John Curran (Dublin Mid West, Fianna Fail)

It is my pleasure to return to the Upper House to contribute to this debate. I complement Senator McFadden for tabling the motion because it is timely and relevant to the current situation. I thank her for her contribution and all those who have contributed to the debate. Before I respond to the issues raised and go through generally what is at issue I make one or two specific comments. Senator Norris is not here now but he covered a whole range of issues. I refer to his comments on allotments in particular. The practice is actively pursued in the Dublin area, especially by South Dublin County Council.

I was interested to hear the comments of Senators O'Reilly and Hanafin in respect of rewriting history. I make no apologies for saying that with the benefit of hindsight the Government may well have made different decisions and pursued different policies. However, the same also applies to the policies pursued by the Opposition. With the benefit of hindsight they may have purported or supported different policies. The Opposition should consider the Give it Back policy campaign which it ran in 2002 and some of its proposed changes in stamp duty. If such policies had been followed they may have radically and adversely changed the problem we face.

The people place a high value on home ownership and make great efforts to secure and retain their own home. The Government have been supportive of this aspiration in good times and bad. In the current economic situation, the Government's objective from both a social and an economic point of view is that home owners who lose their jobs should be assisted to retain their homes during their period of unemployment. This is being done through the application of the new code of conduct in respect to mortgage arrears, support from the mortgage interest scheme under the supplementary welfare allowance system and the provision of advice on debt management through the Money Advice and Budgeting Service.

Before setting out in more detail what the Government is currently doing for those facing debt difficulties, including the issue of mortgage arrears, I wish to address briefly the proposal that a homeowner support scheme be incorporated into the NAMA legislation to support families facing repossession of their homes. The housing market has been especially hard hit by the economic downturn. It is a large and complex sector and I believe this proposal is unnecessary, overly complicated and would be costly to administer. It would involve the State in further buying of loans from the banks and further increase taxpayers' exposure. I reiterate it is a priority of the Government to ensure as far as possible that difficulties of mortgage arrears do not result in legal proceedings for home repossession. Home repossession should be and generally has been the last resort for the lender. I do not believe NAMA should be seen as the saviour of all ills. Although the issue will not be dealt with through NAMA it does not mean it should not be dealt with or is not important. Several measures may apply and I will outline these.

The new code of conduct on mortgage arrears which was published by the Financial Regulator last February applies to all regulated lenders on a statutory basis and replaces an earlier voluntary code operated by the mainstream lenders. The code applies only to mortgage lending activities to consumers in respect of their principal private residence in Ireland. I emphasise the code requires a lender to wait at least six months from the time arrears first arise before applying to the courts to commence enforcement of any legal action on repossession such that there is no deadline looming after which this protection will expire. In the case of Allied Irish Banks and Bank of Ireland, which have been recapitalised by the State, this period has been extended to 12 months from the time arrears first arise, for the duration of the recapitalisation subscription agreement.

The main features of the code include early recognition of problems, active management of arrears problems, examination of alternative solutions and repossession only as a last resort. Lenders must distinguish between borrowers who are genuinely unable to pay and those who could pay some or all of the arrears but will not do so. All genuine cases must be handled sympathetically and positively by the lender, which must explore with the borrower a number of alternate repayment measures.

The Financial Regulator has already undertaken an on-site themed inspection in respect of arrears and repossessions handling in selected mortgage lenders. Further work on monitoring and enforcement of the code is ongoing. Mortgage arrears continue to be closely watched. While there are estimates of the overall number by different economists and commentators, based on various assumptions, the number of home owners actually shown, in returns to the Financial Regulator, to be in arrears for 90 days or more with institutions covered by the State guarantee is currently of the order of 15,000 to 16,000.

The mortgage interest subsidy scheme under the supplementary welfare allowance system provides money, subject to a means test, towards the interest payments on a home mortgage. The number of people assisted by the scheme has risen sharply from a low base and stands at in excess of 14,000 since the end of September. More than 71% of those are in payment for less than a year and almost 2,300 are in payment for 18 months or more. Applications to the scheme are regarded as lagging unemployment by some months and the rise in numbers is expected to continue for some time. Funding for the scheme has been substantially increased for 2009. Expenditure on mortgage interest supplement was €12.2 million in 2007, €27.6 million in 2008 and €40 million was included in the 2009 supplementary budget. However, this is expected to be exceeded and the final outturn for 2009 may be in the region of €60 million.

A review of the scheme is ongoing and it involves representation from the Departments of Social and Family Affairs, Finance and the Environment, Heritage and Local Government with a representative from the Office of the Financial Regulator. The purpose of the review is to examine how the scheme can better meet its objectives of catering effectively for those who need short-term assistance when they are unable to meet their mortgage interest payments, especially given the increased number of those in receipt of mortgage interest supplement. All aspects of the existing scheme are being examined and the group hopes to issue recommendations by the end of 2009. The initial output from the review has been the issue of guidance notes on specific and operational issues for community welfare officers operating the scheme.

In addition, the Government funds the money advice and budgeting service, MABS, which provides valuable help to those in difficulty. A new debt protocol agreement has been finalised with MABS and the Irish Banking Federation, IBF, that provides added reassurance for borrowers with the most difficult issues. MABS is the main Government-funded service which provides assistance to people who are overly indebted and need help and advice in coping with debt problems. It is important that people coping with debt difficulties take early action and approach MABS for help and guidance. This can be the first positive step for people in addressing debt difficulties. The role of money advisers is to help clients to assess their financial situation, make a budget plan and deal with creditors. MABS now is dealing with increasingly complex debt situations in respect of clients who are presenting with multiple creditors and debts.

There are 53 independent MABS companies with voluntary boards of management operating the local MABS services from 65 locations throughout the country. In addition, the MABS national telephone helpline is available from 9 a.m. to 8 p.m. from Monday to Friday at a LoCall number and budgeting and money management information also can be accessed 24 hours a day. All MABS companies operate an appointment system for meeting with clients. Clients with urgent difficulties are prioritised for attention and are dealt with promptly. Less urgent cases are referred to the telephone helpline and to the MABS website in the first instance. More than 90% of callers to the helpline find that their money management and budgeting issues can be resolved with the assistance of the helpline adviser. Approximately 10% of callers are referred to the local MABS for assistance.

Historically, repossessions in Ireland have been low and while comprehensive statistics have never been kept, the Department of Finance has obtained reports from lenders covered by the State guarantee. The total of legal repossessions of owner-occupier homes in this year to the end of September by those lenders is 20. A comparison of repossession figures for IBF members, which are the mainstream lenders not including sub-prime, with figures from the United Kingdom's Council of Mortgage Lenders indicates that the repossession rates per 100,000 mortgages in the United Kingdom are 30 times higher than those in Ireland. I note that the number of residential properties taken into possession by Irish Banking Federation members in 2008 was 99, and for the first half of 2009 the figure was only 70. To put this in context, the equivalent figure in the United Kingdom was approximately 24,000 for the first half of 2009. I understand there are approximately 11,000 mortgages in the United Kingdom for every 1,000 here. Consequently, the position in Ireland is completely different. These figures include a substantial number of voluntary repossessions and buy-to-let properties. There were very few legal repossessions of owner-occupier houses.

Media reports of repossession cases taken through the courts show that most involved sub-prime lenders which made mortgages available to borrowers who would not have been customers of the mainstream lenders, often because of perceived higher risks. Cases in which borrowers stopped payment after a few months, failed to respond to repeated attempts to contact them or even abandoned the house feature regularly in media reports of repossession cases before the courts. However, it is clear that the scenario that some commentators put forward suggesting that thousands of ordinary families are at risk of being evicted from their homes very shortly is far from the truth. These stories are unfairly and unnecessarily frightening for those who find themselves in difficulty. The repetition of horror stories about a great wave of repossessions that is always just over the horizon can rightly be called irresponsible. Members have been hearing these stories since this crisis began and yet the number of actual repossessions remains small a year later.

All estimates of the extent of negative equity appear to be based on general economic assumptions but it is difficult to assess realistic price levels when property market activity remains low. In any event, as being in negative equity does not change the level of mortgage payments, the problems it may cause are more long-term and should be considered on that basis. The Financial Regulator has estimated that only a small proportion of borrowers with the covered institutions who are in negative equity are in arrears on their payments.

The renewed programme for Government envisages an examination of ways to expand mortgage support measures and new measures to protect families having difficulties, including the introduction of new measures to protect families having difficulties with their home mortgage payments. The renewed programme for Government also provides for the existing statutory code of conduct on mortgage arrears and the recently agreed protocol between the Irish Banking Federation and the money advice and budgeting service on debt default to be reviewed further with a view to expanding the options available for dealing with debt situations, including for example, the use by banks and lenders of more flexible mechanisms to avoid foreclosure in appropriate circumstances. These could include reduced rates, longer maturity dates, rolling-up of outstanding interest, a bank taking equity in a house or a bank taking ownership and leasing back the property to the resident with rent payments coming off the loan. The renewed programme for Government also envisages that ways of expanding mortgage support measures will be examined with reference to the measures adopted in other jurisdictions

The Law Reform Commission's consultation paper, Personal Debt Management and Debt Enforcement, provisionally recommends that the Irish enforcement system needs fundamental reform and that existing enforcement procedures should be replaced. The proposed new system would be based on the introduction of a central debt enforcement office, which could build on the current arrangements and the removal of much but not all debt enforcement proceedings from the courts.The Law Reform Commission's consultation paper recommends that a licensing system should be introduced for the debt collection industry and that subject to specified exceptions, all debt collectors and debt collection agencies should be obliged to hold a licence before operating a debt collection business. All these recommendations will be fully examined in due course. The renewed programme for Government envisages reform of debt enforcement in light of the deliberation of the Law Reform Commission that will include the regulation of debt collection agencies, a new system of personal insolvency regulations allowing for a statutory non-court-based debt settlement system and the establishment of a central debt enforcement office.

The difficult and sensitive issue of persons who may be imprisoned owing to failure to fulfil a contract or contractual obligation is often raised in the context of debate on debt. All Members are aware of recent media reports about large numbers of persons being imprisoned in respect of unpaid debts. However, I am informed by the Irish Prison Service that, at present, five persons have been imprisoned for failure to honour contract or contractual obligations since July of this year. As a general point, the aim of the legislation with regard to enforcement of court orders is to uphold contractual rights but with specific safeguards. Despite what certain commentators might claim, a person cannot be imprisoned merely on the grounds of inability to fulfil a contractual obligation.

In response to the High Court judgment on 18 June 2009 in the McCann case in which section 6 of the Enforcement of Court Orders Act 1940 was found to be incompatible with the Constitution, the Government provided a short Bill last July to remedy the situation on an interim basis. The High Court found that the then section 6 did not require the debtor to be present in court, no provision was made for legal aid to an indigent debtor at risk of imprisonment and the reversal of the burden of proof meant that the debtor might be imprisoned simply because he or she had not proved that his or her failure to pay was not the result of wilful default.

With the co-operation of this House, relevant new legislation in the form of the Enforcement of Court Orders (Amendment) Act 2009 was enacted on 14 July 2009 and this ensures the court is in a position to hear from the debtor. The Act amends sections 6 and 8 of the Enforcement of Court Orders Act 1940. It has the effect of ensuring that where a debtor does not appear, a court can issue a summons to ensure he or she appears and if he or she still fails to appear, can issue a warrant for his or her arrest. This enables the court to hear the debtor and be satisfied as to whether the debtor has wilfully refused to pay and that all other steps possible have been taken to recover the debt. The court will not imprison the debtor unless it is satisfied that he or she has the means to pay and may also postpone the execution of an imprisonment order until such time as it thinks just. In addition, the court will inform a debtor of the risk of imprisonment and of his or her entitlement to apply for legal aid. The new Act gives the court a clear power to vary the terms of the breached instalment order or alternatively to refer the parties for mediation.

Members will appreciate that it was desirable to proceed as quickly as possible in view of the gap created by the High Court judgment. The new Act takes account of the issues raised by the judgment and provides certainty for creditors and debtors whose interest is not best served by avoidance of their obligations. The legislation makes it clear that imprisonment is a last resort and will facilitate the parties in addressing debt by every other means.

The Government has measures in place to assist families in difficulty with their mortgages and to help them keep their homes. The renewed programme for Government envisages further action to deal with problems. Repossession, other than in high-risk sub-prime mortgages, remains rare. The mortgage interest subsidy scheme is available for families in difficulty. The code of conduct on mortgage arrears provides borrowers with significant legal rights and makes repossession a last resort. Moratoria of six months and 12 months for AIB and Bank of Ireland are in place. MABS has been given extra resources to help those in difficulty with debt. The renewed programme for Government envisages reform of debt enforcement, regulation of debt collection agencies and a new system for personal insolvency. Imprisonment for debt-related reasons is now very rare and is governed by new, fairer, legal arrangements that protect borrowers who genuinely cannot pay. I urge the Opposition to examine the Government's amended motion and consider supporting it.