The Central Bank and the Department of Finance have raised concerns over draft laws giving mortgage holders a veto on their loans being sold to so-called vulture funds.
Representatives from both organisations were before the Joint Oireachtas Committee on Finance this afternoon, where they said the 'No Consent, No Sale Bill' is unconstitutional.
Sinn Féin's finance spokesperson Pearse Doherty has spearheaded the bill that has already passed second stage in the Dáil.
As more detailed scrutiny of the proposal commences in the committee, Deputy Governor of the Central Bank, Ed Sibley argued that there is significant support available for those in arrears.
He cited the Money Advice and Budgeting Service (MABS), the national Mortgage Arrears Resolution and the Personal Insolvency regime.
The senior Central Bank official said the vast majority of distressed borrowers have remained in their homes despite the scale of mortgage arrears experienced after the financial crisis.
He said that by the end of 2018 less than one in 16 mortgages related to private dwelling homes were in arrears more than 90 days.
He also said that over 110,000 private dwelling home loans have been categorised as restructured.
Mr Sibley cautioned: "The enactment of this bill will not offer new or existing borrowers any additional regulatory consumer protection and it could have negative consequences for the functioning of the mortgage market, with wider implications for all mortgage borrowers."
"The enactment of the bill in its current form would hamper the ability of banks to access market based sources of finance using mortgages as collateral such as securitisation and covered bonds."
He said that this access helps "to diversify the funding base and achieve lower funding costs relative to issuing unsecured bonds. Constraints on the ability to mobilise mortgages as collateral to raise funding through these market based channels could ultimately limit the availability and increase the cost of mortgage credit."
Mr Sibley also said: "At a time when the severe dysfunction in the Irish mortgage market is finally easing, this bill could unintentionally slow or even reverse this progress. It would certainly give pause for thought to any firm considering entering the Irish market by increasing the cost of doing business in Ireland and effectively limiting the funding available for mortgage lending."
Gary Tobin of the banking division in the Department of Finance adopted a similar tone and said his Department have concerns around the potential unintended consequences of the bill and its timing.
He said he is very concerned about the potential implications of the bill for the financial stability of the banking sector and the wider economy coming so close to Brexit.
Mr Tobin said: "The Department's assessment is that the bill would lead unintended consequences such as higher mortgage interest rates for customers, reduced availability of mortgage lending overall, potentially severely restrict Irish banks' capacity to access Euro-system credit, institutions losing their ability to use securitisation, an increase in repossessions by banks as their ability to reduce NPLs ( Non-performing loans) through sales would be severely reduced, a reduction in new entrants and less competition in the Irish mortgage market.
"The Department also believes that the bill is unconstitutional as it is currently drafted. He said that the bill "overrides or aggregating private property rights."
Fine Gael Senator Kieran O'Donnell asked why would a mortgage holder not be put in a better position in terms of keeping their home under this legislation than what currently pertains?
Mr Sibley said that "there are very strong protections in place for mortgage borrowers and those protections are stronger than anywhere else in Europe and possibly the world."
He cited the way lenders have to engage with distressed borrowers and other protections.
He said that mortgage arrears peaked in 2013 and much of the crisis has been dealt with re-engagement with banks and restructuring loans.
Fianna Fáil's finance spokesperson Michael McGrath asked about the unconstitutionality of the bill and if the issue around it is around retrospective nature of the bill as it relates to mortgage contracts already written.
Mr Tobin said there was a broader issue around what is a fair and proportion interference with vested property rights in the State.
Mr McGrath pointed out that to get a bill all the way through the system, and enacted and into law it requires a lot of technical support.
It requires, buy in from the department, parliamentary drafts people and so on. Is the position of the Department of Finance that it will not be cooperating or supporting the progression of this bill because you are fundamentally opposed to it.
Mr Tobin said "The Government has decided to oppose the bill at second stage so from that point of view, I don't think the Department would be in a position to assist unless the Government changes its mind."
Sinn Féin finance spokesperson Pearse Doherty said that if the bill moves to committee stage he would hope that the Department would pro-actively get involved in passing it.