Seán Fleming (Laois-Offaly, Fianna Fail)

I welcome the opportunity to speak on the Debt Settlement and Mortgage Resolution Office Bill 2011. To give more acknowledgement to what is involved in the legislation I will mention the full title, which is a "Bill entitled an Act to reform the law on personal insolvency; to provide for a non-judicial debt settlement arrangement process concerning personal debt; to provide for a non-judicial mortgage resolution order concerning mortgages over family homes; to provide for a debt relief order for personal debt where a debt settlement arrangement or bankruptcy is not appropriate; to reform the law on the enforcement of personal debt, including individual enforcement mechanisms; to provide for the establishment of a debt enforcement office, which includes a debt settlement and mortgage resolution office; to provide for the licensing and regulation of personal insolvency trustees and debt collection undertakings; and to provide for related matters." It is a comprehensive and extensive title which provides a good summary of what is involved.

I compliment my colleague, Deputy Michael McGrath, from Cork South-Central, on his outstanding work on the issue. It was not just a question of producing a simple Bill as he had to study the matter over months. This is not an issue which has cropped up in the past month or two but has bubbled under the surface for some time. We all know this from speaking with people in our own constituencies. Deputy McGrath has done tremendous work, which has culminated in today's debate. There has been much effort behind the scenes studying all possible implications of the Bill and the Deputy has used his experiences as a constituency Deputy.

I compliment the Government for agreeing to take this Bill as it is too easy for it to find a technical reason to vote a Bill down. I hope people outside these Houses can at least see that the Dáil is working in unison to try to solve some of the problems facing the people who are most financially distressed. They will see that party politics are not being played in the Chamber, which is another good message for the people.

It has been explained to me that the legislation will be dealt with through the Department of Justice and Equality, which I found surprising. Matters involving insolvency and bankruptcy come under the ambit of that Department, although one may assume it would be a matter for the Department of Finance. That is a further example of the complexity of these matters, showing that debt resolution, mortgages, bankruptcy and insolvency traditionally tend to end up in the courts. As these are legal agreements, one can see why the Bill is a matter for the Department of Justice and Equality.

We are all familiar with the problems we are here to tackle, which are due to various causes. The first cause is over-lending by the banks, although there was also over-borrowing by people. Debtors ran into difficulties when incomes declined because of cuts in pay or unemployment and they were unable to meet all their liabilities. In some cases two people in a family may be unemployed. The scale of the over-lending shocked me when I first encountered it in my constituency clinic in Castletown a couple of years ago, as such instances did not just happen today or yesterday. People presented at my office some time ago and they tended to have sub-prime mortgages. I asked how much they got and the value of their houses and some of the people told how the cost of the house, a wedding reception and honeymoon, car loan and credit card and other debts were put on the mortgage. The sub-prime agency looked to consolidate the debt; instead of a person having six monthly payments it was wrapped up into one payment that was easier to manage, although the people involved would pay for it for 35 years at an exorbitant interest rate.

I can understand how an ordinary person would take that offer when it was presented rather than have many different bills. I spoke before not about 100% mortgages but 130% mortgages. Some people did not know there were 100% mortgages in existence but they did not know what was going on. I have dealt with cases of people with 130% mortgages, as the value of the house might be €200,000, with a mortgage value of €270,000 by the time other debts were included. The question is how the banks rationalised this process, and I believe they fiddled the books. They knew property values were increasing by 20% per year and within a year or two the mortgage book value would be less than 100% in comparison to the value of the house.

This was done by some of the main banks, as well as non-covered institutions and sub-prime lenders. We should not forget that local authorities are also wrapped up in this. In my experience, local authorities are the most inflexible; banks can take a pragmatic view when dealing with a client but local authorities cannot take action without a circular from the Department. A finance officer will not be able to act without such a circular. With shared ownership loans I have asked if people can move from variable to fixed rates or vice versa but this was not allowed. I put down parliamentary questions on the issue last year and this year. There is little flexibility in local authorities.

That is in the past and we must deal with the future. We had the Cooney report on mortgage arrears last November and the Keane report in the past week or so. The Law Reform Commission's report on personal debt management and debt enforcement was also published. This proposal takes the best of those reports and makes additions to make the process more effective for people. Each of those reports was good in its own right but none represented the full picture. Deputy McGrath has brought the best of all of those to ensure we have a non-judicial process in front of us for consideration. It is a complicated process. I will not go into too much detail. It involves a debt settlement arrangement, a new debt settlement and mortgage resolution office, a debt relief order as well, and in some cases we also have in the legislation a mortgage resolution order. It is very important for people to know that exists as well because people had shied away from it in some of the earlier reports.

It is important when we talk about mortgage resolution orders to look at what has happened. The majority of what the Central Bank terms restructured mortgages are not in fact restructured mortgages. Of the 69,000 mortgages that it said were dealt with by way of restructuring, 26,000 of those were restructure of interest only. Six months of a reduced interest rate is not really a restructure of a 30-year mortgage. It is only a temporary relief. The Central Bank's figures are exaggerated. It refers to 10,000 cases of reduced payment of mortgages greater than interest only. I do not call that a major restructuring because they are short-term. They are not restructuring the mortgage at all. The mortgage will continue for the same life. Approximately 9,000 term extensions and reduced payments were made and some arrears capitalisation. Arrears capitalisation is what I call restructuring. It is one of the few genuine cases of restructuring that has taken place in the marketplace. Some of the options provided for in the legislation deal with interest-only payments and mortgage extensions. That is restructuring, but I hate people taking a second generation mortgage. That is what happened in Japan. People were ending up with a 70 year mortgage, running to nearly three generations. Japan is still one of the most heavily indebted countries having had a property bubble and bust many years ahead of anywhere in Europe and it still has not got over it.

Reference has been made to a repayment holiday. The Minister for Finance indicated that it would be a possibility to allow people to catch up on all their other debts. What happens is that a bank is only interested in its debt, whereas if a person goes to the money advice and budgeting service, MABS, it looks at the full picture. Some people can have up to 30 or 40 bills in various shops and suppliers and in different areas.

An interest rate adjustment downwards is a restructuring. It is to be hoped, with negotiations at EU level and the funding that has gone into the European Central Bank, it will have provision in the next ten years to provide, not a six month or 12 month reduction in mortgage interest rates, but something that goes back over a five or ten-year period, if need be, and a deferred interest scheme or a mortgage-to-lease.

What we propose is a comprehensive set of proposals. I am pleased the Government has taken the legislation on board. The Minister for Justice and Equality has said he will bring forward his own legislation, which we welcome. Our spokesperson on justice will deal with that when it comes to Committee Stage but before it gets that far we will have extensive discussions on Second Stage following the report. Essentially, we can all agree that we are maxed out on reports. We have enough reports and we know the problems. It is time now for action.

See this speech in context