Tom Barry (Cork East, Fine Gael)

I welcome the opportunity to speak on this matter. It is one of the most serious situations we have faced as a State and how we find a solution to it will define us. Every problem has a solution. People might want to hide away from it but eventually we must face up to it.

I will focus on the split mortgage idea in the Keane report. I welcome the report, whose authors did good work in a short time. Everyone knows 45,000 mortgage holders are in arrears, an increase from 25,000 in 2010. Arrears now account for 6% of the total market and that figure could rise. None of those figures even takes into account the vast numbers of restructured loans, which numbered 60,000 at the start of 2011. Compounding the problem is the interpretation of the Basel agreement currently being applied by the banks. This protocol is used by the banks to issue horrendous letters threatening to withdraw facilities. The implementation of the agreement is left to individual banks, and they are dealing with it by kicking the can down the road either by delaying or disguising the problem, which will eventually make it worse. No action is an action in itself, allowing the market to freewheel with devastating social and financial consequences.

Many Irish people see no light at the end of the tunnel and they are voting with their feet. This wave of emigration is like no other as these people will not be back because all that awaits them is retribution for money owed and unpaid. While many commentators evaluate the situation and highlight the problem, not many solutions have been forthcoming until this analysis by the Keane report.

The need to own one's own home is deep in the Irish psyche. That desire has been ingrained since the Famine, when tenants demanded the three Fs: fair rent, fixity of tenure and free sale. The rush by a new generation to buy a family home was all consuming and, unfortunately, trapped not only this generation of first-time buyers but those who wanted to move upwards and onwards. Each group bought according to their means and disposable income at the time but are now trapped in a financial nightmare.

The split mortgage idea proposes the use of the information from the last banking evaluation, where each mortgage in the State was analysed, along with the knowledge of local and regional bank managers. Preferably, we try to get managers involved in the initial lending of the funds to distressed mortgage holders. As the banks tried to tidy up their books in recent years, they shuffled bank managers around like a deck of cards, thus removing local knowledge from branches and breaking the personal link between manager and customer. This was deliberate and it was done in order that the new bank managers could be a little more assertive and, perhaps, demanding. This needs to be rectified. Banker knowledge of customers needs to be established.

The Keane report, on page 34, expresses worry about the scale of the problem and how we must deal with it. If we got back the original people involved in decisions on most of the distressed loans, we would have a chance of speeding up the redress process. Each mortgage will need to be analysed separately and individually to ascertain the level of repayment the mortgage holder can realistically bear on a capital and interest repayment basis. As an example, let us take a mortgage holder with a €200,000 mortgage. If it is established through the aforedescribed mechanisms that this mortgage holder can pay interest and capital only on €100,000, the €100,000 that cannot be paid must be placed as a charge on the property to be addressed at a later stage, either as a second mortgage or on the sale of the property. The interest element of the charged amount needs to be financed in the interim. This funding needs to be negotiated centrally by the Government at as low an interest rate as possible with the European Union and the IMF because this is a serious issue for Ireland. It is also a possibility that when the banks get back into profit, they could make a contribution towards the funding of the money that must be stacked. We have received no money from them to date and, in fairness, they must start to show a willingness to help.

This is not a new concept as there have been intergenerational loans in the past. An example is the land annuities and land repayments system set up over 65 years ago to allow Irish tenants to gradually claim ownership of their farms. Under that system, special courts were set up to establish land valuations and tenants could pay off the land annuity at any time during the term if their circumstances improved. I have paid off land annuities, as did my father and grandfather. We should not try to solve the mortgage problem in one generation but over a longer period.

The parked percentage mortgage plan, the split mortgage approach, has many positive aspects. It is individually tailored and allows people to pay for their house with no fear of eviction. This is the first priority. It allows the mortgage holder to pursue the objective of owning his or her own home. It prevents a mortgage from becoming a bad debt, thus crystallising the loan and adding to the country's debt crisis. It allows the mortgage holder the possibility of having some disposable income which will help to stimulate the domestic economy. People cannot continue to live in fear of the next letter seeking repayments. The plan will address the considerable fear and anxiety in society on this issue. It may help to avert significant societal problems such as depression and suicide that will arise from the fallout from this crisis. It simply offers light at the end of the tunnel for those who see no way out of the financial mess.

The plan will keep people in Ireland who can help to rebuild our society. Exporting our best and brightest is certainly not the way forward. The plan prevents the sale of properties to venture capitalists and investors who, as the recession starts to recede, might start to raise the rent on these properties, thereby trapping their tenants in an immovable vice once more. This solution does not abolish the debt by debt forgiveness and, therefore, moral hazard is not an issue. The mortgage holder who pays off his or her mortgage on time is rewarded by becoming debt free earlier.

This debt solution prevents banks from off-loading aggressively their distressed mortgages to the State. This would, of course, increase banks' bad debts and only weaken the banks' recovery, placing them in circumstances in which they would be looking to the State for further bailouts. The solution prevents them from becoming demanding landlords, which would cripple sustained recovery. It prevents the transfer of the problem to the local authorities, which would result in their having to bear the cost of rehousing and the massive cost of maintenance. Within the split mortgage mechanism, housing maintenance should not be an issue.

The mechanism prevents banks from standing steadfast behind their implementation of the Basel agreement. They are doing so and will continue to do so if allowed, with such detachment that it is akin to terrorising mortgage holders. They issue letters threatening to revoke facilities and demanding repayments in an unrealistic timeframe. This implementation of the Basel agreement by the banks implies that people will not even have enough money to feed themselves. This is completely unacceptable. A split mortgage plan takes negative equity out of the equation as the debt will be serviced, albeit over a longer timeframe, and the repayments will be adjusted according to individual circumstances.

Strangely, a solution that might have averted the worst excesses of the 1847 Famine, the three Fs, might work in this instance. The first aspect is fair rent. This equates to fair payment, or to what the mortgage holder can realistically pay against the principal sum and interest. The second is fixity of tenure. This is as relevant today as it was 150 years ago because mortgage holders could not be evicted if they followed the schedule. The third is free sale. In this instance, one would be free to sell one's property, by consent, if there was someone willing to take on the existing mortgage.

The proposal forms the basis of a comprehensive plan. While there may be many minor adjustments to be made, the spirit of the proposal needs to remain the same. Interest-only mortgages clearly are one of the factors that created the property boom. They were part of the problem and will not be part of the solution. Banks are moving distressed mortgage holders into interest-only arrangements, which is not a solution. A large number are still heading down the road to default. If successful, the model could also be applied to small businesses. This would increase their cash flow and keep them going. Many small businesses are anchored with property debt because they had a good cash flow during the Celtic tiger years.

The objective of the split mortgage plan is to see all moneys repaid to the banks and the State. The number of evictions and societal breakdown would be reduced. People would enjoy a reasonable standard of living, with disposable income, thus providing a workforce to assist in our badly needed recovery. To paraphrase Edmund Burke, we need to look to experience rather than consult our invention.

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