Pearse Doherty (Donegal South West, Sinn Fein)

As we all know, Ireland is in the midst of a severe housing crisis. Every indicator shows housing need has been rising steadily since 2008. Almost 100,000 families are on the social housing waiting list. This is twice the number that were on it in 2008. The numbers of claimants for rent supplement and mortgage interest supplement have increased dramatically during the same period, from 63,658 to 96,809 and 5,212 to 18,564, respectively. This is occurring when homelessness charities are reporting an increase in demand for their services.

While access to housing was always unevenly spread during the boom years, the economic crisis has deepened housing inequality and housing need.

The economic crisis has created a new category of those with housing needs as people with mortgages are hit by falling incomes and rising rates as they fall into greater arrears. For the majority of these house owners the consequence is a mounting level of unsustainable debt. For some, crippling debt has given way to court repossession orders and the loss of the family home. We are familiar with the figures from the Financial Regulator which show that of the 777,321 residential mortgages held in the State, some 55,763 were in arrears for more than 90 days at the end of June 2011. The figures also show that 69,837 residential mortgages are categorised as restructured, including interest-only payment plans and, of these, a total of 30,442 are also in arrears. All of this adds up to the fact that 95,158 residential mortgages are in arrears of more than 90 days or have been restructured. We are aware that the situation has become worse since then but, as of June 2012, some 12% of residential mortgage holders are in some type of mortgage distress. Also, tens of thousands of others are not in mortgage distress at present but are at risk of mortgage distress in the immediate future. The problem facing these households is very simple and the Minister has referred to it: the gap between their falling income and rising debt is widening to a level that is unsustainable.

Unemployment stands at 14.3% and looks set to rise further in the coming period. While fears of recession throughout the EU have forced the European Central Bank to rethink further interest rate rises in 2011, inflation shows no sign of abating. Pressure on disposable household income will continue for the immediate future and, meanwhile, levels of debt remain unsustainably high. According to the Central Bank, the level of household debt to disposable income remained high at approximately 200% in early 2010, which was down from a peak of 230% in the third quarter of 2007. Even if household debt as a percentage of disposable income falls, the rising cost of living and a continued decline in wages will mean that household debt, and with it mortgage debt, will continue at unsustainable levels in future. All of this shows the severity of the problem and the fact that the future is not bright in respect of this problem resolving itself naturally with the given indicators.

The human cost of mortgage distress is obvious for all Members to see. We see it among our families and friends, in our communities and among those who come to our clinics with tears in their eyes. Hundreds of thousands of mortgage holders are being forced into simple choices between feeding their families, paying the bills, paying energy, school or doctors costs or paying their mortgage. This is the sad reality of the situation in which Ireland has found itself. The real fear of losing the family home is forcing some to choose mortgage payments over paying for food or medicine. I believe the story of the woman who came to me is not unique. She told me that she has not slept properly for six months because the bank is refusing to deal with the issue that her debt is unsustainable. I agree with her point that there is no way that she will be able to pay off the full amount of her mortgage in her lifetime or in her children's lifetime. In addition to the immediate financial impact, there is also great emotional cost and stress which disrupts family life, leading to psychological ill-health or marital breakdown in some cases. This real cost must be factored into the discussion.

During the general election Fine Gael and the Labour Party promised to take urgent action to address mortgage distress. The programme for Government includes six specific commitments on mortgage distress. One of the most important was a commitment to direct mortgage providers in receipt of State support to cut their costs over and above existing plans in a fair manner by a sufficient amount to forgo a 25 basis point increase on their variable mortgage rates. As the European Central Bank hiked up mortgage interest rates not once but twice, the Government took no action to force the banks to absorb these increases despite a clear programme for Government commitment.

I have many difficulties with the decisions the Financial Regulator has taken, especially on credit unions, but I take my hat off to Matthew Elderfield. It was left to him to stand up last week and do what the Government should have done when he ordered the banks to stop increasing variable interest rates. That is making the mortgage situation worse and it is penalising those on variable interest rates simply because the banks got it wrong on their trackers. There is no economic justice to what the banks are doing to people who are trying and struggling to pay off their mortgages.

I put the question to the Taoiseach some moments ago. Matthew Elderfield knows full well that he does not have the power to force the banks not to raise the variable interest rate. He can only cause disruption, for want of a better word, within the banking system and audit them and breathe down their necks. Today, the Irish Banking Federation refuted the order from Matthew Elderfield. However, he stated in an interview that if the banks did not respond, the Central Bank would not be found wanting and would go to the Government and call for the necessary legislation to be put in place. Given the indications from the Irish Banking Federation today, will the Minister at least state clearly that if there is an increase in variable interest rates, which will make the situation worse, he will not be found wanting and will introduce immediate legislation to empower the Central Bank to put a cap on banks without undue delay? I call on the Minster to do this so that there will be no fear for the 200,000 mortgages holders who are trying to pay their mortgage. Some may be in distress already and others may not but all should be assured that regardless of what happens, the Government, the regulator and politicians are on their side and will ensure that the banks will no longer penalise them in this regard.

The programme for Government committed the Government to increasing mortgage interest relief to 30% for first-time buyers who bought between 2004 and 2008. It committed to introducing a two-year moratorium on the repossession of modest family homes where a family is making an honest effort to pay their mortgage. It promised to fast-track personal bankruptcy reform, to convert the money advice and budgeting service, MABS, into a strengthened personal debt management agency with strong legal powers and to make greater use of mortgage interest supplements to support families who cannot meet their mortgage payments. Months after taking office, however, no action has been taken to date on any these commitments.

In response to a growing media debate on the impact of the crisis, especially at the end of the summer months, and to high profile criticism from economists such as Morgan Kelly, the Government rushed to form an interdepartmental working group on mortgage arrears. Some of us believed this would be simply another group that would not come up with any comprehensive solutions. Others, who continue to see the Government in its honeymoon, took the view that they should give it the benefit of the doubt. Most people working at the coalface on these issues hold that the findings are a deep disappointment and that they do not provide anything close to a comprehensive solution to the issue of mortgage distress. The core proposal is to leave it up to the banks, to leave those in mortgage distress at the mercy of the banks and saddled with decades of unsustainable debt. Throughout the country tens of thousands of families who waited to see if the Government would provide a credible route out of mortgage arrears are disappointed. Instead, they have been given a minimalist response that will do little to address their distress. Some of those who sat at home and waited for the report asked what else we expected given that it is a group made up of 17 civil servants and five bankers.

The report also proposes a number of schemes such as split mortgages, mortgage-to-rent and mortgage-to lease which, if established, may assist a small number of people in mortgage distress. Such measures are welcome but they will not remotely address the severity of the crisis. The report also proposed a strengthened mortgage advice service for those in distress. Depending on the detail, such elements could form part of the much needed comprehensive solution but, in their current form, offer little in the way of a meaningful response.

Having had three expert group reports published in almost two years, it is incredible that the main conclusion of the report before us is to leave the resolution of this problem to the banks. The Minister stated the lenders need to produce more solutions. Clearly he and his Government have not learned anything because this matter can no longer be left to the banks. The State must step in.

The report explicitly rules out a number of the Fine Gael and Labour Party programme for Government commitments. Increasing mortgage interest supplement, extending mortgage interest relief and transforming MABS into a personal debt management agency with strong legal powers are all ruled out and the report does not include any proposals on insulating mortgage holders from European Central Bank interest rate increases. Given that this is not a Government report, it begs the question as to what is the Government's position on the commitments it made in the programme for Government. When will we hear that the commitments the Government parties made prior to the election and those given by them in writing after the election will be acted on or is this a case of more broken promises from a Government that is not yet a year in office?

What is clear is that the Keane report does not provide the solutions urgently needed for the hundreds of thousands of families who are in or are threatened by serious mortgage distress. I welcome the Minister's statement that the Government is willing to listen to alternative proposals and accept there is no magic wand or silver bullet. Immediately after the PCAR results were published, I stated in this House that the Government, in deciding to resolve the problem in the banks by throwing billions of euro at them, must also resolve the problem facing mortgage holders. It has taken a long time for a report on the issue to be published that will allow a proper debate to take place on what solutions we will provide.

There is now an urgent need for the Government to act. It must establish a comprehensive mechanism for addressing the root causes of mortgage distress because the problem cannot be left to the banks to solve. Speaking in the House last week, the Taoiseach invited the Opposition to put other options on the table for his consideration, stating that all proposals would be seriously examined. I will take him at his word and, in light of the weaknesses in the Keane report, offer what I consider to be a viable alternative. There is a need for a strengthened distressed mortgage resolution process with a stronger code of conduct for mortgage lenders. This process must be backed up with an independent distressed mortgage resolution board to ensure decisions taken by lenders are an appropriate response to mortgage distress. Where such a response is found to be wanting, the board must have legal powers to enforce the appropriate solutions and penalise lenders for failing to act in an appropriate manner.

Four principles underpin Sinn Féin's response to this crisis. In the first instance, the priority must be to do everything humanly possible to enable people to remain in their family home. In the event that families do not wish to remain in the family home or such an option is not financially sustainable, a range of other options must be available to meet their housing needs. Underpinning these principles must be the objective of debt sustainability. The ability of the mortgage holder to service any new mortgage arrangement must be clearly demonstrated. Finally and crucially, mortgage lenders must absorb a significant portion of the losses on the value of the mortgage.

Sinn Féin does not believe the taxpayer should foot the bill for the mortgage crisis, nor do we believe it is necessary for the taxpayer to compensate banks further for the loss in value of their residential mortgage loan books. There is sufficient capital in the banks to absorb a significant proportion of these losses. The four key principles I cited - maintaining the family home, providing appropriate alternatives, ensuring debt sustainability, and sharing the burden fairly - provide the basis for a solution to the causes of the mortgage crisis that is both fair and sustainable for borrowers, lenders and the taxpayer.

At the core of Sinn Fein's proposals is the principle of debt restructuring, which would involve reducing the debt burden on the household. The primary option used would be debt-for-equity swaps. The principle is simple. For a family to remain in their home, the value of their mortgage would be reduced by their lender in exchange for an equity stake in the property. The calculation would be based on reducing the mortgage to a sustainable level without undermining the viability of the banks. Such swaps could only function up to a maximum of a 49% equity stake by the banks. Borrowers would retain the option to buy back the swapped share at current market value as their financial position improved. The lender would have no property management functions and would not receive rent for its share of the property. However, if the house were sold at a later date, the bank would recoup its share of the sale price of the property. Following this formula, the borrower and lender would share a portion of the loss in value of the property. In addition to the debt-for-equity solution, other restructuring options should be available, including a reduction in the interest rates on the mortgage loan, an extension on the length of the mortgage loan and a reduction in the principal and-or interest on other unsecured loans held by the household.

Ensuring that the borrower can sustain the new debt arrangements in the long term is crucial in determining the viability of any restructuring. While such debt restructuring will provide a solution for many families currently in mortgage distress, there will also be those for whom debt-for-equity swaps do not provide a solution. A range of options needs to be available for mortgage holders in such circumstances. These may involve trading down to a smaller home with a smaller mortgage or trading up to a larger home and carrying a portion of the old mortgage to the new loan. The involvement of a local authority or voluntary housing association in either a shared ownership or mortgage to rent arrangement may also be an option. In some circumstances, the only solution to the mortgage crisis will be to allow the borrower to walk away from the property and make a fresh start. While this would represent an option of last resort both for the lender and borrower, in some cases it may be the only viable option.

It is also important to stress that in tackling the mortgage crisis the Government must not lose sight of the broader crisis in social housing. Funds must not be diverted from the already depleted social housing budgets, because to do so would push those already in grave housing need further down the housing queue.

Cost is the big unknown in all of this, whether in the Keane report or the other solutions that have been put forward. The Keane report suggests a blanket debt forgiveness scheme would cost in the region of €14 billion to clear all of the negative equity in mortgage portfolios across the State. This figure does not tell us anything about the potential cost of addressing mortgage distress in a targeted manner. At the end of March, distressed mortgages amounted to a staggering €12.5 billion. The figure is now significantly higher and expected to rise further. The banking stress tests carried out by BlackRock earlier this year estimated that lifetime loan losses on residential mortgages could be between a base case of €9.9 billion and a stress case of €16.5 billion. Based on these figures, the Central Bank estimated that the three year cost of these scenarios would be €5.8 billion for the base case and €9.5 billion for the stress case. These losses were based on an assessment of costs of enforcement at the time of liquidation, insolvency and-or balance sheet write-down.

The longer this problem is left to fester, the higher the costs will be. Taking action now on the basis I have outlined is the only way of ensuring the final cost is kept to the lowest levels possible. The solution will require the establishment of an independent body with the power to enforce a solution on the banks and a mechanism to have banks take an equity share in properties, with mortgage holders being required to cede a stake in their home in exchange for a debt write-down. Another basket of options will also be necessary to deal with cases where this solution does not fit.

We must address not only the housing crisis but also the broader crisis in the economy. We cannot have 100,000 mortgage holders, equating to perhaps 250,000 people, in financial mortgage distress. A number of months ago, the Minister called on people to spend. Those in mortgage distress cannot afford to spend money in the domestic economy. We have given the banks citizens' money to address the problem of mortgage address. We can no longer leave it to them to provide a solution. Instead, an independent body is needed to address the problem. The new board Sinn Féin proposes would not go through each of the 100,000 distressed mortgages. By providing for the imposition of penalties in the event of failure, the banks would be incentivised to consider the basket of proposals and do the job required of them. Until now, they have failed to do so. Last weekend Mr. Matthew Elderfield again stated he would breathe down the banks' necks. Some weeks ago he and Professor Patrick Honohan attended the Joint Committee on Finance, Public Expenditure and Reform where he stated he is telling the banks to do more. We met the heads of the banks and it was amazing to look at the expressions on their faces as they told us they expect to do nothing in regard to this crisis.

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