Michael Healy-Rae (Kerry South, Independent)

I thank the Fianna Fáil Party for allowing me time to speak. I compliment Deputy Michael McGrath for introducing this Bill to the House. In recent years many consumers who are buried under a mountain of debt and who face financial hardship have been unable to agree settlement negotiations with their lenders. This is due, in part, to the recent economic crisis. Some lenders are willing to accept settlements if they are convinced that full future payment is unlikely. However, the debt settlement practices and the laws that apply to unsecured debts, such as those on credit cards often do not apply with secured loans, such as those used for cars and home mortgages, which are based on collateral property. Often a lender will opt to repossess the automobile or foreclose upon the home rather than work out a settlement. This is totally unacceptable.

Mortgage debt settlement is more difficult to negotiate than standard debt settlement such as settling credit card debts. Given that a mortgage loan is a secured loan the home acts as collateral and if a person does not pay the full amount owed on the mortgage the bank has the option to take the home and sell it. However, if the property has fallen in value, as in the majority of situations, it is possible to end up owing more on a mortgage loan than the home is worth. The banks will be unable to recoup the amount they loaned if they foreclose to sell. When they know a person owes more than the house is worth, and consequently they will not get their money back through foreclosure, they may be willing to allow a mortgage debt settlement.

People and families facing problems paying mortgages who want to settle their debt need to consider which of the two major options for settling mortgage debt is best for them. Generally, in options such as renegotiating the terms of the mortgage a bank will try to get the person to repay the full amount owed but will either lower the interest rate or stretch out the repayment terms so that the monthly repayments become more affordable. For example, if one owed a bank €100,000 it might agree to let one pay back the full amount over 40 years instead of 30 years. One's monthly repayment would be more affordable but one would pay back a larger amount in the long term because of the extra ten years of interest payments. This is better for the bank but in some rare cases one may not want this and would prefer the bank to lower the total amount owed so that one's debt would be in line with the current value of the home.

Shortselling one's home is the best alternative for those who do not wish to keep their house - hardly a majority of cases. With a short sell one gets the bank to agree to let one sell the home for below the amount one owes. The bank then accepts the full proceeds of the sale as satisfaction of the debt, forgiving the remaining balance. Not many banks in Ireland are willing to do this at present.

Squeezed between high levels of unemployment in a weak economy on the one hand, and with reduced and in some cases still declining property values, many of us are in a very tough place, underwater on loans we can barely, if at all, pay. It is generally worse for people who bought their homes in recent years during high rising values when the belief was that the worst-case scenario was that one could always sell one's home and walk away free and clear from debt. Unfortunately, that is no longer an option and we need to examine other options, including various kinds of mortgage reorganisation. The classic way to consolidate debt is by combining it, that is, replacing two or more debts with a single loan. By doing this a homeowner might be able to refinance at a lower rate of interest or extend the time in which he or she must repay his or her loan. Both options would assist in reducing monthly repayments. In view of the fact that in taking out a new mortgage one would incur new origination fees, the decision on whether to proceed must be carefully weighed.

Another way to reorganise one's finances is by paying off a mortgage. This is sometimes done by taking out a new, lower payment loan in order to pay off the older, less desirable loan. It is similar to combining mortgages. On other occasions it can be done by ruthlessly combing through one's budget to find additional money each month and paying this off against the principal, one-off loan. This reduces the term of the loan because it is paid off faster. However, some loan agreements may include clauses which impose fees in the event of early repayment.

If a homeowner is in financial debt, he or she may be able to negotiate a deferral in paying his or her mortgage. This is where the lender allows the borrower to take a holiday on payments for a few weeks or months and is most appropriate when there is a short-term downturn in the borrower's finances. Unfortunately, this is now the position in the majority of cases.

The banks which we own have a vital role to play because they caused the majority of the problems with which we are dealing in the first instance. As stated in the debate on the report of the interdepartmental working group on mortgage arrears, they led people up the garden path and encouraged them to believe it was acceptable to borrow any amount of money because they would have no difficulty in paying it back. That, of course, has proved not to be the case. I compliment MABS and the citizens information centres, the staff of which have done an excellent job in dealing with this problem on a daily basis.

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