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

The definition of a sustainable solution to a mortgage arrears problem is set out towards the back of the mortgage arrears targets programme document and it simply states that a bank must satisfy itself that the solution it offers the individual in arrears is sustainable. The bank acts as judge and jury despite the fact that it is party to the transaction and has a vested interested in securing a certain outcome. I stand by my assertion that the banks hijacked the mortgage arrears targets programme by issuing thousands of threatening legal letters to borrowers who were already suffering stress and anxiety. The number of repossessions has increased dramatically. Some figures I received in Cork recently are frightening. An ejectment civil bill is a step in the process that can lead to repossession of a family home and in the first six months of 2013 there were 44 such bills in Cork Circuit Court. In the second half of 2013 there were 246 ejectment civil bills and this figure grew to 335 for the first six months of 2014. Additional court sittings are being scheduled in Cork to deal with the backlog of ejectment civil bill cases. The rhetoric says repossession of the family home is a last resort and should only happen in a very small number of cases but this is not borne out in reality - the truth could not be further from that assertion.

I want to highlight the interest rates Irish banks are charging because this is directly relevant to the debate on mortgage arrears, as the Minister of State knows. The average interest rate in the eurozone for a person taking a new mortgage on a home is 2.56%. The National Consumer Agency website, itsyourmoney.ie, allows one to type in criteria for a mortgage and compare the rates on offer by the various banks - those rates are all close to 4.5%. An Irish borrower with a mortgage of €200,000 will pay around €4,000 more in interest every year than a typical borrower in the eurozone. I believe suggestions that the Irish banking system is repaired and meeting the needs of the economy are incorrect because these rates are extortionate compared to the eurozone average. The cost of funds for Irish banks today is around 1% so how can they justify charging 4.5% on a variable rate mortgage?

Tomorrow the Oireachtas Committee on Finance, Public Expenditure and Reform begins its series of hearings with banks and Bank of Ireland will be first in. I will challenge the banks on these issues because they are linked directly to mortgage arrears. AIB made a pre-emptive move last week to reduce its interest rate by 0.25% and I welcome this. I hope the other banks follow suit and reduce variable rates.

What we are really lacking in this country is a competitive banking sector. In the United Kingdom and the rest of Europe a normal switcher mortgage market is available. If a person is paying over the odds for a mortgage, he can apply to another bank and simply move his mortgage, but that is not happening here. Fewer than 200 switcher mortgages were transacted in the first six months of this year. The banks are not open for that business and they have no wish to hear of it. The real test of the Allied Irish Banks move to reduce the rate will be when a customer of Ulster Bank or Bank of Ireland who is paying a higher rate knocks on the door of AIB, explains that he is in a healthy financial position, has never missed a repayment, has a loan-to-value ratio of 60% or 70% and asks whether the bank will consider a mortgage application from him to enable him to avail of the lower interest rate. That will be the litmus test of whether the banks are genuinely open for business and creating a far more competitive environment. This is something the Government needs to deal with.

There is an issue with the code of conduct on mortgage arrears. I imagine the Minister of State is aware that the Central Bank has not imposed even one sanction on any bank in this country for failing to honour the mortgage arrears rule book despite evidence of breaches of the CCMA. These breaches have been confirmed by none other than the Governor of the Central Bank, Mr. Patrick Honohan. He confirmed at an Oireachtas committee hearing on 30 April this year that the Central Bank had found breaches of the code of conduct on mortgage arrears, yet not one sanction has been imposed on the banks. I welcome that the Central Bank is getting around to doing a proper test on the compliance of the banks in Ireland in respect of the CCMA. There have been breaches, they are continuing and the issue needs to be dealt with.

There is a commitment in the Government amendment to deal with the issue of regulating third parties not regulated currently by the Central Bank but which are holding mortgages. This needs to be dealt with urgently. The legislation has been promised before the end of the year. This needs to happen because people are in a very exposed and vulnerable situation. If an issue arises in respect of non-compliance with the code of conduct on mortgage arrears, they have nowhere to turn. They cannot go to the Department of Finance or the Central Bank. No one will listen to their case because these foreign-owned funds are not accountable to anyone in that sense of the word.

The Insolvency Service of Ireland has been an abject failure in respect of its role as a vehicle to deal with mortgage arrears cases and this must be dealt with. No more than a few dozen individual mortgage cases have been dealt with by the Insolvency Service of Ireland. The Government was forewarned about this. The banks were given a veto and several bank representatives stated publicly when before the Joint Committee on Finance Public Expenditure and Reform that they will exercise that veto if any insolvency arrangement is proposed that involves a haircut or write-off in the mortgage balance. They have said this publicly and they are honouring it because that is what is happening. Deals are not being done. Several issues need to be dealt with in terms of access to a personal insolvency practitioner and allowing people who have no net disposable income, after taking into account the cost of living guidelines, to make a contribution to an insolvency deal. These people are locked out of the system and this needs to be dealt with as well. A total of 27 cases have been concluded in which there has been a change to the mortgage arrangement through the insolvency service. The figure is pathetic. It is time to go back to the drawing board. Merely dropping the fees charged by the insolvency service will not adequately address that issue.

The mortgage-to-rent scheme needs to be revamped. It is not working. Again, only a few dozen cases have been completed. Deputies are trying to help people to work their way through the mortgage-to-rent process but it is a bureaucratic nightmare. It is simply not working and must be completely revamped.

The Central Bank has proposed new mortgage deposit rules. The bank is advocating a 20% deposit, which I believe is excessive and will result in social engineering. It will ensure home ownership is beyond many people, especially people from certain socioeconomic backgrounds. That is not fair. People who have parents with the financial means to provide a deposit will be able to get around this rule. I believe a deposit of 10% or 12% is more reasonable and achievable. I accept there is a requirement for a minimum deposit but I believe 20% is excessive.

The mortgage arrears statistics are coming down and that is to be welcomed, but we need to examine the numbers with a degree of caution and scepticism. The overall numbers are coming down but, as far as I can see, the most popular solution is arrears capitalisation. We have seen 25,700 arrears capitalisation cases. Once the arrears have been capitalised and the new repayment method is honoured, the person is taken out of the arrears statistics. It is difficult to know, therefore, whether the underlying trend is a significant reduction. I hope this is the case but arrears capitalisation has accounted for 25.2% of the solutions. We know from the statistics published by the Central Bank that this is one of the least successful solutions with only 66.8% of cases honoured in the sense of terms being met. That issue needs to be dealt with. Let us consider the underlying statistics and the issue of long-term arrears. Those in arrears of more than 720 days have increased from 31,000 to 33,000 to 35,000 and to 37,000 in the previous quarter. The solution for these people is to end up in the Circuit Court, as I outlined earlier. This is happening in Cork and elsewhere. There is a need to be far more imaginative and to bear in mind how New Beginning has proposed to deal with the issue while, in so far as possible, keeping the family home for the majority of the people concerned.

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