Ciarán Lynch (Cork South Central, Labour)

The Labour Party is calling this evening for a two year moratorium on family home repossessions by all banks covered by the NAMA scheme, the provision of a service to assist mortgage holders in difficulty in coming to an arrangement with lenders and to establish as a principle of public policy, where possible and subject to reasonable limits, that a family making a reasonable effort to meet their obligations should be assisted in their efforts to remain in the family home.

The dramatic downturn in the economy, and particularly the massive increase in unemployment, has created huge difficulties for families in meeting mortgage arrears. As a result of the increase in numbers on the live register and the collapse of many small businesses, couples who bought their homes in the past decade and who took on heavy mortgages in good faith and based on their income, suddenly find that the loss of one or both jobs leaves them unable to meet their monthly repayments. While the number of repossessions to date has been modest, there is a significant increase in the number of applications coming before the courts, as is clear from today's newspapers. There is a real fear that when the position of the banks is solidified by the enactment of the National Asset Management Agency, NAMA, legislation a flood of repossession orders will be unleashed.

The recent estimate that there could be as many as 35,000 mortgage holders in trouble is a ticking social time bomb that must be defused. Apart from the social consequences for families, repossessions will do little for the financial institutions. They may well be able to repossess a home but in the current economic climate they will have great difficulty selling it. Given the number of households facing negative equity, banks will face large losses in selling repossessed homes. Other actions, such as rescheduling mortgages, would mean the banks will eventually get their money back.

The Labour Party motion sets out a number of actions the Government should take to avoid this potential disaster. The most urgent is a statutorily based 24 month moratorium on repossessions where reasonable efforts are being made to meet obligations. We also propose the establishment of a mediation service to assist borrowers in coming to satisfactory arrangements with lenders, such as extending the period of the mortgage, putting the mortgage on an interest-only basis or rolling up interest for a period, and to act on behalf of borrowers in negotiating with financial institutions and public authorities in working out viable repayment arrangements.

I wish to put this debate in its proper context. An examination of the census figures demonstrates how unsustainable the Irish property market was. Between 2002 and 2006, a net 181,563 additional households were created. During the same period an additional 260,718 housing units were built. Nearly 80,000 houses were built as holiday homes or as empty investment properties. It was clearly unsustainable to have 30% of new housing empty. However, the great mystery is that house and land prices continued to rise during this period, suggesting that demand was even greater than the unsustainable supply. It was a false demand. It was a demand buoyed up by falling credit standards, light touch regulation and lower interest rates, along with encouraged speculation and tax incentives on property.

During this period we witnessed a financial game. It was a game created by an unholy trinity - a union of a Fianna Fáil-led Government, banks and greedy developers. Why should the public believe this union has ended? The property bubble might have burst but who said the relationship died along with the game? This was a game of passing on the liability for this recklessness to homeowners. This is how it was played.

The developer would purchase an over-valued asset and the bank would provide the over-valued loan. The housing units were built and sold at an over-inflated price to home buyers, who had over-valued loans provided by banks. These mortgages were then sold on the international market and the banks released this money to developers once again to purchase more over-valued sites. The net consequence is that the liability for these loans and loose banking practice has been passed to the homeowners. Of course, as part of the game, with the end of every football season the developer made his way to the Galway tent in September and paid over his contribution.

Another aspect of this game is how lending rules went out the window. Take the example of the typical home mortgage. Loan to value along with borrowing ratios and schedules of payment were allowed to increase without intervention. The concept of somebody buying a home priced at four to five times their annual income was stretched to ten to 12 times their annual income, mortgage schedules went from 20 years to 35 years and the concept of 10% deposits was abandoned with the provision of 100% mortgages. Matters got so out of hand that affordable housing was no longer affordable. We saw houses being bought for €250,000 under the affordable housing scheme. Today's prices for those affordable housing units show how far off the mark the property market had become.

As for duty of care, it did not exist on the part of the Government or lending institutions. The only duty of care that was attended to here was getting re-elected to office and delivering for the shareholders in the banks. The idea that homeowners would be financially stressed or that there might be difficulties coming down the line were not part of the creed of greed driven by the unholy trinity. The attitude was that it did not matter if people could not meet the loan repayments after a few months because it was assumed the property value would increase in that period and the bank would make a tidy profit in the event of foreclosure. There was no harm in foreclosure because the bank would still make money.

What is the position now? It is estimated that the number of families in mortgage arrears is 35,000. From 1 December, legal proceedings for repossessions will move from the High Court to the Circuit Court. It is imperative that action is taken now and new measures are put in place to slow down the rate of repossession cases coming before the courts. The issue of people being able to keep a roof over their heads is an issue of real systemic importance.

What must be done? In developing policy in this area it is important to move quickly but also to take account of the complex technical and legal issues that arise and the wide range of individual circumstances that are experienced by borrowers. Policy must take cognisance of this diversity and, accordingly, I wish to set out a number of actions which must be taken by the Government.

The core value of our policy must be that, whenever possible, families should be assisted to continue residing in their homes. This will offer the least costly approach for the State and the best outcome for the families concerned. It cannot, however, be seen as an absolute commitment. Great care must be taken in circumscribing the rights of lenders and mortgage holders because, in the first instance, the relationship between the lending institution and the borrower is governed by contract and those mortgage documents are, in all cases, prepared by the lending institutions. They are loaded against the borrowers and in favour of the lender. Such mortgage agreements, therefore, create very extensive rights and interests in favour of lenders. These rights are protected as property rights under the Constitution and under the European Convention on Human Rights.

I am of the view that it would be possible, as an emergency measure and in the public interest, to unpick these extensive rights - even if only for a limited number of years - particularly in light of the current exceptional economic upheaval and uncertainty. In-built into this process must be a provision that borrowers must make an honest and reasonable effort to meet and discharge their obligations in full. Such a scheme or provision cannot be applied in respect of very large or expensive houses and the dominant intention clearly must be that provision is being made for families residing in typical family homes.

At present, the core of Government policy is the code of conduct introduced in February last. This requires banks or building societies not to commence repossession proceedings until mortgages are six months in arrears. In the case of AIB, the period is extended to 12 months. Labour's position is that this period should be extended to 24 months from the time the arrears first arise and that this should apply in respect of all institutions. Such a course of action would ensure that lending institutions would be strongly incentivised to actively engage with borrowers, rather than entering into an empty formula and circulating a few preprinted letters for the purposes of demonstrating technical compliance in the event that issues might arise with the Financial Regulator in respect of the consumer protection code.

In practice, banks view the moratorium period of six to 12 months as a hit they must take. However, they remain certain in the knowledge that they have an entitlement to interest on an ongoing basis and view the code's provisions as entirely manageable from their perspective. The scheme we advocate, with its extensive extension of time, would ensure strong incentivisation on the part of the banks to enter into a process of restructuring whereby they could accommodate borrowers. This process could take a number of different forms and could include, for example, extending the lifetime of a mortgage, adjusting the number of repayments per annum, accommodating for-interest-only repayments for a period or other arrangements that would suit the individual needs or expectations of the borrower.

We made suggestions in respect of such changes during the Committee Stage debate on the National Asset Management Agency Bill and we intend to table suitable amendments on Report Stage. There is a need to put in place legislation which recognises the profound inequality of bargaining power that exists in respect of borrowers and banks. This is not a level playing field. Stressed borrowers require professional assistance and support in negotiating with their lending institutions. In addition, it is vital that the code of conduct is strengthened and is adequately policed and enforced with a proper effective and efficient grievance mechanism. It is important that the latter should be underpinned by legislation.

To achieve our objectives a national home mortgage service, NHMS, should be established, within a legislative framework, to operate as an advocate for homeowners who face difficulties paying their mortgages. The NHMS would, by means of a legislative framework, set out the criteria and rules as to how mortgage difficulties would be addressed and managed and would identify the obligations of Government lending institutions and borrowers. In my view, the legislation to which I refer would have to deal with and outlaw penalties, surcharges and the endless adding on of fees and handling charges. The legislation would also probably have to expressly provide that all such charges, other than those relating to the basic rate of interest, should be deemed to constitute a penalty or should be prohibited as being unfair under the terms of the consumer contracts directive.

We envisage that the NHMS would be complementary to, but quite separate and distinct from, MABS and other voluntary groups. Some amount of rigour would have to be attached to the operation of the process and under no circumstances is it envisaged that borrowers who make no effort whatever to meet their repayments would be granted security of occupation on an indefinite. There would have to be a rebalancing of rights between the conflicting interests. It is envisaged that in all instances borrowers who remain in possession would be obliged to make repayments on an ongoing periodic basis.

The NHMS could set out other eligibility factors including: that the mortgage variation would have to be fair to the borrower and fair to the lender; that an independent assessment of the borrower's true circumstances would have to be prepared and vouched; that assistance or relief could be made available only to owner-occupiers; or that an evaluation would have to be carried out to ascertain whether adverse changes in circumstances are irreversible or merely temporary in expected duration. The latter point is particularly relevant because many of the mortgages that have been issued in recent years are unsustainable.

Having give careful consideration to this matter, I am driven to the conclusion that a viable, robust mortgage modification programme can be delivered only by means of a statutory legislative code and that there is a need to establish a national home mortgage service.

I commend the motion to the House.

See this speech in context