Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I am delighted to bring the Mortgage Arrears Resolution (Family Home) Bill 2017 before the committee for legislative scrutiny. The overarching purpose of the Bill is to protect the family home where the borrower is making a genuine attempt to meet his or her obligations. The mortgage arrears crisis is not going away. To the end of the second quarter of 2017, there still remained 73,706 PDH, private dwelling home, or family home mortgages in arrears, with an outstanding balance of €13.6 billion and an amount in arrears of over €2.7 billion. Of these, close to 52,000 family home mortgages are in arrears by over 90 days, while 32,000 are in arrears by over two years. Up to 13% of the 120,000 restructured PDH mortgages have fallen back into arrears. This gives a flavour of the scale of the problem.

While restructures are occurring and, in some cases, write-down deals are being done, to date it is inconsistent and unsatisfactory. Some lenders are reasonable, while others act without regard to the stress and suffering they are inflicting on families and individuals. Many have cited the fact that the number of repossessions taking place is low. This, of course, can serve to hide a much greater problem. According to the Central Bank's statistics for the first half of the year, legal proceedings were initiated in nearly 3,000 arrears cases. While not all of these will end in repossession on foot of a court order, many will end in the voluntary surrender or sale of the home. In the first half of 2017, 1,363 family PDHs were lost either through sale, voluntary surrender or repossession.

Ideally, mortgage arrears cases should be resolved through agreement between the lender and the borrower using both the code of conduct on mortgage arrears and the mortgage arrears resolution process. While agreements are being reached in some cases, for too many, they are not. At all points of the process the lender has the final say. In cases in which the borrower and the lender fail to reach agreement borrowers may have recourse to various options under the Insolvency Service of Ireland which was established under the 2012 legislation and cited at the time as a game changer for personal insolvency and mortgage arrears cases. It must be acknowledged that it has done a lot of good work and many positive outcomes have been achieved for borrowers in difficult situations. However, as highlighted by Fianna Fáil and others at the time, giving the banks the power to veto any solution put forward ultimately led to the process not working as well as it should. Once again, the balance of power lay with the lender. We were told that removing the veto would be unconstitutional. However, following a lot of political pressure over time, amending legislation was enacted in 2015 which provided for an appeals mechanism.

That was a step forward.

It is clear that the current system is not working. From speaking to many personal insolvency practitioners, PIPs, who I would like to make it clear are fully independent, it is clear that the process is long and cumbersome, with many cases taking over a year to resolve. A personal insolvency arrangement, PIA, involves secured debt and, typically, mortgage debt. According to the latest data from the Insolvency Service of Ireland, the number of new applications for personal insolvency arrangements remains high. In the first half of the year there were 2,226 new applications. Approximately 44% of PIA applications have been rejected or the protective certificate in respect of them has expired. In that regard, it may be the case that in some instances a deal might have been done in the interim. However, we do not know for sure, but we can confirm that 56% resulted in a yes vote, with 44% being rejected or in respect of which the certificate has expired. If we are to apply this ratio to new applications, nearly 1,000 will potentially end unsuccessfully. They will be unsuccessful because the lender has exercised its power of veto or because a deal is not possible. From talking to PIPs more recently, it certainly seems to be the case that the rejection figure is likely to increase in view of the current situation where the appeals system is not working. Whichever way one looks a it, many unresolved cases will ultimately lead to the home being lost. I do not believe we can stand back and leave this situation to develop as it is playing out. Something needs to change. PIPs are working tirelessly and diligently in a broken system. We must grateful for the many PIPs and acknowledge the frustration they must feel when a bank simply just says no to a proposal. We must listen to what PIPs are saying and they must be part of the solution. Many to whom I have spoken have indicated that the bank veto is the biggest challenge they face when it comes to personal insolvency and mortgage debt. I again say the balance of power well and truly remains in the lender’s corner, leaving the borrower in a weak and perilous position.

The situation is made worse by the decision in the recent case in the Dublin Circuit Court which was upheld in the High Court. Under section 115(a) of the Personal Insolvency Act, an appeal can be brought to the court when a bank has used its power to veto a PIA. In this case the court decided that only a PIP had the legal authority to make such an appeal. A PIP can now be made personally liable for the cost of such an appeal. While this is unlikely, it is a risk that many are simply not prepared to take. Many, of course, will be reluctant to go down that route as a result of this ruling and because of the potential consequences for them and their families.

It is clear that reform is needed. The Bill will ultimately tackle the bank veto when it comes to the family home. It is important to remember as we proceed through the process of legislative scrutiny and Committee stage that the Bill focuses solely on mortgage debt on the family home or primary residence. It has been designed to bring the balance of power back to an even keel. It is important to note that the Bill does not represent a free-for-all for borrowers. For some, it creates a moral hazard whereby a borrower will be encouraged to default. However, under the Bill, the borrower must still engage and co-operate. An individual who refuses to pay back any money whatsoever, even if he or she has the ability to do so, will not be rewarded when the Bill is enacted. There are many checks and balances set out within the Bill. Even if it is enacted, the personal insolvency process will still be stressful for the borrower. It will still pay for a borrower to stay out of arrears if he or she can do so and when in arrears to move out of that situation as quickly as possible.

The Bill will only apply to existing arrears cases that were in arrears on or before 1 January 2017. There is no incentive for a borrower to default. For the reasons outlined, I do not believe moral hazard will be a pervasive issue if the Bill is enacted.

I would like to spend a moment going through how the Bill will work in practice. In the first instance, it will establish a new office within the remit of the Insolvency Service of Ireland which will be called the Mortgage Resolution Office. The Bill will enable any mortgagor or borrower, a person who is residing in and is a registered owner of a family home, to apply for a mortgage resolution order. Such a mortgagor must be deemed to be financially restricted where his or her disposable income, non-essential assets and total personal debts are below a prescribed level. The Minister for Justice and Equality will be empowered to make regulations that will set out the prescribed level. A mortgage resolution order will only be obtained through an application to the Mortgage Resolution Office. A financially restricted mortgagor will still be able to engage a PIP and utilise the MABS and the Abhaile scheme. I envisage PIPs having a key role, just as they do in the insolvency process. Crucially, the Mortgage Resolution Office will be able to refuse the granting of a mortgage resolution order if it is found that the mortgagor is not, in fact, financially restricted or has made false representations. The financially restricted mortgagor will be required to fully disclose to the Mortgage Resolution Office all accounts held. Again, if not enough information is provided, the office will be able to refuse to grant an order. All of the provisions make it certain that the borrower must engage and co-operate. The financial institution will be required to respond to the application. If, in its view, the mortgagor is not financially restricted, it will be entitled to make such a submission to the Mortgage Resolution Office which will ultimately decide whether a mortgage resolution order is necessary. Once an order is in place, a lender will be prevented from initiating legal proceedings against the borrower. Where legal proceedings are already under way, the court may choose to suspend proceedings pending the outcome of the order.

The purpose of a mortgage resolution order is to find a sustainable solution for those in mortgage arrears and bring some consistency to the overall resolution of the issue. The Mortgage Resolution Office will arrive at such a solution. Importantly, it will receive submissions from both the borrower and the lender in each specific case. The Bill provides it with a suite of options to be used in individual cases. These options are outlined in section 9 and include all of the normal restructuring options such as a split mortgage; extension of the life of the mortgage; interest-only payments; and, of course, the mortgage to rent scheme. Further options can, of course, be added.

There are a number of appeal mechanisms outlined in the Bill, as is normal. If a financial institution believes the borrower is not financially restricted, it can appeal to the Mortgage Resolution Office to investigate. Part 3 of the Bill enables both parties to bring an appeal to an appeals office that will be appointed by the Minister for Justice and Equality and which will be fully independent. Where there is a dispute on a point of law, an appeal can be brought to the High Court for guidance.

The Bill is not perfect, as I will be the first to admit. There are issues that will have to be addressed on Committee and Report Stages. I will bring forward amendments, where necessary, and will, of course, be open to amendments brought forward by other members. One issue that I foresee that will have to be addressed is where an individual has other debt that is following the existing personal insolvency process. We need to define more clearly how the provisions in the Bill will interact and dovetail with the insolvency process where debts other than the family home are involved. I look forward to working constructively with members of the committee in order that we can make this a better Bill, one which will serve those stuck in the mortgage arrears trap. I believe the Bill is required to rectify some of the major problems in the current personal insolvency process. It is required to shift the balance of power back to the middle ground and to protect the family home. If enacted, not only will it provide a practical solution for many of those in mortgage arrears, it will also provide a strong incentive for a bank to find a sustainable solution before a case reaches the Mortgage Resolution Office. I know that the banks are very concerned about the Bill and hope it will help to change their practices. They will no longer be able to just say no because there will be an overarching provision under which an independent office will ultimately be able to impose a solution in each case.

I thank the joint committee for giving me the opportunity to introduce the Bill and look forward to our discussion on it.