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

I welcome the opportunity to speak to the Private Members' Bill, the Mortgage Restructuring Arrangement Bill, introduced by Deputy Joan Collins. I join other Deputies in thanking and congratulating Deputy Collins on bringing forward this comprehensive Bill. I am aware from my own experience that it requires much work. It is important to note that three of the last four Private Members' debates tabled by the Opposition have been dedicated to mortgage arrears. That means two out of three Private Members' debates in this session and the final motion in the previous session that ended in July were on mortgage arrears. One might say there is too much debate on the issue and ask why we are not discussing other issues. It is vital that we debate this issue and get the approach right because all of us in the House and people throughout the country have a collective interest in giving people in mortgage arrears every opportunity possible to work their way out of their difficulties.

Sometimes, one needs to stand back from the detail of the debate and remember that, at its heart, this issue is about people. It is about men, women and children who are living in houses they might lose through repossession or which they might voluntarily have to surrender. The statistics are frightening. The Minister of State, Deputy Costello, alluded to some of them - approximately 98,000 family home mortgage accounts are in arrears of 90 days or more. If one adds those that are in arrears of less than 90 days, one approaches 143,000 family home mortgages in some level of arrears. If there is an average of three or four people living in those homes, one might well be talking about between 400,000 and half a million people living in houses where the mortgage account is in arrears. That is the scale of the crisis we are facing. We have a collective responsibility to address that and to come up with solutions. That is why I thank Deputy Collins for introducing the Bill.

In recent weeks the Oireachtas Joint Committee on Finance, Public Expenditure and Reform has done some excellent work. It has shed much additional light on how mortgage arrears are being handled. It is rare for a Deputy to compliment a Member from another side of the House but I compliment Deputy Ciarán Lynch on the manner in which he handled those hearings very effectively, not just the hearings with the banks but also the hearing with the Governor of the Central Bank, Professor Patrick Honohan. Not only did we learn a lot about what is being done well in terms of mortgage arrears but we also learned a lot about what is not being done so well.

That is where the focus has to be to determine whether we can improve. It is fair to say that the targets laid down have generated some activity within the banks. We can argue about the nature of that activity but the threat that the Central Bank can impose more onerous provisions concerning losses on the balance sheets of the banks has certainly made those concerned sit up and take notice. It is the response to the targets and the way in which they were initially framed that I take issue with.

During the course of the hearings, we have found out what is not working well. An example concerns the definition of a sustainable solution. It is clear that the definition is too vague. The banks have the final say on what constitutes a sustainable solution. There should be independent oversight of the issue. We have categorically found a lack of consistency in the way the banks are dealing with individual arrears cases. People who appear to be in quite similar circumstances are being dealt with very differently depending on the institution. Sometimes within individual institutions customers are being dealt with quite differently depending on the staff they deal with. We have seen the rolling out of solutions being handled in an inconsistent manner. This was highlighted not least by the issue of split mortgages and by how the warehoused portion of the mortgage is treated in terms of interest.

We have learned that the banks have been relying very heavily on the issuing of threatening legal letters to count towards the targets set by the Central Bank and endorsed by the Government. In this regard, I welcome some of the comments of the Minister tonight. I take the Government at its word when it says it was surprised by the manner in which the banks responded to the target. However, it is clear that this was with the complete endorsement of the Central Bank. The Minister for Justice and Equality, Deputy Alan Shatter, went further than any Minister has in recent times in criticising the banks in that he referred to a disproportionate amount of the solutions involving legal proceedings. He referred to an insufficient response and implied it was like a doctor deciding to shoot most of his patients rather than treat their conditions as the preferred solution. The Minister referred to it as disturbing that, of the 35,000 proposed solutions offered, 62% related to repossession. That would all be fine, except that the Government has endorsed the approach of the Central Bank. The latter has told the banks that in certain circumstances the threat of legal repossession constitutes a sustainable solution. The Government welcomed that approach, but when it sees it being rolled out in practice, it is changing its tune. I welcome that. Some of the Minister's comments certainly represent a step forward but they now need to be followed up by action. The Minister referred to the need to refine the approach, the need for greater flexibility and the need to apply a broader range of common-sense options. That is what we have been calling for. If one stands back from the detail of all the proposals that have come forward, one notes they have essentially been about providing genuinely long-term sustainable solutions to people's individual mortgage arrears cases. There is a need for the Government to follow up on the observations that have been made on the banks' handling of the targets, particularly on the manner in which they have jumped straight to the threat of legal proceedings to repossess homes.

The picture presented to us at committee meetings was that many of the people affected have not responded to telephone calls in a year and have made no repayment in two years. However, I can tell the Minister for a fact that there are many people in respect of whom no effort whatsoever was made by the banks to put in place an alternative repayment arrangement, in addition to no effort being made to restructure the mortgage. The banks went straight to the nuclear option - that is, the option of threatening to repossess the homes - because it allowed them to reach their targets. Any reasonable person would have to accept that is not a good approach and that we can do a lot better.

I have been critical of the Central Bank. The first set of targets related to the quarter ending at the end of June, yet we still do not know whether the banks met their targets. We need independent verification. The audits are now being carried out by consultants acting on behalf of the Central Bank. The Central Bank should have been crawling over the banks in the month of July to determine whether the targets were being achieved.

An issue coming to the fore is that the Central Bank is acting strongly in its role as a prudential supervisor. The definitions provided in the mortgage arrears targets programme were very much designed to fulfil prudential responsibilities rather than to have a role in the area of consumer protection. The Governor, Professor Honohan, made that very clear in the contribution he made at the committee. He implied that the definition pertaining to arrears targets was established from a prudential supervision perspective - in other words, from the point of view of regulating the banks and protecting their balance sheets as opposed to looking after the needs of those in mortgage arrears.

I accept that there will be an increase in the number of home repossessions. It is inevitable, and anybody who says otherwise is not recognising the reality. However, the approach that is currently being adopted will result in an unnecessary number of repossessions because the banks are not, in many cases, engaging meaningfully with borrowers to achieve proper sustainable solutions. Two weeks ago, when we discussed our own motion on mortgage arrears, I acknowledged the need for the banks to be cautious with capital because the capital was given to them by taxpayers, who are still shouldering the burden of having injected it. I would be the first to acknowledge that. Widespread debt forgiveness and free-for-all arrangements are not an option in dealing with mortgage arrears because we must also take into account those who are just about managing to pay their mortgages. That said, it is not an excuse for not putting forward proper solutions for those who want to engage, including permanent interest rate reductions. We have only seen a couple of hundred of those. There should also be proper split mortgages that are sustainable and debt-for-equity solutions along the lines suggested by Deputy Donnelly.

The banks still have not got their internal systems right for dealing with customers. Many people who want to engage and negotiate with the banks have been frustrated by the lack of response. They are receiving telephone calls from the banks at all hours of the night. They are asking the banks, on my advice in many cases, to send their information in writing. The banks refuse to do so, yet they want an answer over the telephone as to whether the proposed restructuring of a mortgage is acceptable.

Let me refer to the Bill. It is, in some respects, similar to a Bill we published ourselves, the Mortgage Resolution Bill. In broad terms, it provides for independent oversight of the way in which the mortgage arrears crisis is being handled. In that respect, I welcome it. I firmly believe there is a need for independent oversight, not in the manner in which the Central Bank is proceeding but in a manner whereby binding solutions can be imposed where an agreement is not being provided for.

I acknowledge that in respect of some of the proposals in the Bill, particularly those relating to negative equity, there is an absolute need for a cost-benefit analysis. There is a need to assess the impact not just on the borrowers, whose primary interest we are dealing with, but also on the banks. We need to know whether these proposals, if implemented, would result in another requirement for large-scale capital injections. The Government should allow this Bill to proceed to Committee Stage, in which we can get into these details and discuss them properly.

Where a creditor disagrees with the proposal for a mortgage restructuring arrangement, he must appeal to a court. Where possible, we should keep the process of resolving mortgage arrears in a non-judicial environment. I refer to the perspectives of both debtor and creditor. We have called for a legal right to be established to a solution for those in mortgage arrears. That must be considered carefully. I have listened carefully to what opponents of this proposal have said, particularly regarding the issue of property rights in the Constitution and the implications for the mortgage market if a third party can intervene in a contractual relationship. That issue needs to be teased out but I see no reason the broad thrust of this Bill cannot be accepted so it can proceed to Committee Stage for further debate. The reality is that we cannot stay on the current path. The current path is not resolving the problem. Anyone who listened to the comments of Deputy Shatter tonight will see that he, as a senior Minister, does not believe the current approach will resolve the issue.

The jury is still out on the new insolvency service. Nobody would be more happy than I would be if it worked and if it could deliver genuine solutions for those who have secured and unsecured debt.

The Sunday Business Postrecently reported on a study of over 1,000 individual cases by Grant Thornton Debt Solutions which found that bankruptcy was going to be the best option for 43% of those seeking debt relief deals because many of them were not earning enough to avail of the new insolvency regime. That presents a fundamental challenge and a threat to the new insolvency service and its operation will have to be very carefully monitored. The point Grant Thornton made in its report was that those earning less than the figure for reasonable living expenses set out in the guidelines provided by the Insolvency Service of Ireland would not be able to avail of any deal because a deal must involve some contribution being made by debtors to their creditors in respect of their liabilities. That issue is extremely important. Another Limerick-based personal insolvency practitioner estimated that seven out of ten of those seeking debt relief deals were on very low incomes or social welfare payments. They have no money to pay creditors after reasonable living expenses have been deducted. That issue must be examined immediately. I know the ISI will not publish statistics until the first quarter has expired, but I would expect the Minister to be engaging on an ongoing basis with the service.

We also have the cost of engaging a personal insolvency practitioner being a potential barrier to gaining access to the service in the first place for those who most need debt relief. If one takes a person on a very low income which is below the figure for reasonable living expenses set out by the ISI and where there is no prospect of a deal being agreed, there is no incentive for a personal insolvency practitioner to take on that case because he or she will not get any financial return on it.

I could use a lot more time, but I know my time is up. I thank Deputy Joan Collins for bringing forward the Bill. Fianna Fáil would like to see it pass Second Stage. While it is far from perfect, it is worthy of further debate on Committee Stage. Any debate we can have on the mortgage arrears issue with a view to coming up with credible, practical and realistic solutions is a debate worth having.

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