Michael McGrath (Cork South Central, Fianna Fail)

I welcome the opportunity to contribute to the debate on the report of the interdepartmental group on mortgage arrears, known as the Keane report. Every Member needs to take ownership of the issue of mortgage arrears. We all need to engage fully in the wider debate on the levels of personal debt and mortgage debt which are crippling many families in Ireland today. Obviously, there is a particular responsibility on the Government to come up with solutions, given its power to take initiatives and to make and implement policy decisions. In that respect, I sincerely hope the Government will listen closely to the response of all Members to the Keane report. While I have criticisms to make, I will also endeavour to be as constructive as possible, as will my party colleagues.

I readily acknowledge that there is no silver bullet or one-size-fits-all solution for dealing with the growing problem of mortgage arrears. We are all aware of the scale of the problem, from looking at the official figures from the Central Bank and at a human level from daily direct contact with our constituents. While the figures are stark, the true picture is even worse. The official figures from the Central Bank, which give the picture as at the end of June, do not include persons with arrears of less than 90 days. Indeed, being one or two months behind on the mortgage can be a highly stressful and worrying experience for an individual or a family, and can in many instances be the beginning of a greater arrears problem. Since the end of June, which are the last official figures available, we have had a further European Central Bank interest rate increase, which was passed on by many banks, and unemployment remains stubbornly high. Unfortunately, it seems certain that the arrears figures at the end of September, which will become available in the coming weeks, will show that the mortgage arrears situation has deteriorated even further.

On balance, my overall reaction to the Keane report is one of disappointment. The report places too much emphasis on the role of banks. For example, the report states:

A range of solutions are recommended. These ... need to be further developed over time, by the banks.

The report seems to put the banks at the centre of resolving the mortgage arrears crisis but that is not appropriate. I do not believe that is a role they can play.

While the Minister and the Central Bank can correctly point to the fact that the banks have renegotiated and restructured about 70,000 mortgages, the majority of those have been adopting the straightforward options of going interest only, reducing the person's payment, extending the mortgage term and capitalising arrears. In fact, of the 70,000 mortgages that have been restructured by agreement between lenders and borrowers, 65,000 simply centre on amending the amount which is being repaid, extending the term and capitalising arrears.

As regards the more innovative solutions which are being put forward by other groups and which were put forward in the last report by the Hugh Cooney group, the banks have been sadly lacking. We should not be looking to the banks for solutions to this crisis. The banks' priority is to protect their own financial position and not that of borrowers. It is up to the Government to take account of the wider social and economic consequences of the mortgage arrears crisis. The Keane report singularly fails to achieve this.

Even when a solution is given to the banks, in many cases they fail to implement it. One only has to look at the deferred interest scheme put forward in the Cooney report last November as evidence for that. That report was published in November 2010, yet I am not aware of a single case where the banks have entered into a deferred interest scheme arrangement with borrowers. Many banks dragged their feet on agreeing to implement it. Some of them subsequently said they would sign up to it but they are not advertising it or making distressed borrowers aware that this option is available. I am not aware of individual cases where it has been. Perhaps at a policy level the Minister can confirm whether the banks are implementing the deferred interest scheme arrangement that the Cooney report put forward. Some of the solutions put forward in the Keane report have a role to play, but the distinct lack of a clear implementation plan with a strict timetable of key milestones to be achieved diminishes the overall effectiveness of the report.

This debate is important but we need firm and decisive action from the Government at the conclusion of the debate. Expectations had been allowed to develop that the Keane report would come forward with radical but realistic proposals that would be of practical assistance to distressed mortgage holders. The disappointment of groups working with distressed borrowers has been palpable. Many of them will be appearing before the Committee on Finance, Public Expenditure and Reform tomorrow, as will Mr. Declan Keane, to his credit, to take questions from members of the committee. Those appearing will include, New Beginning, the Free Legal Advice Centres, FLAC, the Citizens Information Board and the money advice and budgeting service, MABS. Some of these groups and others have been highly critical of the Keane report, so we should ask ourselves why. I believe it is because of the lack of radical solutions in the report and the lack of a clear implementation plan with a timeline for implementing the policy decisions that will emerge from this.

The seeds of those expectations about radical solutions were sown before the election and subsequently enshrined in the programme for Government where the Government promised to put the interests of distressed mortgage holders ahead of the interests of big developers and banks. The programme for Government states:

The recommendations of the Cooney report are inadequate to address the scale of the current crisis. A more radical approach is needed to protect families in fear of losing their home.

While we cannot assess this report as the Government's response, because clearly it is under consideration, the Minister's contribution at the conclusion of this debate and the implementation plan put forward by the Government will be the benchmark by which the Government is measured.

Some of the proposals in the programme for Government have already been abandoned, while others have been discredited. Six specific proposals were put forward by Fine Gael and Labour in the programme for Government. The first was an extension of mortgage interest relief to give those who purchased between 2004 and 2008 - the so-called negative equity generation - additional mortgage interest relief. That was to give people an extra €166 per month on average. That was meant to happen by June but it did not. It has now been put back into the budget mix with no commitment whatsoever from the Government that it will be implemented. In fact, the Keane report is damning of that particular provision in the programme for Government. The Keane report's authors make it clear that it represents an inefficient use of public resources in a non-targeted fashion.

The second proposal was to force banks to absorb the ECB interest rate increases, but that has not happened to date. In fact, the banks have not even been instructed, encouraged or given policy guidance by the Minister to do so. We had a welcome intervention by the Financial Regulator on the issue of banks hiking up their variable interest rates, but that was the regulator acting independently. The Office of the Financial Regulator is independent and that intervention was not made at the Government's behest.

The third proposal was a two-year moratorium on family home repossessions, building on the 12-month moratorium that is already in the code of conduct. However, there has been no mention of that being implemented.

The fourth proposal was a fast-tracking of personal bankruptcy reform. We are now told that will come about in the first quarter of 2012, but I do not regard that as fast-tracking.

The fifth item in the programme for Government was to convert MABS to a personal debt management agency. There is no mention of that in the Keane report. We have had the appointment of 100 extra advisers but we do not have any proposal to set up a statutory agency with real powers to intervene and resolve the mortgage crisis and the difficulties people are facing.

The sixth and final proposal in the programme for Government was to make greater use of the mortgage interest supplement scheme. We now have conflicting advice on that matter in the Cooney and Keane reports. The Government built up people's expectations in this regard and has thus far singularly failed to deliver. The truth is that nothing of any practical significance has been done so far to give assistance to distressed borrowers.

I now turn to a few specific areas in the Keane report. I have already referred to the mortgage interest supplement. We now have two reports saying different things and giving conflicting advice. The Cooney report suggested reforming the mortgage interest supplement scheme and relaxing some of the outdated restrictions, such as the rule that if one person in a couple is working 30 hours per week or more, he or she is prohibited from benefiting from the scheme. Most Members of the House would agree that that should be changed in light of the economic reality many people are facing.

The Keane report, however, recommends that the Government should move away from the mortgage interest supplement scheme once new alternatives have been developed. In my view, the recommendations of the Cooney report better serve the needs of people struggling with their mortgages. The mortgage interest supplement scheme is a cost-effective way of giving real financial assistance to people to meet their mortgage interest commitments. More than 18,000 people have availed of that at a cost of around €70 million. One must compare that with rent supplement which is costing the Exchequer about €500 million per year. If the mortgage interest supplement scheme was properly reformed, and it is certainly in need of reform, it would be a cost-effective tool available to distressed mortgage holders which could help them to meet their commitments and at least pay the interest on their mortgages.

The second proposal I wish to address concerns the two variations of the mortgage-to-rent schemes, which are put forward in the Keane report. The fundamental question surrounding those two schemes is what happens to the residual debt. This is something to which the Keane report alludes. My own view is that these schemes will not work until one has established a proper debt settlement system that can deal with the legacy of mortgage debt that will arise where someone must voluntarily surrender the family home. Drawing attention to a disadvantage for the borrower, page 25 of the Keane report states: "There may be a mortgage shortfall that will still need to be dealt with." That is true and a fundamental element of the problem. Where a house is to be repossessed either by court action or voluntary surrender and there is a shortfall, which will be the case in many instances, people need to be clear about the fate of that shortfall. In the case of the mortgage-to-rent proposal, the mortgage holder would no longer own his property and instead pay rent. He would have to pay the shortfall from the sale of that property. He would no longer own the house but could not walk away from it. He would be lumbered with all the debt and the bank would get paid everything it is owed and more. How is this an attractive solution for the people in these circumstances?

I do not believe it is realistic that chunks of mortgage debt would be written off by the banks where persons remain in the home. The Keane report addresses this proposal. We have not proposed, nor have we advocated, a formal scheme of mortgage debt forgiveness because it is fraught with difficulty. There are knock-on effects that need to be thought through very carefully. There is no doubt, however, that the banks have been writing off mortgage debt in a small number of cases. We have had confirmation of this. The incidence is likely to increase. Representatives of Allied Irish Banks confirmed recently at a meeting of the Joint Committee on Finance, Public Expenditure and Reform that, thus far in 2011, the bank has written off approximately €600,000 in mortgage debt in a small number of cases.

The application of debt forgiveness among banks needs to be actively supervised by the Central Bank and the Financial Regulator to ensure they are working to a common set of rules and that all borrowers are treated fairly and consistently, both between banks and within individual banks. People can have a very different experience depending on what branch or bank official they deal with.

The intervention of the Governor of the Central Bank following the publication of the report last week was interesting. Mr. Honohan called on the banks to ramp up their efforts to restructure mortgage loans much more quickly or write off some of the debt where relevant. He made the point that the banks have been provided with billions of euro in capital to restructure loans that are unsustainable.

The Keane report cites trade-down mortgages as comprising an option that can be developed. I am not certain it will be an attractive option for a great many people. Many people in negative equity are trapped in the properties in which they live. In a very large number of cases, those properties are too small for them. The inhabitants' original intention was to live in an apartment for a small number of years with a view to buying a bigger property on settling down or having a family. I am not sure many people in negative equity, especially younger people, have the option to trade down. Many are already in shoe-box apartments and have great plans to have a family or develop their lives. The proposal is not a realistic one that will be of benefit to a great many people.

The split mortgage proposal that Declan Keane makes is interesting but does need to be tweaked. The concept put forward by New Beginning has a role to play. It involves shelving a portion of the mortgage. That portion would not accrue interest and thus the bank would take a hit thereon. This must be acknowledged. One could argue it is a form of debt forgiveness but the banks have been adequately capitalised, as has been pointed out, to deal with this crisis. The element of burden sharing set out in the New Beginning proposal should be considered actively.

The appointment of 100 advisers will help some borrowers who lack the know-how or confidence to negotiate the restructuring of their mortgages. As the Minister will know, the MABS national management forum has expressed serious concerns over how this system would work. Rather than appointing 100 advisers with no real powers, a much more effective approach would be to have an agency that could put a binding solution in place between the bank and the borrower.

While the report acknowledges that 50% of the arrears to date are outside the covered banks, the report fails in any way to deal with the problem of non-Irish banks. What if the non-Irish banks refuse to co-operate or to finance any of the measures proposed? What will happen to the 50% of mortgage holders who have loans with these banks? This is a reasonable question for the Minister and I hope he can address it at the conclusion of the debate.

The report simply claims that: "Short of prescriptive legislation, the Government is not in a position to force solutions on the market." Prescriptive legislation is exactly what we need. It should lay down very clearly the criteria that must be used and give effect to the tools and wide range of options which are available and should be used by the banks.

As the budget of 6 December draws near, we will all have an extensive debate on the exact cuts required. All the pain that will inevitably be imposed on the people will be for nothing unless we tackle the mortgage crisis head on. The mortgage crisis has implications for the whole of society, not just those with mortgages.

The Minister indicated in the press statement that accompanied the report last week that there would be an implementation strategy at the conclusion of this debate. I welcome that. Such a strategy is distinctly lacking in the report. The strategy needs to have deadlines and set out clearly the Government's priorities in this area and how it proposes to address the issue.

Unsurprisingly, one of the few groups to welcome the report last week was the Irish Banking Federation, while organisations representing home owners, such as FLAC, MABS and New Beginning, all highlighted their disappointment with the fact that this report puts no onus whatsoever on the banks to implement any of the report's proposals.

The truth is that the Government has yet to introduce any real practical measures to assist people who are struggling with mortgages and other forms of personal debt. It has been acknowledged time and again that the mortgage crisis cannot be resolved in the absence of radical reform of Ireland's personal insolvency regime. The Minister alluded to this in his contribution. The Keane report states: "Early introduction of reformed bankruptcy law and new non-judicial debt settlement arrangements is vital." The group does not see a solution to the mortgage problem without it.

Last November, the Cooney report stated the Expert Group on Mortgage Arrears and Personal Debt:

[I]s of the view that significant reform is now required in regard to Ireland's personal insolvency regime. Such reform must have the broad objective of bringing about an efficient and cost-effective process for the settlement of arrears of personal debt.

Speaking at a conference in UCC last Friday, the Financial Regulator, Mr. Matthew Elderfield, alluded to this time and again. He made it very clear that in his view, there would not be a solution to the mortgage arrears crisis until the reform of that regime and a non-judicial debt system is established. It is not necessary to wait several more months before we act on this advice.

The Law Reform Commission, as the Minister knows, published extensive proposals on this area last December. It went so far as to publish a draft insolvency Bill. Fianna Fáil has adopted this Bill and amended it to take account of mortgage debt. That is why tonight, during Private Members' time, we will be asking the Government to support the Debt Settlement and Mortgage Resolution Office Bill. This establishes an independent debt settlement office that can deal with personal and mortgage debt. The Bill would allow people struggling with unsustainable debt to see some light at the end of the tunnel. We call on all parties to support this important Bill during Private Members' time tonight and tomorrow. I urge the Government to come forward on Thursday with proposals that are meaningful, tangible and to which people can relate. They should take account of some of the very good recommendations in the Keane report, the recommendations in reports that have yet to be implemented and the urgent need to have proper reform in the areas of bankruptcy and personal insolvency. We will contribute constructively in that regard.

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