Joe Costello (Dublin Central, Labour) | Oireachtas source

The Government has two overall key strategic objectives in this area. First, there is a need to ensure that mortgage holders who are experiencing real difficulty should, where appropriate, be assisted in remaining in their homes. Second, any framework and range of supports for mortgage holders must be able to distinguish between those who cannot afford to pay their mortgages on their primary homes and those who choose not to pay. The principle of a fresh start for people facing genuine difficulty in dealing with their mortgage commitments is a key priority.

The Government, on assuming office in 2011, established the interdepartmental mortgage arrears working group, which issued the Keane report. That was one of the first acts done by the Government. The action had not been taken by the previous Government, but it should have been. The Government is now implementing the key recommendations of the report, which was published in October 2011. Based on its recommendations, the Government established the mortgage arrears steering group to co-ordinate the responses of the Departments and agencies that are centrally involved. Since March 2012, the steering group has reported to the Cabinet committee on mortgage arrears.

In contrast with the inactivity of our predecessors, let us consider some of the important initiatives that have been taken by the Government. For example, the mortgage-to-rent scheme, available since June 2012, is a mainstream social housing solution for the most acute cases of mortgage arrears. Lenders are now engaging with the process and substantial progress has been made. More than 800 cases have been put forward for the scheme. Development of a mortgage-to-lease scheme is also progressing. Under the scheme, the lender would become the long-term owner of the property after voluntary repossession has taken place. The household would become a social housing tenant of the relevant local authority and the local authority would, in turn, lease the property from the financial institution for the period of the lease. An information and advice service has also been established to help people in mortgage arrears through the website keepingyourhome.ie, an information helpline and the availability of independent financial advice for people being offered long-term restructuring proposals by the banks.

The most significant development in addressing the area of personal over-indebtedness, including mortgage arrears, has been the development and enactment of our new personal insolvency legislation. The Personal Insolvency Bill was published in June 2012, passed by both Houses in December and signed into law in December. The development of modern insolvency law was a key commitment in the programme for Government. It was also required under the EU-IMF-ECB programme of financial support for Ireland. It was inspired by the Law Reform Commission's significant contribution in its 2010 report on personal debt management and debt enforcement and by the recommendations of the Keane report.

The Personal Insolvency Act 2012 provides for three new debt resolution processes which, though requiring approval by the court, are essentially non-judicial in nature. The debt relief notice, DRN, will allow for the write-off of qualifying debt up to €20,000, subject to a three-year supervision period; the debt settlement arrangement, DSA, provides for the agreed settlement of unsecured debt, with no limit involved, normally over five years; and the personal insolvency arrangement, PIA, will enable the agreed settlement of secured debt of up to €3 million - although the cap may be increased with the consent of all secured creditors - and unsecured debt without limit, normally over six years. The Act also provides for automatic discharge from bankruptcy after three years, subject to certain conditions.

The Act introduces new insolvency resolution concepts to Irish law. The new PIA is a process that is unique in insolvency law anywhere in providing for the negotiated resolution of secured debt in a court-sanctioned process that provides certainty for creditors and, if I may say so, hope and relief for debtors. The personal examinership approach in the PIA is designed to be sufficiently flexible and robust to address complex personal insolvency cases which may include combinations of trade, consumer and mortgage debt. It offers a second chance mechanism for talented and capable individuals and entrepreneurs not only to return to solvency but to make a contribution to the economic development of our society.

To protect the constitutional rights of all concerned and to prevent potential actions for judicial review, the Act makes provision for enhanced oversight by the court of the three new debt resolution procedures. The enhancement of court involvement gives a significant benefit to the debtor by providing protection from enforcement actions by creditors, either during the negotiation period or during the lifetime of the arrangement. In order to deal with this anticipated volume of work and to facilitate the speedy consideration of insolvency applications, a new cadre of specialist judges of the Circuit Court is being recruited.

The Insolvency Service of Ireland was established on 1 March 2013 by ministerial order. It will be formally launched tomorrow and will commence its information campaign, which will include its website, the issuing of publications designed to assist those interested in the new debt resolution processes and the opening of a public information line. The announcement of the regulatory framework for personal insolvency practitioners will follow shortly. The director of the Insolvency Service of Ireland, Mr. Lorcan O'Connor, is working with all speed to complete the administrative and technical preparations to ensure that the full operation of the provisions of the Personal Insolvency Act can begin as soon as possible.

The Personal Insolvency Act makes provision for the Insolvency Service to draw up guidelines on reasonable living expenses which will apply in respect of a debtor in one of the new insolvency processes. In developing these guidelines the Act requires the Insolvency Service to have regard to a number of criteria. The Insolvency Service has engaged in extensive consultation with relevant Departments, agencies and organisations and the guidelines should be ready for publication very soon.

It may be expected that a significant number of persons are likely to avail of the new or reformed insolvency processes. For broad planning purposes, the tentative estimate for the number of applications in the first full year of operation of both the law and the Insolvency Service is approximately 15,000 for the debt settlement arrangement and personal insolvency arrangement; 3,000 to 4,000 for debt relief notices and 3,000 for bankruptcy petitions. The critical message which I reiterate to all those experiencing debt problems is to engage with lenders and other creditors to negotiate an appropriate settlement. That requires lenders to engage properly with customers. Now that the architecture of the new insolvency legislation is settled, financial institutions must improve engagement with debtors.

Mortgage lenders have the primary responsibility to deal with customers experiencing difficulties with their mortgage repayments. These institutions extended credit in the first instance, often without much in the way of expected oversight or due diligence. Urgent action is required by banks to address the problems their customers in genuine difficulty are experiencing. However, each case of mortgage arrears is different and will have to be looked at on its merits. If financial institutions refuse to engage constructively and realistically, the Government has made it very clear that it will take any necessary measure to refine its approach to ensure the new debt resolution processes work. This commitment has been made by the Minister on more than one occasion. While banks must have regard to commercial considerations, they must also behave with greater flexibility and insight and apply a broader range of common-sense options based on financial reality.

The new debt settlement and personal insolvency arrangements are designed to facilitate a workable, sustainable, voluntary resolution between a debtor and his or her creditors. A common-sense rather than a coercive approach is taken, as can be seen in the creditor voting process provided for in the Act. It is an approach designed to avoid, in so far as possible within constitutional constraints, the necessity for contentious court hearings and adjudications, together with the substantial delay and inevitable legal costs inherent in such process. The Government has very much engaged with the financial institutions in the lead-in to the enactment of the legislation. They understand exactly what our concerns are and what they should do in operating the legislation constructively and sensibly. Justifiable concerns have been raised by Senators and others about the balance of power between banks and debtors. There is talk of what has been commonly referred to as a "bank veto". In reality, it is in the best interests of both debtors and creditors to seek to conclude an acceptable and workable arrangement under the Act.

The Central Bank has had ongoing and detailed engagement with lenders on the issue of mortgage arrears and explored possible options for cases where more than a temporary forbearance response would be required. These are well known at this stage and include split mortgages, trade-down mortgages and sale-by-agreement options which would allow families to move to homes more suited to their current needs, including employment and appropriate accommodation needs. There will also be cases in which debt forgiveness is not only a practical solution but will also, in the medium to long term, benefit both debtors and creditors. The write-off of a portion of the capital debt outstanding on a family home is a further option. Where appropriate, the mortgage-to-rent scheme will also be available for consideration.

The Central Bank is satisfied that the tools are in place to accelerate the work-out of the mortgage crisis. Banks and borrowers must use these tools to reach fair and sustainable solutions to mortgage arrears on a case by case basis. Of course, progress by the banks in providing durable solutions has not been sufficient. Thus, the Central Bank has set targets for the conclusion of sustainable agreements and the durability of such solutions and will audit each bank's performance against the targets and, where necessary, apply sanctions. It has also commenced a review of the code of conduct on mortgage arrears to ensure it can facilitate better engagement between borrowers and lenders on a mortgage problem, while maintaining important protections for those borrowers who do engage with their lender. A consultation process on the review of the code ended on 12 April and the bank is reviewing the submissions received. I understand the aim of the bank is to publish the revised code of conduct in the first half of this year.

In addressing the mortgage arrears problem we cannot ignore the fact that the issue of repossession must be addressed in some cases. Ireland, for a number of reasons, has had a very low level of repossessions. The vast majority of repossessions occur on a voluntary basis. Nobody can be unaware of the issues that arise where repossession proceedings relate to family homes. It is an emotive and sensitive topic. The Minister for Justice and Equality has recently published the Land and Conveyancing Law Reform Bill 2013 which is designed to address issues arising from case law in various repossession proceedings which have created uncertainty relating to the exercise by lending institutions of their repossession rights. The consequences of the case law were unintended at the time of enactment of the Land and Conveyancing Law Reform Bill 2009 and the purpose of the Bill mentioned is to restore the intended position. The new legislation fulfils a commitment to remedy these issues in the context of the third quarter of 2012 review of the EU-IMF programme of financial support for Ireland. The Bill is designed to restore the law which has been in place over the centuries to enable lending institutions to rely on security in relation to a mortgage, as intended by the Oireachtas when enacting the 2009 Bill. The Bill mentioned also provides for the adjournment of actions for repossession in certain cases relating to the principal private residence of the borrower where it is the opinion of the court that the matter could be resolved by recourse to the Personal Insolvency Act 2012 and aims to examine whether a personal insolvency arrangement would be a more appropriate course of action. It is an important new caveat and protection. Where the court is of such an opinion, it may adjourn a hearing for no more than two months. The Minister is seeking to provide, by way of this provision, a transparent, final, time-limited safety net for a home owner where repossession is being pursued without the possibility of a personal insolvency arrangement having been fully explored by the parties.

It may be the case that, as a last resort, the best interests of the borrower may be served by repossession. This could arise, for example, if there were substantial arrears and no prospect that the borrower would be in a position to address these arrears or restore some stability to the mortgage arrangement. This is recognised in some cases where repossession arises on a voluntary basis and where there is some other voluntary arrangement to address an unsustainable mortgage. In circumstances in which individuals borrow money to acquire a home and that home is security for borrowing it has been the law for centuries that, ultimately, the financial institution that provides the loan can apply to the courts for possession of the property where the borrower fails to discharge mortgage repayments. In the absence of such a law, no financial institution would lend money for house purchases as the security would be meaningless. Modern insolvency legislation is a required feature of any properly functioning market economy. It will assist not only debtors and financial institutions but also business of all types and sizes, including tradespersons and local co-operatives. All debtors and creditors are concerned about this reform and all must be treated fairly. Many persons and companies may be both debtors and creditors.

While I understand and share some of the very negative feelings towards financial institutions and their contribution to our current economic difficulties, we must not lose sight of our objective, which is to introduce reformed, workable and balanced insolvency legislation. This approach which seeks balance and fairness has been criticised as suggesting creditors, particularly mortgage creditors, will exercise a veto. That criticism is reflected in the ill-thought-out motion before the House. The contention is based on an incorrect view of how normal commercial contractual issues may be resolved. If one borrows, one must repay where one can. If one receives a good or service, the provider is entitled to be paid.

If the debtor is genuinely unable to pay, negotiation with creditors may resolve the difficulty and the Act provides the new framework for sensible negotiation.

The approach in the proposed debt settlement arrangement and the personal insolvency arrangement is that the insolvent debtor will, with the assistance of a personal insolvency practitioner, put forward what the debtor considers to be a realistic offer to his or her creditors, one that will restore the debtor to solvency within a reasonable period while at the same time giving creditors a better financial outcome than the alternatives of debt enforcement or bankruptcy. The creditors will seek to consider carefully the debtor's offer, conscious that if they refuse, the debtor has another option, namely, the standard debt discharge procedure available under the reformed bankruptcy laws.

The motion from the Opposition Senators also makes reference to developing some form of non-judicial independent agency or process to arbitrate and impose solutions on creditors and debtors. This point was mentioned by a number of Members. However, the new debt resolution processes which this Government has introduced, and in particular the personal insolvency arrangement, are designed to operate on a voluntary basis with common sense and enlightened self-interest rather than coercion of any of the parties. There is no example of the type of body that appears to be demanded by the Senators in their motion existing in any jurisdiction. During the debate on the Personal Insolvency Bill last year, no Senator or Member of the Lower House could give an example of such a body.