Éamon Ó Cuív (Galway West, Fianna Fail) | Oireachtas source

One could not but welcome this Bill, which is in the main a technical Bill. Since my time as Minister for Social Protection, I have been working with the Phoenix Project. The view that this problem has gone away or that there is not a huge crisis in this area is incorrect. All that has happened is that it is no longer reported on in the media, leaving the silent to suffer.

We need to come up with solutions that work. While many schemes have been put in place they are so surrounded by rules it is almost impossible to benefit from them. Under the mortgage-to-rent scheme only 50 arrangements have been concluded. In reality, this scheme is not making any impression on the massive number of people who are in long term arrears. For example, on 3 December 84,955 people were in arrears of over 90 days. This does not take into account the many people whose mortgage repayments are up to date but have personal debts in unsecured lending. There are currently 117,000 people in mortgage arrears. A solution for 50 of those 117,000 people is no solution. While it is good for the 50 people concerned it is not in the greater scheme of things making any impression on the problem.

I was always doubtful about the establishment of the personal insolvency regime for many reasons, including the cost of engagement with the regime and the fact that the bank had the final veto. In many cases the banks were as culpable as the borrowers in what happened. The former Minister, Deputy Alan Shatter, indicated that under the personal insolvency regime arrangements would be put in place for up to 21,000 people in the first year. That would be a significant number of solutions. Instead, only 1,000 arrangements were put in place, of which 547 were personal insolvency without bankruptcy and 448 were bankruptcy, which meant those people could have gone straight for bankruptcy in the first instance. This means the personal insolvency regime put in place arrangements in only 547 cases.

It is often said that a large number of the people in debt have jobs but a large number of them have been temporarily unemployed. Having been Minister in the Department of Social Protection, I can never understand what came over the Government that it abolished the mortgage interest supplement. In the context of the four-year plan and the troika agreement, the mortgage interest supplement was supposed to be one of the main instruments to assist people who ran into mortgage debt because of unemployment. Many people who lose their jobs often secure employment again. However, during the period of unemployment debt may have been created. The idea of tiding people over during periods of unemployment of, say, a year or two, makes a lot of sense because once they secure employment again, unless they have allowed large debts to accrue, they can then live without the mortgage interest supplement. Instead, this safety net, when needed most, was abolished. Abolishing the supplement did not save any money. The reality is that if people cannot pay their mortgages they end up claiming rent supplement on another property, if they can find a property to rent.

That only 50 arrangements were put in place under the mortgage-to-rent scheme is unsatisfactory. My colleague, Deputy Dooley, identified a number of problems in this regard, including the income limits and the valuation of houses. However, I have come across another perennial problem, namely, the people who have a mortgage on a three bedroom house, which is at some point remortgaged to consolidate other debt, who have fallen on hard times and when they try to access the mortgage-to-rent scheme are told their home - I am speaking in this regard about three and four bedroom homes and not trophy homes - is too big for their requirements. Do we have a heart, or not? What is the point in putting people out of their homes and then, at even more expense, having to relocate them and pay for their accommodation through rent supplement or social housing provision? The mortgage-to-rent scheme needs a total revamp.

The banks cannot continue to have a veto. In this regard, we are speaking about the so-called covered institutions, which would not exist but for the Irish people, who saved them not for the good of the people who owned them but because of the many implications if our banking system collapsed, including implications for depositors in our banks. The banks take a ruthless view and in my view are not particularly increasing their own incomes. One often hears of people making an offer to a bank that would sustain the mortgage relatively well but the bank does not accept it and instead puts the house on the market and accepts less money than it would have gotten had it written-down part of the mortgage.

My understanding is that some banks that put in place arrangements on split mortgages do not any charge interest on the part that is split but other banks do. Some banks defer the capital, in respect of which they come after the people again at a later stage, which means those concerned are only putting off the evil day. As I said, in some cases it would be cheaper to write-off 20% or 30% of the loan than to sell the house on the open market at a 50% discount. There has been much said about moral hazard. Having bankers lecture us about moral hazard is a little bit ironic. The reality is that most people got into trouble for a variety of reasons, including loss of income or paying too much for a house because they had a family.

I have been in continuous contact over the past four or five years with the Phoenix Project, which is a voluntary body based in Portlaoise. I understand members of the project have met with the Minister for Finance and are seeking a meeting with the Taoiseach. What they tell me from the coalface is frightening. They are justifiably concerned that there is a hidden crisis coming down the road. The banks claim they have come to 109,000 solutions. When one actually looks at more closely, 49,000 of these actually involved loss of ownership. These are family homes, not buy to let. Where will these 49,000 households go to? We have already established there is no mortgage-to-rent scheme worth talking about and the people in question cannot afford to buy houses. Where are they going to get houses to rent? Who will pay the rent? Inevitably, it will be the State which will have to pick up the bill. We are going to play musical chairs with 49,000 families, which works out at 122,000 people. Is this humane or fair? Are there other solutions?

Facing up a blind alley, these people have no choice. No one can say they have a free choice when someone else has a gun to their head. The banks are saying they will either throw out these families or wait for them to walk out of their homes. The advantage of walking out voluntarily is that one might get a higher price for the house and, therefore, reduce the residual debt. The bank might also agree to write off the residual debt because it would prefer the home owner to sell the house voluntarily. The reality, however, is that we are making these people lose their homes.

It is a concern that the number of repossessions is rising. For the fourth quarter of 2013, legal proceedings for repossessions came to 1,491. For the third quarter of 2014, it had gone up 168% to 2,514 cases. The number of homes taken into repossession in the fourth quarter of 2013 was 68. This had risen to 302 by the third quarter the following year. Not only are voluntary repossessions going through the ceiling, but the banks are beginning to repossess too. The Minister knows, as do I, the reason for this. The banks have sold their loan books to funds which have no high street presence and, accordingly, no need to protect their reputations. We warned about this. They treat debtors very differently to the way a high street bank does. Civil bills for repossession issued countrywide between January to December 2014 came to 7,266. If one takes an average of three people per house, that comes to 21,000 people affected by this. We have a major problem.

We can talk about how it came about forever. We now need to recognise the timebomb on which we are sitting and do something about it. We need radical change. The idea this problem is under control is not true. It is certainly not true for any of the households about which I have spoken. Particularly with the introduction of the so-called vulture funds into the equation, we need to change the whole process, bringing forward compulsory resolution where it makes sense. That means we need to take away the banks' veto and ensure that anybody who has to leave their house because of a repossession order has somewhere to go. If someone parks on public property illegally, the local authority must provide somewhere for them to go if they are moved on. In the case of repossession, that should not be the case even when the person has made significant efforts to look for alternative accommodation.

To put it simply, there needs to be no interest charge on split mortgages and term extensions, particularly for older persons as people in their 50s or 60s are often told they cannot get term extensions, should be for life. Mortgage-to-rent needs to be radically revamped. Until we see that scheme giving significant numbers, we cannot consider it even as part of the package because the numbers so far have been derisory. We need to take moral hazard out of debt write-down. If one wants to take the moral hazard argument to its logical conclusion, someone who smokes should not be taken into hospital when they fall ill. It is irrational and an absolutely mad sort of thinking. No one in a civilised society can buy into this so-called moral hazard rule. If it is cheaper for a bank to write down a debt than to sell a property on the open market, it should be compulsory for the bank to accept that particular solution. Take a mortgage of €200,000 on a house that will now sell on the open market for €100,000. If the home owner in question requested a write-down of €60,000 and offered to pay the new mortgage debt of €140,000, would it not be ridiculous for the bank then to sell that property for €100,000 and lose another €40,000 when it could leave the person in situ? I hope the Minister will give serious consideration to the points I have made.

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