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

I move:

That Dáil Éireann:notes:

-- the continuing rise in mortgage arrears with 142,892 family home mortgage accounts in arrears at the end of June 2013;

-- the fact that 57,163 family home mortgage accounts are in arrears for greater than one year;

-- the evidence presented by the banks during the recent hearings of the Joint Committee on Finance, Public Expenditure and Reform that they relied heavily on issuing threatening legal letters to borrowers in order to meet their obligations under the Mortgage Arrears Resolution Targets Programme for the quarter ending 30th June, 2013;

-- that the Central Bank has yet to provide an independent verification of the performance of the banks under the targets programme; and

-- the banks continue to rely on short-term forbearance measures as evidenced by the fact that only 309 split mortgages and 254 permanent interest rate reductions have been implemented up to 30th June, 2013;

recognises that:

-- the mortgage arrears crisis represents the greatest social challenge facing the State;

-- economic recovery will not take place until substantial progress is made in tackling the mortgage arrears crisis;

-- every political party and Independent member of Dáil Éireann has an obligation to identify solutions to the crisis; and

-- a threat of repossession should not be regarded as a 'sustainable solution' under the Mortgage Arrears Resolution Targets Programme;

and calls for:

-- the Central Bank to report on the performance of the banks to date on reaching the resolution targets laid down;

-- publication of the targets to be imposed on the banks in respect of the conclusion of arrangements with customers in arrears;

-- a clear definition of a 'sustainable solution' under the Mortgage Arrears Resolution Targets Programme;

-- legislation, if necessary, to establish the right of a borrower who meets the definition of a sustainable mortgage to a long-term sustainable solution, including for example a split mortgage of at least ten years' duration or a debt for future equity swap;

-- consistent rules to be applied by the banks in the treatment, in respect of interest, of the parked element of a split mortgage;

-- the Central Bank to carry out an independent investigation, including an assessment of a sample of individual cases, into claims by the banks that a significant portion of those in arrears are "strategic defaulters";

-- the establishment of an independent Mortgage Arrears Resolution Office to oversee the implementation of sustainable mortgage solutions;

-- action by the State-supported banks to ensure that rent in respect of buy-to-let properties is not diverted from payment of the mortgage on the property; and

-- a review of the costs associated with accessing the Insolvency Service of Ireland to ensure that they are fair and reasonable and that the service can be accessed by all those who would benefit from it."

I will try to keep one eye on the clock. Ministers and Deputies may be wondering why Fianna Fáil is raising the issue of mortgage arrears again, given that it was only a couple of months ago that we dedicated a Private Members' motion to the issue of how the mortgage arrears crisis is being dealt with. We are raising the issue primarily because of the startling evidence given by the bank representatives before the Oireachtas Joint Committee on Finance, Public Expenditure and Reform two weeks ago. We had three days of hearings with representatives of AIB, Bank of Ireland, Ulster Bank and Permanent TSB. By any measure, the evidence given was absolutely astounding.

The purpose of the motion is essentially to stimulate further debate and, more importantly, action on the single greatest social and economic challenge the country is facing at this time. As I mentioned, the evidence given by the banks two weeks ago took me by surprise, and it took every Government Deputy present by surprise as well. It probably even took the Government by surprise. To be fair to the Government and the Central Bank - I will be critical of both in a moment - when the targets were issued last March, the last thing both the Government and Central Bank expected was that up to 15,000 letters would be issued by banks to those in mortgage arrears. These were either to commence legal action or threatening that legal action would begin. Unfortunately, that has been the result of banks attempting to reach the targets set for them in the quarter ending in June.

The overall number of letters issued is up to 15,000 in the second quarter. In AIB's case, 74% of solutions offered involved the threat of legal action to repossess the home or its voluntary sale by the home owner. With Bank of Ireland, 49% of sustainable solutions reported to the Central Bank involved the commencement of legal proceedings to repossess the home, whereas with Ulster Bank 80% of so-called solutions for owner-occupiers in arrears was the commencement of legal action to repossess. With Permanent TSB, 36% of solutions amounted to voluntary sale by the home owner or the commencement of legal proceedings. We received that evidence from the banks just two weeks ago at the joint committee hearing, and it startled all the Deputies and Senators present. They certainly did not expect that response to the mortgage arrears targets set by the Government and the Central Bank in March.

Much of the issue goes back to the commencement of the process of setting targets in March. At the time I indicated it was flawed because the definition of a sustainable solution was too vague, and ultimately it was up to the banks to decide what was a sustainable solution to a person's mortgage arrears problem. Examining the definition given in the mortgage arrears resolution targets programme, the indication was the banks must satisfy themselves that the solution is sustainable, and there is the possibility of a property being voluntarily sold, or failing this, repossession of the property by way of a voluntary agreement by the bank or by way of a court order. In effect, the banks were perfectly within their rights to state that the majority of the solutions offered to borrowers were represented by the threat of legal action or the commencement of action to repossess the family home. That flaw in the process was evident from the beginning.

When the Government and Central Bank put faith in these targets and reaching sustainable solutions, neither envisaged that the repossession of the home would be deemed to be a sustainable solution. Anything that involves the loss of a family home, either by way of voluntary surrender or forced repossession by way of legal proceedings, is not a sustainable solution to mortgage arrears. It is a termination of the mortgage rather than a solution to mortgage arrears. We should be honest and clear about that. The most depressing element of the hearings two weeks ago is the feeling that banks still do not really get it or grasp what is required of them in the need to engage meaningfully with borrowers who genuinely want to work to keep the family home. I believe that is the case in the vast majority of cases.

There are a number of important points to be made about the motion. We still have no independent verification from the Central Bank of banks' performance against targets set for the second quarter to the end of June. That is unacceptable, and I know the Governor of the Central Bank, Professor Honohan, will come before the committee next week and we will have the opportunity to question him then. Since last March, the Central Bank and the Government knew that the first set of targets related to the period to the end of June, so why did audits of bank performance not commence in July? We are now in mid September but have no handle whatever on an independent verification of the bank's performance, and my understanding is that the process of auditing the bank performance has not even commenced. Why did it not happen in July, when the targets had supposedly been met by the end of June? It is an important point.

A second issue we call for in the motion is for targets to be set for concluded agreements. I welcome that the Central Bank yesterday moved to issue the first set of targets for the conclusion of agreements. This means banks would no longer be merely required to make offers and would instead be required to conclude agreements with borrowers. The Central Bank has deemed that 15% must be concluded by the end of December, with the percentage increasing to 25% by the end of March. That is a step in the right direction, although those targets should have been set long before now.

I assume the Government counter-motion was approved by the Cabinet today but it is out of date already because it makes no reference to the fact that the Central Bank issued targets yesterday. The amendment refers to the targets being set "shortly", and such an omission is lazy and indicative of the lack of priority that the issue has been given. Nevertheless, I welcome that the targets have been provided for.

From early on we have argued that there should be a legal right for borrowers in arrears to a sustainable solution to the problem if they meet certain qualifying criteria. Considering the forbearance arrangements still being rolled out by the banks, there is a marked reluctance to offer the more long-term sustainable solutions. We have advocated for some time the need for an independent mortgage resolutions office, and it could sit within the new Insolvency Service of Ireland, adjudicating and having the final say in respect of mortgage arrears, subject to overarching issued guidelines.

One of the solutions that banks are beginning to roll out is the split mortgage, which has much potential. I participated in a Topical Issues debate with the Minister some time ago which took these in and the banks are still adopting different approaches in this regard.

I raised directly with the Central Bank the fact that Bank of Ireland is charging full interest on the warehoused portion of the split mortgage while the other banks are not charging interest. There should be uniformity in the way in which a solution such as a split mortgage is rolled out, and I call on the Central Bank again to ensure such uniformity. This is part of the reason the number of split mortgage solutions is not as high as we would like. The official figures show there were only 309 at the end of June. As Deputy Boyd Barrett said at the committee hearings, the uncertainty as to how the warehoused lump sum will come into play ten or 15 years down the road is a concern for borrowers. I have met people who were offered split mortgages but refused them because they had no certainty as to how the warehoused portion would be dealt with down the road.

We will also have to face up to the issue of strategic default. This was a common theme to which a number of the banks returned time and again during their presentations to the committee. AIB had previously said approximately 20% of those in arrears are strategic defaulters. We need to get a handle on this issue and we need independent verification of the extent of the problem. I am not burying my head in the sand and saying there are no strategic defaulters. I am sure people have made the choice for whatever reason not to prioritise the repayment of their mortgages, but there is an onus on the Central Bank to get to the bottom of the issue. It is easily done. Staff should examine a sample of the arrears cases and arrive at a conclusion as to whether people are strategically defaulting, because it is unfair to cast a slur on up to 20% of those in arrears and claim they are deliberately not paying their mortgages despite having the means to do so. That assertion should be evidence-based. No evidence whatsoever has been produced so far to substantiate it. There is, therefore, an onus on the Central Bank to examine that claim, agree on a definition of strategic default and examine how widespread the phenomenon is.

I acknowledged during the hearings that some of the banks, particularly AIB, should be more proactive in the appointment of rent receivers. If landlords who receive rental income from their tenants are not passing it on to the bank by way of mortgage repayments, the banks should use their powers to intervene and seize the rental income to put it towards the mortgage. That is accepted by most Members. There has been a dramatic difference, again, in the application of rent receivers by the banks. Bank of Ireland has appointed more than 1,100, while AIB has appointed a few dozen. There is no consistency in the way the issue is being treated. As I said at the committee hearings, if AIB is convinced that one in five of those in mortgage arrears is deliberately not paying his or her mortgage - the bank's representatives said that a high percentage of these involve buy-to-let properties - why has it not moved in to appoint rent receivers to ensure incomes are put against these mortgages? They have not done so and they acknowledged that they have not done enough work on the issue.

I welcome the fact that the new insolvency service is up and running and accepting applications. However, The Sunday Timeshas examined the 37 licensed personal insolvency practitioners, PIPs, and potentially there is an issue regarding access to the new service. Those who need it most may not be able to access it because some PIPs are demanding money up front. The Insolvency Service of Ireland, ISI, is envisaging that they will be paid where an agreement is reached to restructure a person's debts, but where there is no agreement, how will they be paid? The result is that in all likelihood PIPs will cherry-pick the customers they will take on and identify those who have some ability to pay their fees up front. There is a need for the State to ensure that those who most need access to the ISI get it and that the fees issue is not a barrier.

The Minister of State was critical of the banks as recently as this morning and, hopefully, he will repeat some of those criticisms in his contribution, because it is important that they are held to account in a fair way. Nobody is asking the banks to throw away the capital they have been given by taxpayers. They have a duty to guard it closely, but they also have a duty to engage meaningfully with borrowers. Where individual cases merit it, people should be offered permanent interest rate reductions, as Ulster Bank has done through its economic concession, debt for equity swaps should be implemented and split mortgages that do not punish people should be provided. We want to see solutions that are genuinely sustainable.

While the crisis is bad, it could get much worse if the ECB decides to increase its main interest rate, which is currently 0.5%. We are potentially sitting on a tracker time bomb in the context of mortgage arrears. Up to half of those with mortgages have tracker mortgages, with an interest rate of between 1.25% and 1.75%. Heaven forbid the ECB increases its interest rate by 0.5% at a time, because thousands of people will be in difficulty and will join those currently in difficulty. That makes it all the more important that we establish the architecture to resolve the mortgage arrears situation. Any independent assessment will find that we do not have that right yet. There have been steps in the right direction but there is much more to do. The motion is not intended to be adversarial; it is intended to ventilate the frustration felt by all Members at the committee hearings two weeks ago and to bring about improvements in the way the Central Bank and the Government are forcing the banks to deal with this issue.

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