Oireachtas Joint and Select Committees
Tuesday, 20 June 2017
Joint Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach
Irish Mortgage Market: Right2Homes
2:00 pm
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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We are dealing with item 4B of our agenda, distressed mortgages and a legislative proposal. We are joined by Mr. Brian Reilly and his colleagues from Right2Homes.
I draw the attention of witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They 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, persons or entity by name or in such a way as to make him, her or it identifiable.
Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable.
I invite Mr. Reilly and Mr. Byrne to make their opening statements.
Mr. Brian Reilly:
I thank the Chairman and committee members for inviting the Right2Homes umbrella group to appear before it today. I hope the Chairman will forgive me if I seem a little anxious; the issues are so important to so many people. I ask the committee members to imagine what it must be like for someone appearing in a courtroom not too dissimilar to this setting. Probably for the first time, the person is appearing as a defendant attempting to protect his or her home from a bank or, worse still, a vulture fund that is here only to profit from the crisis in which many people now find themselves trapped. That scenario is the only motivation behind the proposed large-scale solution. We are looking for the political will to help make this happen and are asking all politicians from all parties to get behind the Bill.
By way of introduction, I am co-founder of Right2Homes, which is a not-for-profit organisation. I am joined on this panel today by my fellow Right2Homes director, Mr. Austin Byrne, and by Ms Sandra Daly, Mr. Michael Durkan, Ms Caroline Lennon-Nally and Mr. Jim O'Connell. Together we are representing our trustees and also the umbrella group, drawn from like-minded organisations and individual advocates, engaged in seeking legislative change and solutions to the distressed mortgages crisis. We are delighted and honoured to have been given this opportunity to address the committee in respect of its review of the Irish mortgage market and related matters as this is the focus of the proposed National Housing Co-operative Bill 2017, the details of which we will discuss today.
This committee has undoubtedly received many detailed submissions in respect of these matters so we do not propose to subject it to yet more damning statistics, alarming and shocking as they may well be. Instead, we are here to talk about a big idea, a solution to the crisis involving the related areas of homelessness, social and affordable housing and the lack thereof, and of course distressed family home mortgages. These three defining issues are joined at the hip but, for the purpose of today's meeting, we are focusing on the proposed national housing co-operative and the attendant explanatory memorandum, copies of which the committee will have received prior to today's meeting.
Some of us here today have literally put our own lives on hold to get this proposed legislation to this stage, and I doubt there is anyone in this room, or even anyone watching, who is not already acutely aware of the nightmare currently faced by many Irish families still residing in their family homes or, indeed, in buy-to-let accommodation. They live in daily fear of banks, afraid to open their hall doors or even their post, defenceless in the absence of effective legislation to protect themselves and their families from the threat of repossessions. We believe this proposed legislation can provide a tangible solution for all that.
The proposed national co-operative is designed to keep people in their existing homes through the creation of a benevolent society as outlined in the proposed Bill. It may perhaps be helpful to give the committee a short history of the events leading up to the creation of this Bill which members have in their hands today and which will soon be presented to other Members of Dáil Éireann and Seanad Éireann to debate and eventually vote on. The Chairman, together with Deputy Mattie McGrath and Senator David Norris, who joins us here today, have all committed to ensuring this proposal will see the light of day and be brought before the Houses of the Oireachtas. We express our sincere gratitude to them and to the Chairman of this committee for making that a reality and for providing this tangible ray of hope for so many.
The first step in the creation of the national housing co-operative began in this very room last January following an appearance by me before this very same committee. I had received an invitation from Mr. Jerry Beades, chairman of Friends of Banking Ireland, to join him and others in presenting submissions to this committee. They had been invited to address matters related to the banking crisis. Perhaps it was down to some naivety on my part, but I was genuinely shocked at what appeared to me, back then at least, to be a distinct lack of urgency, with little or no sense of emergency about those proceedings. A crisis, by its very definition, requires urgent action, and the power to make this solution a reality resides within the Houses of the Oireachtas. What could be more important or pressing than the imminent fear of a family losing their home, a matter of life and death for some, unfortunately, and yet there I was back in January being confronted with the vista of a half-empty chamber towards the end of that three-hour submission.
I was asked afterwards by the Chairman, for whom we have the greatest respect, if I was happy with how that meeting had gone. I immediately answered "no", which led to a series of phone calls, to be fair, and which in turn resulted in an invitation from the Chairman to return the following day to discuss the views expressed. This in turn led to Right2Homes receiving an invitation from Fianna Fáil Deputy Darragh O'Brien to involve an umbrella group of like-minded advocates in drafting a Bill capable of halting the transfer of home loans from banks to vulture funds and also a Bill that would facilitate the creation of a benevolent entity to house the tens of thousands affected by distressed family home mortgages.
This is what we set about doing, and today we are proud to present to this committee, and to the people, a framework for a solution that has been carefully crafted by independent experts. These experts include the Master of the High Court, Mr. Edmund Honohan, who is here today in a private capacity, and Mr. Pat O'Sullivan, a retired fellow of the Institute of Bankers. Both have kindly agreed to join us for the purpose of this submission, which is hugely important given the serious nature of the proposal and the complexities of the proposed legislation. They will be joined on that panel of experts by Dr. Rory Hearne, Mr. Maoilíosa Reynolds, Mr. Anthony Joyce and Fr. Peter McVerry, who needs no introduction and who should be applauded for the wonderful work he does for the homeless.
We have three hugely important phrases we wish to impress on the committee and which it is hoped will help to replace the widespread uncertainty and fear with a message of renewed hope and fairness. The first is "keep people in their homes", the second is "halt the sale of loans to vulture funds" and finally, together, summon the "political will" to help make this proposal a reality.
Without any further delay, I will now ask my fellow Right2Homes director, Dr. Austin Byrne, to read Part 1 of the explanatory memorandum, which will, it is hoped, form the basis for further discussion.
Dr. Austin Byrne:
A watershed moment in the distressed Irish residential mortgage crisis is upon us for a variety of reasons, with more than 100,000 Irish residential mortgages in various levels of arrears. In excess of 6% of total residential mortgages in Ireland are now in the hands of so-called vulture funds. Contrary to what we are led to believe, with regard to the common good, there is no economic, social or moral benefit in having vulture funds operating in Ireland and their presence should be discouraged forthwith.
As the economy moves through recovery, the fact is simply that this rising tide is not lifting all boats. Due to the sheer numbers of citizens affected, the medium to long-term effects cannot be measured in terms of moral and social impact, although we are seeing increases in reported cases of alcohol and drug abuse, suicide, mental illness, and marital and family breakdown. Every occupant of an affected Irish residential dwelling, whether they are a mortgagor or a tenant, is in the firing line of the stated intentions of the banks and those of the vulture funds which will ultimately own these properties. The banks are, in turn, under increasing pressure from the ECB to address their distressed loan books.
The question I would ask all Members of both Houses of the Oireachtas is what side they are on - that of the common good or that of the vulture funds? The National Housing Co-operative Bill 2017 proposes a two-pronged approach to the issue of mortgage arrears. The first concerns legal matters and the second addresses financial aspects. When both these areas are consolidated, the real success will be measured in the numbers of families who remain in their homes, regardless of their status as borrowers or tenants.
Several adjustments to existing legislation are proposed to enhance the ability of the courts to deal with applications for possession and sale of property-securing defaulting loans in a fairer, more transparent way and to eliminate the practice of bundling large numbers of loans into portfolios for sale to vulture funds, while at the same time ensuring that where an order for sale of a property securing a defaulted loan is granted by the court, it is managed to ensure the best possible outcome is achieved for both the lender and the borrower. Additionally, increased application of relevant EU law is proposed to ensure existing protections for borrowers are recognised and considered by the courts.
The proposed legislation is potentially an all-encompassing solution to the issue of residential dwelling mortgage arrears, regardless of whether the underlying security for such loans is a family home or a buy-to-let investment property. After all, they are all someone's home. The controversial issues of strategic defaulters and moral hazard will be dealt with in detail case by case basis. In truth, the real moral hazard is in simply doing nothing. This Bill will have the effect of essentially resolving the social calamity unfolding in Ireland as a result of residential mortgage arrears.
In closing, and before I hand over to the panel of experts assembled to answer the committee's questions, I should say that as private citizens we are all entitled to the benefits that status affords each of us, but with that status comes a degree of responsibility. In my private life, my employment denotes that I am a public servant, but in reality, we are all public servants. We serve the society we live in. We cannot individually exist in a vacuum. If we want society, now and into the future, to be a fair and just society inclusive of all, we must, each of us individually, ask two simple questions in respect of the home mortgage crisis and the consequential impacts accruing from failed attempts to deal with that crisis.
If not us, then who? If not now, then when? Members and witnesses have a very real opportunity to step up and implement the comprehensive solution contained in the proposed legislation. The future effects of doing nothing will be immeasurable on many levels in terms of our society. I am privileged to have had the opportunity to make an impact and work with the excellent like-minded people here today, whom I have come to know and with whom I have forged friendships that will last a lifetime. They are, for the most part, far removed from my normal life and our paths, in ordinary circumstances, may never have crossed. Our umbrella group has collectively found the will and wherewithal to bring this critically important legislation to this point. We will continue to push for this solution but it is up to members to take a position, choose which side they are on and work with us to keep people in their homes. It is up to the members. The time is now.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That is fine. When will Mr. Honahan be making his statement?
Mr. Edmund Honohan:
My name is Edmund Honohan, senior counsel, and Master of the High Court since 2001. I always feel slightly put off that I cannot stand up while making a speech because my practice as a barrister is to stand up and walk around while so doing. I will try to assist the committee with the legal aspects of the proposals it has before it. If I were teaching law, I would ask members to write down the terms "foreclosure", "redemption", "equitable right to redeem", "equity of redemption", "sale", "possession", "repossession", "vacant possession", "execution", "squatter" and "eviction". I would ask the members to pick any four of the above and explain them, writing only on one side of the paper. These are terms with which lay litigants must deal in court. Even some lawyers appearing before me do not understand these terms. Nevertheless, this is the vernacular of litigation in the area of mortgages.
It will be of interest to the committee to know that the term "foreclosure" has been abolished since 2009. That is a regret because that word has a real human meaning to it. It denotes the precise point at which the right of the occupants to reside in a premises ceases. The fact that foreclosure has been abolished as a legal remedy to be replaced, in effect, by the order for sale, has caused some confusion in the minds of commentators. Any mortgage deed involves two parties: the mortgagee or banker and mortgagor or borrower. Each has rights. On one side there is foreclosure, which is the right of the mortgagee, while on the other side there is the right of redemption. Members may not have come across that word. Those are equal rights.
An examination of 19th century law will reveal foreclosure claims by mortgagees and redemption claims by mortgagors. In those days, redemption claims far outnumbered foreclosure claims. It was not unheard of, rather, it was more usual to have a claim by a mortgagor for redemption of the mortgage in a situation such as a person wanting to put the money on the table and demand the return of his or her property. Foreclosure and redemption were the two equal measures. Underlying them were subsidiary or ancillary reliefs such as orders for sale and for possession.
Depending on which way the case was going, the mortgagor or the mortgagee might be looking for an order for sale. Believe it or not, there were cases where the mortgagors wanted to force the banks to sell. As recently as 1997, there were English cases involving mortgagors having to take banks to court to get orders for sale. Nevertheless, the availability of sale and possession as remedies fluctuates between the mortgagor and the mortgagee. Sale and possession may be ordered as ancillary to foreclosure or in relation to redemption. It is like a tug of war between the two parties and is not fixed. In this Bill, I am relying on that key legal mechanism.
The repossession list of Thursday last included the names Derek, Joseph and Anne Maire, Colm, Stephen and Marie, Stephen and Miriam, Colm and Sharon, Paul and Natalie, Ray and Martina, Nora, Chris and Sandra, Abdul and Aleesa, Mary, Brian, Andrew and Sinead, Emma and Brendan, Marius and Claudia, Martin, Thomas, Helen, Brian and Patricia, Lisa, Clyde and another Lisa, Desmond and Adrienne, Harry and Martina, John and Antoinette, Michael, another Michael, William and Maria, William, Martina and Patrick, Mark, Gavin and Sorcha, Wesley and Carol, Geraldine and Anthony, Joseph, Patrick, Catherine, Philip and Michelle, Kerry, Sarah and Thomas, Gillian and Philip. These people are last Thursday's hidden homeless. They have lost the right to live in the houses in which they are living. There were 41 cases and, by my reckoning, 69 defendants.
Under the European Convention on Human Rights, each defendant is entitled to effective participation in the proceedings. Why, then, is there a Circuit Court practice direction by the President of the Circuit Court that the plaintiffs should write to the defendants by letter from the plaintiff or the plaintiff's solicitor stating that, except with the consent of each defendant, no order for possession will be made on the initial return date and the proceedings will be adjourned to a later date? The defendants, having received such a letter, find that of great relief and believe they do not have to turn up to court.
The Minister for Justice and Equality then says that these people will not engage. Not only that, newspapers say that they find it astonishing that only 12 defendants turned up from a list of 70 and they think that the other 58 are strategic borrowers who could not care less. If one receives a letter such as the one directed by the President of the Circuit Court in respect of one's first appearance, one will naturally walk straight past the court, whistling. The next time one is told to come in, one will decide to take a chance on it. The time after that, one will take a further chance on it. Eventually, it will be too late and the sheriff will be at the door. That is a problem and Ireland could be in trouble with the European court in relation to that practice direction.
Only a handful of defendants had legal representation. Most defendants did not attend. Five orders for possession were made, some cases were struck out and the balance were adjourned to mid-November. Do members know who these people are? No. Nor do I. How many families? How long have they been living at the mortgaged home? We can only guess; perhaps ten or 15 years. There is a dearth of sociological data or demographic information. We do not know how many of these defendants are in mortgage arrears for 720 days and upwards or how many are only three months in arrears, nor do we know how many have recently restructured loans which have under-performed. We do not know why they stopped paying. We do not know if there are any freeloaders gaming the system or whether the defendants are all collateral damage caught in the crossfire caused by the 2008 recession. The overwhelming impression anecdotally available to me and, I suspect, to members in their constituency clinics, is that these people are sub-prime borrowers who should probably never have been given mortgages in the first place. It is not their fault that public housing was unavailable back then. The crisis is not that these people are heavily in debt, it is that when they are eventually evicted, and they will be unless the committee acts promptly, there will still be no public housing for them.
Members of the committee should brace themselves. This is the Joint Committee of Finance, Public Expenditure and Reform and Taoiseach. Evicting one occupier costs money. The wholesale eviction of many thousands over the next four or five years will cost millions of euro and the taxpayer will foot the bill. A judgment of the European Court of Human Rights regarding a difficult eviction said:
The council applied to the High Court for enforcement of the order for possession. On 24 July 2000, the High Court ordered the sheriff to execute the warrant for possession. The sheriff’s officer, the bailiffs and the West Yorkshire police carried out a planning and risk assessment. The sheriff’s officer attended the site and requested the applicant to vacate the plot. He refused.On 1 August 2000, early in the morning, the council commenced enforcement of the eviction, in an operation involving council officers, the sheriff’s officers and numerous police officers. The applicant stated that also police helicopter, police dogs, control centre, numerous police vehicles and detention vans were employed.
The operation lasted five hours. The judgment continued:
The applicant stated that it was not until late afternoon that their own caravan was returned to them. During 3 August, the Council returned their possessions, including a washing machine, drier, microwave, gas bottles, kettle and clothing. This was dumped on the roadside some distance away from the applicant’s caravan. The Government stated that on 1 August the Council removed from the plot to safe storage goods and personal property that the applicant and his family had failed to take with them.
I predict that sometime soon after the banks have sold on their junk mortgages to the private market, county registrars will be presented with court execution orders to be executed, not a couple of times a month but ten or 12 times a week. Who is going to pay for this expensive procedure? The public purse. Taxpayers will spend millions of euro on evictions. Does that sound right to the committee?
The graph I have reproduced in my statement was taken from the Nevin Economic Research Institute's working paper entitled Ireland's Housing Emergency. It shows a relatively flat level of repossessions at 150 per quarter until the beginning of 2014, when the figure doubled overnight to in excess of 300. Why so? What event caused this change? I can think of no significant factor that might account for the sudden change other than the sudden arrival of vulture funds into our distressed mortgage mess. If that is so, one must presume that if the banks are now proposing to finally sell of their huge numbers of deeply indebted loans to the private sector, perhaps increasing the non-bank proportion of non-performing housing loans fivefold from less than 10% to over 50%, we can expect a further significant jump in repossession cases. There were 41 cases of repossession on Thursday last. In two years' time, the average list might be 200 per sitting. On any cost-benefit analysis, this is taxpayers' money down the drain. It is only a first payment of the many additional bills that must be paid for when the homeless are being provided for.
In the paper that I furnished to the committee, I quoted parts of Professor Kenna's book concerning Irish legislation on homelessness. He sends his apologies for not being able to attend today. In his book, he made the interesting point that, under the 1998 Act, homelessness was defined as a first step in Irish law to identify the rights of the homeless in order to underpin them with some legal protection. I quoted him on page 3 of my submission. In his book he said, "the Housing (Miscellaneous Provisions) Act 2009 creates a new approach to housing need.", and made the following technical point:
This represented a conceptual shift from the notion of “in need of such accommodation” of the 1988 Housing Act, thus defining housing need within a new and narrower focus ... The criteria has shifted from the notion of housing need in the universalist or basic needs sense, to the newer eligibility for “social housing support.
What he really means is that it is Government or national legislative policy not to cater for the homeless but to start a process of allocating as between different sectors of society. That involves competing interests and competing claims between different types of homeless persons. It is alarming to think about the amount of litigation that will proceed on the basis of arguments between different classes of people who claim to have a higher priority for accommodation, even on a temporary basis, than the next group. The number of cases will start to skyrocket.
I have brought with me a copy of a report from the House of Lords in England dated 2 April 2015. In it, Lady Hale describes a claim by a lady with five children who was told that there was no property available to house her temporarily in Westminster and so she was offered a house in Milton Keynes. The person concerned challenged the offer and insisted she should be given a place in Westminster or in the next borough down the road. The case went as far as the Houses of Lords in England and the person won her case. That is the kind of litigation that we will be faced with if we are going to deal with the housing of the homeless on the basis of allocating scarce resources. That seems, unavoidably, to be where we stand because we do not have social housing.
Is there a will? An ad hocgroup behind me has promoted and lobbied this action. They asked me about it and I told them not to expect the banks to find a solution. They said there is a will but nobody can suggest a way. They have turned to their sworn enemy, namely, the grinding wheels of the law and asked whether the law can help sort this out. I said that the banks are trying to figure out how to sell and the Government is trying to figure out how to buy. This seems like an opportunity to sit down and do a deal.
A headline in last Wednesday's edition of The Irish Times read, "Banks ponder shifting troubled loans off balance sheets as ECB pressure mounts." The banks are trying to sell. The Government or somebody who may be operating off-balance sheet should be buying.
There is political consensus, cross-party political will, to secure, as a primary objective of public policy, the retention of families in their homes. I quoted from both the Fianna Fáil and Fine Gael manifestos. I am sorry but I did not look at the Sinn Féin manifesto. I also quoted from the action plan put forward by the former Minister for Housing, Planning, Community and Local Government, Deputy Coveney where he proposed, at page 49, that we should ask the NTMA to examine the feasibility of establishing a funding vehicle that could be capable of facilitating investment in social housing in such a way that does not impact on the general government balance. On the same page, it is stated, "If significant [changes] in respect of both the commerciality and the on-/off-balance sheet treatment of such a vehicle can be addressed satisfactorily, the objective is to establish a Special Purpose Vehicle (SPV) by early 2017 to acquire properties". I am not sure what progress has been made on that proposal. It is obvious, however, that progress needs to be made.
My proposal is simple. Believe it or not, it involves a small rejigging of the position of the possession order as between the mortgager and mortgagee - as between foreclosure and redemption - so that those in occupation of the premises will be allowed possession pending sale. So, they have lost the right to live there, the place is going on the market, the place will be sold, there will be a date for the completion of the sale and, at that point, they will be obliged to quit. They will not be evicted until the property is actually required by the new owner. People may think that does not get them very far. It will., however, because it bridges over that period between the bank deciding to sell and a purchaser, in the form of a co-op, emerging on the scene and saying they are going to buy. If the co-op buys, then those who are occupying the premises remain in possession and their new status can be negotiated. The possession pending sale is the key relief proposed in the Bill in regard to the occupants, and that includes tenants.
The other feature of the proposal is what I like to call the "non-compulsory purchase order". The phrase occurred to me as encapsulating, very clearly, the fact that it is quite obvious that banks want to sell. If they want to sell, we will buy. If they do not want to sell, we will not buy. We are not going to compel them to sell. We are not going to compel them to become landlords. We are simply saying that if they are going to sell then they must give the co-op a put-and-call option. In effect, we have first dibs. We say, "Okay, that property is on the market. We are now entitled under law to make you an offer." The offer, unfortunately, would not be not a very generous one. Under the Bill as drafted, the offer is the value of the property currently on the balance sheet of the vendor. I am sure that is rather disturbing news for banks because they will say they have written down the value to very little. I will say:
Yes, you have and you have got the tax breaks accordingly so you have now got to face up to whether or not you want to accept this offer, which is basically to take it off your balance sheet and put into the balance sheet cash to the same value that is in the balance sheet or refuse the offer. You are quite entitled to refuse the offer. If you want to refuse the offer, then the property will be sold in a fair market either by means of a compulsory purchase order or an order for sale pursuant to court supervision.
Why reinvent the wheel? As I have said, we have legislation relating to co-ops since 1893. The mutuality of membership adds immeasurably to the feeling of community solidarity. Not only that, but it is a model tried and tested worldwide. I have discovered astonishing information on the housing co-operative movement around the world. There are housing co-operatives in Pakistan. The total housing stock in that country is 19 million units, with the figure for co-operative housing stock standing at 2 million.
In Germany, and these are the people who are going to be telling us about our balance sheet and EUROSTAT statistics, 30% of all rental housing is controlled or managed by 1,800 housing co-operatives that is comprised of 6 million housing units. These are people who I think would understand that if one goes to Brussels and says, "We want to put some public money into a co-op system." They would say, "But sure, why did you not ask us before?" We would reply, "Oh, we had to ring Timothy Geithner." The latter is now off the scene.
We now go to Brussels and say "The co-op system is the way to build social housing from here on." We do not actually go out with the local authorities and build; we create co-ops. They create working communities that assist one another and survive market forces.
It is shameful, given Ireland's history of remarkable land reforms at the turn of the 19th century, that we should now think that new ideas might be too complicated. Were they smarter legislators back then? No, but they kept amending and improving until they got it right. By my count, the Oireachtas has already amended the codifying Land and Conveyancing Law Reform Act 2009 four times, on each occasion, changing the law about mortgages. Cui bono? What is sauce for the goose is sauce for the gander. The Oireachtas should change it again and get it right this time.
Here is an interesting historical fact: Ireland's land reforms had a head start on Scotland's. We had the Great Famine. In 1848, shocked by reports of "wholesale evictions on Christmas Day, by the universal practice of unroofing peasants' cottages and by the crowds of starving and helpless families seeking union relief", the House of Commons took action. Chief Baron Palles said, "These facts were then well-known to parliament". Parliament banned them. He mentioned the name of the relevant case and added "I am myself old enough to remember the names of two towns in the south of Ireland - 'Schull' and 'Skibbereen' - being used in general conversation as places typical of the worst horrors of the famine".
The good news is none of the 60 persons I named at the outset will be evicted next December 25 but who here can be confident they will not be evicted the following week? Members are the gatekeepers of legislation. They should not pass the buck.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Mr. Honohan has been direct as usual. We have three speakers, Deputy Pearse Doherty, Deputy Michael McGrath and Senator Norris.
Pearse Doherty (Donegal, Sinn Fein)
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I thank Mr. Honohan and the previous speakers for their contributions. I commend them, as a group, on the efforts they have made. I was taken by Mr. Reilly saying certain people's lives have been put on hold trying to get this across the line. It is not very often we see legislation written from outside the confines of the Houses of the Oireachtas. I commend the witnesses on doing that and on their efforts to try to resolve something that has been plaguing home owners for the past decade. It will continue to plague them unless we come up with some imaginative solution.
The Chairman has put the legislation before the Ceann Comhairle in order to introduce it. What is proposed in this legislation is something for which Sinn Féin has been calling for many years. When NAMA was established, we called for a NAMA for the wee guy. I would call this a NAMA for the wee guy. It is a co-op supported by the State that would purchase the loans from the banks and then treat the borrowers with the respect and dignity they deserve. On behalf of my party, in terms of the principles of the legislation, I am willing to support it. There are technical issues we need to deal with and that is what Committee Stage and pre-legislative scrutiny are there for. I hope this legislation will be able to find its way to the floor of the Dáil, where there can be a vote on it. I hope we can get all-party support for it. Perhaps we can take the opportunity at this meeting to establish where different parties and groups stand on the matter.
One of the concerns I have is that there is a constitutional block on Members of the Opposition introducing legislation that would result in a charge on the people or State. I drafted legislation to have a referendum to remove that constitutional block but we are where we are. In Mr. Honohan's view, with his legal expertise, is this legislation which a Member of the Opposition would be blocked from introducing or could it be prevented from proceeding to Second Stage? Will it require a money message from Government?
Mr. Edmund Honohan:
These issues are decided by the Ceann Comhairle. It is some time since I read the Bill but, on close examination, it does not involve State money at all. This co-op could be set up privately. The only involvement of the State is to slightly tweak the law in a number of respects and also to involve the Taoiseach as the founder of the co-op. There is no material exposure to expense. I will have to ask Mr. Patrick O'Sullivan, who has all the money, to explain where he is going to source the money to buy this. I was aware of the fact it had to be all off-balance sheet and that is how it is designed.
Pearse Doherty (Donegal, Sinn Fein)
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Hopefully, Fine Gael will indicate that it is a vehicle it wants to go with or perhaps Fianna Fáil, which is keeping the Government in position through its confidence-and-supply arrangement, will indicate that. I am sure that if there is a will, we can find a mechanism to introduce a vehicle of this nature. On funding, it is stated in paragraph 26 that the co-op could raise money through the issuing of bonds. Would they be State-backed bonds, given that it would be the Taoiseach who would establish the co-op?
Mr. Edmund Honohan:
This is a crowd-funding enterprise. It is crowd-funded in the sense that if a borrower goes to the bank and says he or she is prepared to pay a certain amount per month, the flow of income will enable the bank to write that person a loan. The business model of the co-op will be based on the fact that there will be a flow of rental and other income into the co-op from the members of the co-op, who will continue to reside in the house. It will then be able to go to the international money markets with this hefty cashflow and borrow the money.
Pearse Doherty (Donegal, Sinn Fein)
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From what source would the initial capital come?
Pearse Doherty (Donegal, Sinn Fein)
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Money would be raised on the international markets on the basis that the co-op would start to-----
Pearse Doherty (Donegal, Sinn Fein)
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The NAMA scenario is very similar to what is being proposed here. The only difference is that in terms of the issuance of bonds, they were State-backed bonds. I was interested to see if they would be State-backed or not.
Mr. Edmund Honohan:
There was a concern when NAMA was incorporated or set up by statute about the reputation of the State, the bond markets, the ratings agencies and so forth. There was a concern that if there was too much of a concession given to strategic defaulters, the moral hazard problem would arise and that people would stop lending mortgages in Ireland and we would simply dry up. That has not happened. The rate of repossessions is still very low here, for reasons I might go into later. There is a kind of phoney war with the banks. The banks are at it again and they are lending money. They seem to be quite happy to deal with Irish home owners and borrowers on the basis of the existing legislation. Internationally, the bond markets are quite happy to lend to Ireland and I see no reason why a different view would be taken of a national co-op if it has sufficient industrial heft to be able to represent itself as a big player in the market.
Pearse Doherty (Donegal, Sinn Fein)
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Mr. Honohan should correct me if I am wrong. In the context of the timeframe, there are three different ways in which the property would be purchased from the financial institution. The first is an agreement with the financial institution based on the market value at a certain date - 31 December 2016 - the second is through a compulsory order and the third is through the open market. What would be the trigger for a purchase by the co-op? What is the trigger? How does the co-op decide? Is there an automatic trigger?
Mr. Edmund Honohan:
I would have to impose on the mortgagee a requirement to give the option to purchase to the co-op. One might say that is tinkering with property rights but there is no damage to a person who has already expressed a view that he wants to sell a property in being told he must ring a particular individual who handles the purchases. That is not an interference with his property rights particularly as the person he is contacting in the co-op may or may not make an offer and the vendor may or may not refuse the offer.
The mechanism is simply an informational contact, which will secure the property, if I can put it that way, in terms of possession rights for the occupants while the co-op makes its decision.
Pearse Doherty (Donegal, Sinn Fein)
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How would that work hand in hand with EU state aid and competition rules in terms of a case that could be taken by a potential bidder for a property which a bank was about to sell but which, under the legislation that would have been passed, it would have to sell to the co-op?
Pearse Doherty (Donegal, Sinn Fein)
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That is fair enough because they see part of it deals with that issue that they can continue to oppose-----
Mr. Edmund Honohan:
One of the things that is astonishing in this day and age - in 2017 - is the failure to use the Internet and its capacity to collect all the sociological data we need about this material. That really is astonishing. People walk away from court and their solicitors and do not open their letters. All of this information would be tremendously interesting to any group - for example, this committee - that is examining what are the financial options facing the State.
Pearse Doherty (Donegal, Sinn Fein)
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While there are many failures in the mortgage market, what I find sickening is that, in the event that this legislation gets to the floor of the Dáil, is discussed on Committee Stage and progresses, we will end up dealing with State agencies. Allied Irish Banks and Permanent TSB are State agencies and we should not have to create another agency or vehicle in terms of those branches of the banking sector at least.
Pearse Doherty (Donegal, Sinn Fein)
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On the timeframe, property will be purchased from the banks using either model A, B or C. Does Mr. Honohan have an indication of the number of mortgages of home owners and buy-to-let mortgages that would eventually be in the co-op? Perhaps he will explain why we would set up this co-op for professional investors or others who may use properties as their family's pension fund and so forth.
Mr. Edmund Honohan:
The primary purpose is to keep the tenants in the properties. It is the Tyrrelstown problem, where the professional investor is being told to get rid of the properties and sell. It seems that these properties will, in any event, end up in social housing and we may as well take them in. I am not sure the professional investor will gain very much from being the man in the middle. He will pay rent just like any other home owner. There is also the other group of judgment mortgages. My list today was 120 cases, most of which were for money judgment. These will produce judgment mortgages which, in turn, will feed into the repossession industry.
Pearse Doherty (Donegal, Sinn Fein)
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On the timeframe involved, does Mr. Honohan envisage that the co-op would exist indefinitely? The ultimate aim is that borrowers would be able to purchase back the properties at some stage, which may or may not be the case. Would the co-op always have a foothold in the market in respect of renting?
Pearse Doherty (Donegal, Sinn Fein)
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I thank Mr. Honohan and the other witnesses.
Michael McGrath (Cork South Central, Fianna Fail)
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I welcome all of our guests and thank them for the documentation provided by the three speakers who have contributed thus far. I also welcome the members of the Right2Homes organisation and commend all of those who have been involved at the coalface in helping people, whether they are mortgage holders or tenants who have been caught up in a horrendous housing crisis, stay in their homes. We share the objective of helping people to stay in their homes. That is my objective and that of my party and we want to ensure that any proposals and solutions are workable, achievable and capable of being delivered. That is the motivation behind the questions I will put as I seek to tease out some of the issues.
I will start with the mechanics of the proposal. Deputy Pearse Doherty went through models A, B and C.
If it is not the case that all mortgages in arrears of one year or more would automatically be purchased and swept into this new national housing co-operative, would this be done on a case-by-case basis? I had understood that the original concept was that every single mortgage in arrears of one year or more would automatically be taken into the co-op. Perhaps the witnesses could address that issue.
Mr. Edmund Honohan:
This is a policy decision in respect of the business model of the co-op. I left the definition section in the draft Bill empty, with cut-off points, dates and so forth to be inserted. That is a matter for the other gentlemen present to work out. The invitation to treat, as it were, the call option would inevitably have to be weighed up in each individual case. It is not a question of the co-op buying a loan as soon as a bank indicates its intention to dump it into the marketplace. There will be properties which will be not worth purchasing.
Michael McGrath (Cork South Central, Fianna Fail)
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Does anyone else want to address that issue? It is not the case that a certain cut-off point will apply and every mortgage that has been in arrears for a set period would be taken into the co-op. Instead, this will be done on a case-by-case basis. Is that the position?
Mr. Patrick O'Sullivan:
Sorry, I did not realise I was on stage. I thank the Chairman for inviting me to this meeting and for proposing the Bill with Deputy Mattie McGrath.
The position concerning 31 December was taken at my suggestion for a particular and simple reason, namely, that we did not want this transaction to occur and allow significant extra profits to flow back into the banks. The banks have already had their provisions. They set their provisions and satisfied the Central Bank as to the authenticity of their mortgage books. Their provisions were accounted for and tax allowed on them and all the rest of it. It would be unconscionable to allow them to write back multimillion euro profits. The date of 31 December was picked to ensure all the players becoming involved in this process would be honourable and honest in their dealings and subject to independent audit.
If one wishes to move on from that date to the day-to-day evaluation of the value and risk, the number we proposed against a book value of €14 billion was a buy-out price of slightly less than €5 billion. This figure is based on our estimate of the provisioning costs taken on board by the banking industry so that when this transaction took place, there would not be additional or less profit. It would, therefore, be net neutral to both the banks and vulture funds.
Michael McGrath (Cork South Central, Fianna Fail)
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The reference in paragraph 21 to 31 December 2016 relates to the issue of valuation. My question, however, relates to what bundle of loans would be taken into the co-op. The overall price of €5 billion provided for is based on every loan in arrears of one year or more, both buy-to-let properties and family homes.
Michael McGrath (Cork South Central, Fianna Fail)
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That is the potential flow-through of accounts and does not necessarily mean the co-op would take-----
Michael McGrath (Cork South Central, Fianna Fail)
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Where the co-op becomes involved, does it acquire the property or does it buy out the loan from the institution?
Michael McGrath (Cork South Central, Fianna Fail)
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We used the colloquial terms "mortgagee" and "mortgagor".
Michael McGrath (Cork South Central, Fianna Fail)
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The loan is bought from the previous lender and the ownership of the property is conceded by the previous owner and passed to the co-op. Is that the case?
Michael McGrath (Cork South Central, Fianna Fail)
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In that case, the previous mortgage holder no longer owes the mortgage and the ownership of the property passes to the co-op.
Michael McGrath (Cork South Central, Fianna Fail)
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Is the mortgage then extinguished?
Michael McGrath (Cork South Central, Fianna Fail)
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In that case the previous mortgage holder would become a tenant. I did not think that that was what the witnesses had in mind. I understood that the mortgage holder would continue to be a mortgage holder in many instances but would be repaying the co-op as opposed to a repaying a vulture fund or a bank.
Michael McGrath (Cork South Central, Fianna Fail)
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If I understand it correctly, at the point of the property and the loan being transferred into the co-op, the loan is extinguished and the previous mortgage holder becomes a tenant of the co-op. A financial assessment is then done and if they can afford to service the mortgage or a restructured version of the mortgage, they would then buy back the property from the co-op under revised terms. Is that it?
Mr. Patrick O'Sullivan:
It is envisaged that the co-op would afford the opportunity to the original person in occupation with a mortgage the right to acquire title if his or her circumstances change for the better and he or she is able to finance it. This is critically based upon the following hypothesis. The co-operative will be able to borrow this money at less than 2%, which is currently available for 20-year fixed interest money. The National Asset Management Agency, NAMA, raised 20-year money earlier this year at 1.75%. It follows that given the level of security cover and given the cashflow that will come from a revision of the arrangements with approximately 60,000 customers, this proposition will be self-funding in a very short period. It will not be a burden on the State and will not have any fall back on it.
Internationally there are many examples where this type of transaction has been done numerous times. All we are dealing with is simple financial engineering. That is all. There is no rocket science to this and it is straightforward. It is so simple that it has surprised me for years that this has not been done already to solve this awful problem. The way I see this situation, very simply as someone who is retired and on the sidelines, is that almost 300,000 people who are directly involved in these 60,000 houses face the real danger of being evicted and of having their properties repossessed from them unless politicians collectively deal with it. It is must be done because it is unconscionable that it can be left the way it is. It has gone beyond the time for talking about it. We have to deal with it urgently now.
I brought this up several years ago with the then Minister for Finance and I was told that we cannot borrow any more money. That was the sum total of the response. I am saying in this proposal today that the Minister for Finance does not have to borrow any money. This money - the world and Europe are awash with cheap money - can be funded if there is a will in these Houses to go and slightly alter the rules for the European Investment Fund, and we will be pushing, I believe, an open door. Mr. Martin Schulz, who was the President of the European Parliament until 2016 and is now head of the main opposition party in Germany, together with the current President of France, were proposing the alterations that we need to get through the system that would facilitate the raising of a guarantee by that organisation to support the co-op in its venture, therefore guaranteeing that it would be off-balance sheet, which was the main concern of many people in these Houses, as I understand it.
That will solve the major financial problem.
Michael McGrath (Cork South Central, Fianna Fail)
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The issue of being on or off-balance sheet is important because of the quantum of money involved. Ultimately, the CSO and EUROSTAT would make that decision.
Mr. Patrick O'Sullivan:
No, they will not make the decision. They will audit the results. The decision needs to be taken at a higher level in the European Parliament to adjust the terms of reference of the European Investment Fund. The point I was making about the two leading French and German politicians is simply that they are on record as wanting to change the rules to facilitate what we are about. I would go further and say that we were very good Europeans in picking up the €65 billion debt that most of us in this room did not borrow, and we are entitled to some relief back from Brussels. In addition we have a Brexit situation on our doorstep which is going to impact significantly economically. There is great talk about having a transparent Border but there is no real talk about 300,000 people who are going to be put out of their houses. It is beyond belief that this is not making headlines.
Michael McGrath (Cork South Central, Fianna Fail)
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I assume then that the co-op would not have the power to repossess a property.
Michael McGrath (Cork South Central, Fianna Fail)
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Who makes the judgment as to whether they are deliberately not paying even though they have the capacity?
Mr. Patrick O'Sullivan:
That will be very simple. The Deputy is now in my area of real skill and expertise. I was head of collections and debt recovery for a solid 15 years and it is a very simple process. I will add a few personal suggestions to the committee and will tread all over data protection legislation, among other things, while so doing.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Do not go to too far over the line.
Mr. Patrick O'Sullivan:
I will not, Chairman. That was supposed to be slightly humorous. This organisation should be able to avail of interaction with the social welfare authorities to establish the income payment capacity of clients or with Revenue or with both. It may have issues of data confidentiality etc. but it would simplify hugely, and have a huge cost reduction benefit, to have access to that information for the people making the credit decisions. They would not have to go out and make all the investigations because the information would be available to them. In the environment we are in, where everybody's PPS number is available on different platforms, we should have access to a clean system that is not subject to fraud.
David Norris (Independent)
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I thank the Chairman for allowing me to say a few words here this afternoon. This is an extremely important matter. I am rather ashamed that these benches are not absolutely full. This committee should have every single member here, if they are decent Irish people. Half the people here are not members of the committee. They should be here, and I hope they read the minutes of this meeting.
I have been interested in this for many years. At the beginning of the financial crisis I suggested the establishment of a minister for home security to make sure that Irish citizens were maintained in their homes. In the 19th century Michael Davitt and Charles Stewart Parnell fought against evictions. Eviction is a dirty word in Ireland.
In the light of the fact that the banks were bailed out to the tune of €65 billion, have learned absolutely nothing from the crisis, are still charging irregular, inappropriate and probably illegal amounts of interest and are driving homeowners into losing their homes and sometimes to taking their own lives, do the witnesses not think that the public should be made aware?
There should be a publicity campaign to ensure the taxpayers of Ireland know that after being punished in this way to the tune of €65 billion and after the continuing bad behaviour of the banks, they are now going to be stuck with the bill for millions of euro for doing the dirty work of the vulture funds. The taxpayer will be paying for the evictions. I think that is an absolute moral scandal. I would welcome the view of the witnesses. Is it possible to get a publicity campaign to alert the taxpayers of Ireland to what is going to be done in their name? Chairman, do you want me to leave it at that question and come back to the others?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Yes, if anyone would like to take that question.
Mr. Patrick O'Sullivan:
A publicity campaign would be wonderful to have. I am not privy to the finances of Right2Homes but it is a not-for-profit organisation and I do not believe we could afford anything like the campaign that would be necessary. The problem is such a socially urgent requirement that it ought to be given huge publicity by the House.
David Norris (Independent)
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Hear, hear. Houses.
David Norris (Independent)
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There are two of them, despite the efforts of the former Taoiseach, Deputy Enda Kenny.
Dr. Rory Hearne:
In terms of responding to Senator Norris on that, the context of why I am supporting this is the wider housing crisis. There has been a sense that the mortgage arrears crisis is sorting itself out and that we have seen a decline in the number of people in mortgage arrears. However, either there is not an understanding or a failure to see that there has been a relatively low level of repossession up to this point and the banks have made decisions to hold off on that. We have seen an increase in the amount of mortgages that are held by vulture funds or non-bank entities from €2 billion to €6 billion. However, that situation is going to change in terms of repossessions. Last year there were almost 1,600 home repossessions, which was a significant increase on previous years. What we are likely to see is a further increase. In a sense, we think the mortgage arrears crisis is sorting itself out but in actual fact what we will see is an acceleration of repossessions. If we add that to the already 60 to 70 families becoming homeless each month, and the wider lack of supply of social housing, unless something radical is done very quickly the current housing crisis will get much worse. While the exact details of whether this is off-balance sheet or how it might be set up need to be worked out as we go on the necessity of a radical intervention is really important. That is the message that needs to come across.
David Norris (Independent)
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I believe there is an unparalleled avalanche of homelessness facing us. We are incapable of dealing with the few thousand there are already. What will we do when it is a couple of hundred thousand?
I completely disagreed with the previous Minister for Finance, Deputy Noonan, a man for whom I have a certain amount of respect, when he said that vultures were a good thing as they picked over the corpses. We should remember that these are the corpses of the lives of Irish citizens and the vulture funds should be stopped in their tracks and if possible kicked out of this country.
I have about three or four quick questions. I will direct the next question to Mr. Honohan. I have always felt that property rights were trumped in the Constitution by the consideration of the public good. Does he think I am right? It has never been tried. No Government has ever had the balls to do it.
Mr. Edmund Honohan:
It is a question of whether the common good requires the ownership of property to belong to the Irish citizens or if it is a negative, simply a limitation on the property rights of individuals.
Basically, Senator Norris is saying that if one goes back to the old 1919 declarations, that wording has been lost. If one looks at Gerry Hogan's book on the drafting of the 1937 Constitution one will find de Valera and other correspondents, including clerics, trying to work out precisely how the property rights should be defined. But at that time, if one thinks in terms of the 1930s, property rights were a significant driver of economic development and so it is necessary in my view that property rights should be protected to the extent that is appropriate.
David Norris (Independent)
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But in a crisis like this is it not worthwhile for the Government to try it?
David Norris (Independent)
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Okay, let us stop it there then. I take it is just home owners that we are not going to look to rescue people who have made investments all over the place.
David Norris (Independent)
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And tenants, right. I thank Mr. Honohan. In terms of statistics, I noted when I read Mr. Honohan's very interesting paper that he stated there was a complete dearth of sociological and other information about the background, the length of the mortgages and all that kind of stuff. Could Right2Homes do that if it is simply a matter of twiddling on a computer?
David Norris (Independent)
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Can it be done?
David Norris (Independent)
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Thank goodness for Mr. Honohan and the country registrars who are mounting a rearguard action. This is my final question as I know we are under a lot of pressure for time but I really do feel very passionately about this. I hope every single Member of both Houses gets up and shouts as loudly as he or she possibly can about this situation.
My final question is a general one to Fr. McVerry. He said he does not understand how anybody could oppose this Bill. Would he like to expand on that?
Fr. Peter McVerry:
Keeping families or individuals in their homes is an absolute priority for me. To be evicted from one's home and to go into homelessness is a life-changing experience. I meet many such people. Many of those who are becoming homeless today never for one moment in their lives thought they would be in this situation. Parents tell me there is a stigma attached to being homeless. The general perception is that if one is homeless there must be something wrong with one and that stigma descends on everybody who becomes homeless. Parents tell me they feel ashamed at having to admit they are homeless. Schoolchildren will not admit to their friends that they are homeless for fear they are going to be slagged. Parents tell me they feel they are bad parents, that they have failed their children.
To become homeless is an extraordinary life-changing event for many people. It has permanent repercussions on the children. If children are left homeless and living in an hotel room, which many of them are for 12 or 18 months, they are damaged psychologically, emotionally and educationally. That educational damage may never be repaired. They are damaged educationally because they are stressed out and one cannot go into school stressed out and give one's attention to studying. For me, this is the issue of the next decade.
Homelessness is already out of control. The Government does not know what to do about it. The only plan in town is Rebuilding Ireland and it clearly is not working. It is 11 months since Rebuilding Ireland was launched and every single month the number of homeless people has gone up. Last year, 2016, there were approximately 1,000 extra homeless households compared with the number at the beginning of the year but that masks the reality because last year, 3,000 homeless households exited out of homelessness. In reality, therefore, 4,000 households became homeless last year. I agree that if these repossessions take place we are going to have a tsunami of homelessness.
That is going to come down the road and it is going to be extraordinarily damaging to those people who have to face the prospect of becoming homeless. The State will not be able to cope. We will see whole families living on the street if these repossessions take place. I understand that there are 50,000 mortgages in arrears of more than two years. That number has barely shifted over the last few years. The banks themselves estimate that many of those will be repossessed under the present conditions. We will see whole families on the streets because the State will simply not be able to cope.
David Norris (Independent)
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May I make one final remark? A little more than three or four years ago I knew of a woman not too far from me in Drumcondra who had lived in the same house for 60 years. I went and stood with her as they tried to put her out on the side of the road. It is a disgrace to Ireland and it calls into question all of these bogus celebrations of 1916. We should not bothering about that. We should be looking after the people here and now whose lives and welfare are threatened by these vicious foreign entrepreneurs who care nothing for Ireland.
Kieran O'Donnell (Fine Gael)
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I want to commend Father McVerry on the great work he has done. Can I get slightly technical and go through the Bill itself and how it would work in practice? I want in particular to look at Part V with regard to the National Housing Co-operative Society. Would it be fair to say that model B will be the default position in most cases and that model A would probably never work? This is because model A would be based on the idea of the co-op looking to purchase the loan at the written-down value in the balance sheets of the banks. More than likely then, situations would automatically default to model B, which involves the State arbiter. Assuming that people can still refuse the outcome of model B, it would then go to an outright sale. How long will the process take? How will it unfold in practice? In the event that the co-op only purchases the property itself as distinct from the loan, do the original owners of the house, the original mortgagees, no longer own the house? Is it owned by the co-op?
Kieran O'Donnell (Fine Gael)
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By the mortgage owner, which will effectively be the co-op itself. How long will it take for A, B and C to function? Is the likelihood that the situation will automatically end up going to model B at a minimum and in some cases to model C? If the co-op ends up buying the house as distinct from the loan, the people in the house then become the tenants. Would the witnesses envisage putting something like a tenant purchase scheme in place, similar to that of the local authorities? What would happen to the next-of-kin? Let us say we had a family with a next generation of a son or daughter and the parents then pass away. How would the scheme function in practice? The aspirations of the scheme are fine. The devil is always in the detail, however. Perhaps Mr. Honohan could elaborate.
Mr. Edmund Honohan:
As long as the family is in occupation of the premises, the first objective is achieved. With regard to what happens down the road with the entitlements of the next-of-kin and so on, there is a well-trodden pathway there of people becoming entitled to tenancies. One of the problems with public housing is that there is a deep-rooted entitlement to be considered the successor to the previous tenant. Nevertheless, the international experience of co-op structures is that they work. Where one has an industrial level of co-operatives, people do not get that personally attached to a particular house. The children will move off and get their own premises in due course.
Likewise internationally there is a-----
Kieran O'Donnell (Fine Gael)
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With due respect, I beg to differ with Mr. Honohan. For most people their home is their home, whether it is rented, owned by a local authority, owned by a co-op, or privately owned. There is a deep attachment to the home. That is the level of detail that-----
Mr. Edmund Honohan:
It is not really a detail that concerns me. As long as there is a tenant paying the rent, it does not matter from the point of view of financial flow. On the issue of A, B and C, the Senator might be surprised at the number of loans bought under model A. People do not realise-----
Kieran O'Donnell (Fine Gael)
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I know that a lot of current cases operate under A.
Mr. Edmund Honohan:
I should give credit where credit is due. The reason we are here today, funnily enough, is because the banks have been quite protective of their ordinary domestic mortgagors. They have gone instead for the low fruit, the tenants. They now find that they are up against the ECB which says that this is not enough, that they are not going to clear their balance sheet that way and that they are now going to have to start digging into the ordinary householders. The banks are saying that they are not going to do that and that they are going to sell to the vulture funds instead.
That is the crisis. From the point of view of our own banks, who in my experience in court have behaved quite responsibly towards homeowners, we have now reached a cliff. In situations like this banks seem to be saying that they have to either sell to a vulture fund or sell to a co-op. If the co-op agrees to give the bank what is on the balance sheet then my impression is that the banks are not inclined to go out with a begging bowl looking for extra money. Dealing with a court supervised sale certainly takes time. The committee knows how the courts are.
Kieran O'Donnell (Fine Gael)
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Perhaps the witness might enlighten us.
Kieran O'Donnell (Fine Gael)
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Does the funding of this model stand up?
Mr. Patrick O'Sullivan:
No. Under its current rules, the European Investment Bank cannot provide the money for this financial instrument. What we are suggesting here is that the European Investment Fund, which is not dissimilar to the EIB, is in a position to provide a guarantee to this co-operative society. Having provided that guarantee, a bond can be issued on the international bond market for which there will, no doubt, be plenty of demand. That is how this proposition can be funded entirely.
Kieran O'Donnell (Fine Gael)
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Is there any precedent elsewhere of the European Investment Fund providing a guarantee?
Mr. Patrick O'Sullivan:
The European Investment Fund has already provided guarantees to the tune of over €50 billion. I do not want to mislead the Senator or anybody else around the table here. There is an adjustment required in the current rules attached to the European Investment Fund. As I mentioned earlier, this adjustment was supported in 2016 by the former President of the European Parliament, Martin Schulz, who will very likely be in partnership government with Angela Merkel in Germany in September. Mr. Schulz is the current leader of the main opposition party there. When the recently elected President of France, meanwhile, was Minister for Economics in the last government-----
Kieran O'Donnell (Fine Gael)
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What is the adjustment required?
Kieran O'Donnell (Fine Gael)
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Has the European Investment Fund given guarantees to housing co-operatives to date?
Kieran O'Donnell (Fine Gael)
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Which banks are we talking about?
Mr. Maoilíosa Reynolds:
I will come to that in a second.
There are approximately 42,000 mortgages in arrears of 360 days or more, based on the Central Bank information. That is approximately €119,000 each. Let us assume, being pessimistic, that we borrow at 4%, that is €5 per €1,000. If I was a bit younger and bought a 30 year term in the morning that is what I would pay. That would cost me €595 a month. The housing assistance payment, HAP, scheme for Dublin is approximately €1,250 a month for a two bed dwelling. This proposal offers the possibility on a very large scale of purchasing State-aided housing at half the current price of HAP. That would save a considerable amount of cash.
The Central Bank confirmed that there are approximately 33,000 homes in arrears of two years or more. The Rebuilding Ireland target is 32,000 rental units as "social solutions" over the next five years. Of the 47,000 target, 32,000 are rentals, either long-term leased part fee or social rental units. In a really crude cost-benefit analysis the structure being proposed here could alleviate the tsunami of difficulties we are talking about and deliver the entire Rebuilding Ireland target for probably half the budget in a short time.
To put the numbers in context, we hear about one in ten mortgage arrears, 73,000 homes in arrears in total. In Dublin there are 1,300 rental properties and, according to the last DAFT report, there are 3,100 in the country. If even 10% of the 14,367 buy-to-let mortgages that are in arrears for two years or longer hit the market in any year they will probably be sold with vacant possession to try to increase their value. A total of 1,500 tenants will be put out for a temporary period of six months. Given how few rental properties there are, that has the capacity to completely distort the rental market, particularly in Dublin. This will have an enormous effect. This is not hundreds of thousands of repossessions, it is relatively few repossessions that are half the total rental stock at the moment. It is a real immediate problem.
We know from accurate indicators that we are losing houses year on year because our new build levels are so low. We built approximately 3,500 new homes last year in total and 553 of those were ghost estate units that had started in 2010 and were completed. Last year we lost approximately 950 homes in terms of our overall totals to stock. In the past two years it was 2,750, taking other accurate indicators. Our supply of houses is pretty well flat. We know that from the Central Statistics Office, CSO. We have a very small pool of rental properties and there are 33,000 houses of borrowers who have been in distress for two years or longer and 14,000 are buy to lets. Even in this room we said we were talking only about people and their homes. The buy to let arrears are probably the biggest single danger to the rental market at present. These could easily be funded.
On the one hand, there is a mechanism, whether it is an EU bond or off or on balance sheet. In 2013 the former Minister of State with responsibility for housing, Deputy Jan O'Sullivan, introduced the concept of a bond in conjunction with Focus Ireland and Key Capital. It was secured. The State agreed to relinquish first charge on existing State-owned homes.
The bond was floated at €39 million in Ireland. That was too low. Five lenders were approached. It never flew. That bond is in a drawer. It could be taken out and a zero or two could be added, the name could be changed from the name of the special purpose vehicle, SPV that was there, and it could be floated and funded for 4% or 5%. The structure is very similar to the structure in this proposal. I thought it was the same thing when I read this. The international bond market is looking for bonds in excess of €200 million. They do not want small ones. A €1 billion bond is great. There is plenty of juice in there for all the bond guys, the average cost for a tenant to rent a house here would be €600 or €700 a month and nobody loses out. There is a really compelling financial argument for this. We know that the numbers stack up in terms of its funding itself. We are buying at a huge discount which has already been written down. The only difference is that the co-op, not a private offshore fund, gets the benefit of the write down. The question for me is not whether this will fly financially but how will those profits be refloated or returned to the economy in the most efficient way possible, for example, funding new social housing or Part V housing. This is a complete no-brainer in terms of the immediate pressures on the rental sector from a relatively small number of repossessions to the benefits and the actual cost to tenants and people in place.
Kieran O'Donnell (Fine Gael)
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Could I ask a question?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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No. I have to interrupt the witness because we are over time. The other committee is anxious to get in.
David Norris (Independent)
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Perhaps in light of the fact that Mr. Joyce has not said anything we could continue this meeting on another day. Is that possible?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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We can indeed. That is no problem. This is the first time that this group has had the opportunity to articulate its view of this Bill. I am particularly grateful to each and every one of them for coming along and indeed to all of the members.
I should say to Senator Norris that most of the members of the committee were here and present during the discussion.
David Norris (Independent)
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Maybe we ought to cheer them.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Quite a few others were I am sure watching on their televisions, which is the standard explanation.
Paddy Burke (Fine Gael)
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Some of the members did not get to speak.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That is right but they will bear with me on this.
Robert Hockett has written to me as Chairman and I will circulate the letter. I want to acknowledge that he as a professor at Cornell University Law School in New York expresses his support for the National Housing Co-op Bill 2017 in either its present or some suitably amended form and he is willing to assist the committee and the group in developing this Bill so that it passes through the House reasonably quickly, if that is at all possible. I know it is a challenge for all political parties and none, including mine, to grasp the detail of this Bill and to work to put it across the line. I ask for their support and cooperation in this because time is of the essence. We will revisit this and have a deeper debate on it.