Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I welcome the opportunity to speak on this Bill. Even though it might not be the intention of Government, the effect of the passage of this Bill will be to lead to a significant increase in the number of repossessions of family homes and buy to let properties. I fully recognise this Bill closes an unintended lacuna in the law arising from the passage of the 2009 Act but it is important we recognise the inevitable consequence that homes will be repossessed. Despite the Government's soothing words, the Secretary General of the Department of Finance and the Deputy Governor of the Central Bank have acknowledged that a significant increase in repossessions is on the horizon.

I accept the level of repossessions in Ireland is low by international standards; that is a good thing because I do not want to see homes being unnecessarily repossessed. At the same time, and I have advised borrowers on this myself, there are occasions where people would be better off forfeiting the home. There are people with mortgages that are utterly unsustainable, irrespective of any restructuring arrangement that might be put in place. They would be better of in some cases availing of the provisions of the new insolvency service, either voluntarily surrendering the property or having it repossessed and dealing with the legacy debt, the residual balance owing through the insolvency service being written off over a period of time, and starting afresh. For some people that is the best outcome.

The issue now, however, is that because of the build up in potential repossession cases, there are thousands of cases where the banks could move quickly following the enactment of this Bill. We all deal with them at constituency clinics, where the current mortgage arrears resolution process has been exhausted, forbearance measures have been offered and accepted but are coming to the end of their useful lives. It will now be at the discretion of the banks which properties will see this power invoked and repossession proceedings commenced. I listened to Ross Maguire from New Beginning at the weekend. He is not a sensationalist; he provides a fair and balanced analysis of the situation. He said this could result in tens of thousands of home repossessions so we must sit up and take notice.

I have a major concern about how the banks will use this power because there are so many potential properties where it could be invoked. They will chose the properties where it is in the commercial interests of the bank to do so.

In many cases, they will choose the properties that are in mortgage arrears where there is equity involved, where somebody has gone a long way to paying his or her mortgage but has fallen on hard times and is unable to pay the balance of the mortgage. It will be far more commercially attractive for the bank to repossess such a property because it would have equity and the sale of it would clear the outstanding mortgage balance in fully than it would be for the bank to repossess a property that is deep in negative equity. If the bank repossesses a property deep in negative equity and sells it, there will still be a substantial amount of the mortgage owing which will be dealt with through the Insolvency Service or whatever. We need to monitor closely how the banks will use these powers and to ensure that they are not deliberately targeting properties which have a significant level of equity which, in essence, would protect the bank's own commercial interests by having them repossessed and sold to clear the balance of the mortgage.

This is a Bill where the only obvious beneficiary will be the banks which, to date, have held off on family home repossessions, not out of any sense of social solidarity or justice, or even out or recognition of the bill of billions of euro the taxpayers have had to take on because of their management of the institutions, but quite simply because so far their hands have been tied as a result of this lacuna in the law.

There is almost universal agreement that the response of the banks to date has been inadequate. The problem has been allowed to worsen steadily over the past number of years. It is only recently that the banks have begun to make offers to customers and we have yet to see if these can be properly and genuinely described as long-term sustainable solutions. The bottom line is that, under the mortgage arrears targets set by Government, it is the banks themselves that will define what is a long-term sustainable solution which, in the opinion of the bank concerned, could put a borrower into the insolvency system.

Homeowners in difficulty with their mortgage payments have been facing a sustained onslaught of late, in a number of policy changes and in legislation. The proposed changes to the code of conduct on mortgage arrears will remove the specific limit on the number of contacts a bank can have with a borrower and replace it with a vague requirement that "lenders draw up and implement a contacts policy" and "ensure that communications with borrowers are not aggressive". That is of cold comfort to borrowers who, if these changes to the code of conduct are implemented, will receive an increase in the number of contacts from the bank on a week-to-week basis. The number of contacts will be left to the discretion of the banks. We all will be aware from our work in constituencies the level of stress and anxiety among borrowers who are in distress and who fear the next call or message from the bank wondering when they will pay up.

In addition, new powers will be available to banks to nudge borrowers off their tracker mortgage in certain circumstances as part of an overall settlement of the mortgage. I do not understand why it is necessary to put that option on the table. We are all in favour of fair sustainable deals being done between the borrower and the lender but why for the first time is it being put on the table that the tracker rate would be removed from the borrower in those circumstances? I do not understand why that is necessary. That is also a proposed change to the code of conduct.

Those on variable rate mortgages face ever-increasing monthly payments which will force many more borrowers into arrears. There was the latest announcement by AIB of a 0.4% increase in the standard variable rate which it is charging on mortgages. Now there is this Bill, which will facilitate an increase in the repossession of family homes. I will not lose any sleep if buy-to-let properties are repossessed where every effort has been made to reach an agreement because it is inevitable, given that almost one in three of buy-to-let mortgages are either in arrears or have already been restructured, but a higher bar must be set in the case of a family home and that is what we are seeking to achieve.

Borrowers look at some of the deals that are being done at a corporate level. For example, there was commentary during the week on the deal which was done by a consortium of eight banks with Independent News and Media where up to €140 million of debt is being written off. That is merely one case which has come into the public domain, but there are many other cases of corporate debt restructuring involving the pillar banks where tens of millions of euro have been written off. Borrowers will understandably compare and contrast their treatment by the banks in their mortgage arrears problem with the treatment the banks are extending to large corporate entities that are going through their own difficulties.

We all are familiar with the arguments around the issue of the bank veto in the personal insolvency arrangements, and I note the Minister disputes that it represents a veto. I have argued strenuously for the removal of this veto and before Easter the House debated a Fianna Fáil Private Members' motion calling for the establishment within the Insolvency Service of an independent mortgage resolution office which would have the power to impose a settlement that would be binding on both the borrower and the lender. It remains my party's contention that only an independent mechanism such as this can break the logjam that currently exists. The Government disagrees. The Government has given the banks certain targets, that they must offer 20% of those in distress a long-term sustainable solution by the summer, 30% by the autumn and 50% by the end of the year. We will see if that works. I hope it does. There is evidence of action, for example, AIB states that it has offered 1,400 split-mortgage solutions to customers in quarter one of this year.

That would be a welcome improvement in activity levels in long-term forbearance, if, indeed, it comes through in the official Central Bank statistics for the first quarter, which we will see shortly. I hope that such is the case because I would be the first to recognise that it is far preferable that borrowers and lenders would reach agreements voluntarily outside of any independent arbitration process as there will be downsides for those who enter into the insolvency regime. For example, they will have their details on a public register and as I understand it, these will remain on that register indefinitely. I would also have concerns about the ability of those who enter into insolvency to get any credit again. Will they get a credit card in the future? Will they be able to borrow to buy a car? Have they any hope whatsoever of being able to borrow, for example, to buy a family home again in the future?

In addressing the issues that arise from the Dunne judgment, it is imperative that what happens now is done in a fair and transparent way. Unfortunately, I do not believe this Bill meets the standard required.

There is provision in the Bill where the court is considering an application for repossession of a primary home for the case to be adjourned for a two-month period if the judge considers that a personal insolvency arrangement, PIA, might be a more appropriate course of action. That is a welcome step in the right direction, although in my view two months is not a sufficiently long period of time. I would suggest that four-to-six months at a minimum would be a far more reasonable period of time to be considered.

In assessing the legislation, we also need to look at the scenario where the mortgage provider exercises its effective veto on the conclusion of a PIA and then proceeds to court to seek an order for repossession of the family home. In these circumstances, it is imperative that the court, with the consent of the debtor, directs the personal insolvency practitioner concerned to provide to it a report in writing which would include the content of the proposal for a PIA. This report should include an opinion from the personal insolvency practitioner as to whether the rejection by the creditor of the proposal for a PIA was reasonable. This opinion should be based on whether the proposal contained an offer to repay an amount, whether on a restructured basis or not, equal to the current value of the property. At this stage, it would be appropriate for both the debtor and creditor to be given sight of this report from the personal insolvency practitioner and have the opportunity to make submissions based on it.

In determining whether the rejection of the proposal for a PIA was reasonable or unreasonable, the court should take into account a number of considerations. These include the report of the insolvency practitioner and any responses received by the debtor or creditor; whether the proposal of the PIA constituted an offer to repay an amount equal to the current value of the mortgaged property; the housing needs of the debtor and his or her dependents; the conduct of both parties, including the conduct of the creditor, in underwriting the loan secured by the mortgage; and any other circumstances or matters that the court considers relevant in adjudicating on the issue. The court should then, having considered the information laid before it, be in a position to put a stay on the order for repossession and adjourn the application for repossession for such time as is necessary to enable the creditor makes another proposal for a PIA and for a consequent vote by all of the relevant creditors.

Alternatively, if granting the order, the court should be allowed put a stay on the coming into effect of the order for a period of time. We will table amendments on Committee Stage to give effect to these suggestions and others in order to seek to build consensus for what is in effect a reasonable attempt to balance the rights of borrowers and lenders.

If we are going to give extra powers to banks then at the very least as a society we need to ensure that citizens have a fair chance to have their rights vindicated before the courts. I concur with the Free Legal Advice Centres in their concerns about the adequacy of resources available to people who are going through the mortgage arrears process or are faced with repossession. The budget allocated to MABS of €19 million is money very well spent. In the context of entire cost of the financial collapse, it is arguable that we should be spending a lot more on high-quality impartial financial advice to distressed borrowers. This week we heard of the possibility of various MABS offices being forced to close. That this could be happening at the same time as the Government is pushing through legislation to facilitate repossession of family homes is nothing short of a scandal.

As has been reported, each of the 53 MABS companies has been instructed by the Citizens Information Board to sign a new service level agreement. While ensuring public money is spent wisely is a concern for everyone, I have never heard anybody suggest that the various MABS offices around the country do anything other than an excellent job with very limited resources. A number of the MABS companies, as they are called, have highlighted concerns about the nature of the proposed service level agreement and the possibility that it may restrict them in the carrying out of their work. In addition, the mortgage advice service that has been established whereby the banks are required to pay €250 towards advice from an accountant for a distressed borrower is not adequate. Very few people are aware of the service. When people come to my constituency office, I tell them about the service and advise them to get as much advice from as many sources as they can, but very few people are aware that they are entitled to some advice from a qualified accountant on their mortgage arrears problems.

Given the inevitable increase of cases and the added concerns of threat of homes repossessions, this is not time for an overly prescriptive regime to be put in place. I appeal to the Minister and to the Minister for Social Protection to ensure that the threatened wave of repossessions does not materialise. In line with what FLAC has recommended, I also believe that all repossession applications should be heard in the Circuit Court. I ask that this issue at least be examined and some clarity given as to the current position. While there are administrative attractions for banks in seeking a repossession order in the High Court, for the individuals involved, there are undoubtedly additional legal costs as well as greater personal inconvenience attached to having the issue dealt with by the High Court. I understand that there is some legal ambiguity surrounding how the 2009 Act applies in this regard. I ask the Minister to clarify the issue in his closing remarks.

The Bill comes at a time when the banks have so far failed to demonstrate their good will by agreeing long-term sustainable deals with the tens of thousands of distressed borrowers. The Bill needs greater balance. The Minister has now published the Bill and we have commenced Second Stage. I hope we can all enter the process in good faith and seek to improve the Bill on Committee Stage. We should also listen to the independent commentators who are dealing at the coalface with distressed borrowers on a daily basis. They have made a number of practical constructive suggestions which should be considered in order to enhance the Bill and give a greater balance between the rights of lenders and borrowers in closing the loophole in the law.

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