraction that is likely to create issues around moral hazard, transparency and fair outcomes for customers. In our view, the focus should be on affordability and offering transparent solutions that can be made available to all mortgage arrears customers.

The figures we have provided to the committee indicate that we have exceeded our regulatory targets and that the number of our customers in mortgage arrears of 90 days or more has fallen every month since March 2013. This trend is not seen elsewhere in the market. We have provided the committee with additional information that shows our approach over the full mortgage arrears book, including early intervention which we believe is essential in addressing the mortgage arrears issue. This information establishes beyond doubt the success of our approach and the value of early engagement.

Since last summer, the number of customers in arrears who have not engaged with us and are not making any contribution to their mortgage has reduced significantly from 35% to 14%. This number is still unacceptably high. It is not fair to all other people who pay their mortgage that someone makes no contribution to the cost of their accommodation. We have no choice other than to pursue these customers through the legal route. Having said that, the primary intent of legal action is to encourage meaningful re-engagement so we can help. Any customer can take themselves out of the legal process at any stage by meaningfully re-engaging. We are pleased to advise the committee that almost half of our customers entering the legal process have re-engaged with us. Unfortunately, that means the same number are not engaging despite the seriousness of the situation.

We expect to see a continued substantial decrease in Ulster Bank arrears. We also expect to see a continued increase in the overall number of mortgages where a borrower is more than two years in arrears. This is not because the banks are slow to offer solutions to these customers, but because these customers are refusing to engage and legal action appears to be the only option. The longer it takes to move a case through the legal process, the longer these cases will sit in the reported serious arrears numbers. I acknowledge that progress has been facilitated by addressing the legal and administrative obstacles to resolving the mortgage arrears problem, for example by revisiting the Dunne judgment and revising the code of conduct on mortgage arrears. It would be remiss of me not to point out that real problems continue to impede the process. It can take more than two years to process a repossession case through the courts. This timescale seems to be increasing as the cases previously blocked by the Dunne ruling enter the system.

I would like to make a few comments on the personal insolvency arrangements. We have argued from the outset that we are dealing with a consumer debt issue, rather than a mortgage arrears issue alone. In these circumstances, the debt relief and debt settlement elements of the insolvency arrangement are a useful addition to the process, as they enable borrowers to put their debt burden on a more sustainable footing. The banks, which hold two thirds on the unsecured debt in the market, will deprioritise these unsecured loans so that customers can focus on paying their mortgages. We welcome the recent comments from Goodbody Stockbrokers, which confirmed the view unsecured debt is just that - unsecured. I note that, to date, Ulster Bank has not vetoed any protective certificate proposal put forward by a personal insolvency practitioner.

I will conclude on a positive note. The mortgage market is showing signs of improvement. We are well positioned to support the recovery. We are growing and actively gaining overall market share in key segments, particularly in the residential mortgage market. Our mortgage lending for 2013 has increased by 32%. We now support 14% of the market. We have close to €500 million to lend into the mortgage market in the Republic this year. We are approving eight out of every ten applications made to us. We also recently introduced a number of tracker porting products to enable customers to move house. I reiterate that Ulster Bank is committed to supporting the economy and building a really good bank for our customers. While there is more to do, I believe we are on the right path.

Chairman

I thank Mr. Brown. I propose to take the first round of questions in 15-minute slots, the second round of questions in ten-minute slots and subsequent rounds of questions in five-minute slots. I remind members to be concise in their questioning and witnesses to be concise in their responses. I will begin by asking Mr. Brown about Ulster Bank's commitment to the Irish market as a retail bank on the high street.

Mr. Jim Brown

Ulster Bank was part of the review that was instigated by Her Majesty's Treasury in the middle of last year, which looked at whether RBS as a whole should consider splitting itself into a good bank and a bad bank to deal with the remaining legacy issues. The conclusion of that review was that an internal bad bank would be set up. At the end of last year, Ulster Bank took some specific provisions to deal with that. At the same time, the commitment of RBS to Ulster Bank and the market here was very clear. That commitment was announced late last year and reiterated in February. We are now looking to work through how we can build on our challenger position in the market here in the Republic. We are looking at a number of options to that end. Our ultimate goal is to build a better bank for our customers. That is what we are doing. The commitment of RBS has been confirmed.

Chairman

That commitment is to remain on the high street in Ireland.

Mr. Jim Brown

That is correct.

Chairman

The last time the Ulster Bank officials appeared before us, they referred to an earlier comment that I had made about how sustainable solutions are defined. There was a level of ambiguity at that time. There was a need for some clarity about the direction the Central Bank was giving to Ulster Bank, particularly in cases of people who are in arrears but might have positive equity on their property or might have the potential within their pensions to evolve a resolution process into retirement. It seemed that the criteria were very restrictive in providing that the mortgage had to be resolved within the timeframe of that mortgage or the person's working life. Has Ulster Bank been able to develop solutions in that area? Has it sought clarity from the Central Bank in this regard?

Mr. Jim Brown

I might ask my colleague, Mr. Bell to provide some of that detail. As I mentioned in my opening statement, the targets are the targets and we need to comply with them. Our focus is on doing the right thing by our customers. We believe there are specific issues with the way the targets are set. I refer, for example, to the question of whether people who still have mortgages when they retire should be determined sustainable. Mr. Bell might add to that.

Mr. Stephen Bell

To answer the Chairman's question directly, there is still some ambiguity regarding what constitutes sustainability.

There is a very clear focus in the mortgage arrears resolution target regime on resolution being achieved by retirement age. We share the Chairman's view that this is not necessarily the right answer. We have been working on a variation of our split mortgage product which would allow customers to defer a portion of the debt to post-retirement, even if that involved deferring it to the point where their estate was brought to liquidation. Our focus is very much that it is completely inappropriate that somebody who can otherwise live in their home in a sensible and affordable way should be forced into the legal process.

Chairman

In the course of our previous hearings on this issue, the position of the Governor of the Central Bank in his written correspondence to me seemed to be at variance with the views he expressed when he appeared before the committee. Has Ulster Bank sought a definitive position in this regard from the Central Bank?

Mr. Stephen Bell

The way we tend to approach these things is that as we develop formal structures, we present them to the Central Bank and seek its agreement. We have advised the Central Bank in correspondence that we are developing solutions which will involve a structure that goes beyond retirement age. We have not as yet had any push-back or resistance to that, but we are not at the stage of formally proposing that structure for the Central Bank's confirmation. After we last appeared before the committee, we went through the same process with our economic concession product. It took us six to eight weeks after the committee's last hearing before we finally got confirmation from the Central Bank. It is not a short process but I am pleased to note that, as yet, no resistance has been expressed to the idea of pushing part of the resolution beyond retirement.

Chairman

What criteria or matrices does Ulster Bank use to determine whether a mortgage is or is not sustainable?

Mr. Stephen Bell

The only criterion we would use is affordability. We work with the customer through his or her living expenses, part of which would involve examining any other debt he or she may be carrying. We primarily focus, however, on how we can structure the mortgage so that it can be repaid in a sensible and appropriate fashion. We would always key off affordability as defined by the customer's income and expenditure.

Chairman

However, affordability can work on a cascading or waterfall scale. Is the assessment done on the basis of immediate affordability or is attention given to how that might cascade down over time?

Mr. Stephen Bell

Our experience has been that where customers have started off with a lower payment, they have, over time, been able to resume more normal payments. We are reluctant to push people immediately from a situation where they might have missed a series of payments to paying the full amount in one go. We try to take a medium-term view and work with the customer. A good example would be where one or both of the borrowers have returned to training in order to re-equip themselves to enter the employment market in a difference place. It seems to us appropriate to support customers through that period, which might mean the payment would be lower while they go through that process of training or further education, before resuming at a more normal level at some point in the future. We try to take a medium-term rather than an immediate view of what is reasonable.

Chairman

Coming back to an earlier question, affordability takes on an entirely different meaning if it is possible to move the resolution into post-retirement, particularly for people who are in positive equity. There is some confusion in regard to the phrase "sustainable solution" in terms of a lack of appreciation that a solution will not be specific for the next 30 years but will, rather, have a variance to it. For people in their mid to late 50s, for example, who have affordability issues with regard clearing the total sum of their mortgage repayment, is there potential with the type of new scoping out the bank is doing that somebody post-retirement who can afford a portion of the loan could, similar to what AIB is offering, take out some equity or avail of some type of payment programme that would be elongated during retirement?

Mr. Stephen Bell

What we would do in that situation is defer the part of the principal that was not affordable for resolution at some later date. We tend to revisit the situation with the customer periodically in case anything has changed. There certainly has been no instigation on our part to go down a legal route where the customer clearly has positive equity and is able to sustain a portion of the mortgage, with the remainder to be resolved later.

To reaffirm what we said on the last occasion we appeared before the committee, we do not charge interest on the deferred element of any split mortgage. In other words, it is not a case of deferring the problem for the customer.

Chairman

It is a welcome development that we are seeing resolution processes being developed by banks beyond the prescribed list set out in the Keane report. Ulster Bank's concession approach is a very innovative one which allows the distressed borrower to deal with both interest and capital in an affordable and manageable way. I note, however, that in the case of some of the options recommended in the Keane report such as mortgage-to-rent arrangements and split mortgages, the bank is very much in a flat-line position. Is this because its customers are not choosing those options or because the bank is not offering them?

Mr. Stephen Bell

Every time we talk to a customer about an economic concession, we explain the split mortgage option. In the vast majority of cases, there is a positive election by the customer for the economic concession product. We have been working on the mortgage-to-rent scheme and have managed, after 15 months, to conclude our first agreement. It is a very long and complicated process involving a great deal of negotiation with different parties. We absolutely are not resistant to that option but, as Mr. Brown said in his opening remarks, the ability to restructure loans to the point where the mortgage repayment is considerably less than the rent payable for an equivalent property means we tend to find solutions that do not require something like a mortgage-to-rent arrangement. As I said, however, we are open to that if it is the right solution.

Chairman

I have some understanding as to why a person would opt for the concession approach rather than a split mortgage, but a mortgage-to-rent arrangement is in an entirely different category. Do the delegates have some expectation as to when they will begin reaching the figures that are being placed on the grid in this regard? There is nothing there at the moment.

Mr. Jim Brown

The solutions we have in place today are designed around keeping people in their home and thus give a better outcome for the customer. As Mr. Bell mentioned, the cost of doing that within the range of options we offer is generally cheaper than the rent option. In our view, the options we are providing are ultimately better for the customer and they are working.

Chairman

In response to a parliamentary question I tabled recently, I was told that the amount in mortgage interest supplement that has been paid out by the State since 2008 is just under €313 million. This means that every bank, whether or not the State bailed it out, has been assisting its customers in one fashion or another. This brings me to the point that some 30% of distressed borrowers with Ulster Bank are now engaged in legal proceedings where it seems a repossession is taking place. That is quite a large portion. The committee was not happy, during the course of the last set of hearings, that legal letters which had been sent out by the banks to customers were being counted as resolution processes. These were the initial letters that went out; it would seem those cases have since progressed to a more formal position, with solicitors appointed, affidavits issued and so forth. How is it that 30% of Ulster Bank's customers are finding themselves before the courts?

Mr. Jim Brown

When we appeared before the committee on the last occasion we said there was a significant increase in legal activity and we expected that activity to stabilise, which is what has, in fact, happened. The key here is that it is not our intention to repossess anybody's house. The problem we have at the moment is that there is a segment of customers who are not engaging with us at all, despite our mailing them, calling them and visiting their homes.

Chairman

Mr. Brown indicated in his opening comments that this cohort accounts for some 14% of the total.

Mr. Jim Brown

That is correct. It has come down from 35%.

Chairman

If customers are not engaging, there has to be a process to encourage them to engage. However, although the percentage of non-engagers has reduced from 30% plus to 14%, the bank's legal positioning is still at more than 30%.

Mr. Stephen Bell

The figure we referred to previously related to those customers who were not paying and not engaging and in respect of whom we had not yet commenced the legal process. That figure has reduced to 14% or 15%. When we came before the committee on the last occasion, we said that the nature of the target regime meant it was likely banks would prioritise legal action in order to hit their targets. We made it clear that we were not including anything in our targets that related simply to sending a threatening letter. The figures we gave related to cases where lawyers had actually been appointed. We were talking about a formal commencement of the legal process. We gave a figure of some 4,300 cases where the legal process had commenced, and I recall indicating to the committee that I did not expect that number to rise significantly.

That has not been the case. The number has remained broadly flat. By comparison, in our first mortgage arrears target regime submission on long term payments we outlined that we had approximately 2,061 long term arrangements in place. This has risen to more than 5,200 since then. Again, as I stated on the last occasion I appeared before the committee, we expect to see a dramatic shift towards long term solutions rather than further legal action.

Chairman

At that time, the bank had issued letters to more than 4,000 people.

Mr. Stephen Bell

Yes.

Chairman

Am I correct that the intention in that regard was to prompt a response from customers in terms of engagement?

Mr. Stephen Bell

Yes.

Chairman

The statistic in relation to people in legal proceedings remains at 4,300.

Mr. Stephen Bell

Yes, because-----

Chairman

These people are engaging with the bank yet it is proceeding to court.

Mr. Stephen Bell

We have been able to adjourn proceedings in respect of customers with whom we have had meaningful engagement. The target regime is set up in such a way that it is not possible to move cases between categories. Once a case has been listed as "proposed through the legal route" it remains in that category for the purpose of future returns under the mortgage arrears resolution targets.

Chairman

Mr. Brown said in his opening statement that the bank does not engage in debt write down as part of the resolution process.

Mr. Jim Brown

Correct.

Chairman

In 4,323 cases, there are legal proceedings before the courts in respect of which repossession may be the outcome. How does Mr. Brown envisage the legacy debt of this being dealt with?

Mr. Jim Brown

We expect there will be significant re-engagement by the customers involved in that process. As I mentioned in my opening statement, 50% of people already in the court process are re-engaging with us. We hold the view that once they re-engage we can put in place solutions that will enable the vast majority of them to remain in their homes. This is evidenced by the results of our process. Ultimately, there will be a small minority of property repossessions, in respect of which there may be elements of debt outstanding. We will look at how we propose to treat that debt at that stage. The intent is to work through solutions with customers so as to keep them in their homes.

Chairman

Am I correct that to date there has not been one voluntary surrender to Ulster Bank?

Mr. Jim Brown

No. Last year, there were 136 repossessions. This was an increase on 84 for the previous year. Of the 136, 93 were voluntary surrenders.

Chairman

Thank you.

Deputy Michael McGrath

I welcome Mr. Brown, Mr. Bell and Mr. Ryan and thank them for forwarding answers to our questions in regard to data to the committee in advance of this meeting. I would like to take up where the Chairman left off. In terms of the statistics provided, the fact that 30% of the bank's mortgage customers who are in arrears of 90 days or more are in the formal legal repossession zone strikes me as an incredibly tough approach on the part of the bank. It will send shivers down the spine of many people to hear that despite the improvement in the number of people who are co-operating with the bank three in every ten, or 30%, of people in arrears of 90 days or more are now in the formal legal repossession zone. This is evidence of a get tough approach by the banks.

Mr. Jim Brown

We do have a process in place to deal with customers who are in arrears. That process is working. In terms of those 90 days in arrears, 2,500 people previously in arrears are no longer in arrears. There are 5,000 people who were in arrears of some sort who are now also no longer in arrears. It is clear that where customers do engage with us we can put in place a solution to work through their issues.

There is an element of customers, approximately 4,000, who have not engaged with us at all despite our trying to contact them. Following failed repeated attempts to engage with them, we instigated the legal process. As I mentioned earlier, it is not our intent to repossess 4,000 houses. Our intent is to get people to engage with us in putting in place solutions.

Deputy Michael McGrath

Is Mr. Brown saying that the vast majority of the 4,323 in the legal repossession area have not engaged at all with the bank? In practice, does that mean they failed to return a telephone call or did not complete the standard financial statement?

Mr. Stephen Bell

They are not meeting their repayments and are not responding to phone calls or letters. When the point is reached whereby over an extended period no repayment has been made and there has been no response to any letters or phone calls and, on occasions when we have sent an experienced adviser to the property, no response in that regard, we then have few options open to us. I would point out that we made a clear commitment that we will have an Ulster Bank representative at every court hearing so that if the customer does present there is an opportunity to engage with him or her and discuss the options in terms of recommencement of meaningful payments.

Deputy Michael McGrath

How many cases are currently before the courts?

Mr. Stephen Bell

Approximately 3,000 cases are in the pipeline.

Deputy Michael McGrath

At what stages are they, generally?

Mr. Stephen Bell

Very few have at this stage reached formal hearing. In terms of how the court process operates, we first get a listing date and then a first hearing. It is almost inevitable that the first hearing will be adjourned. It has been our experience to date that the second hearing is also adjourned. We are now awaiting a third hearing in most of the cases concerned. We are not as yet very far down the legal path at this stage. We are waiting for third hearings, which we expect will happen in quarters 2 and 3.

Deputy Michael McGrath

More than 3,000 cases are before the courts. Presumably, the remaining 1,000 plus are awaiting a court date.

Mr. Stephen Bell

We are working with them to see if we can avoid that being necessary.

Deputy Michael McGrath

How many more of the bank's customers would have received the so-called threatening legal letter, whose case has not progressed to the formal legal process, perhaps, because a solicitor has not been appointed by the bank? There must be another cohort of people who received such a letter but whose case has not progressed further.

Mr. Stephen Bell

The 14%-15% who we said have neither engaged nor paid for an extended period constitutes another approximately 2,300 customers. We have not yet commenced legal action in those cases. There will be another cohort of customers who will receive that letter if we cannot find an appropriate solution.

Deputy Michael McGrath

Is Mr. Bell saying that currently more than 6,500 of the bank's customers in arrears have either received a threatening legal letter from the bank or have already progressed to the formal legal repossession process?

Mr. Stephen Bell

I understand the point being made about the threatening legal letter. However, this is mainly a reminder of the process and the fact that we have no option but to move down that track. I understand it can come across as being threatening but we have by that point exhausted all reasonable options open to us to elicit some contact from the customer.

Deputy Michael McGrath

It is incredible that approximately 6,500 of the bank's 14,000 customers in mortgage arrears are essentially in the legal realm. In launching the mortgage arrears targets programme the Central Bank and the Government hoped to generate some action. I am not sure this is the type of action they envisaged.

Mr. Jim Brown

The magnitude of the issue is reflective of the problem that exists with mortgage arrears generally. The size of the mortgage arrears problem is considerable. A number of issues arose around the process in terms of banks getting up to speed in handling the issue. We are now on top of that. Other issues that arose around the code of conduct on mortgage arrears, CCMA, and the Dunne ruling, which impacted the process, have also been addressed. Through all of that there was a significant increase in arrears. From our perspective we expect that the arrears will decline over time. As mentioned, there is a significant group of customers who have not made any repayments at all for up to two years or longer and refuse to engage with us. The only route available to us in this regard is the court process. As mentioned, it is not our intention to repossess. We would rather have the customer in financial distress engage with us so that we can put in place a solution, as we have done for other customers previously in arrears but now up to date.

Deputy Michael McGrath

I accept that not all of the cases concerned with result in house repossession. Hopefully, the percentage for whom that is the outcome will be low. I expect that is what the bank is working towards.

Mr. Jim Brown

Yes.

Deputy Michael McGrath

It is frightening that approximately 50% of the banks mortgage arrears cases are heading down or are already well advanced down the legal route.

Mr. Stephen Bell

Yes.

Deputy Michael McGrath

When one looks at the figures, it is frightening that somewhere approaching 50% of the bank's mortgage arrears cases are heading down, or are already well advanced down, the legal route. It begs the question as to what efforts have been made to prevent them from getting that far. Mr. Bell is putting forward the justification that many of these people have not engaged at all, and they have stopped making any repayments on their mortgages, but it is an incredibly high figure. Would many of these people have had other offers of sustainable solutions from the bank thus far? Or would this be the first offer as such?

Mr. Stephen Bell

No. We tried not to consider legal action as an offer, as such. It is more a consequence of a failure to take advantage of an offer. It is absolutely not in our interest or our preference to go down the repossession route. When we appeared before this committee previously we said that the mortgage arrears target regime had some extraordinarily swingeing penalties for banks that did not meet them. As a consequence of that, it was always going to be inevitable that banks would do those things that allowed them to hit the targets. The only incontrovertible way of hitting the targets in that early stage was by taking legal action because everything was subject to subsequent review by the Central Bank and its auditors.

We commenced legal action in about 4,300 cases beyond the threatening letter. That number has not changed since we last appeared before this committee. We have increased by over 60% the number of long-term arrangements we have put in place with our customers. We have now narrowed down to around 2,300 those customers that still are not in some kind of arrangement or meaningfully engaging with us. We think that is making reasonable progress. Alongside that we have taken 2,500 families out of serious arrears.

This is going to be a longer process because we effectively had a two-year hiatus where we could not do anything very much. That was because under the CCMA, contact was restricted and under the Dunne ruling the threat of consequences had disappeared. In a multi-debt environment, which is what Mr. Brown referred to as part of his opening remarks, this is not purely a mortgage issue - this is a personal indebtedness issue. When credit card lenders, credit unions and unsecured lenders can continue to pressure customers to pay, but mortgage lenders cannot, it does create an uneven playing field. I am afraid this is an element of catch-up as we try to get back to a normal position.

Deputy Michael McGrath

In light of what Mr. Bell has said, does the bank have individual cases on its books where it has ended up issuing a threatening legal letter or ended up taking them to court because of the pressure to meet certain targets as issued by the Central Bank? In a sense, Mr. Bell is blaming the Central Bank targets for these outcomes because Ulster Bank has been under pressure to meet targets and avoid stringent financial penalties. That seems to be what Mr. Bell is saying.

Mr. Stephen Bell

There is an element of that. I would also say that there has been a two-year period where one could not take the normal action one would take in any other market - I have worked in a number of other jurisdictions. There has also been the inability to contact one's own customers to talk to them openly about alternative solutions, with a recognition that while it is in nobody's interest to take repossession action, it is a legitimate threat. All this has let this bubble move further down the pipe than we all might have liked. Therefore, I am not saying that it is entirely down to the Central Bank, not at all. It was a factor but the main factor was a two-year period in which we were able to do very little to approach our customers and help to resolve the situation with them.

Mr. Jim Brown

I would like to add to that. In my opening statement I mentioned that we need to meet the targets. However, our focus through this whole issue has been on doing the right thing for our customers. At the committee's request, we have reported the numbers we sent to the Central Bank showing the various initiatives that we have got in place. One of the other key things we have focused on is ensuring that we address the early arrears issues to stop people getting into arrears in the first place. In the numbers we have given to the committee, members will also see on the right-hand side the total forbearance arrangements that we have made. Many of those are in early arrears and relatively short-term arrangements, maybe for short-term unemployment or something like that. The focus, however, has been on trying to stop arrears becoming a more serious issue for us to deal with as well.

Deputy Michael McGrath

I have a few brief final questions. Does Ulster Bank apply the insolvency service's cost-of-living guidelines, or does it have its own?

Mr. Stephen Bell

We would typically go 10% to 15% beyond the level prescribed by the insolvency service.

Deputy Michael McGrath

How many concluded deals under the insolvency service has Ulster Bank been party to, or have there been any?

Mr. Stephen Bell

There are about 60, so far, that we have been party to.

Deputy Michael McGrath

Any involving mortgage debt?

Mr. Stephen Bell

None that has involved any adjustment to mortgage debt, no. We found that the debt relief notice and debt settlement arrangement process have been more than sufficient to deal with the situations we have been asked to look at so far.

Deputy Michael McGrath

In his opening statement Mr. Brown mentioned what he called the tracker porting product for families who may be stuck in a two-bedroom apartment but now have a few children and want to move into a more appropriate home. Can Mr. Brown explain the nature of that product, how it works, and if there has been much interest in it from his customers?

Mr. Jim Brown

I will ask Mr. Ryan to answer that.

Mr. Jim Ryan

It is important to point out that we were the first to introduce tracker porting back in March 2011. Over and above all other banks we saw the requirement. There was a stalemate in the market because people had a very affordable tracker and consequently felt they could not trade up and move home. Many such people were in apartments with children and needed to move to a three or four-bedroom home. That situation has now moved on so that those in negative equity can also trade up whether or not they are on a tracker. That facilitates people to move on up to a level of an LTV of about 200%.

The product has its own key features and I can go into as much detail as the committee wishes. It is early days in terms of the enhancement of negative equity. The number of applications is still light but it is gaining traction.

Deputy Michael McGrath

Is a tracker plus 1% on that portion?

Mr. Jim Ryan

Depending on the LTV there is a premium on the previous tracker rate. The amount of the new borrowing is at the current rate of interest.

Deputy Michael McGrath

The Chairman raised the issue of mortgage to rent. It strikes me that with the best will in the world, a good number of those in Ulster Bank's 4,000 plus category of legal proceedings will end up losing their homes. There needs to be an ultimate safety net or back-up for them which could be renting privately away from their own home or, in many cases, hopefully it will be renting their own home. Has Ulster Bank concluded many, or any, mortgage to rent transactions?

Mr. Stephen Bell

Just one so far. It is a very complicated process.

Deputy Michael McGrath

What are the barriers? Why is it not happening?

Mr. Stephen Bell

A number of valuations are required by the various parties to establish the price at which it will happen. There are several parties involved with the discussions. It is often a complicated process and we do not want to pressurise customers into making profound decisions when they are under pressure for time. It can be quite a drawn out process with a number of agencies involved, but we are not closed to the idea.

Mr. Jim Brown

The key message I would like to leave with the committee on the 4,000 people who are in the legal process is that we want them to re-engage with us. Be it the mortgage to rent or some other solution, we are absolutely confident that we will have something there that meets the vast majority of customers in deep financial distress. Not only that, but in the majority of cases it will probably end up being cheaper than their rent repayment. For that to happen, however, we need them to engage.

Chairman

I wish to clarify that figure of the 4,323 people who are now in court proceedings. Does Mr. Bell have the figure to hand, or can he provide it to us, as to how many of them are in positive equity? They may be 90 days in arrears but the property may be in positive equity. Does he have that to hand?

Mr. Stephen Bell

Not to hand but we will be able to provide it to the committee.

Chairman

Could Mr. Bell give it to us please?

Mr. Stephen Bell

Yes.

Chairman

Deputy Dara Murphy and Deputy Regina Doherty want to share time, so they will have seven and a half minutes each.

Deputy Dara Murphy

I wish to welcome Mr. Brown and his colleagues here today. Paragraph 7 of Mr. Brown's opening statement concerns the issue of writing off or writing down mortgage debt. Some of Ulster Bank's competitors are now writing down and writing off debt. I am interested in some of the language used and have three quick questions about it. Mr. Brown said he does not write off debt. Is that just mortgage debt? In the second page he stated that the mortgage has to be seen as a priority over other unsecured loans.

When Mr. Brown says that write-offs and write-downs are an unhelpful distraction, he is talking about AIB. Is AIB's policy an unhelpful distraction because it is writing down and writing off debt?

The representatives of the bank maintain that write-off is likely to create issues around moral hazard and fair outcomes for customers. Are they really suggesting that it would be a problem for some of the bank's customers if the bank wrote off some of their debts? How can the bank possibly justify that?

Mr. Stephen Bell

I will take those three questions. We will postpone or write down non-mortgage debt to allow the customer to remain in his property to maximise what he can afford to allocate towards his mortgage. Along with all the other the banks in Ireland we have agreed with the general principle that unsecured debt should be de-prioritised to enable the customer to focus on mortgage payments. That has been agreed between all the principal banks due to appear before the committee as part of this session.

Reference was made to our view on write-offs not being helpful. We are not commenting on any particular institution but we believe that solutions must be effective. This remains a major issue and involves many thousands of customers. Spending too much time talking about solutions that can only really be applied to a small number of customers, numbering in the hundreds, does not really solve the problem. It is something of a distraction from the real issue, which is how we help the tens of thousands of customers who are still struggling to get back onto a level playing field.

There is a question for us around moral hazard. I have no wish to personalise this in any way, shape or form. Let us consider one example that received a reasonable amount of coverage in the press. Let us suppose the mortgage is written down to what happens to be the indexed value of the property today. We know that property prices will increase over time. We know property prices have increased in Dublin by 12% or 13% in the past 12 months. It is likely, therefore, that over the remaining term of the customer's mortgage the customer will receive a windfall gain at the gift of the State or the State and banks because the customer will have positive equity building up on a debt that was written down for no obvious reason.

Deputy Dara Murphy

That is reasonable and gets us back to negative equity and those other arguments. Mr. Bell has put a good deal of focus on sustainability. Can we not accept it is necessary for some people who are engaging with the bank? Mr. Bell referenced people who are not engaging and clearly there are people who are not engaging. As a politician, I know the people who engage do far better than those who do not engage. However, there must be some people with whom the bank is engaging and who engage very well for whom a sustainable solution - Mr. Bell referred to sustainable solutions - must include the reality that they cannot afford all of their mortgage and never will. Therefore, the only sustainable element must include some form of write-off or write-down. Some of the other banks have accepted this. Does Mr. Bell not accept it?

Mr. Stephen Bell

No.

Deputy Dara Murphy

If that were the case, the bank can say it would be for a small number of people.

Mr. Stephen Bell

Mr. Brown may wish to come back on this point, but we do not accept this. We have developed a split mortgage product to allow an interest rate of zero for the amount that is not affordable to be warehoused in future. It seems wholly inappropriate to me to write down a debt to what happens to be an indexed valuation today and then see the value of the property grow over time. In that case, the only person to gain is the person who was given the gift of largesse from the bank concerned.

Mr. Jim Brown

I wish to add to Mr. Bell's comment. We have some other offerings such as the economic concession. We constructed those loans in such a way that the repayment reduces considerably and is far cheaper than what it would cost someone to rent a house. They get to stay in their house. They have got a solution in place that keeps them viable without any write-down of the debt. For us, it is all about affordability and ensuring that we can keep customers in their home. We do it in such a way that is affordable as well.

Deputy Dara Murphy

Does Ulster Bank have the same policy for Ireland as for the United Kingdom?

Mr. Jim Brown

In terms of Northern Ireland. Is that the question?

Deputy Dara Murphy

In terms of write-off.

Mr. Jim Brown

The treatment of unsecured and secured debt is exactly the same.

Deputy Dara Murphy

In both jurisdictions. Is that the case?

Mr. Jim Brown

We have come up with some specific solutions, such as the economic concession - Mr. Bell may wish to comment on that - specifically as a result of the issues in Ireland which we do not have in the North.

Mr. Stephen Bell

Without commenting on regulatory differences, the UK Prudential Regulation Authority and the Financial Conduct Authority have a far stricter view on what the customer should be-----

Deputy Dara Murphy

Is Ulster Bank supported in the United Kingdom by way of a loan, or was it a grant that is not to be repaid, to cover its losses?

Mr. Jim Brown

No, two things happened in terms of a loan and a grant. Basically, when Ulster Bank took the losses that it did in the past four or five years, the parent, the Royal Bank of Scotland, injected capital to the equivalent of £15 billion. That is capital and it is in the bank. In terms of issues during the euro crisis early on and the financial crisis, part of our funding was provided by the parent but we now virtually fund all of our liquidity domestically.

Deputy Dara Murphy

Is it fair to say that the British Exchequer has written off debt to the Royal Bank of Scotland Group which Ulster Bank is not willing to write off to people in either jurisdiction?

Mr. Jim Brown

Fully £15 billion has been transferred from RBS into Ulster Bank, but it is capital. It is money in the legal entity.

Deputy Dara Murphy

It is to be repaid. Is that correct?

Mr. Jim Brown

No, the shareholder would like a reasonable return on the money over time, of course, but the £15 billion is sunk.

Deputy Dara Murphy

Reference was made to the co-operation between banks on non-secured loans. What is the Ulster Bank view on how that is working currently?

Mr. Jim Brown

From my perspective it is working well. The key element which the banks have agreed is that unsecured debt is unsecured and that secured debt should have priority. The arrangement in place covers that.

Deputy Dara Murphy

I thank Mr. Brown.

Deputy Regina Doherty

I wish to focus on the 136 people who have been subject to repossessions in the past 12 months. Were all of these family homes? Based on the conversations we have had up to now the bank representatives have suggested that it will only move legally on a person who has not engaged or made any payments towards the mortgage for a period in excess of two years. Does that apply to each of those 136 people? On that basis, can I assume all of those people did not receive an offer of some form from Ulster Bank?

Mr. Stephen Bell

There were no evictions as such. They were all either voluntary surrenders or vacant properties when the sheriff or bailiff approached to secure possession. No one was forcibly removed from his property among the 130. They are the longest of arrears cases in which we have tried absolutely everything to engage with the customers. It is a matter of considerable regret to us that in some of the cases that are going through the legal system at the moment, the last payment we received was in 2007. These are extraordinarily long cases whereby the court process has run for such a long period that the eventual losses to both the customer and the bank have escalated beyond all recognition. These customers would have been provided with every possible opportunity to engage with us and reach an alternative solution.

Deputy Regina Doherty

I wish to tease that out. I was not trying to be smart when I was referring to evictions because repossessions are disturbing regardless of whether they are voluntary. We can be sure that voluntary means something different from the defined term or what it means in the real world than for the people concerned. These people took the view when they voluntarily gave back their keys to the bank that they had no other choice. This is what I want to get to the root of. There is always another choice. What were the alternative options that the bank would have given these people? Although some of these people may not have paid the bank since 2007 the position is that someone needs to be offered a sustainable solution. In the absence of being able to afford that sustainable solution, then and perhaps only then a legal route is something that can be embarked upon. The representatives of the bank seem to be indicating that there was nothing really on offer to these people other than the fact that they had not paid the bank or engaged. That is what I am asking. What did the bank offer these people other than volunteering or giving their keys back?

Mr. Stephen Bell

We cannot offer anything to anyone if they will not speak to us. We try our best. We would never go to that stage of the process without having tried every possible means, whether by telephone, by text, home visit or letters, that is, every means possible. We are unable to offer a solution to a customer who will not speak to us. Therefore, if we get to that end of the process, the court order will not have been granted unless not only we were satisfied that every option had been exhausted but the court was satisfied that every option had been exhausted as well.

Deputy Regina Doherty

I will ask Mr. Bell again. In my mind, an assisted voluntary sale means that I am assisting or the bank is assisting me. If we are assisting each other to sell my family home, there is engagement. At that point, what negotiations took place with a view to the bank assisting the family to stay in the home? This is what I am trying to get to the root of.

Mr. Stephen Bell

There is an important distinction. There is voluntary surrender, which is where the customer decides he is leaving before the legal process concludes, and there is an assisted voluntary sale, where the customer takes the view that the best outcome for him is to sell the property and he seeks a discussion about what may happen to the residual debt.

I want to ensure I answer the Deputy's question correctly because they are two distinct issues.

Deputy Regina Doherty

Some 123 people voluntarily assisted the bank by selling their homes.

Mr. Stephen Bell

Those are voluntary surrenders where the individuals in question left the property before the legal process concluded.

Deputy Regina Doherty

No, 13 families were involved in voluntary surrenders. I referred to a figure of 123 people. I understand that 13 families informed Ulster Bank they were leaving their homes and surrendered their keys. However, 123 families approached the bank because they did not see a sustainable solution and decided to have Ulster Bank sell their home and work out a deal for the outstanding debt after the sale. One assumes a person who reaches that point will have exhausted all available options. In how many of the 136 cases - or 123 cases if one wishes to split hairs - were split mortgages or mortgage-to-rent arrangements offered? In how many of these cases were the various other options in Ulster Bank's toolbox considered as a means of assisting families to stay in their homes?

Mr. Stephen Bell

They would all have been offered the full range of solutions we have available, provided they talked to us so that we could have the conversation about what would suit them.

Deputy Regina Doherty

Mr. Bell used the words "provided they talked to us". Were they all offered a deal to assist them to stay in the family home?

Mr. Stephen Bell

Provided they spoke to us.

Deputy Regina Doherty

Why did they volunteer their keys or assist in the sale of their homes if they were not speaking to Ulster Bank?

Mr. Stephen Bell

Voluntary surrender does not involve any correspondence or communication. The householder is simply not there when the bailiff turns up to the property.

Deputy Regina Doherty

Voluntary surrender accounts for 13 people. Clearly, the 123 people who assisted in a voluntary sale were in some form of discussion with Ulster Bank. Were they all offered an option other than handing back their keys and working out a deal on the outstanding debt after the sale of the house?

Mr. Stephen Bell

They would have been offered the full range of solutions.

Deputy Regina Doherty

They were all offered the full range of solutions.

Mr. Stephen Bell

Absolutely.

Deputy Regina Doherty

In that case, I am being invited to believe that 123 people concluded that handing the keys of their home to Ulster Bank and allowing the remainder of the debt to sit on their shoulders was a better solution that finding some acceptable way to stay in the family home.

Mr. Stephen Bell

Yes, that would be the conclusion.

Deputy Regina Doherty

Seriously.

Mr. Stephen Bell

Absolutely.

Deputy Regina Doherty

I am loth to say that I find it extremely difficult to believe anyone would voluntarily hand over the keys to the family home and put children out on the road if a sustainable alternative was available that allowed the family to stay in their home.

Let us focus on the word "sustainable". What is a sustainable solution in the view of Ulster Bank?

Mr. Jim Brown

In terms of sustainability, what we seek to do is come to an arrangement with a customer who is seriously indebted that allows him or her to stay in the home. This is, however, based on affordability. We will go through a process, look at the person's income and reasonable costs of living and then structure a solution that we believe will invariably keep the person in the home. That is how we look at it. The issue is one of affordability.

Deputy Regina Doherty

In that case, if Ulster Bank takes the view that a family cannot afford to stay in their home, I assume the family will not have been offered a sustainable solution because, in the eyes of Ulster Bank, a sustainable solution is not available.

Mr. Jim Brown

In our eyes, in most cases there is a sustainable solution but it also involves-----

Deputy Regina Doherty

Not for the 123 people who-----

Mr. Jim Brown

-----curtailing their spending habits and how the unsecured debt is treated. Invariably, if one writes down the unsecured debt and adjusts expenditure accordingly, a solution is available.

Mr. Stephen Bell

I will add one thing. Under the mortgage arrears resolution process, all customers have the right to appeal if they believe the decision made is incorrect. That process will also have been exhausted before the 123 cases concluded. To put that figure in context, it is less than 0.5% of the total number of people in arrears of more than 90 days. It is not a significant number of people given that it accounts for less than 0.5% of customers.

Deputy Regina Doherty

My concern is that there are 4,000 people in the queue.

The witnesses will probably not have the following information with them.

Chairman

I ask the Deputy to put a question. She may contribute again later.

Deputy Regina Doherty

Will they furnish to the joint committee information on the alternatives offered to the 123 families who are assisting in a voluntary sale?

Mr. Jim Brown

Yes.

Deputy Pearse Doherty

I welcome representatives of Ulster Bank to the meeting. I also welcome the news that the bank will continue to operate as a financial institution on the island of Ireland. That is as far as my welcome extends.

The focus of the meeting is mortgage arrears target, although other issues arise regarding Ulster Bank. I corresponded with Mr. Brown who asked his public relations staff to respond to my correspondence. The response I received did not answer any of my questions on the global restructuring group which is forcing viable businesses to sell assets. This group is the bank's internal bad bank, as it were. The issue of bank closures, which is also coming down the line, was not addressed either. I ask Mr. Brown to respond to these questions if possible.

To focus on mortgage arrears, Ulster Bank has proudly stated that it does not write off mortgage debt and has not vetoed any protective certificates. I presume the bank will write off mortgage debt in a personal insolvency arrangement.

Mr. Jim Brown

With regard to personal insolvency arrangements or, for that matter, any mortgage debt or unsecured debt, our view is that there is an affordable solution in the vast majority of cases where the customer adjusts his or her costs of living. We come to an arrangement on the unsecured debt and then put in place a solution with regard to how the mortgage is treated. Invariably, this does not involve writing down a mortgage.

Deputy Pearse Doherty

I will put the question again. Mr. Brown should note that a report issued in recent days by the Insolvency Service of Ireland states that, on average, personal insolvency arrangements propose a write-off of 19% of secured debt, with the figure ranging from 0% to 39%. The service, therefore, informs us that, under the proposals Ulster Bank boldly claims it is not vetoing, an average of 19% of secured debt will be written off. I ask Mr. Brown for clarification on this matter. In cases in which Ulster Bank is one of the creditors, will it stick to its position that it does not write off mortgage debt, given that, on average, the personal insolvency arrangements propose to write off 19% of secured debt?

Mr. Jim Brown

First, I do not accept that we are a creditor. We have issues where we have a significant number of customers who are in mortgage arrears. Our job is to come up with a sustainable solution for those customers. From the evidence we have provided to the committee today, this approach is working. Mr. Bell will respond on the specifics.

Mr. Stephen Bell

The analysis we have done for our customers who are in arrears-----

Deputy Pearse Doherty

Sorry, as there is a time limit, I will ask a simple question for the third time. Ulster Bank has made the bold statement that it does not write off mortgage debt, in other words, secured debt. The bank has a veto over personal insolvency arrangements. Given that these arrangements will, on average, propose the writing off of 19% of secured debt, will Ulster Bank stick to its position, as restated by the chief executive, Mr. Brown, that it will not write off mortgage debt? If that is the case, Ulster Bank will veto personal insolvency arrangement proposals.

Mr. Stephen Bell

We have not yet seen any situation where that would even be relevant. In the case of the typical customer in arrears, for every €1 of mortgage repayment, there is €60 of unsecured debt repayments. On the basis that unsecured debt is unsecured and must be the first casualty of any personal restructuring, we have not see any situation yet, given that the average balance with which we are dealing is relatively small, where any kind of write-off would be in any way appropriate.

Deputy Pearse Doherty

I understand Mr. Bell's answer to be a "No".

Mr. Stephen Bell

Correct.

Deputy Pearse Doherty

I spent four minutes trying to elicit that answer. Basically, Ulster Bank will veto the personal insolvency arrangements because in cases where the Insolvency Service of Ireland has proposed a write-down of secured debt, the average amount is 19%.

Mr. Jim Brown

As Mr. Bell stated, we have seen no case to date where a case is put forward and the unsecured debt has been written off and a write-down of secured debt has been necessary.

Deputy Pearse Doherty

Ulster Bank will not approve a personal insolvency practitioner, (PIP), recommendation because the chief executive of Ulster Bank has stated the bank does not write off mortgage debt.

Mr. Jim Brown

We see no reason to write off the mortgage debt under the examples where the unsecured debt is written down, a restructured mortgage is put in place and people reduce their expenditure accordingly. We see no need to write down mortgage debt if all of that is implemented.

Deputy Pearse Doherty

In that case, the personal insolvency practitioners and insolvency service are wrong to propose write-downs of up to 39% of secured debt.

Mr. Jim Brown

We have not seen any case where we have had to do that.

Deputy Pearse Doherty

I will move on. It am disappointed with the way in which Ulster Bank proposes to deal with the Insolvency Service of Ireland and personal insolvency arrangements.

How can Ulster Bank justify the fact that 5,675 of its customers have not been offered any type of long-term proposal?

Mr. Stephen Bell

From where does the Deputy have that figure?

Deputy Pearse Doherty

The bank has made 11,231 proposals. The number of customers in arrears of 90 days or more in the residential and buy-to-let sectors is 16,906. One must, therefore, conclude that 5,675 of these customers have not been offered a proposal under the March targets.

Mr. Stephen Bell

As I mentioned in response to an earlier question, we have worked through the 14,231 cases that had been declared by the end of December. We have not been able to initiate some kind of discussion in approximately 2,350 cases. In all other cases, we are in negotiation with the customer, we are finalising an arrangement with the customer or we have unfortunately had to go down the legal route. I do not recognise the number cited by the Deputy. The precise number I have is 2,354.

Deputy Pearse Doherty

Mr. Bell is referring to primary dwelling houses only. We are dealing with the mortgage arrears resolution targets in total.

Mr. Stephen Bell

The figure I have mentioned relates to both buy-to-let houses and primary dwelling houses. The initial number of cases was 14,231. In 2,354 of those cases, we have received no payment and had no engagement. We are still working through solutions with those customers.

Deputy Pearse Doherty

According to the figures Ulster Bank has provided to us, the number of primary dwelling houses in arrears of 90 days or more at the end of December 2013 was 14,231. The figure in relation to buy-to-let properties was 2,675.

Mr. Stephen Bell

Yes.

Deputy Pearse Doherty

When those figures are added up, one gets the figure of 16,906 that I have mentioned.

Mr. Stephen Bell

That is right.

Deputy Pearse Doherty

The number of proposals made by Ulster Bank, including legal letters, is 9,551 in respect of primary dwelling houses and 1,680 in respect of to buy-to-let properties. When the sum of those figures is subtracted from the figure of 16,906 that I have mentioned, one gets a figure of 5,675. I will not waste any more time on figures. Instead, I will ask a question about legal proceedings. It is clear that no judgments have been enforced. What period is covered by that?

Mr. Stephen Bell

That relates to the period from 1 April 2013 to 31 December 2013.

Deputy Pearse Doherty

That is from the start of the mortgage arrears resolution target. Is it the case that these are cumulative?

Mr. Stephen Bell

Yes. The solutions underneath the headline table are the cumulative ones from 1 April to 31 December. The headline total is the figure declared at the end of the year.

Deputy Pearse Doherty

Okay. Is it the case that no judgments have been enforced on foot of legal proceedings since that period?

Mr. Stephen Bell

As I said in response to an earlier question, that is correct.

Deputy Pearse Doherty

Okay. When the officials presented before this committee in September of last year, they provided answers to the questionnaire in a similar form. At that time, the bank had 143 legal judgments enforced. The bank also had 177 court judgments obtained up to the end of last year. That figure was 180 in September. It seems, therefore, that three court judgments were lost along the way. How come the figures do not add up?

Mr. Stephen Bell

We would have to cross-check them. I cannot give the Deputy an answer off the top of my head. I apologise.

Deputy Pearse Doherty

I welcome the fact that figures were presented to us earlier. It is hard to follow what the bank is doing. We wondered in the context of a previous questionnaire how we could be sure that the bank had offered sustainable solutions to people who had walked away from their family homes. I find it difficult to have any confidence, given that the bank has lost three court judgments. I have the two documents here. I can submit them to the witnesses. Last September, the bank reported that in respect of the second quarter of last year, there were 143 sets of legal proceedings in respect of mortgage arrears resolution targets. It now seems that all of those legal judgments, which had been enforced, have disappeared. Does Mr. Bell think the bank has presented the committee with inaccurate figures?

Mr. Stephen Bell

I do. There are some data issues between the various forms we have to fill in for the Central Bank. Rather than discussing it right now, I would prefer to come back to the Deputy separately and provide a reconciliation.

Deputy Pearse Doherty

Okay. The problem is that this is the time when we are supposed to discuss it.

Mr. Stephen Bell

Sure. Absolutely.

Deputy Pearse Doherty

There is no point coming before this committee if the information that is provided is not accurate, which Mr. Bell has admitted is the case.

Mr. Stephen Bell

I think it is accurate in the vast majority of cases.

Chairman

We do not need specific details right now. We would appreciate it if Mr. Bell could provide a general overview to Deputy Doherty.

Deputy Pearse Doherty

According to its own figures, Ulster Bank has reached and surpassed the mortgage arrears resolution targets. It has done that through legal proceedings and the threat of legal proceedings.

Mr. Stephen Bell

That is not correct.

Deputy Pearse Doherty

Can Mr. Bell explain how the bank would have reached the target without legal proceedings or the threat of legal proceedings?

Mr. Stephen Bell

The mortgage arrears target regime is very clear on what counts towards the target. A combination of long-term sustainable arrangements - we have shared the number of such arrangements with the committee - and legal proceedings is permissible in this context. It is not the case that we have relied on legal proceedings to achieve our numbers. It is an inevitable consequence of the way the target regime is designed that it will have an element of legal proceedings within it.

Deputy Pearse Doherty

The point I am making is that without legal proceedings of the scale at which they have been initiated by Ulster Bank, the bank would not have reached its mortgage arrears resolution target.

Mr. Stephen Bell

If there had not been a two-year period during which regulation and legislation prevented any consequence of any actions, we would not be in this position today.

Deputy Pearse Doherty

Is Mr. Bell accepting that Ulster Bank would not have reached the mortgage arrears resolution target without legal proceedings?

Mr. Stephen Bell

Mathematically, that is clearly correct.

Deputy Pearse Doherty

The bank has issued 5,810 legal proceedings or threats of legal proceedings. Can we at least agree that the bank would not have reached the mortgage arrears resolution target without them?

Mr. Stephen Bell

I think we can agree that, yes.

Deputy Pearse Doherty

The Minister for Finance echoed those comments earlier when he said, "I have informed the Deputy previously that letters threatening repossession or legal action could not in my opinion be considered a sustainable solution under the mortgage arrears targets". The Minister is saying that letters threatening repossession or legal action should not be included because it was never the spirit of the targets that they be included. While the text of the targets says that it is allowed for them to be included, it is to be noted that 52% of the sustainable offers that have been presented by Ulster Bank, as a financial institution, have amounted to threats of legal proceedings or indeed legal proceedings. In that context, is it not the case that Ulster Bank has basically stuck it to the Minister for Finance?

Mr. Stephen Bell

If the Deputy wants a clarification of the interpretation of the Central Bank's own guidance, perhaps he should address that to the Central Bank. We are very clear that we are following exactly what the Central Bank has asked us to do in submitting our returns under the target regime.

Mr. Jim Brown

I would like to add to that. The key thing is that our focus has been on coming up with solutions that address arrears issues and keep people in their homes. As I said in my opening statement, there has been a decrease of 2,500 in the number of people who are in arrears of 90 days or more. Over the last 12 months, there has been a decrease of 5,000 in the number of customers who are in any sort of arrears. We have solutions that we have put in place and are working. The number of people in arrears is evidence of that. We have put in place a number of pre-emptive solutions to stop the situation from getting worse and prevent people from getting into arrears of 90 days or more. A number of customers have not engaged with us at all over an extended period of time. There are just two ways to resolve that - through the court process or by getting the customer to engage. If they do not engage, the court process is the only avenue open to us.

Deputy Pearse Doherty

There are customers with mortgages on their family homes who have engaged with Ulster Bank, but against whom the bank has issued legal proceedings.

Mr. Jim Brown

Generally speaking, legal proceedings are issued in respect of customers who have not engaged with us.

Deputy Pearse Doherty

Mr. Brown mentioned earlier that there is "an element of customers, approximately 4,000, who have not engaged with us at all".

Mr. Jim Brown

Correct.

Deputy Pearse Doherty

As I have already said, there have been legal proceedings or the threat of legal proceedings in 5,810 cases. The bank wants to present it in one way. I am presenting it in another way. I am just asking for confirmation that the bank has initiated legal proceedings against people and their families who have engaged with it.

Mr. Stephen Bell

There is a combination of answers to that question. I am trying to answer it directly. Engagement can mean many things. If somebody offers to pay €50 a month towards a monthly mortgage payment of €500, they are technically engaging but it is not meaningful engagement. It is not a meaningful offer of any kind of payment. We are trying to work with customers over a medium-term period. As I said to the Chair in response to an earlier question, we are not looking to repossess anybody's house. It appears that we have a group of customers who will not take this matter seriously until that threat is put in front of them. This time last year less than 10% of customers responded when we threatened legal action, but now almost half of all customers are responding. We think that is a very positive move. It is a shame it has taken legal action to make it happen. We think it is very positive that we are finally getting-----

Deputy Pearse Doherty

Mr. Bell has gone back to the bank's dealings with those who do not engage. The bank wants to present the idea that this group of people - those who have not discussed their situations and will not answer phone calls - are the only people against whom it issues legal proceedings.

Mr. Stephen Bell

This group includes those who systematically break arrangements.

Deputy Pearse Doherty

I suggest that the bank is issuing legal proceedings against people who have engaged with it. To put it simply, there is a certain cohort of people who are not in a position to repay to Ulster Bank huge amounts of money that the bank lent to them but they should probably never have got. The bank has looked at sustainable solutions. We can deal with the sustainable solutions.

Chairman

I ask the Deputy to put his final question.

Deputy Pearse Doherty

I will go through the numbers with regard to sustainable solutions. There are four columns, the first of which relates to term extension. The majority of these cases - almost 4,000 of them - involve arrears capitalisation, to which the second column relates. The other two columns relate to a number of other smaller items which seem to involve normal repayments. Most of these people would have come out of arrears without the help of Ulster Bank. It should be offering the range of solutions that are stipulated by the Central Bank. Ulster Bank does not offer the majority of those solutions, including debt write-down, debt for equity and mortgage to rent.

These solutions are not being dealt with by Ulster Bank. Ulster Bank is very clearly trying to squeeze the last cent out of customers who, through their own fault in some cases, borrowed excessively. However, there was a culture in which Ulster Bank was engaged which encouraged people and touted the idea of 100% mortgages. Ulster Bank led people up that merry path and when they are there, in 52% of cases, the option the bank chooses is to take them to court.

Chairman

The Deputy is over time.

Mr Jim Brown

One of the reasons that we showed the total forbearance arrangements on the template here is to highlight the fact that we are offering a wide range of options to customers in arrears before they get into 90 days which are not captured by the Central Bank statistics. Members can also see that in terms of solutions we have put in place such as the economic concessions and so on, we have put in place a considerable number of options other than those we report to the Central Bank.

Deputy Kevin Humphreys

I will be brief. The witnesses have furnished us with a number of figures. They indicated that 980 are interest-only mortgages. How many of those interest-only mortgages are in positive equity?

Mr. Stephen Bell

We will provide that figure subsequently. We would provide interest-only mortgages for buy-to-let situations where the rent being collected on the property is sufficient to cover the interest but not the principal and interest and it seems inappropriate to take further action in those instances.

Deputy Kevin Humphreys

Has Ulster Bank broken down what kind of equity is there?

Mr. Stephen Bell

I do not have that information with me.

Mr Jim Brown

The other thing is that the mortgage arrears issue is not an issue of positive or negative equity. The issue is around affordability. In general, people who have got into arrears have had issues with employment or lost their jobs. In such situations, putting in place an arrangement such as a temporary interest-only facility may be the right approach. Alternatively, they may have had a reduction in income as well. It is not positive or negative equity that determines whether someone has the affordability to live in a home.

Deputy Kevin Humphreys

If somebody is paying interest only, the loan is performing.

Mr Jim Brown

That is correct.

Deputy Kevin Humphreys

What I am trying to work out is whether the fact that the equity is secure influences the bank's decision to put somebody on an interest-only mortgage because it knows that if it sells the property, it will get its money back.

Mr Jim Brown

No, from our perspective, it is about affordability and keeping the customer in the home. It does not matter whether it is in negative or positive equity.

Deputy Kevin Humphreys

The bank would have those figures?

Mr Jim Brown

We can make them available to the Deputy.

Deputy Kevin Humphreys

Could the bank give me the term extension figures as well?

Mr. Stephen Bell

Sure.

Deputy Kevin Humphreys

How did the bank deal with the outstanding debt on a number of assisted voluntary sales?

Mr. Stephen Bell

It is a combination of an amount that will be agreed to be repayable beyond the sale of the property and an amount that will be written off.

Deputy Kevin Humphreys

Was there a write-off of the additional values? If a house was sold at "X" and the bank was still owed "Y", did it write off part of "Y"?

Mr. Stephen Bell

Yes, we did. Last time we appeared before the committee, we told it that where there is a shortfall beyond the sale of a property and it is clear the customer is not in a position to cover that in full, we will make those arrangements.

Deputy Kevin Humphreys

Would the person who carried out the voluntary surrender or assisted voluntary sale be aware that the bank was prepared to take a write-down once the property was sold?

Mr. Stephen Bell

We would not necessarily discuss the exact specifics but they would know in principle that this is the direction we are going.

Deputy Kevin Humphreys

That would be an incidence for people who would go down that road. They would know that it could be clear of debt after the voluntary surrender.

Mr. Stephen Bell

It is information we share with them so they have full information with which to make the decision.

Deputy Kevin Humphreys

Could Mr. Bell share the information regarding the proportion that was written off on the voluntary sales with the committee?

Mr. Stephen Bell

We will do that.

Deputy Kevin Humphreys

The opening statement welcomed the de-prioritisation of unsecured loans. How many of the bank's customers who are in arrears also had other borrowings with the bank?

Mr Jim Brown

The key here is that some people do have other debt with us. We offer personal loans, credit cards and so on. The larger issue is that on average, as Mr. Bell mentioned earlier, for every euro that someone is paying us in mortgage payments every month, they are also paying 60 cent towards the unsecured debt. Generally speaking, the amount of unsecured debt is relatively small and the loan is being paid off over a relatively short period and generally at a higher interest rate. Our view is that if one manages an arrangement as to how to treat the unsecured debt, generally the mortgage situation is affordable. If the mortgage situation is not affordable even then, we can put one of the arrangements about which we spoke earlier in place that will deem the mortgage affordable in the long run.

Deputy Kevin Humphreys

If I was a customer of the bank and in arrears on my mortgage, the other unsecured loans were written off and I would be able to meet my mortgage repayments because of the change of circumstances, would Ulster Bank write off my unsecured loans?

Mr. Stephen Bell

Broadly, yes. It would be case-specific. It would depend on the exact circumstances.

Deputy Kevin Humphreys

If I am in arrears and in addition to my mortgage owe the bank €100,000 unsecured, if the bank writes off the €100,000 and I can meet my mortgage repayments, will the bank write off the €100,000?

Mr. Stephen Bell

I do not want to detract from a straight answer but there is a waterfall arrangement we agreed with the other banks. We are initially looking at changing the interest rate and term to be applied. If after having done that, there is still no affordability, we would take those steps.

Deputy Kevin Humphreys

Many constituents I represent have unsecured loans with credit unions. The credit union loans would be written off. Are banks engaging in the same practice? Is Ulster Bank writing off unsecured loans to enable people to make their mortgage repayments and, if so, by how much?

Mr. Stephen Bell

We are writing them down, rescheduling them, extending them and where it is the right answer, writing them off.

Deputy Kevin Humphreys

I am talking about the unsecured elements.

Mr. Stephen Bell

So are we.

Deputy Kevin Humphreys

So the bank is writing down that element?

Mr. Stephen Bell

Where it is necessary.

Deputy Kevin Humphreys

And it is writing it off?

Mr. Stephen Bell

Where it is necessary.

Deputy Kevin Humphreys

Does Mr. Bell have data on how many of the buy-to-let properties are secured against small to medium-sized businesses because many people in small businesses bought their buy-to-let properties as part of their pension fund? Did they use their business as security for that loan? Does Mr. Bell have that kind of data?

Mr Jim Brown

Could we take that question away and have a look at it? If we have the information, I am more than happy to provide it but generally speaking, the buy-to-let properties we have outlined in our portfolio are owned by somebody who has their own home and has bought one or two buy-to-let properties on the side. We do not have a significant number of cases where an individual, be it on their own or through their company, has bought significant numbers of buy-to-let properties.

Mr. Stephen Bell

They would typically be reported in our SME borrowings, which are subject to a hearing next week.

Deputy Kevin Humphreys

It was highlighted last month that there would be a number of small to medium-sized businesses that would have indebtedness. The business is quite viable but the buy-to-let property is a drag on it. Does the bank have data on that?

Mr. Stephen Bell

That is information that will be discussed at next week's hearing. This hearing is looking at the retail portfolio.

Deputy Kevin Humphreys

However, there is a certain crossover, which is why I asked about the buy-to-let properties.

Mr. Stephen Bell

We are looking primarily at individuals who have only one or two properties.

Chairman

Can I clarify a few matters before we move on? Is Ulster Bank providing split mortgages?

Mr Jim Brown

We are.

Chairman

It has a number of split mortgages?

Mr. Stephen Bell

We did 26 in the first quarter of this year and are looking to ramp that up substantially.

Chairman

There are 26 split mortgages in place?

Mr. Stephen Bell

We will do more later on this year.

Chairman

The target figure for quarter two of 2014 is 75%. As Deputies Pearse Doherty and Michael McGrath, myself and other members have indicated, there is a way that figure could be broken down if one minused the court cases from that.

Is it possible to give the committee a breakdown of the court cases being pursued in respect of the number of customers who are in arrears for 90 days or more and are non-engaging with the bank, those who now have commenced to respond to the bank and those who have moved from the mortgage arrears resolution process to a court case? If people are refusing to engage with the bank there must be a consequence but the joint committee is most concerned about people who had been in the mortgage arrears resolution process but now find themselves before a court and we would like further information on that.

Mr. Stephen Bell

We can provide that, Chairman.

Chairman

Deputy Kevin Humphreys drilled down into this issue. As I understand it, when a property is repossessed, the outstanding legacy debt of that is now unsecured debt. Will Mr. Brown clarify that this is the case?

Mr. Jim Brown

That is right.

Chairman

Mr. Brown in response to Deputy Pearse Doherty said that he was writing down secured debt, but is unsecured debt being written down when that property is repossessed?

Mr. Stephen Bell

Yes.

Mr. Jim Brown

Yes, we are.

Chairman

Post repossession whether it is a voluntary or court driven process, is the legacy debt being written down?

Mr. Stephen Bell

We will look at the circumstances on a case-by-case basis but there will be circumstances where it will be written off.

Chairman

Is the debt written off or will a percentage be written off and a legacy debt remain?

Mr. Stephen Bell

It will depend on the circumstances, but we would not expect in all cases to get 100% of the residual debt repaid and therefore there would be a write off.

Chairman

Is there an expectation that when a property is repossessed -----

I dealt with situations in which the customer wanted a voluntary surrender, and in the case of a young woman with a child in a one bedroom apartment and now that the relationship has broken up she has a mortgage of €250,000 and the property is worth €80,000. She wanted to be rid of the property. In cases where the property goes into a voluntary repossession, is that now an unsecured debt?

Mr. Stephen Bell

Yes, it does. It is legally an unsecured debt and is dealt with accordingly.

Chairman

Thank you.

I will call Deputy Richard Boyd Barrett and Deputy Joe Higgins, who I believe are sharing time.

Deputy Richard Boyd Barrett

Deputy Higgins will go first.

Deputy Joe Higgins

Why did the chief executive, Mr. Brown move the mortgage arrears section of Ulster Bank to Scotland?

Mr. Jim Brown

We found that we had a significant issue in terms of the right of increase in mortgage arrears and that as a consequence we needed to have a significantly high number of collectors in place who could reach out and call our customers. We found that because a crisis like this one had not existed in the Republic, it was very difficult if not impossible to get experienced collectors in the market. We looked at areas where we might be able to get collectors. As it happened there was a pool of available collectors in Edinburgh, generally people who had four or five years of experience and who know how to deal with customers in arrears. The management had generally five to ten years experience so we made a decision that we would set a system for early arrears in Edinburgh. This was primarily driven by getting people who had experience in handling mortgage arrears so that they knew how to handle our customers correctly.

Generally speaking mortgages that are 90 days or more in arrears are handled in the Republic. We have 50 people on the ground in our network who deal with the more significant mortgage arrears.

Deputy Joe Higgins

So it is not the case of creating a situation where there is much less empathy for the householder who is in difficulty with arrears by putting it at such a distance from the country? These people are much more removed from the daily circumstances of life in Ireland. Is that not putting people who want to talk to the bank about problems at a significant disadvantage?

Mr. Jim Brown

I would argue that it is the complete opposite. We have people who have vast experience in handling customers who have mortgage arrears problems. I think the results show it is working, the fact that 2,500 customers who were in arrears of 90 days or more, and 5,500 who had arrears at all are no longer in arrears. I think a considerable part of that is as a result of having those experienced people but also as a result of the bank having the solutions in place that we have discussed earlier.

Deputy Joe Higgins

There are legal proceedings in the case of 1,487 buy-to-let properties. How many buy-to-let properties have the bank taken possession of and sold off or got rid of in one way or another?

Mr. Stephen Bell

Very few at this stage. The approach we decided to take last year was to work with the customer if he or she was able to maintain the repayments, and if he or she was not able to do so, we would appoint a rent receiver who made a commitment that we would not terminate tenancies in buy-to-let properties but we would wait until the tenancy had expired. At this stage we have not enforced possession on many of those cases.

Deputy Joe Higgins

When this situation arises for tenants, it puts them in a very vulnerable position. There is increasing stress among tenants of landlords who are dealing with Ulster Bank and other banks. How does Ulster Bank treat the tenants and does it given them a guarantee or solace in regard to the stressful position? In a situation, in which receivers are being appointed to properties, the tenants are in a dreadful situation.

Mr. Stephen Bell

One of the reasons that we commissioned the research on the cost of rental properties versus mortgages is because clearly having a home that one owns through a mortgage gives one more security of tenure than one could ever have living in a private rented property. Where a customer is a tenant of a buy-to-let customer, we only have part of the relationship; it is not our primary relationship with the customer but we would not seek to terminate the tenancy early when the underlying buy-to-let borrower was in distress with us. That is not our position.

Mr. Jim Brown

In many cases, by getting a rent receiver to manage the property that is invariably a better outcome because in many cases, we have found when we have put a rent receiver in, there are issues around the maintenance of the property and generally when one puts in place professional management those sorts of issues can be addressed and there can be a better outcome for the tenant.

Deputy Joe Higgins

In the case of an owner-occupier, when there is what the bank calls a voluntary agreement to sell, then the property is sold at the current market rate. Why then does the bank adopt the arrogant stance of not looking at a general write-down to today's value when in fact that is what happens in individual cases? Can the bank not be part of a general national solution with other banks to try to sort out the mess once and for all?

Mr. Jim Brown

The evidence we have presented today shows that we have the resources in place to address the issues. We have solutions in place and customers are engaging with us and as a consequence we have fewer customers in arrears than we did before. We also have viable arrangements in place for many of those customers who are in arrears. From my perspective what we are doing is working. We still have a long way to go. While it may have come down by 2,500 for those more than 90 days in arrears, we still have another 14,000 cases to work through, but we have the solution, the people and the processes in place.

Deputy Joe Higgins

Some of the so-called viable solutions involve split mortgages, which means that the millstone of debt will follow people to the grave. It is not a solution. What is the total number of owner-occupied negative equity mortgages on the books of Ulster Bank?

Mr. Jim Brown

It would be around 60% to 65% but we can come back to the Deputy with the number

Deputy Joe Higgins

Could Mr. Brown put a monetary figure on it?

Mr. Jim Brown

About 60% to 65% of our total portfolio would have some sort of negative equity.

Deputy Joe Higgins

How many billions of euro?

Mr. Jim Brown

I would have to calculate that because it would depend on the average loan size and so on but I can come back to the Deputy with the details.

Chairman

I will allow Deputy Higgins ask one more question.

Deputy Joe Higgins

When Mr. Brown arrives at that figure, let him put it against by how much the parent bank was bailed out by the British taxpayer.

Why does the bank adopt this position with regard to the unfortunate victims of the blackmail, profiteering and speculation that was occurring in the property market given that it was, according to the Financial Times, subject to the biggest bailout in history at one stage? Why do the delegates not see that there could be a similar "solution" for the unfortunate victims of the property bubble?

Mr. Jim Brown

The issue is not one of negative equity. The mortgage arrears issue is an affordability issue. Either people's incomes have been affected through employment or they have had a reduction in income, and that is the problem we are trying to address. The solutions that have been put in place, and the way we are handling them, deal with this. Hence, we have been seeing the number in arrears fall, quarter on quarter, for the past 12 months. It has nothing to do with negative equity; it is about affordability.

Deputy Joe Higgins

Is it a case of saying, "Bail out the banks and to hell with the unfortunate victims of the property splurge."?

Mr. Stephen Bell

I do not believe that is correct. We provided facilities for customers so they could own their own homes in their entirety at the end of the mortgage terms. That is still our intention. At the end of the term, the house will be worth what it is worth; it has nothing to do with the affordability of the loan in the interim, during which we will help the mortgage holder to the fullest of our ability.

Deputy Richard Boyd Barrett

I want to ask about buy-to-let arrangements and tenants in cases of receivership. While the set of problems concerning those who took out mortgages to buy their own homes has been highlighted, the plight of tenants who pay rent and have a reasonable expectation of security of tenure has not been highlighted to any great extent over the past year or two. They find that because their landlord has gone bust, receivers move in and tell them they must leave, in many cases at very short notice. This presents a big problem, particularly for families with children. In the current market, it is very difficult in many cases to obtain alternative accommodation. What is the attitude of the delegation to this? The delegates said they will let the leases run. Leases will have expired in many cases. Typically in the private rental sector, one gets a one-year lease in the first year and no lease at all after that. When the delegates say they let leases expire, does this mean, in reality, that people get a month’s or two months' notice in many cases when the banks' receivers move in?

Mr. Jim Brown

We can talk about this in a little more detail. We proceed on a case-by-case basis. First, we have started appointing rent receivers only over the past 12 months. The reason is twofold. One aspect concerns where the mortgages were not being paid. Cash may have been received on the properties but was not being paid to the bank. Second, in many cases the properties were falling into disrepair. Therefore, putting a rent receiver in place allowed us to deal with that. We are very conscious of the impact it could have on tenants. Hence, we proceed on a case-by-case, lease-by-lease basis, as Mr. Bell mentioned. I do not know whether Mr. Bell wants to elaborate on that.

Mr. Stephen Bell

I believe that is the best answer.

Deputy Richard Boyd Barrett

Basically, as far as the bank is concerned, the criterion is the lease. Could the delegates tell me a little more? If I am reading the figures correctly, 2,675 buy-to-let properties are in arrears. I calculate that in the case of 1,600 of these, letters have been issued relating to rent-receiver or legal proceedings of some kind. This amounts to two thirds of the buy-to-let properties. The tenants could face the possibility of eviction relatively soon.

Mr. Stephen Bell

We work through it with the tenants. It is not in our interest to have a vacant property that must be sold at auction prices in the current market. Therefore, we always seek to work with the rent receiver to find the best outcome for the tenant and the property. We have an obligation to the underlying borrower to minimise the loss that might be faced in case we need to pursue them for any residue. We would be seeking to be as flexible as we could.

Deputy Richard Boyd Barrett

That is what I want to clarify. I am dealing with cases on this issue. I cannot recall whether any of them deal with Ulster Bank. It is a pity I did not check before coming here today. The people I am dealing with receive a letter telling them rent receivers are taking over and that they are out. Under the residential tenancies legislation, there is supposed to be a four-year cycle once one is a tenant for six months, I believe. The bank should have to honour that. The banks can get around it by saying they are going to sell the property. What is the attitude of Ulster Bank in such circumstances? I want to hear that the bank's attitude is such that tenants will not be turfed out if they have nowhere else to go.

Mr. Jim Brown

I do not recall seeing any cases concerning Ulster Bank. If the Deputy has some, I will be happy to examine them. We are acutely aware of the issue. As Mr. Bell has stated, it is in our interest to keep the tenant in a property when it makes sense to do so. However, we still have an obligation towards the individual who borrowed the money in the first instance. There is a fine balance in getting the two approaches right. It it not our intent to evict either owner occupiers or tenants.

Deputy Richard Boyd Barrett

I will try to hold Mr. Brown to that over the next while. Is the bank giving people back deposits where they are required to leave, for whatever reason?

Mr. Jim Brown

I am not aware of the circumstances.

Mr. Stephen Bell

Typically the deposit would be collected as a condition of warranty provided the terms are honoured. Where this is the case, the answer is “Yes, absolutely".

Deputy Richard Boyd Barrett

Again, I will hold the delegation to that because not every bank is doing so.

Let me refer specifically to those who are in many cases forced into voluntary surrender, by circumstance or by the bank. The cause remains to be seen. I wish to ask about the unemployed, in particular. People have lost their jobs and are dependent on social welfare through no fault of their own in most circumstances. Are these the individuals who are facing voluntary surrender or legal proceedings, or is the bank doing deals for the unemployed?

Mr. Jim Brown

There is a mix. Mr. Bell might want to comment on the specifics. The reality is that, even for someone who is unemployed, there is a cost associated with living in the home, be it assistance from the State or some other arrangement. Generally, the arrangements we have in place, be they long-term or short-term, are such that we have a solution whereby an unemployed person can remain in his or her accommodation.

Deputy Richard Boyd Barrett

The bank has a solution.

Mr. Jim Brown

Yes, we do. As we have outlined in the paper, it may be that we reduce the interest rate for a period or push out the term. We tailor the arrangement to the individual's circumstances. There are solutions in place to deal with such circumstances.

Mr. Stephen Bell

I agree. Unemployment can be many things. We have customers who are contract workers who go through a period of one, two or three months of unemployment between contracts. Their circumstances are very different from those of the long-term unemployed. We still try to work with those in long-term unemployment so that whatever income they have can be made appropriate for the mortgage they are servicing. If they cannot pay, or if it is just not possible, we need to be mindful of that. Not all mortgage arrears customers, even those in very serious arrears, are eligible for social housing.

Deputy Richard Boyd Barrett

Again, these are points we will hold the delegates to over the next while.

Mr. Stephen Bell

We are happy to help.

Deputy Richard Boyd Barrett

My next point goes to the heart of many of the questions we are asked. Is it the case that the bank will not force individuals, even those who are unemployed or on the lowest income, out of their homes if they are willing to engage with the bank?

Mr. Jim Brown

If they are engaging. The other key issue is the magnitude of the debt. If somebody is unemployed and living in a house worth €1 million or €2 million, it would not be unreasonable for us to expect him to sell it. However, if he is unemployed for a short period, we believe we have a solution available that will keep him in his home.

Deputy Richard Boyd Barrett

With regard to mortgage-to-rent arrangements, the delegates stated one has been concluded.

Mr. Jim Brown

Correct.

Deputy Richard Boyd Barrett

How many have asked for the option?

Mr. Stephen Bell

Not many. To be honest, we have found, and what most of our customers would say, is that they entered into the arrangement because they wanted to own their own homes. Therefore, if we can provide solutions that enable them to do so over the remainder of the term, they are very keen.

Chairman

Before we move on to the next batch of questions, I wish to conclude one issue that crops up all the time in all the questions. We have established that Ulster Bank is doing write-downs, but at the post-sale position when that sum of money becomes unsecured debt.

Mr. Jim Brown

We write off after we have gone through the process.

Chairman

Does the bank write it off because it is still unsecured?

Mr. Jim Brown

Yes.

Chairman

The bank does not write down secured debt, rather unsecured debt.

Mr. Jim Brown

Correct.

Chairman

Riddle me this case. The sum of €250,000 is the cost of an average house in my part of Cork, and the same applies to most parts of the country, with Dublin being the exception. Let us say someone buys a house for €250,000 but he or she has €50,000 in unsecured debt. Ulster Bank puts the house on the market and sells it for €150,000 - which is what it is probably worth now - but there is €50,000 in unsecured debt left and, lo and behold, now there is also €100,000 of unsecured debt which Ulster Bank will probably write off. This situation is where I see the bank's veto working very effectively. Would it not make more sense, given personal insolvency arrangements and the way the bank's veto works, if it wrote off the €100,000 rather than sell the house? If the bank turned it into unsecured debt, it would be left with 65% of €100,000. Let me reiterate that there is €150,000 in unsecured debt. Therefore, the person is in a performing mortgage because the bank is going to sell the house for €150,000 and there is €150,000 of unsecured debt. In that instance the bank is in the driving seat because it has the veto. It can wipe out all the unsecured debt and turn the customer into a functioning one who can pay a debt of €150,000. Why is the bank not doing this?

Mr. Jim Brown

In order to understand the numbers correctly, I will quickly cover them. Is the mortgage somewhere around €200,000?

Chairman

Yes, and the property is now valued at €150,000.

Mr. Jim Brown

Yes, and the unsecured debt is €50,000.

Chairman

Let us say the person has a credit union loan and a car loan of €50,000 as well as the write-down.

Mr. Jim Brown

What we would say is that some or all of that €50,000 could be written off.

Chairman

Is Mr. Brown referring to the unsecured amount?

Mr. Jim Brown

The unsecured amount. Two thirds of unsecured debt is bank debt anyway, but we would say it could be written off. If the Chairman looks at our economic concession of 0.5%, for example, then the €200,000 mortgage would only be €1,000 a year in payments. Even if one put a bit of principal on it, the figure might reach €2,000 or €3,000. We think it is far better to keep the person in his or her home, write off some or all of the unsecured debt and, as we have outlined here, put a solution in place that will resolve the issue. Therefore, one does not need to write down any of the mortgage debt and the customer does not need to lose his or her home.

Chairman

I ask Mr. Brown to outline a model as the matter needs to be explained.

Mr. Stephen Bell

At the end of the mortgage term, the customer would own the house he or she had chosen to buy in the first place, which we think is fundamental.

Mr. Jim Brown

Exactly.

Chairman

I may have to return to the matter later. I call Deputy O'Donnell who has ten minutes and he will be followed by Deputy Donnelly.

Deputy Kieran O'Donnell

I welcome Mr. Brown and his colleagues. I wish to raise a couple of points for clarification. RBS gave €18 billion to Ulster Bank. Did the money come from the British taxpayer or the UK?

Mr. Jim Brown

It came from RBS. Ultimately it came from UK taxpayers to RBS and, as we made losses, £15 billion or around €18 billion was put into Ulster Bank. The Deputy is correct.

Deputy Kieran O'Donnell

When the deal was negotiated with the UK Government, had mortgage write-offs taken place in RBS?

Mr. Jim Brown

I cannot tell the Deputy that information and I must double check.

Deputy Kieran O'Donnell

Money was given by the British taxpayers to RBS. Is Ulster Bank's parent company RBS?

Mr. Jim Brown

Yes.

Deputy Kieran O'Donnell

Ulster Bank was given funding via the same channel but RBS performed write-offs in the UK so it stands to reason that the same policy should operate within the group.

Mr. Jim Brown

I do not believe that it is doing write-offs but I will double check that to be sure. To be clear, the £15 billion or €18 billion was injected into Ulster Bank to cover the losses we had incurred. It was not to arbitrarily carry out more write-offs, write-downs or anything like that. It was to cover the losses we had incurred.

With all the restructuring we have put in place, I expect Ulster Bank will be profitable again this year, as I outlined in my opening statement. However, we have a long way to go to earn a reasonable return on the £15 billion.

Deputy Kieran O'Donnell

Is it correct that 14,131 home loans were in arrears of more than 90 days at the end of last December?

Mr. Jim Brown

Correct.

Mr. Stephen Bell

Yes.

Deputy Kieran O'Donnell

What is the current figure?

Mr. Stephen Bell

The figure has reduced further. I cannot share the figure for the end of March because we are in a closed period but it has continued to reduce. I can tell the Deputy that it was 16,247 at the end of March 2013, so it has fallen by about 2,016. Our best estimate, without giving anything away that we should not say, is that it will be down to somewhere in the mid-13,000s at the end of March.

Deputy Kieran O'Donnell

How many of the mortgages in arrears are in positive equity?

Mr. Stephen Bell

Broadly speaking, as Mr. Brown said in answer to an earlier question, around 50% to 60% of the portfolio has some form of negative equity at this stage. That can vary from a relatively modest amount to reasonably large numbers.

Deputy Kieran O'Donnell

By definition, one could say that 50% of the mortgages in arrears for more than 90 days are probably in positive equity.

Mr. Stephen Bell

That is a fair assumption. As I said, the positive or negative equity can be anything from €1 to €100,000.

Deputy Kieran O'Donnell

What is the delegation's general view on the matter? Let me give the example of someone in arrears for more than 90 days who has a property in positive equity. What view does the bank adopt in that situation? Does it distinguish between a property in negative equity or positive equity?

Mr. Stephen Bell

The equity has no bearing on the discussion whatsoever. As Mr. Brown said in reply to an earlier question, the only thing we are interested in is affordability.

Deputy Kieran O'Donnell

Let us consider what happens if the bank moved on a property in positive equity and sold it for more than the value of the loan. What impact would that have on the deposit to loan ratio and the bank's capital ratio?

Mr. Stephen Bell

In the event of a sale, we would return any surplus to the customer. We would simply have a lower asset. There would be no impact on the capital because there would be no write-down to us. It would simply be a sale.

Deputy Kieran O'Donnell

Would the bank re-lend the money?

Mr. Stephen Bell

Absolutely.

Mr. Jim Brown

Yes.

Deputy Kieran O'Donnell

I presume that situation would be classified as a risky loan on the balance sheet of Ulster Bank beforehand. At the moment this matter has cropped up as an issue across the mortgage loan book. I would use the term "paradox of positive equity" whereby people in positive equity are at times more vulnerable than people in negative equity. I do not mean they are vulnerable in terms of their homes. There is commonality because they are vulnerable at the time of bank repossession and assisted voluntary sales.

I will explain the situation. The banks have issues in terms of their capital ratio requirements, provisions, stress tests, etc. What happens if a bank has a loan that is in arrears for more than 90 days and climbing? Obviously it will be classified on a risk weighted basis within the institution. Let us consider what happens if the asset is realised and the loan has gone off the bank's books. Am I correct to say that scenario will improve the capital ratio requirement of the individual institution?

Mr. Jim Brown

Let us go back a step. First, it is important to point out that Ulster Bank is well capitalised.

Deputy Kieran O'Donnell

I did not ask that question.

Mr. Jim Brown

I shall get to the answer.

Deputy Peter Mathews

The answer is "Yes."

Mr. Jim Brown

I need to qualify this matter. Second, at year end last year, Ulster Bank took specific provisions to cover any legacy and residual issues.

With regards to write-downs and so on, it does not matter whether a customer is in negative equity because we will do the right thing by the customer in terms of rehabilitating them.

From an accounting perspective-----

Deputy Kieran O'Donnell

Yes.

Mr. Jim Brown

-----the answer is "Yes". The Deputy is correct that it will be better. The key for us is to do the right thing by the customer and make the loan sustainable.

Deputy Kieran O'Donnell

I am not saying anything about that. I made a straightforward point. This matter has arisen for all institutions. We deal with the public like banks do but in a different capacity. A worrying feature has arisen. There is a danger that the banks are becoming bloodhounds for positive equity within loans.

There is a danger that people in arrears with their mortgage repayments are at a disadvantage if their home is in positive equity. When a customer is in arrears and the bank sells the asset that is in positive equity, the capital ratio will increase as they are taking a risk rated asset off the balance sheet.

Mr. Jim Brown

At the end of the day, we are in the business of lending. Ulster Bank has more than enough capital in place, we have provisions-----

Deputy Kieran O'Donnell

Mr. Brown has answered my question. We are looking at the issue from the other side of the fence. Our concern is with the perception that a bank could improve its capital ratio requirement by effectively moving on people in arrears who have positive equity in the property, as they may be more vulnerable than people in negative equity. This is a worry.

Mr. Jim Brown

Let me restate that we have solutions in place. For Ulster Bank it is not an issue of negative or positive equity, but of doing the right thing by the customer and getting the loans rehabilitated. From our perspective it is about affordability and not about positive or negative equity.

Deputy Kieran O'Donnell

I had a slight difficulty in interpreting the information that Ulster Bank provided. Am I correct when I state that Ulster Bank has instigated legal proceedings against some 4,459 of the 14,231 home loans that are in arrears for more than 90 days?

Mr. Stephen Bell

That is approximately the number.

Deputy Kieran O'Donnell

That is a third. In respect of buy-to-lets, of the 2,675 properties in arrears for more than 90 days, has Ulster Bank instituted legal proceedings against 1,697 of them?

Mr. Stephen Bell

Yes, including rent receivership.

Deputy Kieran O'Donnell

That means that Ulster Bank has taken legal proceedings in over one third of the home loans and two thirds of the commercial loans. How many of the 4,459 home loans that the bank has instituted legal proceedings are in positive equity?

Mr. Stephen Bell

We will come back with that information. Our entire process is based on affordability and whether the property is in positive or negative equity has no bearing on how we deal with the customer.

Deputy Kieran O'Donnell

It is having a bearing in the way that Members deal with the public. We have the opportunity to interact today, but it is a feature-----

Mr. Stephen Bell

We do understand.

Mr. Jim Brown

May I add to that? The key is that Ulster Bank is taking legal action where people are not engaging with us. That is why the percentage is so high. The other key point to note is that the number of customers who were 90 days or more in arrears was actually 2,500 higher a year ago. That number has come down.

Deputy Kieran O'Donnell

I have a final question before the Chairman calls time on the code of conduct on mortgage arrears. In Chapter 3 dealing with provisions, paragraph 6 states that 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 incentives do not impair the quality of communication with the borrower or how the borrower is treated by the lender and takes into account compliance with the requirements of this code.

Is there an incentive bonus package in place for staff dealing with customers who are in arrears?

Mr. Stephen Bell

None whatsoever.

Deputy Kieran O'Donnell

In either Ireland or the United Kingdom?

Mr. Stephen Bell

None whatsoever.

Deputy Kieran O'Donnell

None at all?

Mr. Stephen Bell

Correct.

Deputy Kieran O'Donnell

I have major concerns about the paradox of positive equity. Ultimately, from a financial perspective, the bank gains from moving on properties, homes in particular that are in arrears for more than 90 days. It benefits the balance sheet far more significantly than moving on property loans that are in negative equity. I would like to hear the banks elaborate on the procedures that are in place to ensure that there is parity of treatment. Our objective is to keep people in their homes. I have no doubt that it is the objective of Ulster Bank as well.

Mr. Jim Brown

That is absolutely our objective. As I mentioned earlier, our focus is on keeping people in their homes and doing the right thing by the customer. We are happy to come back to respond to any specific question from the Deputy.

Chairman

In regard to our earlier request for further information, I will follow on from Deputy O'Donnell's request for a breakdown of the legal proceedings in respect of properties in both positive and negative equity. Ulster Bank is doing debt write-down but it is doing it at the unsecured stage, which is at the post-voluntary surrender or post-repossession stage. Whether the customer is in positive or negative equity, what I am hearing is that the philosophy is that debt write-down will only be given on the basis that the bank gets the house. The colourful phrase is that the pound of flesh for the write-down is that the banks gets the bricks and mortar.

Mr. Stephen Bell

That is not a particularly fair characterisation of our approach. We have a range of solutions which we can make available to customers, which in almost every case would make the cost of staying in the property less than renting a comparable property. In that instance we see no logic in writing down an arbitrary amount of money, leaving the customer in the property, who would over time benefit from capital appreciation on a written down debt. This seems to be a completely unnecessary step when we have all the other tools in our armoury to solve the problem by very different ways.

Chairman

I would need to see modelling of this.

Mr. Stephen Bell

I would be happy to do that.

Chairman

I am not an expert on banking. I understand that other institutions deal with debt write-down and allow people to remain in their homes, which is the same conundrum that Mr. Bell raised. It seems that Ulster Bank will only write down the debt when the home is gone.

Mr. Stephen Bell

Because we believe we have all the tools to avoid the house being repossessed in the first place.

Chairman

I will be quite flexible with Deputy Donnelly.

Deputy Stephen S. Donnelly

I thank the delegates from Ulster Bank for their time. In respect of legal repossessions, we have the figure of 5,810 for Q4 of 2013. However, do they have to hand the Q1 figures on legal repossessions for 2014?

Mr. Stephen Bell

No, because it is still subject to audit by the Central Bank and Ernst & Young.

Deputy Stephen S. Donnelly

The figure stood at 5,800 at 31 December 2013. Could Mr. Bell give a rough indication of the figures?

Mr. Stephen Bell

It would be roughly the same.

Deputy Stephen S. Donnelly

The figure is roughly the same and has not gone up considerably?

Mr. Stephen Bell

There is only a relatively modest increase from September last year. On the previous occasion that we appeared before the joint committee we thought there would be a focus on legal action at the beginning and then it would stay relatively flat. That has been our experience.

Deputy Stephen S. Donnelly

Do the witnesses from Ulster Bank have a figure for the estimated number of repossessions that are likely to occur, based on all of these legal proceedings?

Mr. Jim Brown

From our perspective, it is too early to say. We have seen 50% of the cases re-engage with us. If we look at other markets, and who knows whether this will apply or not but generally speaking, one should end up with around 70% to 75% of cases where legal action has been initiated that people will re-engage.

Deputy Stephen S. Donnelly

May I infer from that statement Mr. Brown would expect that 25% to 30% will end up in possession by the bank?

Mr. Jim Brown

That is a reasonable expectation. It is also a reasonable assumption that if customers engage with us, there is probably a solution, but if there is no engagement we have no choice but to go through the court process and that could be the end result.

Deputy Stephen S. Donnelly

Would it be reasonable for me to infer from the figures that Mr. Brown believes if we round up the figure to 6,000 that between 1,500 to 1,600 would end up in the bank taking possession of the house.

Mr. Jim Brown

Yes, if they do not re-engage.

Mr. Stephen Bell

A potential range of between 1,000 and 1,500 cases is the likely end state if we do not get a substantial change in engagement patterns from customers.

Deputy Stephen S. Donnelly

Why are there so few offers on the buy-to-let portfolio? According to our figures, of the 1,680 proposed solutions, fewer than 200 do not involve legal proceedings. Why is that figure so low?

Mr. Stephen Bell

There has been relatively little interest from the mortgage holders of buy-to-let properties. Perhaps they have seen that there is no gain at the end of the process and, therefore, they are more than happy to let rent receivers be appointed and go through that process. We have had few expressions of interest in alternative solutions.

Deputy Stephen S. Donnelly

Would Ulster Bank be happy to offer on buy-to-let in the same way it does in respect of family homes?

Mr. Stephen Bell

Yes. We are very keen to engage with anyone, provided he or she can make reasonable payments.

Deputy Stephen S. Donnelly

Am I right in believing that the mortgage arrears department has been moved to Scotland?

Mr. Stephen Bell

Part of it. As Mr. Brown mentioned, approximately 200 of the 450 people involved in the process are based in a building in Edinburgh, but they are exclusively working for Ulster Bank Ireland Limited.

Deputy Stephen S. Donnelly

How many staff does the bank have in the Republic who are available to sit down face to face with borrowers?

Mr. Stephen Bell

We have a field force of approximately 80 people, spread across the Republic, who will make themselves available at the customer’s home or the local branch. We have found this to be a useful additional capability. We increased the number recently because we had found that there was a reasonable demand, but certainly not sufficient for the number to be more than 80. We are able to cover all the visits and meetings that are necessary.

Mr. Jim Brown

It is important to point out that we employed 200 people or thereabouts in Scotland because the pool of experienced collectors available in the Republic was small. The people we have employed generally have four to five years of experience and know how to handle discussions with people who are in financial arrears. As a result and alongside the solutions that were put in place, we have seen a significant reduction in arrears in the past 12 months. Having an operation in Edinburgh has played an important role in that regard. Those 200 people are only handling early arrears of up to 90 days. The people on the ground in the Republic handle the longer-term arrears.

Deputy Stephen S. Donnelly

Is Mr. Brown satisfied that customers in arrears in the Republic have reasonable access to a person for a face-to-face meeting?

Mr. Jim Brown

Absolutely.

Deputy Stephen S. Donnelly

I wish to revert to the personal insolvency arrangement, PIA, issue. Am I right in believing that Ulster Bank would veto any PIA that included a proposal to write down part of the secured debt?

Mr. Jim Brown

It is difficult to imagine a case where we would have to write down the secured debt. I am not avoiding the question, but where the average borrower is paying €1 on his or her mortgage and 60 cent on unsecured debt, the solution in our view is to write down the unsecured debt and restructure the loan.

Deputy Stephen S. Donnelly

I understand that.

Mr. Jim Brown

It will not involve writing down the mortgage.

Deputy Stephen S. Donnelly

If we used our imaginations and a personal insolvency practitioner, PIP, proposed a write-down as part of a PIA, would Ulster Bank veto that proposal?

Mr. Stephen Bell

We have an active negotiation with PIPs. It is not that they make single proposals that we then veto. Rather, we often have several conversations about what might be a more appropriate structure. To date, when a final proposal has come through from a PIP, there has been no reference to a secured debt write-down.

Deputy Stephen S. Donnelly

That is because they know Ulster Bank will not accept it. Let me ask the question in a different way.

Mr. Stephen Bell

It is not necessary to solve the problem.

Deputy Stephen S. Donnelly

In Ulster Bank’s opinion. Let me ask the question in a different way. Would Ulster Bank ever accept a PIA that included a mortgage write-down?

Mr. Jim Brown

We do not see why a mortgage would need to be written down

Deputy Stephen S. Donnelly

I know, but will the witnesses answer my question? It is a simple "Yes" or "No" question.

Mr. Jim Brown

My short answer is "No", but we-----

Deputy Stephen S. Donnelly

I understand the caveats. I just wanted confirmation.

There has only been one mortgage-to-rent case. The process was difficult. Has Ulster Bank refused customers seeking mortgage-to-rent deals?

Mr. Stephen Bell

No.

Deputy Stephen S. Donnelly

Could anything obvious be done to the scheme to make it more attractive for Ulster Bank and its customers?

Mr. Stephen Bell

With a sample of just one, it is difficult for us to draw conclusions. Now that we have finished one case, we are examining the process to determine what we could have done to make it faster or better.

Deputy Stephen S. Donnelly

We have asked about specific solutions, but is Ulster Bank considering other solutions it would like to share with the committee?

Mr. Jim Brown

The right-hand side of the material supplied shows the wider range of solutions we have in place. We do not deal only with those who are 90 days in arrears or more. A part of our success in reducing arrears is down to being proactive in the case of early arrears. Mr. Bell mentioned a couple of other solutions we are considering in respect of longer-term arrears.

Mr. Stephen Bell

Yes. We are also considering what we can offer to customers who are not in arrears to address their problems. Throughout, we have stated that the way we handle the mortgage arrears issue must be consistent with how we are trying to manage the mortgage market on a forward basis. We are considering products we might be able to offer to customers who are up to date that might make their lives easier. As Mr. Ryan mentioned, we are considering options such as negative equity porting and so on.

The products we described in response to the Chairman’s question are meant for longer-term solutions where a deferred element of the debt might go beyond retirement age so that we do not create a sustainability crisis for a customer who otherwise can afford to stay in his or her home but in respect of whom we are forced to take certain actions because of an arbitrary decision about retirement ages.

Deputy Stephen S. Donnelly

One of the complaints I often hear, particularly from the groups that attended our meeting last week and that help mortgage holders, is that, when banks make offers, they are under no obligation to explain why they have made those offers. Typically, they do not explain. The customer simply gets a complex letter. When Ulster Bank makes offers-----

(Interruptions).

Chairman

I am sorry, but will Senator Healy Eames please turn off her telephone or leave the room? I am hearing interference.

Senator Fidelma Healy Eames

My apologies. That is not a problem.

Deputy Stephen S. Donnelly

When Ulster Bank makes a restructuring offer, does it offer choices between two or three that might work for the customer or does it offer just one option? When it offers choices or a single option, does it also offer an explanation in writing as to why it has decided on those?

Mr. Stephen Bell

There are two aspects to that issue. We would never offer a single solution, as it is important the customer is able to consider various options. The offers of an economic concession and split mortgage often go hand in hand in terms of which makes most sense to the customer.

For anything that involves a longer-term solution, that is, longer than 36 months, we support the scheme whereby customers can take independent advice at our expense in order that they might be satisfied they are making the right choice. We are keen not to steer people towards particular outcomes, but instead to let them see the range of options. In the event a customer believes the option we offer is not right, he or she has a right of appeal through the mortgage arrears resolution process, MARP. This often results in us reconsidering, if appropriate.

Deputy Stephen S. Donnelly

I thank Mr. Bell.

Chairman

I will give the Deputy some more grace, if he wants it.

Mr. Jim Brown

We go to great pains to ensure the loans are understood when we put them in place. A key factor we monitor is the number of people who go into arrangements and subsequently break them. It is not in their interests or ours when that happens, so we take quite a bit of time to ensure we give the customer the right solution.

Deputy Stephen S. Donnelly

Does Ulster Bank offer an explanation of its decision? When it writes to someone because it believes he or she can get out of the situation through an economic concession or split mortgage, does it explain why?

Mr. Stephen Bell

We typically have that dialogue by telephone. A key element of our approach is to try to do as much as we can there and then with the customer over the telephone. Being in arrears is a stressful experience. An endless exchange of correspondence over numerous weeks while the customer is asked to gather up proofs, utility bills and bank statements is not the right answer. We would have an open dialogue with the customer.

In order to provide protection to the customers we have got full call recording capability in all of our sites so if there is a dispute, we can play back the details and ensure we were as transparent as we hope to be.

Deputy Stephen S. Donnelly

My final question refers back to the example the Chairman raised and the question asked by Deputy Doherty. The Chairman made the point that the bank will potentially write-down a substantial amount of debt once it has been re-categorised from mortgage debt to unsecured debt as part of a residual. The example given was that the person owes €250,000, he or she cannot afford to pay so the house is sold for €150,000, leaving a residual amount of €100,000 which Ulster Bank might then say it will write off as unsecured debt. If I understand the answer to that correctly, the witness said he could not foresee a situation in which that would have to happen, because there is a range of solutions available to keep them in the house. Is that correct?

Mr. Stephen Bell

Yes. Our average mortgage is €164,000, so we are not talking about €250,000 or €300,000 situations. The average amount of unsecured credit that our customers who are in arrears are carrying is approximately €11,500, but the cost of that is at a much higher, much more profitable interest rate for the unsecured lenders over a much shorter period. The unsecured credit is usually what creates the financial pinch point for the customers. In all the situations we have seen so far, by dealing with the unsecured credit and taking that burden away from the customer our share of restructuring the remaining debt does not require any write-down.

Deputy Stephen S. Donnelly

If that is the case, the question that puzzles me is why anybody would voluntarily surrender the house, which is the crux of what was being asked earlier.

Mr. Stephen Bell

It is difficult for us to answer the question. We have agreed we will return and provide further analysis of those 120 cases; 99.5% of our 90 plus customers have not chosen to do that and 0.5% have.

Deputy Stephen S. Donnelly

Is the witness comfortable that even in cases where they have chosen to do that, workable solutions were offered by Ulster Bank which would have kept them in the house and afforded them a reasonable standard of living?

Mr. Stephen Bell

We would be confident that given the size of our average balance there should be no reason for that being necessary, but there would often be personal circumstances to explain why the customer might choose to do that.

Deputy Stephen S. Donnelly

I thank the witness.

Chairman

I am moving to the final round, which is five minutes per questioner. I will call Senator Healy Eames-----

Deputy Peter Mathews

Chairman, I am due to take the Chair in the Chamber.

Chairman

Fair enough. I call Deputy Mathews first.

Deputy Peter Mathews

I thank the witnesses for their attendance. I wish to pick up on something Deputy O'Donnell mentioned, the balance sheet repair that the institutions are undertaking. The problem that has arisen for everybody across the markets, not just Ulster Bank, is due to the creation of credit by the abandonment of fractional reserving. Ulster Bank is part of RBS Group and in 2008 RBS Group, if one ignored ABN AMRO, which had a good balance sheet, had loans-to-customer deposits ratios of 135%. That is 45% above the safety level of 90% for prudential lending and responsible bank board operation. Forty-five per cent as a proportion of 90% is 50%. When Ulster Bank is in a sector of banks where the average loans-to-deposits ratio was 173%, with an abandonment over seven years of fractional reserving, absolutely reckless balance sheet construction and creating an asset price bubble with the credit that had been gathered through the banking system, that bank is responsible for 50% of the asset price fall of assets bought with funds provided by the bank. That is a fact mathematically. In the case of Bank of Ireland, it is 75% responsible and accountable for the asset price fall of the assets that were bought with funds loaned by Bank of Ireland to its customers. It is really a breathless, astonishing arrogance on the part of the sector to seek to collect 100% of the loans that created a mirage. It was a bubble of air to which the customers are now long-term mortgage slaves.

In fact, let us consider the etymology of the word "mortgage". "Mort" means death. Normally it was death of the asset while the borrower was repaying the money so that the asset became his or hers at the end of the 25 years. Now, because of those seven years of profligate and absolutely malfeasant lending by the boards of banks, the borrowers of that period find that they have no assets. The only asset that they might have had after 25 years is likely never to be theirs. The nonsense that is being peddled at the moment, that the property market is taking off, is absurd. It is like saying that the stock market has gone up in value because 1% of the equity on the stock market has been traded at a temporarily high price.

This is where we must get real. I do not like the language and terms such as "encourage meaningful re-engagement". Let us get real about this. The bank had a breakdown in its computer systems for three or four months but there was no engagement, even with people who had deposits or credit balances in their accounts. This is unfair. I am not asking for heads or scalps, just for fairness. A total of 15,000 customers of the bank are in deep distress, mental depression and even facing death. It is wrong. I am asking all the witnesses to put it to their boards that they really wrecked this country.

Chairman

The Deputy has about one minute left if he wishes to ask a question and I will afford the witnesses a chance to respond.

Deputy Peter Mathews

These are indisputable facts. I will give the witnesses a paper that shows the bank's balance sheets-----

Chairman

I remind the Deputy-----

Deputy Peter Mathews

On another point, the witness said if somebody offered €50 per month-----

Chairman

I will give the Deputy space but he must listen to me for a moment as I am trying to assist him. The members of the committee ask questions and the witnesses respond. The committee wishes to hear evidence and that is provided by the witnesses, not by members of the committee.

Deputy Peter Mathews

Okay, but they are the facts and they can mull over them. What is their response to those facts?

Mr. Jim Brown

What is the question?

Deputy Peter Mathews

The bank created the asset price collapse. It did it by lending money to people and it wishes to collect all the money back, yet the asset price bubble could not have happened without the profligate recklessness of the boards of the bank.

Chairman

The Deputy is out of time.

Deputy Peter Mathews

I have one last question.

Chairman

Is it a question or a comment?

Deputy Peter Mathews

Was €18 billion of losses capitalised by the parent company?

Mr. Jim Brown

Correct.

Deputy Peter Mathews

Is the loan book approximately €40 billion?

Mr. Jim Brown

It was approximately £57 billion at the peak.

Deputy Peter Mathews

Therefore, €18 billion was written off against that.

Mr. Jim Brown

It was £15 billion or €18 billion.

Deputy Peter Mathews

What are the bank's provisions at present?

Mr. Jim Brown

In terms of provisions, it is more or less equal to the capital that has been injected.

Deputy Peter Mathews

It is a provisioning rate of approximately 30%. Some of the other banks, the so-called pillar banks, are at levels of 8.5% at present; so much for stress tests.

Chairman

Thank you, Deputy. I believe you are required in the Chamber. I call Senator Healy Eames.

Senator Fidelma Healy Eames

I thank the witnesses for attending. I am delighted to have the opportunity to ask them a few questions. Sustainable solutions are in all our interests, including the bank's and its customers' interest. When did Ulster Bank first offer the split mortgage in Ireland? The witness referred to it a few times.

Mr. Stephen Bell

It was in the middle of 2013.

Senator Fidelma Healy Eames

This is 2014. One month ago a family I know requested a split mortgage but it was told that Ulster Bank did not offer such a product in Ireland.

Chairman

I will not allow individual's names or circumstances.

Senator Fidelma Healy Eames

Did I mention any?

Chairman

I am just forewarning the Senator.

Senator Fidelma Healy Eames

There is no problem. I will not mention them. Can the witness comment on that?

Mr. Jim Brown

We offer split mortgages, as Stephen mentioned. We have a number among the arrangements we have in place. It is not the most preferred solution but if the Senator has a specific issue relating to a customer who was advised that, I will be more than happy to have a discussion afterwards and take it up.

Senator Fidelma Healy Eames

The bank's mortgage arrears support unit specifically said that. I had intended asking, and I have issued a press statement on this, when the bank would commence offering split mortgages. That was due to be my question based on the advice I received. Basically, I am showing a contradiction between what the witness is saying and what the bank's staff are saying. I accept the witness's answer.

Mr. Stephen Bell

The situation is that we have had a split mortgage offer since the middle of last year. What we found is that when we laid out the economic concession side by side with the split mortgage, as members can see from the numbers, the vast majority of customers preferred the economic concession because it allowed them to pay capital down quicker. We have tried to look for other groups of customers because typically a split mortgage is more likely to be useful to those who are nearing the end of their term and we have now issued ---

Senator Fidelma Healy Eames

Can Mr. Bell tell me the criteria to qualify for a split mortgage? If a customer wants one, will the bank facilitate that?

Mr. Stephen Bell

We do not have fixed criteria because it is all based on affordability. In the first quarter of this year we agreed 26 split mortgages, which is not a huge number but it is a start.

Senator Fidelma Healy Eames

Was that 26?

Mr. Stephen Bell

Yes. We have them on offer and if a customer specifically tells us that a split mortgage is the right solution and that is what comes out as the best solution from our perspective, we are happy to facilitate that.

Senator Fidelma Healy Eames

If a customer specifically wants one, would the bank facilitate that?

Mr. Stephen Bell

If that was the right answer in the context of affordability. If a customer could absolutely afford the full principal and interest repayment on the mortgage then we will not facilitate him or her with a split ---

Senator Fidelma Healy Eames

Obviously I am talking about people who cannot do so.

Mr. Stephen Bell

Yes, then, of course.

Senator Fidelma Healy Eames

Does Ulster Bank note the Central Bank's advice on age guidelines?

Mr. Jim Brown

We are aware of the guidelines. From our perspective, as we mentioned earlier, it is about doing the right thing by the customer. We do not think it is right that because someone reaches a certain age he or she should not be entitled to a mortgage or that if a customer has a small residual debt outstanding on a mortgage that he or she should be made to leave his or her home. We do not support that.

Senator Fidelma Healy Eames

Let me put it another way. I am talking about a couple in their mid-forties who were given a 30-year mortgage by Ulster Bank. One income has been lost in the family. They were prepared to pay their mortgage into their mid-70s. Ulster Bank facilitated that loan six or seven years ago during the boom.

Mr. Jim Brown

Yes

Senator Fidelma Healy Eames

They have lost one income and have looked for a sustainable solution. They never stopped paying the mortgage and have always been compliant, although they have had to pay less. They looked for a split mortgage but were told that it was not available. They are now being offered a term extension by Ulster Bank which will put them into their eighties and past their life expectancy. Does Mr. Brown think that is a sustainable solution?

Mr. Jim Brown

I do not know the specifics of the case. My point is that I do not see any reason why somebody who is in his or her early 70s, for example, which was the basis on which the case was offered, should not be entitled to some sort of mortgage. We would not call up the mortgage and remove the person from his or her house just to meet the Central Bank criteria. We will not do that. If there is a specific issue with a specific case, I am more than happy to examine that.

Senator Fidelma Healy Eames

Never mind the specific case, what I am saying is that if it is happening here, it is happening with others. I accept that everything is dealt with on a case by case basis but I wrote to the Governor of the Central Bank about this case. The Central Bank gave me specific guidelines on age. In certain conditions, if there was income to support it, a person might be let go to 70 or a little over but never over 80. The proposal that Ulster Bank made, which it described as sustainable, actually contradicted and went against Central Bank guidelines.

Mr. Jim Brown

The issue in terms of guidelines is that if the customer is over 70, the loan is not deemed sustainable anyway. What we will do is seek to put the right solution in place, regardless of the person's age, so that the loan is viable. Just because someone has reached 70 years of age, in our view, does not mean that we should call up the loan or take legal action.

Senator Fidelma Healy Eames

Obviously, I agree with Mr. Brown on that. I am not talking about 70, I am talking about past life expectancy, into their early eighties.

Mr. Jim Brown

I do not know the specifics of the case.

Senator Fidelma Healy Eames

How many of the solutions proposed to clients are short-term arrangements, that is, for one year or less?

Mr. Jim Brown

We have been very transparent on that. We have shared the data with the committee, as requested by the Chairman, which outline the Central Bank targets. We have also shared with the committee all of our arrangements, both short and long term.

Senator Fidelma Healy Eames

How many solutions are for one year or less?

Mr. Jim Brown

The vast majority would be for one year or less where people are in short-term difficulty, through unemployment, for example. We have also included details on the longer-term solutions and Mr. Bell will go through them.

Mr. Stephen Bell

The question is whether it is the right solution for the customer. For many customers, a short-term arrangement can be the permanent long-term solution if they only have a temporary issue. If, for example, a customer contacts us to tell us that there has been a death in the family which has put strain on the household finances, we are very happy to put a six month moratorium in place. That fixes the problem permanently even though it is a short-term solution. There is a danger of misreading short-term solutions as being short-term fixes.

Senator Fidelma Healy Eames

There is an element of meeting Central Bank criteria with six-month stuff that is really only kicking the can down the road.

Mr. Stephen Bell

We do not believe in-----

Senator Fidelma Healy Eames

One final question-----

Chairman

The Senator must be very brief.

Senator Fidelma Healy Eames

Now that house prices are taking off again, what policies has Ulster Bank in place to ensure that reckless lending does not occur again?

Mr. Jim Brown

We are very prudent in terms of our lending. There are certain loan-to-value ratios which we adhere to but more importantly, n the way we calculate the mortgage, we look at affordability, we build in buffers and stress test the loans so that if interest rates rise, the customer can still afford it.

Senator Fidelma Healy Eames

In terms of-----

Chairman

The Senator is finished. I want to conclude. We are unravelling a difficulty that has been created over the years but there is new mortgage lending and despite the difficulties of the present period, members of the public will continue to be home buyers. That is going to remain a fact and that is going to be the option of choice for most people who can afford it.

I wish to speak to the representatives about new lending. If the information I request is not to hand, it can be forwarded to the committee later. Prudential guidelines or directions were given to the banks in July 2009 by the Central Bank. The aim was that banks would move away from 35 to 40-year mortgages, that 100% mortgages would go by the way side and that lending ratios would revert to a more normal level, with LTVs put in place. What is the new mortgage book at Ulster Bank like? Is there demand in terms of applications? What percentage of those applications is the bank approving?

Mr. Jim Brown

I will hand over to Mr. Ryan in a moment on those specific questions. We are active in the mortgage market. We think there is a role for Ulster Bank to play. We have an active campaign underway at the moment and are gaining share but it is being done prudently, as Mr. Ryan will now outline.

Mr. Jim Ryan

Last year we lent €352 million to borrowers to buy new homes. That represented 14% of new business in the market last year. Our stock level, that is our share of the total number of mortgages, is 11%. We are lending over and above our stock level to meet the demands of buyers in the market and supply the necessary credit. That represented a 32% increase on the previous year, 2012, while the market last year contracted by 5%. Our doors are open for business but, I must emphasise, only on the right terms. We continue to approve eight out of ten mortgage applications in the market.

Chairman

What sort of ratios is the bank applying to those loans, in terms of income?

Mr. Jim Ryan

Typically, four and, at a push, five, depending on the LTV and the borrower's circumstances.

Chairman

What is the LTV limit? Is it 92%, 95%?

Mr. Jim Ryan

Up to 90%. There are some offerings in the market at the moment at 92% but our maximum is 90%.

Chairman

The schedule-----

Mr. Jim Brown

The average we are doing is actually considerably less than 90%. It is actually around the 67% to 68% mark.

Mr. Jim Ryan

Our overall LTV is slightly in excess of 70% but we can lend up to 90%, depending on the circumstances and the affordability. It is a lot different for investors and it is lower for re-financing, at 80%.

Chairman

What is the schedule of those mortgages? Are they typically for 20 or 25 years or are we seeing a continuation of the 35 year mortgages?

Mr. Jim Ryan

The minimum is five years and the maximum is 35.

Chairman

So there are still 35 year mortgages being issued. In terms of the methodology, are bonuses being paid for reaching new lending targets?

Mr. Jim Brown

Is the Chairman asking whether bonuses are being paid to sales people?

Chairman

Yes.

Mr. Jim Brown

We do not offer bonuses based on new lending targets.

Chairman

Is there any occasion where the LTV is 100% of the property value because the valuation is in excess of the real value? I ask this in the context of the setting of an LTV requirement by the Central Bank. Let us take a house that is being sold for €200,000. A potential buyer can borrow €200,00 based on his or her income.

Let us say that a person wants to purchase a house for €200,000 but cannot borrow that sum on the basis of his or her income. In such a case, would the loan-to-value requirement be worked around by revaluing the property at €220,000 so that it looks on paper as if the loan-to-value figure is 90%?

Mr. Jim Brown

We do not support that. We have an independent valuation process under which properties are assessed.

Chairman

Is Mr. Brown saying categorically that this type of thing is not happening at Ulster Bank?

Mr. Jim Brown

I am. It does not happen.

Deputy Peter Mathews

I have a question that is supplementary to the Chairman's excellent question. I have more than 20 years of experience in the area of valuations going back to the 1980s and 1990s. Valuations by so-called auctioneers and valuers in this country have been very wide of the embedded and true benchmark of the inverse yield value of a property. As Mr. Brown said, people have to pay a rent for living no matter who owns the property. If we take a four-bedroom semi-detached suburban house - in Stillorgan or Kilmacud, for example - the maximum rental value of which is €2,000 per month or €24,000 per year, a 7% yield will give a maximum value of €360,000. It is because of the very small volume on the market at this time that prices have been bid up. As Mr. Ryan said, the volume of lending went down last year. The public perception is that prices are going up, but it is not a sustainable increase because it is not related to the inverse of rental yields. A craziness in perceptions is beginning to take hold again. Do the delegates agree there should be a brake applied at the level of 15 times maintainable rent?

Mr. Jim Brown

The way we look at it is that we are in the business of financing people to purchase a home over a period, which is generally 20 to 25 years. The value the property trades at is the value of the transaction today.

Deputy Peter Mathews

The value depends on credit, which is the point I want the delegates to take away.

Mr. Jim Brown

I understand that, but it is another reason we do not focus so much on positive or negative equity or price movements. The key for us is affordability and ensuring the borrower who takes out a mortgage with us can sustain the payment over the life of the loan. It is the reason we build in stress tests, buffers and so on.

Deputy Peter Mathews

However, valuation based on rental yield can be checked against the income of an owner-occupier in a similar house. For instance, €70,000 per year times three is €210,000, and times three and a half gives €240,000. These are the brakes that should be applied and they are very simple.

Chairman

I must bring the discussion to a conclusion. I thank the witnesses for assisting the committee today. This meeting is one of a series of engagements we are having in the coming days with representatives of the banks. I appreciate the frankness and openness with which the delegates engaged with us and their commitment to provide any information that was not to hand. I look forward to receiving that information in the coming days.

The joint committee adjourned at 6.15 p.m. until 10 a.m. on Wednesday, 9 April 2014.