Bernard Durkan (Kildare North, Fine Gael) | Oireachtas source

We all have an interest in this legislation, especially in these straitened times. The legislation arises from a commitment in the third quarter of the 2012 review of the EU-IMF programme of financial support. That commitment states that by March 2013 the Government will introduce legislation to remedy the issues identified in case law in the Land and Conveyancing Law Reform Act 2009, so as to remove unintended constraints on banks to realise the value of their loan collateral under certain circumstances.

I know the Minister has reviewed the extent to which land conveyancing took place during the boom period, but the full consequences of the kind of conveyancing regulations that were applied during that period have not yet been borne out.

They will in the time ahead because many conveyances took place with very little regard for good practice and consequences. We have seen situations where more than one owner was registered for a property or previous liabilities had not been discharged. To operate in a system like that in any kind of major way would leave the State, but more particularly the people or consumers in our society, in a very exposed and vulnerable position. I hope in the course of this legislation that the issues that have been brought to the Minister's attention over the last couple of years will be dealt with adequately.

This Bill has to be dealt with alongside the insolvency legislation. One of the things I have noticed is that there seems to be a reluctance on the part of lending institutions to come to grips with situations where a large amount of negative equity exists. The lending institutions are staying adrift of that. In situations where there is no negative equity but through no fault of their own the borrowers have found themselves in particular difficulty there is a fairly ready recognition by everybody that the lending institutions want to move very quickly. That is creating an imbalance in our society and the property market.

Obviously the lending institutions will want to seize property as quickly as possible where they can realise the full value of the asset, and it is quite regularly done. Meanwhile they are ignoring the areas where they might have a liability themselves to deal with situations where negative equity exists to a huge extent. For example, a property might easily be worth less than half what it was valued at in the middle of the boom. Since there is nothing to be gained by the lending institutions' repossessing that property, they are quite happy to tag along with it for as long as possible. Where a person has a smaller mortgage on a property with considerable positive equity, the lending institutions will move in very quickly and deal with that situation. If that is done on a large scale and becomes accepted, it will have serious consequences throughout the length and breadth of this country. I ask the Minister to keep in mind and monitor the activities of the lending institutions. I fully realise the borrowers and lenders have responsibilities in these matters and I do not suggest the borrower has no responsibility, but the lender has responsibility also. I hope that from the examples we have seen and the experiences over the past two years, recognition will be given to the fact that there is the possibility - and strong evidence to suggest - that lending institutions will move quickly against those who have assets and collateral that is readily marketable and on which they can realise the value very quickly.

I ask that the various lending agencies be monitored with a view to determining the trend, scale and extent to which settlements are arrived at or negotiations take place with borrowers. To return to what I was saying a minute ago, we have all dealt with tragic situations in this House over the past couple of years. Like everybody else, I have come across situations where lending took place which was, to say the very least of it, unwise. Unfortunate borrowers who have different family or income circumstances now find themselves in an impossible situation.

I asked how lending was done and how a loan or mortgage was offered in the circumstances that prevailed at the time. There was no logical basis for it at all in terms of good practice for lending in many such circumstances. It only inflated the market and created further problems. I can see nothing happening anywhere that gives recognition to the fact that in many cases lenders offered loans to people who they knew would have no chance to repay if anything went wrong at all.. One of the tests that is supposed to be done in all these situations is to try to find out at the very beginning whether or not, in reasonable circumstances, the borrower is going to be capable of discharging the debt into the future. I ask the Minister to examine the number of cases that have been dealt with in the courts, the pattern that has developed over the last two years or so, with a view to at least recognising or encouraging the lending institutions to recognise that it is not all the borrowers' fault, and we know that from the cases we have dealt with.

The Minister is fully conversant with the last subject I want to bring to his attention because of the degree to which excessive borrowing took place and the extent to which we find ourselves in a totally different economic situation. We have a big difference between the situation prevailing now and that which prevailed in the 1980s, for example. This must be borne in mind in the context of the national economy. In the 1980s there were borrowing difficulties for borrowers throughout the country. There was an economic crisis to a similar extent to, some would say worse than, the present one. The difference between then and now is that nearly everybody is affected at this stage. A huge swathe of people across the marketplace are affected in a way which did not happen in the 1980s. One group or another group was affected to a greater extent back in the 1980s. If the lending institutions pursue what they think they need to pursue, they will create such a whirlwind in the market that property prices will collapse completely in the not-too-distant future because of the extent to which repossessions will have to take place. Property will be put on the market, and this property will become unsaleable or will perhaps be available to investors, in which case the whole property business will become landlord-controlled, which is not good for the domestic economy at all. I ask that these considerations be borne in mind.

I, like everybody else, have had to negotiate on behalf of individual constituents over the past four or five years, before the present Government came to power. Many of the issues we identified four or five years ago are still there. They have just dragged on. The Governor of the Central Bank has been very anxious to move things forward, to ensure the lending institutions dealt with the borrowers in a meaningful way. That means different things to different people. Some lending institutions see that as a signal to move in quickly and repossess left, right and centre, but more particularly to repossess in cases where they know they have positive equity and they know they will get their money. They are less willing to do so in cases that are less positive for them. The Personal Insolvency Act is supposed to deal with all of this but I am not so sure it will.

Whatever resolutions are worked out, they must have some bearing on the old criteria that used to apply to borrowing. The worst thing one can do when solving a debt problem is to increase the burden on the borrower for the foreseeable future.

That means whatever debt problems they got into in the first place will be exacerbated for the next five or ten years. It does not work. We need to look now at the old criterion whereby two and a half times the earnings of the principal earner was taken into account as being the optimum sum a borrower could repay in reasonable terms. Let us stretch this a bit further, because in those times the income of the secondary borrower was included, and let us assume the sum is a multiple of three. It would be reasonable to assume a borrower can repay a loan on the basis that it represents three times the income of the household. The situation emerging now, however, is that people are expected to repay borrowings based on up to ten and 12 times the income of the household. Their income has been reduced dramatically in the meantime so there are two issues that need to be borne in mind, merged in some way and recognised by the Minister and by everybody in the lending institutions, as well as by borrowers, in the time ahead of us.

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