Damien English (Meath West, Fine Gael) | Oireachtas source

I thank Senators Barrett and Quinn for bringing this Bill to the House. The issues of housing and finance are obviously very important to the country. I very much welcome the opportunity to discuss these matters in the House. First, I apologise on behalf of the Minister for Finance, Deputy Noonan, as he could not be present. He would like to have been able to take part in the debate. I am speaking on his behalf. He sends his apologies and will certainly be listening to the debate and take on board many of the comments made. I thank Senator Barrett for all his efforts and the work of his team on bringing the legislation to the Seanad.

Mortgage credit is a large and key component of the overall banking system, and when problems arise in this area it can pose significant problems for financial stability and the wider economy. I do not need to outline to anyone in this House the impact that the Irish property bubble and the subsequent banking crash have had on the Irish people. They caused significant difficulty for many households but, of course, the difficulty was particularly acute for people who took out large mortgages and who then faced genuine difficulty in meeting their repayment commitments on those mortgages. Many of them were young people with young families, and they are still under immense pressure trying to meet repayments and cope with arrears. In light of this experience, we should always be open and willing to examine the circumstances and practice in other countries to determine whether there are better ways of solving problems in Ireland and, even more important, to avoid getting into such problems in the first instance.

The Long Title of the Bill makes reference to government mortgage agencies in Canada and the United States. It is appropriate to consider the circumstances in other countries, and Canada is a country that can provide information and guidance to assist us in efforts to improve our mortgage and housing markets. In particular, Canada's financial system has worked its way through the global financial crisis in a more successful manner than that in most other countries. Indeed, it successfully avoided the worst of the financial problems encountered by other countries. For example, Canadian mortgage arrears and non-performing loans remained at very low levels throughout the financial downturn. Therefore, I welcome the opportunity presented by this Private Members' Bill to examine the Canadian system to determine whether there is any particular insight that could be of benefit to the Irish system.

However, we should also recognise and accept that, due to their fundamental character and historic backgrounds, the housing and mortgage markets of countries will differ from one another, and often in a very significant way. Ireland and Canada have different legal, financial, regulatory, political and social characteristics, not least through our membership of the European Union, and these factors need to be taken into account when considering any proposal – such as the one before us – to provide for a significant change to the institutional framework for Irish housing and financial services.

This is a very complex Bill and there was only a short time available for its consideration. We recognise the considerable work done on it by the Senator and his team. A preliminary analysis shows there are many significant issues arising from the legislation and I regret that the Government cannot accept the Bill as proposed in its totality. Nevertheless, I do look forward to listening to and contributing to the debate and to considering whether there are elements of the proposal that could feasibly be investigated for consideration at a future point for incorporation into the Irish system. As I stated at the outset, the Minister, Deputy Noonan, will take a genuine interest in this and follow the debate thereon.

The Canada Mortgage and Housing Corporation is clearly an important institution in Canada and it has a number of important functions. It was established in the 1940s around the end of the Second World War and it has been central to the Canadian Government's housing policy since then. One of its core functions is to provide assistance to low-income and other disadvantaged households to meet their housing needs, and to that end it provides funding for social housing.

Of course, there is also an unmet social housing requirement in Ireland. This is fully recognised and accepted by the Government. Primary responsibility for policy and the provision of social housing and, of course, housing policy more generally, rests with the Minister for the Environment, Community and Local Government, Deputy Kelly. In that regard, the Minister, through the Government's Social Housing Strategy 2020, has returned the State to its central role in the provision of social housing through a resumption of building on a significant scale and putting in place financially sustainable mechanisms to meet current and future demand for social housing supports. Over €1.7 billion in Exchequer and local authority self-funding has been committed to the strategy in 2015 and 2016 to support the provision of over 33,000 units in that period. The Government's capital plan goes beyond 2016 and commits €2.9 billion towards social housing out to 2021. The Minister for the Environment, Community and Local Government is supported in this task by his Department, the Housing Agency, local authorities and other relevant bodies. However, it is not clear what added value would be provided to this existing institutional framework by the adoption of the proposed new national mortgage and housing corporation, as provided for in this Bill.

The Housing Finance Agency, HFA, plays a key role in raising finance to enable local authorities to meet their statutory functions. In the area of housing, it advances loan finance to local authorities and the voluntary housing sector to be used by them for any purpose authorised by the housing Acts. The HFA plays a particularly important role in securing new funding sources for social housing. For example, in February 2015, the Minister for the Environment, Community and Local Government, Deputy Kelly, and the Minister of State with special responsibility for housing, Deputy Coffey, formally announced a €300 million housing investment programme, jointly backed by the HFA and the European Investment Bank. Such funding enables the HFA to offer 25-year fixed-rate funding at very competitive interest rates, currently 1.5% and 3.25%, to local authorities and approved housing bodies.

However, I note that some of the functions proposed to be assigned to new national mortgage and housing corporation in this Bill would appear to be already carried out effectively and efficiently by the HFA. The Bill, as presented, does not propose to replace the HFA and it would, therefore, give rise to the duplication of public agencies involved in the raising of finance for social housing purposes. I would have serious concerns about such a development from an efficiency and effectiveness perspective, and this provides an example of the concerns and risks that would arise in seeking to transpose a particular framework from another country directly into the existing Irish framework.

More generally, Ireland has now a well-developed legislative and regulatory framework governing the provision of financial services, including the provision of mortgage credit. It now has more intrusive legislation and practices to regulate the providers of mortgage credit and other financial services. Much of this overall financial services regulatory framework now derives from our membership of the European Union. A further enhancement of this framework in the area of consumer mortgage credit, and which has been designed to provide minimum protections to consumer mortgage borrowers across the European Union, is the mortgage credit directive. Earlier this year, the Minister for Finance made decisions on various national discretions contained in that directive, and these were subsequently published on the Department's website. Work is now at an advanced stage on the transposition of this directive into Irish law with a view to ensuring that it will come into full effect from March next year. There is now a significant corpus of national and EU legislation in the area of financial services but, unfortunately, this proposed Bill does not appear to address this issue and outline how its provisions should be read in conjunction with that legislation.

Another key function of the Canada Mortgage and Housing Corporation is in relation to mortgage loan insurance. As a public mortgage insurer, the corporation has a mandate to provide service in all parts of Canada and for a range of housing forms. Accordingly, it is the largest mortgage insurer in the Canadian market. This approach suggests that the Canadian Government stands behind the full amount of the corporation's mortgage insurance obligations and, as such, it could represent a significant contingent liability for its public finances.

It is not apparent from the proposed Bill if it is intended that the Irish national mortgage and housing corporation would have a function in the provision of mortgage loan insurance in Ireland. In Canada, we understand that such a function essentially derives to the Canadian authority from the National Housing Act, rather than the Canada Mortgage and Housing Corporation Act. It is somewhat similar to this Bill.Ireland's Housing Acts do not contain any provision to provide mortgage loan insurance to regulated banks, either with or without a State guarantee. I assume, therefore, that it is not proposed that the relevant Irish body would have a statutory role in the provision of mortgage loan insurance. Perhaps that matter could be clarified by the Bill's proposers at a later stage in the debate.

The sustainability of any mortgage system ultimately rests to a large extent on the underwriting policies and loan criteria applied to mortgage credit applications. While the provision of mortgage insurance in itself does not remove the risk associated with the extension of mortgage credit, it would have a bearing on who would bear the losses consequent upon a mortgage default and subsequent foreclosure and repossession of the secured property. In the absence of significant oversight of the mortgage credit creation process by a mortgage insurer or regulator, there is always the risk that mortgage insurance could, over time, encourage and facilitate the adoption of more risky mortgage lending practices by creditors. In any public policy consideration of the merits or otherwise of mortgage insurance, it should be noted that the provision of mortgage insurance would not act as a direct means of protecting the mortgage borrower. Rather, it would act to protect the lender, often with the cost of the premium being passed on to the consumer.

As Senators will be aware, the issue of mortgage insurance was a matter under discussion around this time last year when the Central Bank proposals for macro-prudential measures for residential mortgage lending were the subject of a public consultation process. The role that mortgage insurance could play in a proposed new macro-prudential environment was one of the specific questions posed for consideration by the Central Bank.

As Senator Barrett will be aware, the issue of mortgage insurance was also the subject of a report by the Joint Committee on Finance, Public Expenditure and Reform last December. Following its evaluation, the Central Bank considered that the most appropriate and effective way to secure sustainable and safe mortgage lending would be achieved by the adoption of sound underwriting practices in the first instance, as opposed to utilising insurance that would seek to cover for risk after the event. The Central Bank, which has a statutory and independent mandate to safeguard financial stability, did not consider an exemption from the loan-to-value rules for insured mortgages to be an effective practical amendment at this point. While it noted that mortgage insurance schemes have had varying degrees of success in other countries, often backed by a government guarantee, as in the case of Canada, this does not remove the risk of losses on mortgage lending. Instead, it transfers those risks and potential losses to the insurer. An insurance system would, therefore, continue to leave insurers and the State where it acts as a backer to the system vulnerable in the event of widespread falls in housing prices, as occurred here during the crisis. In this regard, it should also be noted that the Canadian Government has recently taken steps to reduce the contingent risk that could arise from mortgage loan insurance and the Canadian Mortgage and Housing Corporation's mortgage securitisation programmes. Nevertheless, if it is decided that it would be appropriate to revisit the issue of mortgage insurance in Ireland at some future point, it is possible that the Canada Mortgage and Housing Corporation framework will be worth evaluating. However, even if such a scenario were to arise for consideration at a future point, the Minister for Finance has indicated that the State should not assume any ultimate backstop responsibility for such an insurance system.

I also have some other concerns about the provisions of the Bill, if adopted. The legislation, which proposes in section 21 that the corporation could borrow up to €15 billion for its statutory purposes, could be regarded as a Bill that would fall within the scope of Article 17.2 of the Constitution. If so, it would have to meet the particular constitutional requirements associated with a money Bill.

I also note that the same section in the Canadian Act has a borrowing cap of CAD $15 billion. This borrowing cap represents slightly more than 1% of the overall Canadian residential mortgage market. The Bill also proposes a €15 billion cap for the proposed equivalent Irish body. However, in Ireland, such a cap would equate to approximately 11% of outstanding residential mortgage credit. This would have significant implications for the overall Irish mortgage market and the State's balance sheet. While it is not clear if it is proposed that the Irish mortgage and housing corporation should have a much greater role in the mortgage market than the Canadian corporation, if that is the case, the matter would require significant evaluation and consideration. By way of a comparison, it should be noted that the total outstanding loan book of the Housing Finance Agency is approximately €4.1 billion and this figure includes agency loans for non-residential purposes.

A number of other drafting and legal issues would arise if the Bill were progressed further. One of these is the proposal to give the new corporation the power to exercise and perform all rights, powers, functions, etc., of the Minister for Finance under any contract entered into. This would constitute a significant delegation of a Minister's power and responsibility to a statutory body. In the corresponding Canadian Act, it is noted that it is the powers of the relevant Minister under the housing Acts or any contract entered into under those Acts that is transferred to the particular Canadian corporation. No such limitation applies in the Bill before us, and even if such a limitation were to apply, the Minister for Finance would not, as a matter of course, enter into individual contracts under the Housing Acts or otherwise have a significant range of statutory powers under the Housing Acts to delegate to this body.

Having outlined a number of reasons the Government does not support the Bill, I nevertheless fully accept the genuine merits behind the proposal and the real public service that is being demonstrated by raising such an important issue for discussion and consideration by the House. The housing and mortgage issue is one of significant importance to the Government, the Oireachtas and the public at large. However, the key step that is now required is to provide additional homes to meet existing and growing demand for housing. The Government is conscious of this requirement and public initiatives are needed to stimulate the provision of new housing. Accordingly, in budget 2016 the Minister for Finance outlined plans by the National Asset Management Agency, NAMA, to deliver a target of 20,000 residential units before the end of 2020. Approximately 90% of these units will be in the greater Dublin area and approximately 75% will be houses, mainly starter homes. NAMA will deliver these units by working with developers. This commitment will require funding from NAMA of the order of €4.5 billion.

The Government remains open to considering new initiatives and funding sources to assist in the provision of housing. Senators will be aware that a commencement order in respect of Activate Capital, which will provide a fund of €500 million and will be capable of financing the construction of more than 11,000 new homes, is also before the House today.

I again thank the Senators who proposed the Bill for the opportunity to discuss the legislation. The Government has an obligation to carefully analyse any financial legislative proposal that comes before the Oireachtas. I am aware the proposal is well-intended and will be of much benefit in the more general consideration of measures to improve the housing and mortgage markets. However, I hope the proposing Senators and others will appreciate that my contribution to this debate and the Government's reasons for opposing the Bill are equally well-intended. For the reasons I have outlined, it is regretted that the Government cannot support the Bill proceeding from Second Stage to Committee Stage. Nevertheless, we will take much from both the proposal and the debate and will consider this in the ongoing evaluation of housing and mortgage policy issues. I thank the Senators again for introducing the Bill. They will appreciate that, given the timeframe involved, we were unable to fully analyse and consider this wide-ranging Bill. I have outlined some of the Government's concerns and set out a number of issues that we can discuss during this debate and when other opportunities present.