Jim Daly (Cork South West, Fine Gael)

I welcome the opportunity to speak on this very important and relevant issue, one that will dog the lives of the people of my generation for many years. Many of us have been condemned to a life of mortgage debt as a result of what has happened in recent times. Finding a solution to ease that problem falls to this Government in part. The banking system should have a much bigger role to play in finding a solution. I commend Deputy McGrath and the Fianna Fáil Party for bringing this Bill before the House. It is timely. It is well written, well presented and well constructed. I also welcome the Government's reaction to the Bill. People at home will feel supported when they see a broad consensus in the House on an issue that is so sensitive to them.

I watched an interview last Sunday morning on Al Jazeera TV with Michael Sandel, who is professor of philosophy at Harvard University. He claims the reason so many riots are taking place across the G20 countries this weekend and the reason for so much unease is the lack of justice to date in the bank bailout arrangement. To find a solution to the mortgage issue, we must go back as well as look forward. The bank bailout has caused envy, hurt and anger for so many people who feel so frustrated and cheated. It has been explained to us so many times why it was necessary, as well as the mechanisms necessary to bail out the banks. We understand that the system must be propped and if the system fails, so much more is at stake, but we have never debated the justice element of it. We must have that debate in this House. It must be full, open and honest so that we can address the issue for the people. We must do that before we can move on.

Another element of justice comes into this debate, which is the issue of negative equity and blanket debt write off. Negative equity in itself is not a problem and I do not see it as something we have to deal with here and now. The corollary of the argument about negative equity, that people should be compensated if they owe more than the value of their house, is that we should tax people when they enter positive equity. I know we have capital gains tax when one sells a house, but I am talking about a tax on positive equity. People who buy houses now will enjoy positive equity for years to come. Negative equity does not cost anybody anything while they can afford the repayments. We must focus on how much people can afford to pay. That brings the onus back on the banking system which must work constructively to re-engage with people and restructure their loans before problems arise, instead of talking to people when they are in arrears for six or nine months, and offering 12-month reviews which come around far too quickly. The banks could do so much to be more productive, proactive and constructive in dealing with restructuring. We must focus more of our debate on people's capacity to pay, as opposed to negative equity, which is a red herring when people can afford payments. Because house prices will rise again, equity will always ebb and flow.

As an example of people's capacity to pay, a person could be paying €500 per month on a car loan for €25,000. The same monthly sum would service a house loan for €150,000. We must focus on people's capacity to pay, which is the urgent issue.

Debt write-off must be considered when people are prepared to surrender their home and are proven beyond doubt to have unsustainable loans. That is a matter of fact that banks are refusing to deal with so far. They are not grasping the nettle when people are willing to walk away from their homes, trade down or move to a different set of circumstances and give it up. In the American system one can give back the keys and walk away. The banks will have to start grasping that nettle here and let people walk away. There is no point in trapping people in an indeterminate cycle of debt that can ruin health, families and individual lives.

Banks have taken massive capital hits on commercial loans. In the case of sustainable mortgages, in the long term these could be restructured with no capital loss to the banks. The banks should adjust the loan balance to an amount that is affordable on a monthly cash flow basis, and park an amount of capital that does not accrue interest until borrowers find themselves in a better situation, which in most cases will happen despite the current gloomy outlook.

Given the large amounts of money involved, this surely has to be a better option than write-offs for people who have, and will have, a limited amount of regular income. While I am on the side of the mortgage holder, there will be plenty waiting to abuse any measure that will be put in place to assist genuine cases. The risk of moral hazard and the justice issue will come into play if people receive mortgage write-offs.

We should examine the genesis of this problem and debate not just the logistics and mechanics, but also the moral merits of the bank bailout. That should be explained to the public in their own terms. The banks must engage immediately in active restructuring. In addition, the negative equity discussion should be replaced by a debate on people's ability to pay.

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