Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I move amendment No.a1:

To delete all words after “Dáil Éireann” and substitute the following:“acknowledges that this Government inherited a severe mortgage arrears crisis from the previous Government;

accepts that the mortgage problem is a significant economic and social challenge for the State and that the Government is aware of the significant difficulties some homeowners are facing in meeting their mortgage commitments;

notes that this Government published the Report of the Inter-Departmental Mortgage Arrears Working Group in October 2011 and that the key recommendations of that Report have been adopted by Government as the most appropriate framework to address this major problem;

accepts that the Government is committed to advancing appropriate measures to assist those mortgage holders who are experiencing real and genuine difficulty with their mortgage repayments;

recognises that Central Bank interaction with mortgage lenders is key to addressing mortgage arrears and in particular to ensure that, where appropriate, lenders put more long-term and sustainable solutions in place for their customers in mortgage difficulty;

notes that the Central Bank has now set performance targets for specified credit institutions requiring them to 'propose' sustainable solutions to 20 per cent of their mortgages in arrears of more than 90 days by end June, to 30 per cent by end September and to 50 per cent by end 2013;

notes that the Central Bank is building on this and will shortly indicate an end 2013 target for 'concluded' solutions and 2014 targets in respect of both 'proposed' and 'concluded' solutions;

supports the Central Bank in this work as it now commences an auditing process to assess whether the mortgage modifications proposed and put in place by lenders under this framework, are in fact sustainable solutions;

notes that the Insolvency Service of Ireland is now in a position to accept applications from authorised Personal Insolvency Practitioners and Approved Intermediaries on behalf of debtors under the Personal Insolvency Act 2012;

notes also that a comprehensive mortgage advisory service and a Mortgage-to-Rent scheme has been put in place;

accepts that the vast majority of mortgage holders are meeting their repayment commitments and that, in the best overall economic and social interests of the State, such debtor discipline should be supported and that appropriate public assistance should be targeted only at those mortgage holders in genuine difficulty; and calls on the Government to continue and intensify its work across the relevant Departments and agencies to deal with this significant problem.”

I will be sharing time with Deputies Michael McCarthy, Áine Collins and Dara Murphy.

I welcome the opportunity to speak on this important issue and to set out recent developments. This Government inherited a severe mortgage crisis from the previous Fianna Fáil Government. Like the economic, fiscal and jobs crisis that we inherited, this Government has resolved to tackle the issue head on. We have prioritised actions to deliver real and sustainable solutions.

There is no doubt that families across the country are experiencing real and genuine difficulties in meeting their monthly mortgage payments. This Government is fully aware of the impact this is having on these families and their lives. As I have said on many occasions in the past, we cannot have a situation where so many families are living under the stress of mortgage arrears, are excluded from participating in the economy and from living their lives because they cannot pay their mortgage.

The Government is deeply committed to addressing the failures of the last Government in this area. The personal insolvency legislation was outdated and in need reform. There were no measures in place to help families who had excessive debt levels. The banks did not have the operational capacity and expertise to deal with the scale of the problem facing them. At an overall economic level, the previous Government did not do enough to address the drivers of mortgage arrears, namely job creation and the overall high level of indebtedness. This inaction has taken time to unwind.

In the past two and a half years we have taken a number of significant steps to address these problems and I would like to update the house on actions in this area. The measures that have been introduced are innovative and incorporate stronger protections for the family home than in other countries. We want to produce an environment where mortgage holders can pay for and stay in their home, and where those who have genuine difficulty in meeting their financial commitments are provided with an opportunity to resolve their problems and begin again to contribute to society. The framework is now in place for banks to reach solutions with their customers who are in arrears, targets are in place and we expect the banks to deliver.

The Members opposite will be aware of the Keane report. The recommendations of that report are the blueprint for Government action to address this problem. The great majority of its recommendations have been already acted upon and are being implemented. The resolution of this problem is a priority. At the highest level of Government we have a sub-committee, chaired by An Taoiseach and comprising all relevant Ministers in this broad area of public policy. In addition, a high-level steering group, chaired by the Department of Finance, is overseeing the implementation of the various actions across Government. All relevant organisations are members of this group, including the Central Bank.

The main conclusion of the Keane report is very clear, namely, that the Government should focus its attention on providing appropriate supports to people who have genuine difficulty in repaying their mortgage but that mortgage holders who have the capacity to meet their financial commitments should be encouraged, supported and indeed, expected, to meet those obligations. Most mortgage holders can and do meet their financial obligations. More than 80% of mortgage accounts are fully up to date on their repayments and that practice should be maintained to the fullest possible extent. In particular, the Government will not and cannot support any attempt by people to renege on financial commitments where there is a clear ability to meet those commitments. Nor can it agree to any general write down of debt for people with the capacity to meet the commitments they entered into. The costs of this would be too great, and the effect would only be to impose a wider burden on others in society. It would not be a fair nor an effective use of taxpayer resources to provide assistance to those who can afford to pay their mortgages.

The Government's strategy, therefore, is focused on those who are in genuine difficulty in repaying their mortgage. This is built around the four pillars for action as recommended by the Keane Report, namely engagement with the banks to develop appropriate measures for their customers in mortgage arrears; personal insolvency law reform and implementation; mortgage to rent schemes and; a mortgage advisory function.

A key lever in this overall approach is the engagement by the Central Bank, in its capacity as statutory regulator, with mortgage lenders. Since the publication of the Keane report, the Central Bank has had ongoing and detailed engagement with the lenders on their mortgage arrears situation and resolution strategies. At an early stage in the process, it became clear that banks did not have the operational capacity and expertise to deal with the scale of the problem facing them. Also, there was a requirement for them to become more focused in the area of pre-arrears to stem the inflows into mortgage arrears in the first place. The initial focus of the Central Bank, therefore, was to ensure that the main banks were in a position to develop and deploy the necessary resources and strategies to address the problem. This admittedly took some time, but the decline in the level of early mortgage arrears suggests that the development and enhancement of operational capacity by the banks is bearing some fruit.

The key indicator of success, however, will be the development and application, where appropriate, of long-term solutions. Short-term forbearance can be a worthwhile response to people experiencing mortgage difficulty. However, the Keane report made clear that this will not be a sufficient response to mortgage difficulty and that it will be necessary to develop more restructuring responses to more long-term mortgage difficulty. Lenders must develop practical solutions tailored to individual circumstances for people in the most difficulty with their mortgage. Banks initially were slow to act on this and while they may have had to deal with operational deficiencies, it was not clear that they had a sufficient commitment to deal with problems in a durable way. It was less difficult for them just to keep rolling over short-term solutions. This, however, does not solve a more fundamental problem where the issue of the long-term affordability of the initial mortgage has arisen.

The Central Bank, therefore, decided that the time had come to require the main mortgage lenders to systematically work through their mortgage arrears book and to provide sustainable long-term solutions or otherwise resolve cases of mortgage difficulty. The time had come for the banks to deal with this issue in the best interests of both their borrowers and the banking system more generally. Last March the Central Bank set specific performance targets for the main banks - ACC Bank, AIB, Bank of Ireland, KBC Ireland, Permanent TSB and Ulster Bank - requiring them to propose sustainable solutions to 20% of their mortgage customers who are in arrears of over 90 days by the end of June, to 30% by the end of September and to 50% by the end of this year.

The Central Bank also made it clear last March that these were only the first round of targets and that further targets would be set for this and next year. I therefore welcome the announcement yesterday that the Central Bank has now agreed further mortgage arrears resolution targets with the troika. The main banks will now be required to propose solutions to 70% of their mortgage arrears customers by the end of the first quarter in 2014. Even more importantly, given that the primary objective is to put agreed and durable solutions in place, the first targets were also set for concluded agreements. These require the banks in question to have concluded arrangements with 15% of their arrears customers by the end of December 2013 and 25% by the end of March next year. This initiative should see the establishment of more obvious long-term restructured arrangements. The end of June Central Bank statistics show some progress on this. For example, 309 split mortgages on primary dwellings were in place at the end of June, compared to 144 at the end of March. A further 2,300 restructures were classified as "Other", which the Central Bank has indicated mainly comprises accounts that have been offered a long-term solution pending completion of a short trial.

As members of the Oireachtas Joint Committee on Finance, Public Expenditure and Reform will be aware, the banks have indicated that since June they have proposed further long-term restructures to deal with mortgage difficulties. For example, based on information provided to my Department, around 1,800 split mortgages were in place at the end of July. I commend all the members of the committee on the very useful engagement they recently had with the chief executive officers of the four main banks. They helped in putting into the public domain very useful information on the individual banks’ progress in dealing with their mortgage arrears cases. However, members of the committee and Deputies will accept from the exchanges with the banks' senior management that it will also be necessary to have a thorough audit of the returns the banks are making under this process of mortgage arrears resolution targets, MART. While the banks have indicated they have all met the end of June target for proposed solutions, the evidence presented would suggest this needs to be very closely assessed, particularly to ensure the mortgage modifications proposed and provided are in fact sustainable.

The Central Bank has provided guidance on the issue of a sustainable solution, but that can only be assessed and verified in any particular case based on the individual circumstances of the case. While the Central Bank is not mandating any particular model of restructuring and while sustainable solutions will be arrived at on a case-by-case basis, there are some fundamental principles that must be respected. The affordability assessment of the borrower needs to be based on both their current and prospective future servicing capacity for all borrowings. Lenders need to apply a realistic valuation of borrowers' assets, particularly their property. Lenders need to use an appropriate interest rate when discounting future income flows, which should take account of the lender's cost of funds.

As we are essentially in a green-field situation, this first supervisory audit is likely to take some time and certain issues may need to be teased out. As the ongoing MART process evolves over the remainder of this year and into next year, however, it can be expected that this work will become more efficient and that greater clarity on the issues involved will be apparent to all sides. As this is a prudential, supervisory audit, the Central Bank will be fully independent in the performance of its work on this matter. However, this is a very important part of the Government's overall mortgage arrears strategy. The setting of performance targets and auditing of whether they are being achieved is a mechanism to ensure there will be a focus on the delivery of real and sustainable outcomes for genuinely distressed borrowers. Durable solutions must be offered for these families to offer them hope of emerging from their difficulties and moving on with their lives.

Moving on to the difficult topic of repossessions, the strong view of the Government is that, in respect of co-operating borrowers under the mortgage arrears resolution process, MARP, repossession of a person's home should only be considered as a last resort. The policy measures adopted by the Government make that quite clear. The code of conduct on mortgage arrears places an onus on the banks in respect of a co-operating borrower to explore all the options for alternative repayment arrangements to address mortgage difficulties before any legal action is considered. Any proposal to a co­operating borrower by a bank under the MART process will have to comply with the code of conduct. In addition, the Land and Conveyancing Act also provides an important power to the court to adjourn a repossession hearing to allow a personal insolvency arrangement to be proposed and considered as an alternative option to the continuation of repossession proceedings.

Regrettably, it will have to be accepted that not all mortgages, due to the individual circumstances, will or can within reason be made sustainable and that there will be circumstances in which a person will have to lose ownership of his or her home. In such cases it may be in the best overall long-term interests of all parties. Where appropriate in such circumstances, the mortgage-to-rent option is now available to allow a family, their lender and the housing authority to agree a solution that will allow the family to remain in their home as a social housing response to an unsustainable mortgage.

In circumstances in which a borrower does not engage with a lender to address a mortgage difficulty and, subject to full compliance with the code of conduct on mortgage arrears, the lender cannot secure a constructive engagement from the borrower, then there may be no other option for the lender but to commence legal proceedings. If the lender fails to take appropriate action in such cases, it may incur even more losses and this could have further costs for wider society. In that regard, I have a concern about reports that suggests that banks may be presented with obstacles to selling properties legally in their possession, either by way of a voluntary arrangement or upon the conclusion of the legal process and a judgment from the courts.

Where efforts to find a mortgage solution have failed or are not viable, it is unfortunately the case that in some instances the ultimate resolution will involve a sale of the property. In such circumstances, it is difficult to see that unsustainable cases can be better served by prolonging and extending the circumstances and indebted situation of the borrower, impeding properties' ultimate sale and restricting the normalisation of the property market by having such homes in a transient state. In my view, the wider interest is better served by enabling these limited cases of sale following repossession to proceed. The overall approach of Government is to assist people in genuine difficulty to remain in their homes where possible. This can and will be achieved in the majority of cases of mortgage difficulty.

Personal insolvency reform is another key area of action. The Keane report clearly stated without an effective insolvency system the mortgage arrears problem will not be solved. The radical Personal Insolvency Act was put in place at the end of 2012. It provides for three new statutory debt resolution frameworks to allow insolvent debtors and their creditors to resolve positions of unsustainable debt. This was considered to be the fairest and most efficient way of resolving debt difficulty having regard to the legitimate interests of both debtors and creditors. However, if all the relevant parties cannot come to a fair resolution to resolve the matter by way of a debt settlement arrangement or a personal insolvency arrangement, bankruptcy will remain as the ultimate appeal and resolution option. The parties also need to be aware that they will have less control in such a situation and the likely return to creditors will be lower. Accordingly, debtors and creditors will be incentivised to utilise these new frameworks.

Some concerns have been raised about the cost of personal insolvency practitioner, PIP, fees and whether this will prevent some debtors from utilising these new debt resolution frameworks. Generally, PIP fees will be deducted from the amount of money an individual debtor is calculated as having available to pay his or her creditors during the term of the arrangement. Several practitioners and prospective practitioners, however, have indicated they will not charge an up-front fee for an initial consultation. While the Insolvency Service of Ireland does not have the power to set the fees of PIPs, it has indicated it will monitor the position, keep it under review and advise the Minister for Justice and Equality as necessary.

The Government is focused on what it needs to do to deal with the mortgage arrears problem. This is the primary target and responsibility on which the Government has to deliver this year. The banks, the Department of Finance and the Central Bank know that. Whether additional measures will be required is, obviously, an issue that we will keep under review. That is the sensible course of action. However, we need to get to a point at which individual mortgage arrears cases are moved on and addressed. The appropriate suite of resolution options is now available. It is now a matter for the banks to deliver. The Central Bank and the Government will be monitoring the situation closely to ensure sustainable solutions are found.

I recommend the amendment to the motion.

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