On behalf of the Irish Banking Federation, I thank the committee for the opportunity to be here today to contribute to this discussion, which is an important one. The Irish Banking Federation is the representative body for the banking sector. We represent approximately 70 members, most of which are international banks but for the purposes of today we will focus on clearing banks and mortgage lenders, of which there are 11 in total. We represent the general mortgage lenders, the high street names which would be generally known to everybody. There are also a number of specialist mortgage lenders which we do not represent. These are variously described as sub-prime lenders, residential reversionary mortgage providers and so forth.
The market here is quite diverse. If one looks back over developments in the last decade, we now have indigenous or domestic providers as well as providers of services from the United Kingdom, Denmark, Holland and Belgium. Many lenders have parent companies in those countries and are operating in this market. There is also a very wide choice of products. Approximately 20 years ago, the only mortgage that anyone here knew of was a variable rate mortgage. Today, there are variable rate mortgages, fixed rate mortgages and tracker mortgages and there are various features attached to all the different products. This reflects the changing needs of the customer base. The product market is no longer homogenous nor is the customer base. People have different needs, depending on whether they are first-time buyers, trading up or investors or are switching or topping up their mortgage.
We report quarterly on the mortgage market, detailing the number of loans by value and volume and we analyse it in some detail. During the period from 2005 to 2007, 563,000 mortgages were written, to a value of €108 billion. The market is enormous, with huge volumes of transactions.
Members may be interested in housing loan costs in the euro area. The European Central Bank monitors this on a regular basis and its figures indicate that in Ireland, because of the growth in the market and the number of new providers, the cost of housing finance is one of the cheapest in the euro zone and is only marginally higher than Finland and Greece.
On the issue of mortgage conveyancing, in the period before 1996, it was quite a complicated, time-consuming and costly process. At that time, there were solicitors involved on behalf of the bank, the seller and the buyer. If, for example, a seller's solicitor was based in Donegal the buyer's solicitor was based in Tralee and the bank's was based in Dublin, there had to be constant communication between all three parties. I am not saying that every case involved those kinds of distances, but at its extreme, there was that kind of toing and froing involved, with paperwork moving back and forward between all the parties. It was very time-consuming and costly for the consumer because, ultimately, he or she was bearing the lion's share of the costs. The process was also very inefficient. At that time, Ireland was changing, in the sense that the volume of economic activity in the country was ramping up significantly. A fundamental part of that was the volume of commercial and residential property transactions. In that context, the system was going to be challenged in any event, in terms of being able to process the volume of business that was beginning to emerge.
After 1999, a new system was in place. We negotiated a solictor's undertaking with the Law Society, primarily focused on residential mortgages. That effectively meant the process rested with the seller's and buyer's solicitors. It cut out much of the cost, reduced the timeframe, increased efficiency and made it more convenient for everybody concerned. It is important to bear in mind that if we were not able to rely on solicitor's undertakings, not just in this area, but in a number of other areas, the whole commercial life of the country would grind to a halt. The registering of deeds, for example, could take upwards of a year or longer in some cases, possibly due to a lack of staffing resources. Plainly, such transactions cannot be delayed, particularly commercial transactions, for that length of time. Therefore, the solicitor's undertaking has to come into play in order to reflect commercial reality.
To put the recent events in context, we would argue that the current system has worked very well, given that over 560,000 mortgages were processed in a three year period. If one puts the sum of money mentioned in the two recent, high-profile cases — it is not an insignificant amount of money — in the context of the value of the mortgages that were written over that period, all of which relied on solicitor's undertakings in some shape or form, it amounts to 0.1% of the value of all the mortgages transacted in the market. In other words, that is the amount of money that is currently being discussed in terms of the failures in the system. During the three years from 1995 to 1997, in 99% of the mortgages by value that were processed, the system worked.
Having said that, it is critically important that when there is a failure in the system a review is conducted and lessons, if there are any, are learned from the particular incident. The recent, high-profile cases prompted a review. However, it must be said that no system can be fully proofed against failure or fraud. At the end of the day, one cannot have zero failure. We know that from both the public and private sectors and we have had lots of examples of it over the years. It is impossible to reach a zero failure situation.
That being said, we have taken our role seriously in this situation, in terms of determining how we could arrive at a short-term solution. I emphasise short-term because there is a longer-term solution, which we must drive very aggressively towards. We initiated direct discussions with the Law Society on the particular events. Over a series of meetings, we arrived at a set of shared objectives, as we would see it.
The first is that we want to focus on enhancing the whole risk management process so that we mitigate any risks that are in the system. Mention was made earlier of the question of setting up a register of undertakings, which is something we have discussed with the Law Society. I would not like, in terms of managing expectations, to create the impression that this is the panacea for all the ills here because there are a number of significant challenges with using such a register as a mitigant. For example, in order to be able to efficiently capture all the register of undertakings, we would need to have unique postal codes, something that we do not, sadly, have in this country at present. Otherwise, there is the possibility that undertakings for proximate addresses would be registered as the same undertaking. The other issue is that all the lenders would have to participate in the system but the federation, as representative body, does not represent all of the lenders in the market. However, I am not saying that this is the most substantial issue. The most substantial one is the matter of the postal codes.
Another area that we are actively working on with the Law Society is a review and revision of the undertaking documentation. At times like this, it is always prudent to take out the documentation and determine, by wordsmithing or otherwise, whether it can be strengthened, in terms of its clarity, the timescales involved in discharging certain aspects and so on. That is an ongoing process. Another area of focus, to which the Law Society representatives also averted, is a revision of the escalation procedures on the part of the banks and the Law Society so that where issues arise, they are accelerated, captured and rapidly dealt with by the system before a serious problem arises.
All of this is designed, ultimately, to strengthen the safeguards that exist for the customer because the customer is at the nexus of the transaction. We are hoping to soon complete our discussions with the Law Society. I believe the outcome will be a strengthening of the system that is in place at the moment.
In terms of a medium-term or long-term solution, the issue of the current conveyancing process is important. BearingPoint, a firm of management consultants, was retained by the Law Reform Commission to examine the current conveyancing system with a view to determining the steps that would be required to move to an e-conveyancing model. In its report, it sets out what is currently quite a long supply chain, when one takes into account the various actions involved in the conveyancing process. In contrast, the e-conveyancing model has the potential to cut down the supply chain and reduce the number of transactions involved quite considerably. That immediately raises the question of whether, if one cuts down or collapses the number of moves involved in a process, one dilutes it but in fact, this strengthens the process. By moving to an e-conveyancing model, one achieves transparency, with an ability to track the transaction through all stages of the process. The solicitor and other interested parties will be able to track the transaction on-line and it will result in cost savings and greater efficiency because the title will be registered more promptly and the reliance on paper will be reduced. It mitigates against the potential for mortgage fraud because all pending registrations are captured within the system. Significant competitiveness gains stand to be made for Ireland Inc. because it does not take much to realise the amount by which the cost of the 560,000 transactions conducted over the past three years could be reduced. All stakeholders, and especially consumers, will benefit from the new system.
A critical number of actors are involved in the process, including the IBF. We have worked for some time on developing a standardised mortgage deed which is portable across institutions and hope to conclude this project in the coming year. It will facilitate switching mortgages between institutions. The Property Registration Authority, in consultation with the IBF and the Law Society, is developing an e-release system which provides a centralised channel within financial institutions through which releases can be sought from the authority. That system will require changes in information technology systems but we are co-operating on the project and a number of our member institutions have been invited to pilot it. The Property Registration Authority is also studying the areas of registration of titles, digital mapping and the European Land Information Service. In regard to the Revenue Commissioners, the Finance Bill 2008 made provision for the introduction of e-stamping instruments for stamp duty purposes.
E-conveyancing can be compared to the move from filling forms and writing cheques for car tax disks to the current situation of applying for them on-line. It has the capacity to transform property conveyancing in the same manner. Steps could be taken to speed up the process, however. All the parties involved, namely, the financial institutions, the Property Registration Authority, the Law Society and the Revenue Commissioners, are fully committed to e-conveyancing. The Law Society has appointed a project manager and invested resources in the project, as has the IBF and the Property Registration Authority, while the Revenue Commissioners have had legislation enacted in respect of it. However, several factors need to be addressed before e-conveyancing can be a success.
Although the key stakeholders are pursuing their individual strands, there is an absence of ownership and leadership of the overall project. I am aware the Law Reform Commission has established an e-conveying project board. We are not members of it despite seeking representation on it, so it is probably internally focused at present. The project needs to move promptly to being led by an individual or agency that sets the timetable for all the actors and tells them what they must deliver to crystalise e-conveyancing capabilities. Until that happens, e-conveyancing should not be expected anytime soon. Somebody needs to call the shots on specific timeframes and goals because this is a national competitiveness issue.
