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

This is the second time in six months that we have tabled a Private Members' motion relating to the mortgage crisis which is hitting every community across the country. Despite promises at the time from Ministers that decisive action was being taken to confront the problem head on, we now see the situation is actually getting worse.

In the intervening period the numbers of arrears cases has continued to increase while the number of genuinely sustainable solutions put in place by the banks has been little short of abysmal. Borrowers are now being hit by a triple whammy in the form of the Land and Conveyancing Law Reform Bill which will make home repossessions easier, the mortgage arrears resolution targets programme which incredibly allows the banks themselves to define what is a sustainable solution and now the revised code of conduct on mortgage arrears which unravels vital protections for homeowners. Approximately 70,000 families are no longer protected from repossession proceedings being undertaken immediately by the banks. There are over 54,000 family home mortgages in arrears of one year or more. If one looks pro rata at those who are in arrears between six and 12 months approximately 16,000 of those can be assumed to be in arrears of eight months or more. When one adds that to the 54,000 it comes to approximately 70,000 families completely at the mercy of the banks facing possible repossession proceedings.

I listened to the interview with the Governor of the Central Bank, Mr. Honohan, on radio at the weekend. While he did not repeat the language that he used in February when he said that Central Bank officials were tearing their hair out in frustration at the lack of progress being made in tackling the crisis, it was clear from his comments and other media reports that the banks have not stepped up to the plate. In that context it is inexplicable that the Central Bank would sign off on a revised code which strips borrowers of some of the remaining protections they had. As I said previously, the banks have not held off repossessing family homes to date out of any sense of economic altruism, social solidarity, or out of recognition at the costs they have inflicted on the taxpayer but quite simply because their hands have been tied by the Dunne judgment and the terms of the previous code of conduct on mortgage arrears.

On Friday of this week the Seanad is likely to pass the Bill which will remove the loophole which limited repossession actions while the code of conduct will in effect let the banks off the leash to pursue borrowers in cases where the bank deems the mortgage to be unsustainable. It is worth noting what the code itself says in this regard, where a bank writes to a borrower to advise them that their loan is unsustainable "legal proceedings may commence three months from the date the letter is issued or eight months from the date the arrears arose, whichever date is later", and that, "irrespective of how the property is repossessed and disposed of, the borrower will remain liable for the outstanding debt, including any accrued interest, charges, legal, selling and other related costs, if this is the case." This is a significant weakening of the protection which previously existed for borrowers.

Our motion requests that the code be revised to reincorporate the 12 month moratorium before repossession actions are allowed to commence. In addition, it puts forward what I think is a very reasonable suggestion that before a repossession order is granted by the courts the bank be required to obtain from the Central Bank as regulator written confirmation that it has in fact exhausted all viable alternative options to repossession.

Widespread home repossession is an almost unknown phenomenon to us in Ireland but the UK went through a disastrous period of social upheaval in the early 1990s as a consequence of thousands of families being put out of their homes. Despite arrears of greater than six months peaking at 3.5% in 1992 - a level far below what we are experiencing in Ireland - 200,000 homes were repossessed in the period 1990 to 1992. The social and economic effects of the failed policies that led to this situation were still being felt years later.

We have all come across some extraordinary lending decisions where mortgages were granted that should never have seen the light of day. I want to share one with the House. This relates to a buy-to-let mortgage where the lending decision simply beggars belief. This lending decision was made by a main bank in Ireland. It relates to a married couple who, pretty much at the height of the boom, bought an investment property. The husband was then 61 years of age and was retiring as a public servant and was due to receive a lump sum of around €100,000. His wife was a housewife and did not work outside the home. They decided to buy a house as their pension, with a view to selling it on a short few years later. The house cost approximately €300,000. The couple received a 14 year mortgage of €196,000. That was a 14 year mortgage when the sole income earner was retired and aged 61. The mortgage would take the husband up to the age of 75. The couple put the €100,000 lump sum with the mortgage and bought an investment property for €300,000. The original loan agreement provided that the loan would be on interest only for seven years and for the remaining seven years, the couple would pay €2,700 per month, a level of repayment that was never going to be possible.

To grant a 14 year mortgage to a 61 year old man and put it on seven years interest-only on the basis of a modest public sector pension is simply beyond belief. When the loan got into difficulty after the interest-only period expired around 2012, the bank's solution was for the couple to pay €1,000 per month for a 12 month period and for them then to clear the remaining amount of the loan, including arrears, in the six years that were left in the lifetime of the mortgage agreement. That is the degree of lack of realism with which we are dealing. It highlights the level of recklessness in the original lending decision and the complete detachment of the bank when trying to work out a solution to this mortgage.

Of course, I acknowledge the couple in this case made a very unwise, even foolish, investment decision and they have paid an extremely high price for that. The bank's role in this and many thousands of other cases, however, has been truly extraordinary. The couple in question is negotiating with the bank. I am sure the property will be voluntarily surrendered, sold or repossessed. The question in that case is what happens to the shortfall, which I expect to be between €60,000 to €70,000. The couple now fear that their family home may well be vulnerable.

I know every Member has examples of appalling behaviour by banks in relation to original lending decisions and in relation to the efforts to put in place sustainable solutions. It begs the question why we as a State are giving them even more power when they have not demonstrated any willingness or capacity to seek to resolve the mortgage arrears crisis.

When Bill Clinton addressed the Global Irish Network in Dublin Castle in October 2011, he identified the mortgage crisis as the number one economic challenge facing Ireland. He was absolutely correct in his view. Most of the attendees that day would surely not have believed, however, that almost two years on from that event, we would have seen little more than window dressing measures from the Government and banks.

The Taoiseach said this afternoon in the House that house repossessions have to be the last resort. If he truly believes that, he will accept the proposals we are putting forward that the banks be required to obtain verification independently that they were left with no other course of action before they are facilitated by the courts. My experience of dealing with individual cases is that repossession of the family home is no longer the option of last resort but is becoming the preferred solution of many banks. I have dealt with cases where people have not even yet fallen into arrears, for example, but who have anticipated they would be coming into financial difficulty through loss of employment or, in one case, because the wife was going to give birth. They went to the banks and sought to anticipate a problem down the road. The banks' solution to them at the time, when they put all their cards on the table, was that they believed the people in question could continue to repay the mortgage fully and, if not, the banks wanted the keys back or they would initiate legal proceedings. That is what is happening on the ground. Repossession is no longer the last resort for the banks.

My concern is that all the powers that have been given to the banks through the legislation on the Dunne judgment, the mortgage arrears targets programme and the revised code of conduct have all firmly shifted that delicate balance of power between borrowers and lenders, giving the banks a stronger hand to deal with borrowers who are trying to live with the daily reality and the financial distress that having a mortgage in arrears brings with it.

The statistic for the number of houses that are in line for possible repossession is most striking when one considers the latest statistics from the Central Bank. Only 144 split mortgage solutions have been put in place. This represents 0.1% of family home mortgages in arrears and is a shocking indictment of the failure of the banks to face up to the problem. Ministers consistently say that 80,000 mortgages have been restructured. This is a distortion of reality. Looking at the breakdown of that, where 26,000 mortgages were put on interest-only, 17,000 were put on reduced payment that was greater than interest-only, 7,000 were put on payments where the amount was less than interest-only, and 2,500 were moved to payment moratorium arrangements, one gets the sense very quickly that what has been done to date does not represent genuine or sustainable restructuring of mortgages in question.

As far back as the autumn of 2011, we put forward radical solutions which involved giving the power to an independent office within the personal insolvency service to make decisions that would be binding on both the borrower and lender on what would be a fair and equitable outcome in the case of individual mortgage arrears. I have a lot more to say, but I know my colleagues have to contribute and that I will get a chance to wrap up the debate tomorrow evening, so I will leave it at that for now.

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