Wednesday, 22 June 2011
Housing Market: Motion
"That Seanad Ãireann:
- notes with concern that by the end of 2010 over 200,000 homeowners were in negative equity;
- notes that a minimum of 10% of households with mortgages are currently facing significant difficulties with repayments, and that this proportion is likely to increase;
- notes the high cost in personal suffering to individuals and families caused by increasing levels of significant mortgage arrears and by the threat of eventual repossession of homes;
- further notes that 'mortgage to rent' and 'mortgage to shared equity' schemes have been established by the Scottish Government, as part of the Home Owner's Support Fund, in response to the plight of distressed homeowners;
- proposes that the Government should consider the establishment in Ireland of schemes to support distressed homeowners, adapted to the Irish context but similar to those set up in Scotland, which would provide structural measures for the protection of those individuals and families currently facing unaffordable mortgage repayments and the potential loss of their homes.".
I am fascinated to see how important this motion is to our colleagues on the other side of the House.
I note what the Acting Chairman is saying about the time for this debate. I will speed through it as quickly as I possibly can.
Reports over the last number of weeks indicate that the difficulties faced by Irish homeowners are increasing at a rapid rate. By the end of 2010, more than 200,000 homeowners were in negative equity, with over 40% of homeowners holding a mortgage that was in negative equity. The numbers of homeowners in negative equity continues to rise as house prices fall. The rating agency Moody's estimates that Irish house prices fell by 40% between September 2007 and March 2011, while other commentators estimate the price fall to be even greater. The housing market is currently non-existent, with further price falls expected before the market returns to stability. Indeed, the Irish Mortgage Corporation stated yesterday that as few as 11,000 mortgages are likely to be loaned this year, a figure last seen in the early 1970s.
As chair of the Threshold housing organisation I am only too well aware of the cost in human misery that ordinary families are facing today - families who never thought they would face the trouble they now face. Last year alone, Threshold helped more than 22,000 households in difficulty. This recession has gone on for four years now. Family savings have been exhausted trying to outrun the recession and keep family homes from repossession. In particular, Threshold has warned that the current situation is leading to a rise in homelessness and extreme distress for families and their children.
With respect to my colleague, it is easy to state once again that the cause of this was Fianna FÃ¡il's policy of putting the interests of big developers and the banks ahead of ordinary families who were just trying to buy a family home. However, I hope today's debate will focus on constructive proposals to help the thousands of Irish homeowners who are in extreme distress and facing the loss of their homes - the victims of the overheating of the Irish property market - rather than on recriminations between parties for political gain.
To date, measures to assist Irish homeowners have been what I would term stopgap measures, which are accepted to have given temporary relief to homeowners. However, mortgage-related measures such as deferred interest repayments, interest-only periods and time extensions do not fundamentally alter the levels of debt in which people find themselves. The fact is that temporary relief will do nothing to halt this growing problem and will only kick the can forward. The proportion of households in arrears of 90 days or more on their mortgages rose to 7.62% in April from 6.65% in February. Also, while a total of 80,000 residential mortgages are either in arrears of over 90 days or have been subject to adjusted terms after negotiations with mortgage providers, the worst indicator is the proportion of restructured mortgages - 40% - that are not performing and are now in further arrears. This a problem that will continue to get worse unless we step in and do something about it.
There are currently more than 17,000 households in receipt of mortgage interest supplement from the State, at a cost of â¬70 million, and this is likely to rise. We can take no comfort from the relatively low level of house repossessions, given bank moratoriums and the time it takes for cases to come to court. The reality remains that unless something significant is done to assist homeowners in untenable situations, we face a tsunami of repossessions over the coming years as the ultimate conclusion of the process is reached. There is no point in ignoring the truth, which is that repossession cases are now stacking up like planes over Heathrow, and they will eventually come down to land.
In the face of this crisis, the final report of the mortgage arrears and personal debt group in November 2010, the Cooney report, was very disappointing. This report was an opportunity to put forward innovative recommendations that would provide long-lasting, real solutions for those who are in arrears and struggling to pay their mortgages. Instead, what we got was a range of proposals that tinker at the margins of the problem but go nowhere near addressing the challenges head on. It was truly disappointing to see that any element of debt forgiveness was ruled out point-blank by the group. The possibility that a local authority might lease a repossessed home from a lending institution, ensuring former homeowners could remain in their homes, was also excluded. The proposed measures focused instead on the old chestnuts of deferred payments and moratoriums on repossessions.
I am aware that Members of this House have proposed that the law be amended to enable private pension funds to be released for the purpose of clearing mortgage debt, a proposal worthy of consideration. However, it is important to bear in mind the age profile of those most affected by the current debt crisis and to note that they are the group least likely to have built up pension fund entitlements.
There are many excellent proposals in the programme for Government which will help alleviate the situation of distressed homeowners. For example, the establishment of the proposed personal debt management agency will be important in ensuring that borrowers get independent advice and that agreements are in the best interests of the borrower as well as the bank. However, when it comes to protecting the family home, the programme for Government accepts that the recommendations of the Cooney report are inadequate to address the scale of the current crisis and that the proposals in the programme are not exhaustive for dealing with the crisis of housing debt we face as a nation.
It is in light of this that I am urging the Government to consider a scheme whereby the State would purchase equity stakes in the homes of distressed owners who are unable to afford their current mortgage repayments and who have insufficient equity in their family homes to enable them to trade down. The homeowners would remain in their houses and pay affordable mortgages based on their incomes to their local authorities or to a housing agency designated by the State, based on a reduced equity stake in their homes. Such a scheme should facilitate homeowners to increase their stakes in their homes and increase their mortgage payments over time as their financial circumstances improve. This debt-to-shared-equity scheme could be based on the provisions of the incremental purchase scheme and on the principles set out in the Housing (Miscellaneous Provisions) Act 2009. The incremental purchase scheme, designed to assist eligible households in stepping upwards to home ownership, could be adapted to enable current homeowners to step downwards and purchase back the remaining equity as their circumstances improve.
A further scheme should be established, subject to certain criteria such as the value, size and location of dwellings, whereby the State may purchase homes of distressed owners who are in negative equity and unable to afford current mortgage repayments at a significant discount from the financial institutions concerned. Let us not forget that it was the financial institutions that were complicit in giving loans of unrealistic value to the homeowners of today. The homeowners would in time be able to repurchase their houses based on existing affordable housing or tenant purchase schemes.
Similar mortgage-to-rent and mortgage-to-shared-equity schemes have been established by the Scottish Government in response to the plight of distressed homeowners there. The homeowners' support fund supports these schemes and is designed to help owners who are experiencing difficulties paying any loans secured on their family homes. Applications to the fund are on a first-come, first-served basis. The amount of the fund is determined in advance based on the likely take-up by distressed homeowners and the amount of funds available to the State. It is not a blank cheque. Such a fund could be set up by the Irish Government, beginning with a pilot scheme. Furthermore, such a fund, if set up by the Irish Government, might attract international support, perhaps from our EU neighbours, as well as from members of the diaspora who are anxious to help in the current crisis. Moreover, these measures would be cost-effective, bearing in mind the cost of rehousing families who eventually lose their homes as a consequence of foreclosure. The Irish Government currently pays â¬70 million to support the mortgage interest scheme and â¬500 million - half a billion euro - to those claiming rent supplement, and these figures will rise. This scheme would prevent eventual repossession, alleviate human misery and bring confidence to the housing market.
It is important that any scheme is focused on those in most need, and full financial disclosure should be required in order to be eligible for State assistance. However, it is crucial that the terms of the scheme are not so narrow as to assist only a small number of households. This has been a criticism in independent reviews of the Scottish scheme. Over the coming years, the numbers in mortgage arrears will rise further. While it is not part of today's motion, debt forgiveness for unsustainable mortgages must also be considered.
It is important to remember that first-time buyers who purchased at or close to the housing market peak are most likely to experience negative equity and mortgage arrears. Very often, these are households with young families. It is easy for those who bought their homes many years ago to be critical and talk of bad decisions and moral hazard. The fact is that the cost of an average family home exceeded ten times the average industrial wage in 2007. More fortunate Irish householders bought at a time when that ratio was three to four times their salaries, with many benefits that householders no longer enjoy, such as the first-time buyer's grant - which at one time represented almost a quarter of the value of a family home - and generous mortgage interest relief on the balance. We must be under no illusions: it is the young people of Ireland who bought in the last decade who are paying the price for this disaster. We must be careful to avoid the intergenerational strife that will ensue if we do not help them to keep their homes.
For those who argue against any interference with the housing market, it is important to bear in mind that the threat of mortgage failure affects the whole property market, the banking system and the wider economy. The current practice of relying on a moratorium on repossessions only perpetuates a zombie housing market. We must allow a line to be drawn so that our people and our economy can move on.
How can we handle this debt crisis? How we handle it will affect this country for years to come. For all the reasons I have outlined, to prevent human misery, to save money, to put faith back into the housing market, I urge Senators to accept this motion. Every statistic on a bank balance sheet represents a real family. It is the burden of sleepless nights, family breakdown, children in distress and the fear of homelessness that is the real cost being paid by families. We must take measures to relieve families of these worries and help them look forward to a better future.
The dictionary definition of a "mortgage" is a legal agreement by which a sum of money is lent on the security of buildings, lands, etc. Unfortunately, today the majority would define a mortgage as equating to heartache, headache, stress and anxiety. Do I need to go on? The list of negative adjectives to match negative equity is endless.
While I appreciate that some banks are restructuring mortgages, far too many mortgages holders are still struggling. The nightmares that are mortgage arrears and negative equity do not call for flowery or up-beat language; the facts speak for themselves. Court proceedings, repossessions and the prison of negative equity are, unfortunately, part of our daily dialogue. Families are desperately trying to hold on to the family home by any means they can. I know of people renting out the existing family home while renting cheaper accommodation for themselves in an attempt to raise much needed funds. One family known to me, about to have their home repossessed, simply upped sticks and left the country rather than admit to anyone the pain, hardship and humiliation they felt. Some feel too ashamed, particularly young couples, about letting their families know they are in bother. Desperately trying to cling on to the family home, sometimes they end up resorting to all kinds of things. We now live in a society where fathers are forced to go abroad to seek employment just to earn enough to pay the mortgage, willing to make personal sacrifices to ensure a roof is kept over their family's heads.
We are now in a similar situation to the 1950s. A recently published report stated emigration to Britain is up by 25%. Alas, much of this can be accredited to the hardship and dire circumstances in which people with mortgages and negative equity find themselves. No other solution apart from emigrating seems open to them. The socio-cultural effects of this will soon ripple through our society resulting in fragmented families, inexplicable hardship and a destabilising of the most cherished part of our nation, the family unit.
Distressed selling is becoming a rampant event. Up to 416,000 home owners find themselves trapped in the nightmare of negative equity. Many people simply hand over the keys of their homes to the mortgages providers and just walk away. This is indicative of a very sad situation and, indeed, reflects very badly on our society.
People who find themselves in these circumstances see no way forward. They will never be able to purchase another home. These individuals are highly vulnerable people with the stress and anxiety of their situation taking its toll. My main concern is that some people will not actually see a way out, blinkered by the hardship and frustration of their dire situation, and that the incidence of suicide could take an alarming rise. Consequently, this would put our mental health services under increasing pressure to provide services both to prevent and cope with such occurrences.
A caring, supportive and humane approach is urgently called for and is the only way forward to ensure people in this negative equity-mortgage arrears hell retain their dignity, their pride and, where possible, their homes. Local authorities are obliged to find alternative accommodation for people evicted from their homes. However, local authority housing stock is extremely low at the moment with few, if any, proposals on the horizon to construct new homes while the social housing list grows rapidly.
Unfortunately, there is no one-size-fits-all solution to this problem. Each case comes with its particular and unique set of circumstances. As a result of the recession, the State is incurring huge additional costs in housing support. It makes sense to keep families in the family home by providing help and assistance to them. If families have been forced to leave the family home to rent private accommodation, the possibility is that these families will qualify for, and will be in receipt of rent allowance, the cost of which has increased to over â¬500 million per year.
In the majority of cases the cheapest and best solution for everyone involved, the family, the bank and the Exchequer, is to keep families in their own homes. Senator Aideen Hayden referred to the Scottish Government's homeowners' support fund. A similar scheme should be established in Ireland to help distressed mortgage owners retain their family home. Scotland's mortgage to shared equity scheme is similar to Ireland's former shared ownership scheme. This scheme was successful in its day and could certainly work again. Under the mortgage to equity scheme, distressed mortgage holders, following an assessment, are required to repay the percentage of the mortgage that they can genuinely meet from their household income. The balance is paid by the Scottish Government, giving it a stake in the property until such time as the home owner can take on the full amount of the mortgage again.
A scheme similar to Scotland's mortgage to rent scheme would entail a considerably larger amount of money from the State as the local authority or housing agency would have to purchase the full amount of the mortgage and the home owner would remain in situ as a tenant.
Each of the above schemes, which I recommend the Government evaluate, would take the pressure off the social housing list and allow families to remain in the family home, providing them with a sense of dignity. While this will take cross-departmental and bank co-operation, it can be and must be achieved. The establishment of a scheme to help distressed mortgage holders based on the Scottish Government's schemes would be a sustainable way forward to alleviate the pressures under which people find themselves.
If we can bail out our banks - the same banks that encouraged and promoted 100% mortgages to young couples - it is high time that we bail out our citizens. The banks should be obliged to and must participate in the recovery of our economy and help to establish a homeowners' support fund.
Will the Government consider the possibility of putting the funds from rent allowance it would have to pay if a couple were obliged to give up the family home and rent private accommodation towards the cost of these schemes proposed by the Labour Party Senators? The proposed personal debt management agency should be fast-tracked through the Money Advice and Budgeting Service, MABS, as an approachable, impartial agency whereby distressed mortgage holders can avail of the services of trained personnel with expertise in debt management, to negotiate with their lenders, where an efficient, speedy and professional assessment of their personal debt can be carried out and the best solution to address the problem of distressed mortgage holders determined. People in such circumstances should not have a credit blacklisting either.
This mortgage crisis is not only having a devastating impact on those affected by it but also on the wider economy. If social justice exists, can we please apply it to this crisis? Our citizens are crying out for help, a plea that cannot be ignored and must be acted upon before it becomes an even larger crisis. I, therefore, strongly recommend and second this motion in an effort to address this matter in a positive manner, offering those affected some hope and a light at the end of this horrific tunnel.
I welcome the Minister of State, Deputy Brian Hayes, back to the House. I know he enjoyed his time as a Senator but he is nearly becoming a permanent fixture here.
While Senator Aideen Hayden can tut all she likes, I assure her we will keep party politics out of this which is why we have not tabled an amendment to the motion. It is an important motion but a broad stroke on debt forgiveness can be a dangerous thing. As no costings have been associated with the motion's proposal, I am interested to hear the Minister of State's response. If debt write-downs are to be given to certain mortgage holders, particularly those who have them with the nationalised or practically nationalised banks, we will be looking at another write-down for the banks. To fill that hole, the Exchequer would have to seek further bank recapitalisation funds which will inevitably come from the taxpayer.
I would not dismiss the Cooney report on mortgage arrears out of hand as some Members have as some of its recommendations need to be examined. The bottom line is what the Government can afford to do. We need to be careful about flying kites on this issue although I am not suggesting that this motion is one.
There is a need to send out a message that we can move quickly to address a very difficult situation which is probably only going to get worse. In the next 12 months there will probably be four or five further increases in the ECB rate. There are those who are already struggling to meet their mortgage repayments. Thankfully, however, the majority of people remain in a position to do so. Whatever action it takes, the Government must ensure that those who are paying their mortgages will not be left to carry the can for those who are not.
The 12-month moratorium was a step forward. The mortgage interest supplement cost the State approximately â¬70 million. I am of the view that there is scope to increase that further, particularly when one considers that the figure for rent supplement is over â¬500 million. When people approach financial institutions or banks and outline the difficulties they are experiencing in terms of meeting their mortgage repayments, the banks are sending these individuals to the Department of Social Protection. The first port of call in such circumstances should be the banks, via the moratorium. It should not be the taxpayer, the Department of Social Protection or the HSE.
There is an immense amount of stress for people who cannot meet their mortgage repayments, especially those who find themselves in negative equity. That is why I welcome the motion. My constituency, Dublin North, has been the fastest growing area in the country during the past ten years. Many people have established their first homes there, either houses or apartments. Friends of mine are now literally stuck with one-bedroom apartments and they and their partners cannot start families. They have no way of getting out of the situation in which they find themselves. This gives rise not only to financial difficulties but also to social problems and it also causes great distress in areas.
We must consider the introduction of a mechanism in respect of this matter. This was covered to some degree in the context of the deferred interest aspect of the Cooney report. We must go further than what was suggested in the report, particularly in circumstances where people wish to trade up. Other jurisdictions have examined the possibility of also parking the negative equity portion. There will be no one-size-fits-all solution to this problem. I accept that those in the Labour Party appreciate that fact. I investigated the Scottish scheme when the motion was tabled and I am of the view that this scheme appears to have merit. However, the cost involved is crucial in the context of the amount the State can bear. If the State cannot bear it, then we must discover how much the banks can bear. In my view, the banks should be the first port of call.
There must be certainty in the market. I accept that these are bleak times but matters will approve in time. People need to know if property prices have hit bottom. Perhaps the Minister of State will indicate the position in that regard when he makes his contribution. Experts have different views on whether they have bottomed out. The Property Registration Authority of Ireland, PRAI, index of house prices was announced some months ago. It is extremely important that certainty be brought to the market and that an indication of the prices being achieved at sale be provided. Many experts state that there is value in the first-time buyers market.
Unless we come to grips with this matter soon, there could be another housing bubble in three to four years. A recent independent report carried out by an expert group indicated that there is only 18 months worth of housing stock remaining in the city and county of Dublin. Many young and older couples are stuck in apartments and cannot trade up to houses. When the banks return to a position of liquidity - this will happen in time and I hope it will be sooner rather than later - there will be a rush to purchase the houses to which I refer. How will we ensure that there will not be double-digit increases in house prices? How will we also ensure that people will not be obliged to chase after the game? Four years from now we could be dealing with a situation where this will be a serious problem in certain major urban centres. Building has stopped, and rightly so, but we must consider the position with regard to the type of existing housing stock that is in place.
On the moratorium and how it is being operated by the banks, unless the State can show that it can bear the burden of a debt forgiveness type of arrangement I would prefer if a deferral of interest scheme were introduced. The former type of arrangement would pose problems in the context of existing mortgage holders who are in a position to continue to pay their mortgages.
I wish to comment on the Housing Finance Agency, HFA, and the suggestion that, as with the Scottish scheme, the State might take an equity stake. As the Minister of State, Deputy Brian Hayes, is aware, the Minister of State at the Department of the Environment, Community and Local Government, Deputy Penrose, has effectively scrapped the construction of any new affordable housing. I have both anecdotal and real evidence that when people are seeking reductions in their mortgage repayments, the HFA is more difficult to deal with than many of the banks. Last month, it announced a 0.5% increase in its lending rate. There are those in affordable and shared-ownership housing schemes who are already struggling to meet their repayments. That is one aspect of the matter which is not specifically covered by the motion. That is fine but those to whom I refer are finding it extremely difficult to deal with the HFA and their local authorities. The banks are stuck with the 12-month moratorium and the attendant code of conduct and are obliged to try to assist mortgage holders by reducing their repayments, but that is not happening elsewhere.
I welcome the motion tabled by Senators Hayden and Moloney. It contains many good elements. What is the Government's view on the Cooney report? Is it the Labour Party's view that the report has been binned or is it the Government's opinion that there are aspects of the report which should be dealt with. I caution against blanket debt forgiveness. While the intentions behind such forgiveness are good, it might give rise to further difficulties in the future. In general terms my party welcomes the motion and takes it very seriously. In that context, a number of my colleagues intend to contribute to the debate on it. Will those on the Government side indicate, in the context of the timeframes involved, the steps that will be taken regarding the bringing forward of further initiatives in respect of stressed mortgages?
I welcome the motion. I welcome the fact that we are engaging in a good debate on this matter, which is giving rise to carnage among families throughout the country.
There are certain issues with which we must deal. The first of these relates to what constitutes a home and what constitutes a family home. In the context of the Celtic tiger - and to paraphrase a former US President - some people inhaled more than others. The 10% of households with mortgages that are in difficulty are second homes. Those who own them should never have been given loans in the first instance. In such circumstances, banks which lent recklessly should take on the deficit that exists.
I do not wish to rake over the ground covered by Senator Darragh O'Brien. However, it is not possible to ignore the circumstances in which we find ourselves. Our national debt is â¬100 billion and our deficit this year will be â¬18 billion. The recapitalisation of the banks cost â¬70 billion and â¬35 billion has been paid out on NAMA bonds. When these figures are added together, our overall debt is approaching that of Greece which is on the brink of defaulting on its loans.
My major concern with regard to debt forgiveness is that the taxpayer will be obliged to carry the can. If the latter occurs, will it be the straw that will break the camel's back? Will it push Ireland beyond Greece into the worst position financially within the EU and will that, in turn, prompt the markets to come after us and increase our yields?
There is a need to put a floor in place in respect of the housing market. The only entity which can do this is NAMA. There has been a great deal of discussion about NAMA on the Order of Business in this House. During the lifetime of the previous Government, as a member of the Committee of Public Accounts I had the opportunity to table questions to the most senior official from NAMA. The difficulty with that agency is that it is, in effect, a secret society. We do not have access to the information that is required and NAMA will not release it. As already stated, it is crucial that a floor be put in place in respect of the property market and the only body which can facilitate this is NAMA.
NAMA owns an alarming amount of housing stock at present. Until it decides to put in place a floor in the market by putting a substantial number of properties up for sale, we cannot move forward. When that floor is put in place, the housing sector will be in a position to advance. New mortgages on 11,000 homes were approved in 2010. A similar figure is expected for 2011. That is where we were with a population of more than 1 million fewer people in the 1970s. To put that into context, the numbers receiving mortgages are proportionately considerably less now than they were then.
We need to consider who should benefit if the State is to assist people who are in financial difficulty with their mortgages. Under no circumstances should the State step up for the people who participated - who inhaled fully as I described it. The taxpayer should not give any type of a helping hand to those who bought a 4,000 sq. ft. mansion and had a very modest income. The banks were reckless, but some individuals were also reckless. Under no circumstances should the State step up if somebody bought a large car and put it on the mortgage. We know of other people who were enticed by the banks to bring the family on a round-the-world trip. The State cannot help out those people. While that might sound cold or harsh, that is the reality.
Although we are stretched to the limit, the State must assist the people who have done it properly, and who bought their first homes at the peak of the housing market and now find it does not suit their family. It might have been a two-bedroom apartment of 700 sq. ft. to 800 sq. ft. originally occupied by one person and now has two people and perhaps children. The State must facilitate those people in some way. I am not saying I know for certain because I do not believe anybody knows for certain the right way to do it. However, we cannot facilitate the people who went beyond the beyonds. Those people have personal responsibility for what they did in that period. I feel sorry for them and it will be difficult. I do not know how many of those people are in the 10%. I would like to know where that information is.
The rent supplement is a misnomer because it really has nothing to do with rent. I have come across many landlords whose tenants are getting rent supplement but do not pass it on to the landlord. It is a social welfare payment that is called rent supplement and costs â¬500 million a year. NAMA is actively trying to offload properties. With that amount of rent supplement the State could use it better and take on board those properties and factor in people who will lose their properties. The State is purchasing nothing at this point. All activity in the local authorities via the Department is for leasing; there are no purchases. That is a mistake at this point when property prices are low. If we can take the opportunity to take over properties that are low in price, we should do so.
I conclude by saying that some people need to be helped and others should not.
As the Leader of the Opposition has said, we are supporting the motion on the basis that this is a very important issue. I deeply regret Senator Hayden's comments at the beginning, because as a member of the previous Seanad, I pioneered this issue in the entire Oireachtas with the establishment of the Prevention of Family Home Repossessions Group and its website www.saveyourhome.ie. Some Members from the Senator's party contacted me for a briefing on the issue today. I can assure her that this is an issue that is most important to those on this side of the House.
In order to reflect a number of the key aspirations and goals of the Prevention of Family Home Repossessions Group, which was established back in March 2009 before any of the groups we read about today, it is our intention to introduce four Bills in the coming months, the first of which will be initiated in this House to show that this party is also the reformist party in the context of the Seanad following on from the very good motion and debate we had on the issue in recent weeks. If Senator Hayden checks the record of the House from the last Seanad, she will see I regard this as the biggest challenge. There can be no more important consideration than the protection of the family and in that context the protection of the family home. It is the single most important challenge for the Government to meet as it was for the previous Government. When the group was established in March 2009, we presented our proposals - which I shall outline briefly in a moment - to the former Minister, the late Brian Lenihan. He followed on by establishing the expert group on mortgage arrears and personal debt chaired by Mr. Hugh Cooney. The extent of its recommendations is disappointing and the legislation we will introduce will go a step further.
We also managed to get cross-party agreement through the then Joint Committee on Finance and the Public Service for the group's proposals in trying to give some element of security and protection to the people. Of course there have been codes of conduct, mortgage arrears resolution processes and others, all of which are welcome, and many of the financial institutions have shown some restraint. Having said that nothing exists on a statutory basis to give the kind of protection families need and deserve. I cannot emphasise enough the absolute commitment of each individual from all parties in this House to this issue in the last Seanad. In the last Seanad Senator Healy Eames made some proposals as did others.
In her opening remarks Senator Hayden rightly said she did not wish to be political, in which case she should not be. There is no need to say that Fianna FÃ¡il is connected to developers or anything like that. I, as a person elected to these Houses, began this process, not to steal credit from Senator Hayden, her organisation or her party, but to show my responsibility as a citizen of this country reflecting that this is the most important issue. When the legislation is introduced in coming weeks, I look forward to all Members of this House putting their best foot forward to ensure the legislation passes, not only as the first all-party agreed Bill, but also as the first legislation that gives real protection to the family home and families throughout the country, who, as the Senator has so admirably pointed out, are under so much pressure today.
The core of our proposals and those of the Prevention of Family Home Repossessions Group is effectively to amend the Enforcement of Court Orders Act to prohibit the granting of a court order for the repossession of a primary family residence without: an independent assessment of existing repayment capacity being outlined to the court; independent analysis for the court of the original underwriting and application quality; and a range of alternatives such as those in the code of conduct but put on a statutory basis as well as extending mortgages for up to 20 years. While those are examples of our proposals, there is obviously more in it. As the Leader has pointed out there is absolutely commitment from every Member I have known in these Houses - certainly in the previous Seanad and I hope in this one. I hope we will be in agreement. When the time comes Senator Hayden should put her best foot forward and support the legislation to give the families the support they require.
I also forgive Senator Hayden because she was probably not aware of a report I co-authored with the former Deputy, Olwyn Enright, in the Joint Committee on Social Protection, where the Fianna FÃ¡il Party did considerable work on this issue. One of the original aims of Fianna FÃ¡il was to establish as many families as practicable on the land. While that is now an unfashionable aim, the corollary is that those families have homes. The family home is crucial to this party as it is to every party and it is not acceptable to tar us with that brush.
As has been said, the report of the group chaired by Mr. Hugh Cooney was disappointing. There are many possible solutions, a number of which are very worthy, including the mortgage to rent and the mortgage to shared equity schemes in Scotland. They are referred to in the report I drafted with he former Deputy, Olwyn Enright, but they have a cost to the State. However, why should the State bear this enormous cost? The banks should bear this cost and there are solutions that are cost free to the banks and work for everybody. In the course of compiling my report for the joint committee, the chief executive of a financial institution was able to outline a win-win situation in which the banks and families could gain. We cannot just add to value of the bailout for the banks, we must also consider the other side of the equation and the cost. It is all right to say we have good news but we must determine the cost and where we will get the money. That is the most appropriate approach.
The previous Government kept the rate of repossession at a global low. The rate of repossession in Ireland is much lower than that in any other country with an equivalent property bubble - that is a fact. The Minister is agreeing with me now, yet, when Fine Gael and the Labour Party were in opposition, they put the fear of God into families day in, day out, implying that their houses would be repossessed. With the codes of conduct, which are not statutory, as Senator MacSharry rightly pointed out, the rate of repossession is low. This is on the basis of action we took. We must go a step further, however, as the motion calls for. That is why we are willing to support the motion but I fundamentally believe the cost should not be incurred by the State but by the banks. There are solutions that are cost free or of as low a cost as possible.
We should not examine the history of what has happened but what we can do about it practically. As with any problem, sitting down with the person affected is a big step. Organisations such as MABS should be given more support or resources. The last place a young couple with mortgage difficulties wants to go is back to the bank that gave them the money in the first instance because the bank's first duty is to itself and the shareholders. The bank will try to screw the couple again in some other way by getting the last penny from them.
The motion deals with a solution based on the Scottish model. I appreciate the Opposition's point about a cost to the State but ultimately, the State will have to pick up some part of the cost because we do not have a choice. If interest rates increased unilaterally throughout Europe, an increase of 2% or 3% would knock most people over the edge. We should, therefore, give more resources to MABS and get people talking to the banks through an intermediary that can help them get over their difficulties.
Many difficulties are caused by people having large personal debts other than mortgages, such as credit card debts, car loans or credit union loans. The combined value of such debts can amount to twice the value of the mortgage. We must consider both types of debts together. If many mortgage holders paid off their personal debts, their mortgages would not be a problem.
Negative equity is never a problem unless one needs to sell one's house. Many people have no notion of moving in this climate. If they could repay their mortgages, they would be quite happy. What is happening, however, is that they are being dragged down by other personal debts, such as car loans, credit card loans and other term loans.
We must not allow people to get into a position where they feel their houses could be repossessed. This is the ultimate fear for any family. No parent wants to tell his children that they must leave their home because he cannot afford to pay the mortgage. While members of the family may be working hard and still have a job, they may not be able to keep their house. We must consider ways of helping couples psychologically so that they will know there is somebody to help them in their distress. We all know the clichÃ©, "A problem shared is a problem halved". We must be both practical and compassionate when we speak to people in the position I have described.
I endorse the views of my party colleagues, who have all presented fair and reasonable arguments for addressing the current crisis affecting up to 200,000 homeowners. As we are all very aware in this House, people are under enormous pressure owing to their mortgages, unemployment and, in many cases, the Revenue Commissioners. However, people in financial difficulty with their homes usually have the same difficulty with their personal loans, credit cards, car loans, etc.
I want to make two related points on the motion that I believe should be considered. First, I propose that we legislate as soon as possible to address the findings in the recent paper by the Law Reform Commission on personal debt management and debt enforcement. In particular, I would like to see an examinership-style relief being made available to individuals. This relief is available to limited companies experiencing short-term problems meeting their debts as they fall due. Generally they are afforded court protection for up to 100 days from their creditors pending a decision of the courts with regard to their long-term financial viability. Individuals should be afforded almost a year's protection, if at all possible. We must act as this is a matter of urgency. There are many innovative and skilled people who are currently struggling to make ends meet in this crisis and they will not survive. Legislation of this nature needs to be drafted and implemented as soon as is reasonably practicable.
The taxpayers of Ireland have bailed out both AIB and Bank of Ireland to the tune of billions of euro, yet these are the same people who are pushed to the brink by these institutions when their mortgages are in arrears. If we are in arrears, we are threatened with repossession. If our property is repossessed, it ends up on the market for sale, generally at a lower price than the amount owed thereon. If the market is aware that the property is repossessed, the property will attract a lower price. We should stop this practice and consider ways of helping people who are in financial difficulty. I propose that both the aforementioned banks consider the possibility of remortgaging their properties at today's market prices. This would be a win-win situation as it would ease the burden for the mortgagor and eliminate bad debt from the banks' balance sheets and crystallise their losses. We need to take such steps sooner rather than later because there are people who do not have time on their side.
Sinn FÃ©in welcomes this motion. Every Member recognises the problems facing homeowners today. Circumstances have deteriorated further since the motion was published. The Central Statistics Office reported that house prices continued to fall this month by 1.2%, by comparison with 1% in April. There was a fall of 12.2% over the year. There seems to be no end to the decline in property prices and to increases in negative equity. The ESRI suggested some time ago the properties bought in and around the peak of the boom will realise their mortgage values by 2030, but this is now seriously open to question given that a generation has already been condemned to negative equity.
Of immediate concern is the number of families facing mortgage distress. The latest figures indicate that 86,271 mortgage holders are classified as being in serious distress. This includes defaulted and re-negotiated mortgages. Therefore, in excess of 11% of all mortgage holders are in difficulty. This represents an increase of 6,000 in the first three months of 2011, which implies 500 families are falling into serious mortgage distress every week. Some 500 additional families, therefore, have been forced to default on mortgage payments to pay for food, heat and other expenses. This is a choice we should not have to place at the door of citizens.
While the number experiencing distress is increasing, the crisis is deepening. Some 49,609 mortgages are in arrears for more than 12 weeks and, of these, 35,000 have been in arrears for more than 24 weeks. As other contributors have stated, we must look beyond these figures and at the reality experienced by the individuals, families and communities behind them. We need to consider the plight of individuals and families suffering within communities who took out loans in good faith and with the support of the Government. Families are now struggling to pay back inflated mortgages for properties worth only a faction of those values. This is a national emergency and the lack of action to date is a disgrace.
If we compare the circumstances of mortgage holders to those banks and unsecured bondholders, we will note a stark contrast. Four weeks ago, with Government consent, AIB paid â¬200 million to unsecured, unguaranteed bondholders, a sum well in excess of that set aside for job creation. Last week in New York, the Minister for Finance, Deputy Michael Noonan, threw some shapes in respect of the bondholders of Anglo Irish Bank and Irish Nationwide. We welcome this initiative and hope burden-sharing will become a reality and not just remain the subject of rhetoric. When the Minister returned to Dublin a few days later, he and the Taoiseach ruled out of a similar approach for other banks.
The value of unsecured, unguaranteed bonds in the other banks is â¬13 billion. The current value of all distressed mortgages is estimated to be â¬12.5 billion. The value of the unsecured, unguaranteed bonds could completely clear the mortgages of the 86,000 families in distress. Such is the scale of the money going to the bondholders. While this money is been handed over and the banks' debts are being honoured, negative equity mounts and the number of families in mortgage distress increases. We need to ensure the Government's definition of burden sharing does not mean rewarding the bankers or banks while a generation is condemned to debt. To many families throughout the State, the priorities of the Government come across as being the bondholders and not the householders.
We have to examine the Government's capacity to end this madness and bring some relief to families facing real distress. The approach taken to date has been to kick the problem into the future, for example, through promoting the rescheduling of debt whether through moratoria or interest-only payment schemes. While this does provide some short-term relief for those in mortgage distress, it will not provide a long-term solution. We must reflect again that this issue is not a housing problem. It has wider implications for the economy and society. It impacts on consumer spending and it puts growth at risk.
There is an opinion that the Government is continuing the failed pretence that this debt burden is sustainable while it is introducing additional costs on families and targeting the wages of the lower paid. We must consider this against the backdrop of the ECB interest rate hikes coming next month. We need to change this. We need to break the cycle of debt, austerity, reduced growth and increased mortgage distress.
Sinn FÃ©in supports the concerns of the proposers of the motion but it falls short in some areas. It proposes that the Government, comprising Fine Gael and the Labour Party, should consider doing something on the issue but time is too short for the 500 new families moving into mortgage distress every week. We need the Government parties to commit to acting. Similar to Fianna FÃ¡il, Sinn FÃ©in will launch proposals for tackling mortgage distress.
We need further public policy debate on this issue to explore seriously negotiated loss-sharing involving mortgage holders, mortgage lenders and, crucially, wholesale funding markets. This will require legislation and I urge the Government to bring forward proposals prior to the summer recess to address this problem. Failure to act now will mean that thousands more families will fall into arrears and possibly lose their homes. The broader costs to the economy will skyrocket and action needs to be taken. The sad reality is that the choice being faced by some families is between food and a roof over their heads and this is not a choice we should put before the people of the State.
I welcome the Minister of State, Deputy Brian Hayes, to the House. This is a very important issue. In Ireland, speaking about houses and land is close to everybody's heart. No one depicted better than John B Keane in "The Field" how important a field is to a person. Considering this, how much more important is one's house and home? I differentiate between house and home, as has the motion. All of the phrases in the motion depict "home owners" and not "property owners" or "speculative borrowers", who may own more than one home. We must concentrate on the motion as being about home owners in distress.
I listened to Senator MacSharry and I know by the way he spoke that he feels very strongly about this. None of us can claim we are not sorry for home owners who are in distress. Anybody with a heart must be sorry for them. However, we must ensure any regulations introduced will help home owners in distress but will also consider the bigger picture, as must the Government, in the parameters of the finance available.
I will now speak about the Scottish scheme being implemented, which is akin to schemes here. Senator Hayden mentioned the shared ownership scheme and if this scheme were extended to people in real distress, it would be a similar type of scheme. It is not only the Scottish people who thought of doing this; we in Ireland have the shared ownership scheme. The motion is asking the Government to propose to examine ways of dealing with the issue. It does not state we must do A, B or C immediately. It is only by collective thought, innovative thinking and examining the matter further that we will come up with the correct proposals. Perhaps the Scottish shared ownership scheme would not suit the Irish system. We might find a flaw or that Ireland is too different.
Under the RAS scheme, a local authority takes a house from a person and rents it at a defined rent for a certain amount of time. This scheme could be extended. There are innovative ways we could examine helping distressed mortgage holders. However, everything must be examined in the context of the finance available.
The Scottish scheme takes into consideration the financial capital of the person. Senators Hayden and others quoted statistics on how many home owners were in distress. However, what have not been quoted are statistics on financial capital. Senator D'Arcy spoke about people in two bedroom houses not wanting to see people who own castles being bailed out. Correct me if I am wrong, but we do not have statistics on the financial capital of the people in real distress. They may be in distress with regard to their home ownership, but they may have a Mercedes down the road which they could get rid of. There is something in the financial capital aspect which must definitely be taken into consideration. Debt forgiveness and home ownership versus property ownership and the option to trade down must be taken into consideration.
The programme for Government lists many matters being examined at present and perhaps the Minister of State will speak about them, but at the risk he will not I want to put them on the record of the House. These matters including increasing the length of the moratorium on the repossession of modest family homes where a family makes an honest effort to pay the mortgage, and that fast-tracking personal bankruptcy reform is needed to bring it into line with best international practice such as introducing a flexible discharge period for honest bankrupts. Senator Higgins referred to something similar.
Another measure is converting the Money Advice and Budgeting Service, MABS, into a strengthened personal debt management agency with strong legal powers. We all know the great work that MABS does and this is a very welcome proposal. The agency would support families making an honest effort to deal with their debts, including non-mortgage debt, and providing protection from creditors where appropriate so they have time to sort out their affairs. Often, people given extra time can sort out their affairs. The measures also include ensuring the mortgage interest to supplement supports families.
The programme for Government includes initiatives, and I will give Fianna FÃ¡il credit for what it did in the past, which was mentioned by Senator MacSharry. Schemes are being examined and I ask the Minister of State to elaborate on personal debt, support for those who need assistance, mortgage interest supplement, MABS, the code of conduct for mortgage relief - which is not on a statutory basis but could be, and it is hoped it would not be needed for very long - lenders being prohibited from moving from existing tracker mortgages, borrowers in arrears who co-operate and harassment of borrowers through unsolicited communications being outlawed.
The Cathaoirleach said I had one minute.
I welcome the opportunity to speak on this very important issue, particularly for many families throughout the country. I thank Senator Keane for acknowledging the work done by the previous Government on this issue. The Minister of State appeared to accept that the introduction of a moratorium on repossessions has meant only a small number of repossessions have been carried out. This has given policymakers a breathing space to work out a better long-term framework, while offering an immediate response to widespread concerns that thousands of people would lose their homes overnight. I welcome the proposals in the motion in this regard.
The previous Government also established an expert group on mortgage arrears and personal debt. The group has provided policymakers with a range of options which have worked internationally. I am pleased to note the interest shown in this matter by Senators on all sides. The issue before us is not party political. All Senators will know families who are under pressure and will have family members, as I do, who have lost their jobs or had difficulty paying their mortgage. As Senators Byrne and MacSharry noted, it would be great if legislation proposed by the Fianna FÃ¡il Party was to secure cross-party support. If this Bill were to become the first legislation to secure cross-party support, it would send out a signal that Senators are moving beyond party politics and working together to address the issues affecting the daily lives of citizens.
On a related issue, I am concerned about the substantial level of waste associated with the mortgage interest supplement. Under this social welfare payment, the State subsidises interest payments if a person cannot pay his or her mortgage. Paying interest on social welfare recipients' mortgages to banks is not a good long-term solution. The scheme, which was introduced when few people had difficulties paying their mortgage, has mushroomed in recent years. I ask the Government to introduce a new mechanism requiring banks to offer mortgage holders alternatives, including payment holidays. The mortgage interest supplement is not an efficient use of taxpayers' money.
A problem faced by people struggling to meet their mortgage repayments has been brought to my attention. Families in arrears of â¬30,000 or â¬40,000 face eviction and the loss of their home. While the numbers involved are relatively small - the moratorium, as I noted, has been effective - the families in question, particularly those with children, are under major pressure. I understand some local authorities will not permit people in such circumstances to apply for social housing on the basis that they are private homeowners, albeit in a notional respect given that they have an unpaid and unpayable mortgage. We must have coherence between national and local authority policies to ensure no one falls through the gaps as a result of poorly thought out regulations at local level which do not reflect the great work being done at national level. I ask the Minister of State to consider the points I have raised.
I wish to share time with Senator John Kelly.
I thank the Minister of State, Deputy Brian Hayes, for attending this debate to listen to our earnest views on this important issue. I am grateful to colleagues on all sides for offering cross-party support for the motion and adopting non-partisan positions on what is a serious matter.
While the longest day of the year fell this week, one needs to spend time on the dole if one wants to know how long days feel. I do not know if any of the Senators present had the misfortune and experienced the indignity of spending time on the dole. Having spent the past three years unemployed, I know all about long days.
Three years ago, I wrote that the fear of losing one's home is much worse than the shock of losing one's job. The motion does not propose debt forgiveness for speculators, landlords or people who bought properties off plans with a view to making a quick profit by selling them on. It refers specifically to family homes.
One hears a great deal about gravy trains and people ripping off the social welfare system. While I do not deny that some people do not have any scruples in this regard, my personal experience of the social welfare system was that I received â¬70.80 per week for 18 months prior to entering the Seanad because my wife was working a three-day week. This sum does not suggest I was on a gravy train, nor would one be able to pay much of a mortgage with it. People find themselves unemployed not through any fault of their own but because they lose their jobs. I believe the number of people who are unemployed is much higher than 450,000 because this figure does not take account of many self-employed people who have closed their businesses or shops and did not join the live register.
I commend Senator Hayden for introducing the motion. Forbearance is important but it is not a solution. While I accept Senator Darragh O'Brien's point that it is important to contact one's bank when one is in financial trouble, people who find themselves in difficulty are aware that their local or regional bank manager will not have any say in the matter. They will be referred instead to a head office in Dublin where no one will answer their telephone calls. They will be treated as a number and offered a six-month arrangement under which they will pay interest only on their mortgage. This is not a solution because without a structured and considered response the train will hit the buffers at the end of the six-month period.
The issue before us is not about the European Union, International Monetary Fund or macroeconomics but about thousands of personal tragedies which are unfolding nationwide each week. I will not take up Senators' time by cataloguing the details of various cases other than to note than on Monday last a woman in Portlaoise informed me that she had deferred buying a cheap roll of new wallpaper for her sitting room because she was not sure if she would still be living in her home at the end of the summer. Her partner had taken his life in August last year and she did not have any means to pay her mortgage. For many people there is a fate worse than death, namely, living in perpetual debt without seeing any light at the end of the tunnel.
Many individuals are under severe pressure and do not have any means to cope. This motion is a genuine attempt to provide a structured, fair and sustainable solution to a major problem. One glaring omission in the debate, both inside and outside the Oireachtas, has been the failure of the banking industry to produce a single, positive or constructive proposal. Despite the many consultants, executives and economists employed in banking, the sector has not produced a single model to tackle the problem. They are obsessed with covering their bad decisions. A high political price has been paid for the problems that have occurred and shareholders and investors have also taken it in the neck. The only group that has not been held to account are the chief executives and senior officials of the banks. Does the Minister of State believe it is acceptable that those responsible for the collapse of the banks, which have effectively been nationalised, have not been held accountable? I favour the proposal made by Mr. Mike Soden, a member of the Central Bank commission, that bank directors, governors or senior executives who were involved in the banking collapse should not be in their posts.
It is remarkable that Bank of Ireland lent more money between 2003 and 2008 than in the entire previous century.
In that case, I will conclude my contribution. The motion is a genuine, non-partisan effort to find a solution, part of which must be that those in charge of the banks, who were partly responsible for causing the problem, should not be left in their posts. I ask the Minister of State to address this point.
I welcome the Minister of State to the House. I will briefly discuss the steps we should take to address reckless lending and borrowing. Prior to becoming a Senator I was employed as a community welfare officer. I dealt with many of these cases, including one which involved a young man who had borrowed â¬187,000 from one institution. Having paid his mortgage for a couple of years, he decided, on the basis that money was easily available, to pay off his van loan and three credit card debts and pay â¬30,000 for his wedding. He went back to another institution and it loaned him â¬250,000. In his application for this amount, which I have seen, he clearly stated his income from a job in the construction sector was â¬2,500 per month. He gave no evidence of it and there was no evidence on file; it was all verbal. The repayment for that mortgage over 40 years was â¬2,600 per month. He subsequently got married and now has children. His wife is not working and he is on social welfare. There is no way this man will ever be able to repay this mortgage.
I blame the institution, although some people could say it is also reckless borrowing. If I make an application for a job, somebody will examine my curriculum vitae and say either "Yes" or "No". The same applies when one seeks to borrow this amount of money. One might be reckless in seeking it but the bank should be responsible and clearly state that one is not able to repay it and refuse the loan. The banks did not do that. Where similar cases to the one I have described arise I propose that the bank be penalised for it. In this case the bank gave the man an extra â¬63,000, a mortgage of 140%. The banks should be penalised, not the people. The people are not responsible for it, just the banks.
Although the Money Advice and Budgeting Service, MABS, does a great job, it is dealing with the reckless institutions that gave out the money in the first place, and it can only go so far in that regard. I also do not believe the Financial Regulator can deal with this issue. There was talk about establishing a debt management agency. I believe it should be neutral and adjudicate on issues such as this. Where it clearly sees the situation I have described today, the banks should pay the price for it. Abraham Lincoln once said that one should not expect the people who caused the problem to be the ones to fix it, because they would not. We need to establish a separate agency to deal with these situations.
I am grateful for the opportunity to participate in this important debate and I congratulate the Labour Party Senators for putting down the motion and instigating it. Nobody has a fount of exclusive wisdom on this issue. It is an enormous problem. Thankfully, the problem is still small in terms of repossessions in the last number of months but it will undoubtedly be with us for some time to come. What this Oireachtas and committees of both Houses must do is work with the Government on a cross-party basis to try to address the problem, to learn from international best practice and examine what has worked in other countries. It is not easy or simple; there is no magic bullet. Anybody who pretends there is a cost-free solution to this issue is delusional, given the current position of the public finances.
If we are honest, the primary task of the Government in its first 100 days in office was to try to get the banking system working again and to generate some confidence in the country. We need a banking system that works to boost the domestic economy, and the big decisions taken by the Government in the first 100 days related to the bank restructuring plan, the jobs initiative and the comprehensive spending review being conducted by the Minister, Deputy Brendan Howlin.
However, I assure Senators that the Government is actively examining the issue before the House this evening. We accept that a package of measures must be introduced and that a variety of solutions is required. There is no single solution that fits all situations. We are anxious to listen to and work with colleagues on a means of bringing forward a workable range of solutions to meet the needs that exist within the depressed housing market. As Senator Keane said, the programme for Government puts forward a number of proposals but they are by no means exclusive or exhaustive. We are open to suggestions from all sides. We want to work with people to ensure that solutions can be found.
One of the key parts of the banks restructuring plan was to demand certain conditions of the banks, which we have recapitalised again to the extent that they are now more capitalised than Swiss banks. One of those conditions is to bring forward plans for more cost-effective and smaller banks, but banks that will be able to control their costs. If we do that, we will be in a better position to seek from those banks a much greater focus on mortgage protection for those people who are in difficulty at present.
I fully agree with the comments made by Senator Whelan. The banking sector was absolutely responsible, with others, for getting over 400,000 people into their current mess. Traditional banking methods were thrown out the window. The get rich quick scheme was the order of the day. Directors and senior members of the banks never went near the branches to meet ordinary people. They were more interested in and obsessed with developing their non-core business than in traditional banking. What we must do with the new banking system is demand that the banks get back to doing the job they are supposed to do and get down and dirty with people in their customer base, like any other business. The day of the high and mighty attitude of people who played roulette for all kinds of property speculation purposes is over.
One of the key parts of the Minister, Deputy Noonan's, bank restructuring plan was to ensure that the directors who were in place since 2008 are no longer in place. My understanding, and I hope I am not incorrect in it, is that all those people are now gone. It is an absolute prerequisite that those who were responsible for the crisis cannot be part of a solution. It was caused by their reckless behaviour. I also fully agree with the Senator that a fundamental culture change within the banks is required. The banks have given a commitment to put â¬10 billion per year into the Irish domestic economy for lending purposes to help people buy houses and so forth and to help small and medium enterprises, SMEs, to recover.
The new Government has a political imperative to ensure that this lending takes place. We must get reports on a monthly, sectoral and regional basis to find out if the banks have delivered on their commitment. The bank restructuring plan was a type of quantative easing through the banking system, whereby the banks would be stuffed with cash and the cash must be used for the purpose of recovering the economy by getting it into circulation. I am not convinced that is happening, and I suspect that is the collective view across the House. It is the task of the Government, through the Department of Finance, to take a much firmer view about lending practices, particularly for those viable businesses which have a chance to get off the ground and create the jobs we need.
Debt forgiveness is difficult; there is no easy solution. This issue was examined by the Cooney report and it did not recommend in favour of it. The dilemma can be seen in the example of the United States. Most US mortgages are on a non-recourse basis, that is, people simply hand back the key and walk away, after huge subsidisation by the state. One of the reasons the US is in its current appalling deficit position, which is no different from what we face, is the massive subsidisation of the housing market brought about by successive US Administrations. The cost of this is colossal. In circumstances where we are trying to balance the books and reach the 3% deficit target by 2015 it will be difficult, but we will examine all the issues.
Members raised the issue of the credit history system; I believe Senator O'Brien first raised it. A report currently being drafted for the Minister for Finance in respect of establishing a credit assessment systems registry, which will improve information available to the banks, will be available by the end of June. That will give a much fuller picture about people's indebtedness, because this is not just about one's house but also personal and credit card debt, and all that is associated with it.
An issue was raised about the code of conduct, which was a product of the Cooney report.
Lenders are required to comply with the code as a matter of law. It was introduced on a non-statutory basis but I understand that from 30 June it is effectively on a statutory basis and they must comply with it. They were given a six month period of grace from 1 January until 30 June, so in eight days it is statutory requirement or a matter of law-----
That is a fair point. However, it is the Government's firm view that there is no reason the code should not be fully endorsed and operational by 30 June. If it is not, we will monitor it very closely.
We all have a responsibility to ensure that people can stay in their homes and to work through a viable solution to ensure that the family home remains intact. Senators will be aware that one of the key commitments in the programme for Government is to examine the introduction of a two year moratorium on repossessions of modest family homes, where a family makes an honest effort to pay their mortgage.
The motion refers to the large number of homeowners who are in negative equity. In any policy response it is important that a distinction be made between householders who are in a position to meet their mortgage repayments and those who at present are not. The ESRI, in a 2009 paper on negative equity in the Irish housing market, noted at the outset that many of those in negative equity would be unaffected and would continue to pay their mortgage without difficulty. The key issue is the absolute necessity to ensure that the 1.8 million people currently at work, who can continue to pay their mortgage, remain at work. That would be a priority for all sides of the House.
The supports available to assist people in arrears with their mortgage repayments in respect of their principal private residence can be grouped under four headings. The first is the mortgage Interest supplement scheme, second is the availability of advice through the Money Advice and Budgeting Service, third is the protection that is given to mortgage holders under the Central Bank's code of conduct on mortgage arrears and the fourth is the deferred interest scheme that lenders representing the majority of the market have promised to make available. The deferred mortgage interest scheme arose from the Cooney report. It is a sensible idea, that people should be asked to park their mortgage interest payments for a period of time if they can afford to do that. The fundamental question is whether that is happening, and I am not convinced it is. Is that option being made available by the banking sector to people who find themselves in arrears? It is certainly a proposal that has merit and can work. Whether it is being put in place by the banking system is a matter for active consideration by the Government.
The revised code that has been put in place includes more detailed requirements for lenders when dealing with borrowers' arrears and financial difficulties. The most significant changes in the revised code include: a provision that the code will now apply to borrowers who notify their lenders that they are facing financial difficulties and may be at risk of mortgage arrears; the lenders must establish a mortgage arrears resolution process, known as a "MARP" and use this framework when dealing with arrears and pre-arrears customers; lenders must ensure that communications with borrowers are presented in a clear and consumer-friendly manner - that will be a first - and must make available to borrowers an information booklet which provides details on the mortgage arrears resolution process; lenders cannot initiate more than three unsolicited communications with a borrower. I have heard about cases in my constituency involving almost manic calls from lenders, putting pressure on people. The code is clear that the lender cannot do that, and people must be made aware of their rights under the code, given that the banks have all signed up to the code.
Furthermore, under the code, a lender must not require a borrower to change from an existing tracker mortgage to another mortgage type, as part of an alternative arrangement offered to the borrower in arrears; lenders are required to set up an arrears support unit to assess arrears and pre-arrears cases; and borrowers can make an appeal regarding the decision of the arrears support unit. The code is in place and all the major banks have signed up to it and, from 30 June, it is a statutory code. We must inform people that they have rights and ensure they know that these are rights on which they can stand. That is important.
Finally, I turn to the issue raised by Senator Hayden and others, "mortgage to rent" schemes and "debt for equity" schemes. The mortgage arrears and personal debt group, or the expert Cooney group, considered the potential role of both schemes in an Irish context. The group noted that mortgage to rent schemes operating in the UK are based on very different funding models than those which would pertain in Ireland. It concluded that the current budgetary and fiscal environment and existing levels of social housing need meant that the introduction of an Exchequer funded mortgage to rent scheme would not be feasible. However, it also said that a mortgage to rent scheme could be worthy of further consideration were the general fiscal position and conditions in funding markets to improve significantly.
The group also considered the Government debt-for-equity schemes that operate in Scotland and England. It noted that these schemes were generally dependent on the owner having a loan not exceeding 75% of the value of the home. I wonder if that would apply in the negative equity cases we face. The group concluded that such schemes would have limited application in Ireland where a large number of mortgages are in negative equity. The Cooney report, which some colleagues have referred to in disappointing terms, was the first report on this matter.
The Government takes this issue very seriously. It is a matter of huge concern that so many people now find themselves in negative equity. We have a responsibility to work with Parliament and its committees to ensure that practical solutions ensue. All of these matters are under active consideration by the Government. The points that have been made by all sides in this debate are valid and will be considered in detail by the Department of Finance. When a new package of measures is produced and approved by the Government we will have been cognisant of the views of Members of this House in terms of trying to work out the solutions.
I thank the Senators for putting down this motion. It has generated two useful hours of debate. We are conscious of the problem that exists and the necessity to bring forward better solutions than those currently available.
I apologise to my colleagues for being absent from the Chamber for the last few hours. We were meeting a visiting delegation of cancer researchers from Harvard who are trying to develop collaborations which will be to the advantage of our country.
As I mentioned a few nights ago in a different context, I strongly believe one of the most frustrating things being reported to me regularly by friends and colleagues, including people in the accounting profession, is the fact that a large number of individuals in this country are either under a groaning debt of negative equity or have their life choices severely curtailed by the collapse in the value of the real estate market. People are making decisions about their children's education, changing jobs and their willingness to invest in businesses based on the fact that their core and most valuable asset has been so devalued.
At the same time, many people were prudent and followed the Government's advice, that the right time to save for a rainy day is when the sun is shining, by putting money away in Government-approved pension schemes, to the maximum allowable amount in some cases and lesser allowable amounts in others. This tied up what would have been their savings, the money they would have used to pay down debt or what they would have used to make other entrepreneurial choices. They cannot access this money due to current pension law.
Everybody understands why pension law was formulated in that way. It was to provide people with a good pension, give them an appropriate tax incentive for it and to ensure that people were within the tax net. However, circumstances have clearly changed. We are facing an emergency whose scope and scale nobody anticipated five or six years ago. I urge the Minister to consider the possibility of amending current pension law to allow those who are under burdens of debt but who have substantial amounts of money saved in pension funds to get premature access to these funds, with the appropriate tax payment. This would give the Government revenue now rather than at some indefinite time in the future when pensions mature. It would enable individuals to get out from under the crushing burden of personal debt and it would also restore liquidity to the banks. There would be significant social and financial benefits. The amount that could be realised might be considerable given that privately held Irish pension fund wealth is valued at approximately â¬100 billion, which equates to between â¬20,000 and â¬25,000 for every citizen. Even if a small proportion was brought into circulation and tax paid on it, etc., it could have a beneficial effect.
Will the Minister of State also consider a more speculative idea, which is to put incentives in place that would encourage pension fund managers to reinvest some of the money, 99% of which is held outside the State, locally? One wonders whether a repatriation bank could be set up. We keep hearing of the need for short-term lending and small loans for small businesses both to enable them to survive given their current debts and to fund the entrepreneurial ideas and expansions, which might help to restore our economy. Some 5% or 10% of the â¬100 billion held outside the State could be reinvested in a guaranteed local bank, which followed strict old fashioned bank rules - not the kind that led us into such ruin - and which was specifically set up with the goal of providing prudent, cautious loans to people of proven creditworthiness who have ideas which require funding; this might be an additional net source of income in our economy. I thank the Minister of State for his attention.
I welcome the Minister of State. I have placed a moratorium on myself to prevent me from criticising Fianna FÃ¡il for the time being but I will find it even more difficult to stick by that if I do not hear a less belligerent contribution from Senator Power. She has made one sensible comment, in that nobody has a monopoly on outrage or sympathy in regard to this issue. It is probably all the more acute in Ireland given the cultural attachment people have to property. It makes the problem more acute than in other countries.
Some people cannot pay their debts while others will not. It is important to recognise, as the Law Reform Commission has, that these may not be two distinct groups. There may be a dichotomy between both positions where people juggle their personal finances to offset one debt against another. Those who cannot pay their debts require and deserve the support of the State. It is strange that only yesterday the energy regulator announced that he would make provision to ensure energy suppliers could refuse to take on customers from another supplier who are carrying debts of more than â¬250. While I am not surprised by the decision, I am surprised that he felt it necessary to make such a decision. That surely indicates something happening in many households that might not be obvious. Heat, light and fuel are basic needs but people are clearly coming under significant pressure if the regulator has found it necessary to make such a statement.
The previous Administration faced paralysis in this regard and I accept the moratorium was in put in place but the current Administration also seems to be a little hesitant in this regard. The Minister of State explained that this is a complex issue, which I accept, and that there is a host of crises facing us but it is critical that we get down to business and sort this out once and for all. Nobody is saying this will be easy. A number of commentators oppose debt forgiveness or any form of relief, which has the whiff of moral hazard about it but the cold logic of moral hazard can equally be applied to debt forgiveness. There is confusion about the pressures of indebtedness and the issue of negative equity but they are separate issues.
The moratorium on repossessions and the involvement of MABS were a good start but they were only a start and it is simplistic to look on these initiatives as solutions. The balance sheets of the banks need to be examined because that is the crux of the problem. In our rush to protect them, we may have missed the social implications at play for a great number of people. Losses must be crystallised on the banks' balance sheets sooner rather than later because their denial of the problem and the failure to do this has led to a catastrophic loss of confidence in our economy. The sooner the losses are crystallised, the sooner we can move on. It will not be simple to do this but it will have to be done to restore confidence in the country. We need to face up to this reality before we can move on.
This will be unpleasant for the banks and the State and it will be unpopular among many sectors of society and the establishment. However, there are many different models; for example, Senator Hayden referred to the Scottish model. The American model of debt forgiveness and personal bankruptcy is interesting, given this is the home of capitalism and is reddest in tooth and claw. The US has a lenient system of personal debt forgiveness. The Mortgage Forgiveness Debt Relief Act 2007 and debt cancellation precludes income from being taken to discharge bankruptcy on the principal residence only.
However, there are many issues, to which there is no single or simple answer. A multitude of solutions will be needed. Reference was made to a shared equity scheme, with participation by the State or the banks or local authorities. Debt forgiveness has to be factored in but how that is structured will require a great deal of thought. I commend Senator Crown on his interesting contribution. As Senator Power said, we have gotten off to a good start in this debate because a cross-party approach to the issue is needed. There are no monopolies in this House. It would be good for the House if we were seen to work together and it would good for citizens who face this problem and for democracy.
I join colleagues in welcoming the Minister of State to the House. I thank him both for his commitment to the House and for his thoughtful and considered response to the issues raised in the motion. The Labour Party is delighted that he responded to the content of the motion and to the broader issues it raises of how we deal with the huge social and economic problem of mortgage holders in significant difficulty with repayments. We thank him for that.
I pay tribute to Senators Hayden and Moloney for raising this issue within the Labour Party and for bringing it before the House. We have had a strong debate on the motion in the best tradition of the Seanad. We framed this as a non-partisan motion aimed at trying to generate discussion on ideas and creative and constructive solutions to deal with this problem. It is deliberately reflective in tone and we are grateful to Opposition Members who indicated their support for the motion and who mostly addressed it in the non-partisan manner in which it was intended. Like Senator Gilroy, I am trying to refrain from partisan comments. We all accept that this is a matter of deep concern to everyone, whatever the genesis of the problem. We have a strong view on that but we are trying to suggest solutions in this debate.
The difficulty is the growing scale of the problem. As Senator Hayden said, repossession, which is generating so much distress for families and individuals, is the great fear and there is anxiety that there will be a large number of repossessions. That point is made in the programme for Government. As the Minister is well aware, under the section dealing with housing and distressed mortgages the recommendations of the Cooney report, which he has addressed in such detail, are inadequate to address the scale of the current crisis. That is the real difficulty and that is the reason we are putting forward more radical proposals for consideration by the Government. We thank the Minister for his response to the proposals we have raised.
Turning to those proposals, and again I pay tribute to Senator Hayden and Senator Moloney, in particular Senator Hayden's years of experience with Threshold, the housing agency, there is an interest and a great deal of merit in exploring the Scottish scheme further. That is the scheme set up by the Scottish Government under its homeowners support fund which offers supports to householders with a view to ensuring families are kept in their own homes and ensures better use of public money rather than simply putting it into the rent supplement currently eating up so much of our public finances here. It is to try determine how we can keep families in their homes, take pressure off social housing lists and target funding in a more effective way and in a way that addresses the real needs of families. In that regard, the two schemes outlined in the motion and which were outlined in more detail by Senator Hayden have great merit.
The mortgage to shared equity scheme, where the Scottish Government takes a financial stake in a home but the applicant continues to own the home, live in it and have the responsibility of maintaining and insuring it but with a reduced amount due to their lender each month, has huge merit. The Minister pointed that the difficulty with adapting that scheme in the Irish context is that it generally depends on the owner having a loan not exceeding 75% of the value of the home. Where a large number of mortgages are in negative equity the scheme would have to be adapted. Changes would have to be made to ensure it would work here but, equally, there will be people here in difficulty with mortgages who have built up sufficient equity in their home to whom the mortgage to shared equity scheme could apply.
As many Senators have stated, it is a question of trying to find a variety of different schemes that will address the different needs. Senator Crown put forward an idea, that again would only apply to certain distressed home owners, about the use of pension funds. Senator Hayden pointed out that many of those in difficulty and with negative equity may not have access to the type of resources in a pension fund that could be targeted in the way he has described. It is a question of trying to find a variety of different ways to support distressed home owners, and that is what we are seeking to do in this non-partisan motion.
We are conscious also that the programme for Government has made a number of proposals which as the Minister stated are being progressed by the Government. There are some initiatives suggested in the Cooney report that deserve greater consideration. In particular, the proposal for trading down has huge merit where householders are in significant negative equity.
As many people have stated, this is a matter of deep concern not just in terms of the economy and at a macro-level of the housing market but for individuals, householders and families. All of us are touched by this issue. It is one which will be of growing importance and an issue I am glad we have had the opportunity to address in this reflective manner in the Seanad. I thank the Minister again and I thank my colleagues in the Labour Party.
Along with all my colleagues I welcome the Minister of State, Deputy Brian Hayes, to the House. Contributions on all sides of the House have made plentiful reference to the expert group on mortgage arrears and personal debt. I add my voice to those and suggest that the recommendations be implemented immediately.
As has been established already on this side of the House, while we support the motion we believe it does not go far enough. My friend and colleague, Senator Marc MacSharry, who has been at the forefront of this issue since the economic collapse in recent years, primarily in Sligo where he launched a number of initiatives in association with community and civil groups, for which he is to be commended, will bring forward legislation in this area which I hope the Government will consider and the House debate.
I want to touch on one or two issues that arose in the expert group on mortgage arrears and personal debt. In calling for its recommendations to be implemented immediately the appropriate provisions should be put in place to ensure that mortgage interest supplement, MIS, is accessible to people clearly in need of the payment to protect their primary residence.
As the Minister of State is aware, the Social Welfare and Pensions Bill will come before the House tomorrow and while I appreciate that the Minister is focusing on anti-fraud measures and other related issues in the Bill, which we will have an opportunity of discussing then, I would like to record that it would have been an opportunity for the Minister to introduce some reference to the recommendations of the expert group on mortgage arrears and personal debt. In that context, the Department should introduce an alternative and more equitable approach to achieving the MIS objectives and maintaining its sustainability in light of the changes in the economic climate and the mortgage market.
In that regard there are one or two issues that should be highlighted. For example, no legal action should be taken by the lender while MIS is being paid and the borrower is co-operating with a lender. The debt forgiveness area is complex and there is a great deal of emotion surrounding it because the most important decision an individual or a couple will make in their lives, apart from perhaps getting married, is buying a house. The ban on paying MIS to a couple where one person is in full-time employment should be removed and a revised means test developed. The main reason for that is because mortgages were usually taken out when two incomes were coming into the house. The significant number of people in mortgage arrears is as a result of the loss of a job by one or other of the couple due to current economic circumstances. They should not be penalised when there is only one income coming in that would help to pay the mortgage during its lifetime.
I agree with the recommendation that the rule which excludes the payment of MIS when a house is for sale should be suspended. That rule was implemented in the height of the Celtic tiger years or even before that when there was not a crisis in the housing market and houses put on sale were sold within a matter of weeks or at most within a month. If we reflect on the housing market over the past 20 years it would have been seldom that a house would be left on the market for a considerable length of time, particularly in the areas where the crisis is now impacting, namely, large urban areas or areas of high population density. That rule was introduced in different economic circumstances but as we are all now aware, the housing market is still in free-fall. This morning's newspapers report that it is estimated that there are only 11,000 mortgages for the entire year. That is based on the first quarter mortgages which are only of the order of approximately 3,000. That figure was last seen in 1971. It is clear, therefore, that the housing market remains in deep crisis.
It is surmised that one of the reasons mortgage applications are at such a low ebb is because people believe what they read in the newspapers, namely, that the housing market has yet to find the floor, and they are waiting for it to drop even further. Whether that is sensible is a moot point because the old clichÃ©, "doctors differ and patients die", could be applied to economists. They regularly get it wrong and they regularly disagree with each other. In terms of those economists who are suggesting that the market has a significant way to go, and not just a marginal drop in the next 12 months, I am not sure that is the case but as the Minister and his colleagues in Government have stated, this is about confidence building. The Government is about that and we applaud it for attempting to do so because we must have confidence in our economy. As the Minister stated in a previous debate and which perhaps should be propagated more widely, the significant amount of money in savings here is way above what would be normal seven or eight years ago. In that context the rule excluding the payment of MIS when a house is for sale should be suspended in the current climate. It would be helpful because it takes longer now to sell a house, if at all.
Other issues of which the Minister is aware arose out of the recommendations of the expert group. I do not wish to score a political point here, but I would like to remind the coalition partners of their commitments made prior to the election. In the Fine Gael manifesto published earlier this year, the party committed to using mortgage interest supplement to "adequately cover families in need" while the Labour Party manifesto promised to "support families who cannot make their mortgage repayments". The Labour Party manifesto stated that the 30 hour rule for MIS would be amended. I am not calling the Government to account for the sake of it, but the people who are most in need, namely, those in deep mortgage crisis, are expecting and hoping that they will get a positive response from this Government.
I thank the Minister of State for coming to the House and for his considered response. The dilemma facing those in distress is that their financial future is now mapped out. It is almost set in stone and they have very little leeway. Therefore, neither do we have any option but to do something about it. We do not need to know again what the figures are. There is a bit of the cynic in me, but I trust the words "under active review" mean exactly that.
We need to be in a position very soon to debate some of the ideas that the Minister of State has been working on. Those people who tell us and the Minister of State about their concerns are our families, our neighbours and our friends. They are not the people out there. They are our people and therefore, if we tell them that this is under active review, they will shake their heads and say "another active review". We have very little time on our side and it is up to us do something. In the spirit of this motion, it is a good thing that we can come in here in a cross-party way, offer ideas to the Minister of State and hope that the urgency of what we are saying will be translated to his Department.
Sub-prime lenders came into the market like sharks and understood exactly what they were doing when they sought out, almost in an abusive way, vulnerable people and decided to charge them more for a loan, fully in the knowledge that these people would not be able to repay. When they defaulted, the lenders threw extra charges at them and then said "Sorry, but we will have to take your house". Those lenders are still out there in some form or other. They are not faceless institutions. They have names such as Investec, Lehman Brothers, KBC and Kensington Mortgage Company, and indeed Permanent TSB and the EBS were involved at some stage in sub-prime lending.
The truth is that the Central Bank here cannot put a maximum on any rate. It cannot enforce a lender not to go above 8% or 10% or whatever, because under the Maastricht and Lisbon treaties, the European Central Bank is not allowed to put floors of any kind on these rates. We will find ourselves in this situation again, because there will always be sub-prime lenders and sharks. Where there are people with in distress, there are sharks. One will find them in the phone book or on Google. "Have you mortgage problems? Have you debt problems? Ring us and we will sort it out". They will sort it out, but only at a price. I do not know the answer to that, but by ignoring this particular dilemma about the maximum rate, we are waiting for the problem to occur again at a later stage.
I commend the motion before the House. I am delighted that we have had the opportunity to debate this and even if we do not end up with the Scottish model, we will have a variation of it. The problem will not go away. The sub-prime people are out there and we have not addressed that in any way, and I do not know how we can.
I thank the Minister of State for his considered comments on the debate. I would also like to thank our Senate colleagues for the dignified and thoughtful manner in which they have conducted this debate. It indicates all that is right about the Senate. All the debate about reform and about the Senate being a place where we can air ideas which will excite society can indicate that this House has something to offer Ireland and address the difficulties we face.
I would like to make a few points on the comments made by the Minister of State. The ESRI report written by David Duffy in 2009 indeed highlighted the issue of negative equity in the Irish housing market, but Mr. Duffy also highlighted that while people in negative equity continue to be able to repay their mortgages, there were serious negative impacts of negative equity, both on the market and on the lives of individuals. He pointed out that people in negative equity do not behave like homeowners and that they actually behave like renters. For example, they do not invest in their own homes.
It is also important to note that the figures from that report were in 2009, whereas we are now in 2011. The issue now is that the rate of default is going up significantly. That is the worrying trend we are facing. Of the 80,000 homeowners who have restructured, 40% of them are in arrears on these restructured mortgages. We are facing a slide into a greater problem.
The code of conduct is designed to secure repayment. Of course the banking sector is happy to secure ultimate repayment. The issue is that there is a significant cohort of people who will never be able to repay the loans they have taken out. That is ultimately the critical issue we are facing.
One of the points raised by several Senators, especially Senator O'Keeffe, is the number of sub-prime that preyed on Irish people during the boom years. From my own research into tenant purchase policy, I know that a significant number of social housing tenants who bought their homes under the tenant purchase scheme did so with Start Mortgages, GE Money, Woodchester and so on. If we examine the figures on repossessions in the courts, we discover that they are the lenders who are the cause of most of the repossessions in this country. What do we do about people who find themselves in a situation where they feel there is no way out? Part of the purpose behind this motion is not simply to talk about shared equity, but to talk about people who are in grossly untenable positions and how we can draw a line in the sand for them, so that they are not carrying this debt on to Never Never Land. In fact, if we examine the type of debt people are facing, we are looking at intergenerational debt.
I believe the Cooney report was flawed. It took an exceptionally conservative attitude and was not willing to explore some of the issues. Some of that was partly due to the composition of the commission.
We have put the Scottish model forward for consideration. We are not suggesting for a moment that it is the only answer. It is a potential answer. It proposes certain ways that we in Ireland could put forward some of these solutions. There is potential in the incremental purchase scheme, under the Housing (Miscellaneous Provisions) Act 2009, for a 40%-60% stake between the State and the homeowner.
We have put significant amounts of money into Irish banking system. Instead of pouring it in from the top, there is nothing to stop us from putting it in from the bottom up. In other words, we should use some of those funds to redeem some of the mortgage equity that is in the Irish system. It would have the benefit of allowing the banks to crystallise some of the debts on their books and to put liquidity into the system.
We are a nation of homeowners. It has been the policy of successive Governments, not just Fianna FÃ¡il or Fine Gael but also the Labour Party, to encourage home ownership. Part of the encouragement of homeownership has been at the cost of social housing provision and at the cost of the rental sector. We created the monster where people will do anything to get into homeownership. It behoves all of us to find a solution for the people who find themselves in this position because of the society we have created.