Wednesday, 27 July 2011
Family Home Bill 2011: Second Stage
I move: "That the Bill be now read a Second Time."
I am delighted to have the opportunity to introduce this Bill. Senator Thomas Byrne and I worked on it and it was informed by a body of work that continued for two years or more. It involved the Prevention of Family Homes Repossessions Group in Sligo and listening to wider commentary and debate. The Bill enjoys the support of New Beginning, FLAC and all other interest groups working in this area. From discussions throughout the House, it enjoys the support of many Senators in a personal capacity on all sides of the House. I thank them for their support of myself and Senator Thomas Byrne.
I have an inkling that someone will use the word "Constitution" at some stage in this debate so I felt it was important that I should begin with the same word. Article 41.2 of Bunreacht na hÉireann reads: "The State, therefore, guarantees to protect the Family in its constitution and authority as the necessary basis of social order and as indispensable to the welfare of the Nation and the State". There can be no more important consideration than the protection of the family. I have said that many times over the past two years as previous Members can confirm. On that basis, we tried to provide a set of tangible solutions to give families the protection that Article 41.2 of the Constitution lays down as their right. There is agreement on all sides of the House when we look back on the debate on the Labour Party motion about mortgage arrears. In that context we tried to come forward with workable solutions. We have done just that because, as the programme for Government states, the recommendations of the Cooney report are inadequate to address the scale of the current crisis. A more radical approach is needed to protect families in fear of losing their homes. That is one of the many sections in the programme for Government with which I agree. This Bill is not adversarial in nature and provides us with an ideal template to act together. As the Minister for Justice and Equality, Deputy Alan Shatter, said about the last debate, it would be a shame if the House was to divide on this issue when division is not necessary. This is a subject on which we should promote unity. If the Minister feels he must use the word "Constitution" later, and I will speak after him, I urge that the Cabinet facilitates the unity of purpose these Houses have in seeking to tackle the issue rather than leading a process of manipulating the House in such a way as to promote its abolition. At this time there is such agreement on the issue.
Senator Thomas Byrne will address the sections of the Bill. They are controversial for some and radical in nature but the programme for Government states that radical proposals are required. The code of conduct on mortgage arrears, while honourable in what it sets out, is not working. The Central Bank inspections found that, despite its statutory nature, fewer than 33% of financial institutions inspected were following the code of conduct. This week the regulator said that the code of conduct needs to be improved. He suggested the improved version would be ready by the autumn. The existing one is not working and is being ignored. Hands up anybody who knows somebody who has gone to his or her bank, said he or she is 48 years of age, has ten years left on his or her mortgage and that if he or she could turn it into a 20 year mortgage, he or she could pay it off instead of being in arrears. That has not happened. This Bill would give the court a set of tools which would give it options to give families protection. These options include the elongation of a mortgage and interest only payments. Such flexibility is demanded of us at this time.
Everyone on this side of the House wished the Taoiseach, the Minister of State at the Department of Foreign Affairs and Trade, Deputy Lucinda Creighton, the Minister for Finance, Deputy Michael Noonan, and the Minister of State at the Department of Finance, Deputy Brian Hayes, well in the negotiations in Brussels last week. We all hailed their success and congratulated team Ireland, as we pulled on the team jersey, on securing an interest rate reduction for the people and the elongation of our debt repayments. Surely, it is not just an option but our constitutional responsibility to be as flexible as possible with the people and the families of Ireland. Articles 41.1 and 41.2 of the Constitution guarantee protection.
Obviously, the Bill was written in conjunction with senior counsel; therefore, I would challenge any suggestion it was unconstitutional. If anybody intends to state the Attorney General's office has an issue with it, let that issue be outlined this evening because there are precedents. The Credit Institutions Stabilisation Act 2010 entitles the Minister to burn bondholders. We agree with this. In the cut and thrust of politics the Government parties, when in opposition, opposed that Act, but they now have the benefit of using it. We support that legislation. There is a code of conduct in place. Why is that not unconstitutional if the argument against the Bill is that there is a constitutional issue?
As I said, we believe the Bill would give real tools and offer real solutions to give families breathing space to ensure they could meet their commitments. It is not about debt forgiveness and or somebody else paying one's bills. It is about being as flexible and innovative as we can be in helping families, the cornerstone of the State, as we demanded of the European Union and the IMF. After nine years in the House, it is my ardent wish that on this one occasion we say this is the basis of a Bill which would work for the people. We are not saying in the same way as was stated in the Fine Gael general election manifesto or as the Minister of State, Deputy Brian Hayes, said that this is a complex issue to which we do not have any solutions. The Minister has said he accepts a package of measures must be introduced, as well as a variety of solutions, as required. I agree that there is no single solution which would fit all. The Minister went on to state that the Government was anxious to listen to and work with colleagues on bringing forward a workable range of solutions. He said it wanted to work with others to ensure solutions were found. Here is a set of solutions and a Bill we should embrace. We could seek to change and further improve it on Committee Stage with the advice of the Attorney General, the Minister's good advice and the expertise available in these Houses. Is the last act of this House in this session to create division on an issue on which we are all united?
The Whip should never be used in this House. Governments, whether they include Fine Gael, the Labour Party or Fianna Fáil, have pursued an agenda which has manipulated a process to ensure the abolition of the Seanad. It is disgraceful that there is no media coverage of the proceedings of the House this week. The contempt the media show for the people by completely ignoring this House when discussing important issues such as this is reprehensible. I appeal to everybody in the House that if the Government has a particular view on this issue - we must remember this is Second Stage - not to let it manipulate a process to ensure the abolition of the Seanad. Let us ensure the House passes the Bill on Second Stage in the knowledge that we, on this side, do not have all the solutions. The Bill does not provide all of the solutions, but it is definitely part of the solution. Carpe diem, seize the day. We can do this together. It is not about Senator Marc MacSharry, Senator Thomas Byrne or Fianna Fáil but about the Houses of the Oireachtas ensuring Articles 41.1 and 41. 2 of the Constitution are upheld in the interests of all the people.
I hope Senators have had the opportunity to read the e-mail sent to them by Mr. David Hall of the New Beginning group which was very successful this week on behalf of some of its clients and which has adopted a very positive approach to the Bill. Ms Noeline Blackwell from the Free Legal Advice Centres has corresponded with certain Senators on the Bill and is adopting a broad and positive approach.
The purpose of the Bill is set out in the Long Title: a "Bill to prohibit the granting of a court order for the possession of a primary family home except in circumstances where the court has been presented with a verifiable, detailed and independent analysis of the repayment capacity of the family home owner, and where the court has had an opportunity to review the original mortgage application, and consideration is given to a range of alternative actions that will seek to protect the homeowner's possession of the family home". It has been pointed out by numerous people and in academic textbooks, including Lyall's textbook on property law, that currently the courts have no guidance in this area. Part of the purpose of the Bill is to give such guidance to the courts and a range of options they could use when deciding on such issues. Traditionally, the granting of a repossession order has been a discretionary function. I note the Department of Finance's interest in this issue, but the Land and Conveyancing Law Reform Act 2009 is a matter for the Department of Justice and Equality. I hope, therefore, there is cross-departmental co-operation on this matter because there is a range of solutions. We are speaking in the context of the decision handed down in the High Court by Ms Justice Dunne. I do not want this decision to delay the Bill because it could operate independently of it because it covers specifically section 97(2) of the Land and Conveyancing Law Reform Act 2009. It does not refer to other legislation in any great detail.
Section 1 would allow the Minister for Finance to bring this legislation into operation. Section 2 would provide for certain definitions, including a code of conduct in dealing with mortgage arrears. I hope the argument will not be that the Bill is unconstitutional because the code of conduct would interfere with the rights of banks. In a time of economic crisis it is the function of the State to interfere with and regulate the workings of the banks in the interests of consumers and keeping families in their homes.
Section 3 refers to the application of the Bill. Section 3(a) refers to an order for possession of a mortgaged property that is a family home pursuant to section 97(2) of the Land and Conveyancing Law Reform Act 2009. Section 3(b) refers to an order authorising the exercise of the power of sale of a mortgaged property that is a family home pursuant to section 100(3) of the Land and Conveyancing Law Reform Act 2009. Section 3(c) refers to an order seeking possession of any property that is a
family home on foot of a legal mortgage or charge. Section 3(d) refers to an order declaring the amount due on foot of a mortgage to be well charged on a dwelling that is a family home.
Section 4 would put in place certain preconditions in respect of the commencement of proceedings. Subsection (1) would provide that the mortgagee would have to certify in writing to the court that the code of conduct had been complied with, while subsection (2) would disallow the commencement of legal proceedings where mortgage interest supplement was payable. I note FLAC's comments that in the absence of reform of the mortgage interest supplement scheme, this could inhibit the take-up of mortgage interest supplement. In fact, the Fianna Fáil policy attempts to be comprehensive in that we deal with the issue of mortgage interest supplement which is a function of the Department of Social Protection which again emphasises the cross-departmental nature of the issue. It was promised for the spring, but it has not yet happened. It must happen as soon as possible. The concerns of FLAC about the section would be completely eliminated if the mortgage interest supplement scheme was reformed.
Section 5 deals with the preconditions in respect of the grant of an order for possession. It would prohibit the court from granting an order for possession or sale, unless it had reviewed an independent report from the Money Advice and Budgeting Service, MABS. One may argue MABS has insufficient resources, but it has been charged with this task in the Bill and we should give it the resources it needs to carry it out.
Section 5(b) provides that the court would receive and review copies of the original mortgage application and all supporting documentation accompanying the application. That is a very important function of the court in dealing with allegations of fraud and collusion in the financial institutions.
Section 6 lists the options in paragraphs (a) to (f) that the court would have to consider as an alternative to an order of possession. It would be able to make an order "(a) that the mortgagor make interest only payments on the mortgage for a period not exceeding four years; (b) that the mortgage period be extended by a period not exceeding 20 years; (c) that the mortgage payments due be deferred for a period of one year [in other words,there would be a one year payment holiday]; (d) that the terms and conditions of the mortgage be amended so that the interest rate can be changed, taking into account prevailing market conditions [this is an attempt to go after the sub-prime lenders who charge interest rates way above prevailing market conditions]; (e) that the principal sum due on the mortgage be reduced in a fair manner provided the mortgagee be granted a share in the mortgagor's equity in the family home, as the court considers appropriate [that would gives the court the option of looking at a debt for equity arrangement; I acknowledge this is a complicated area, but the court should have this power]; (f) that the deferred interest scheme recommended by the expert group referred to be put in place".
As the Bill would provide options for the court as an alternative to possession, we would be legally forcing the banks to give due consideration to these options in advance of a court hearing. We would be forcing the banks to consider the modification of mortgage terms before they consider repossession. The provisions of section 6 should be considered not only in the context of court action but also as a way of dealing with mortgages. In fact, many banks do some of these things on an ad hoc basis, but we are trying to make it more schematic. We know from the delegation who spoke to the Central Bank, the European Union and the IMF that they are looking at this issue and have put funds in place to facilitate mortgage modification schemes.
The limited cases also include where the borrower has perpetrated a fraud on the bank without the knowledge of the bank and where the borrower has fundamentally breached the terms and conditions laid down. Paragraph (d) relates to trophy homes which could be repossessed if there was an alternative available or if a local authority tenancy was available.
Having a house or property repossessed leaves a scar on the Irish psyche. The number of repossessions is low compared with the number in the United Kingdom. In 2008 there were 40,000 house repossessions in the United Kingdom, but that number climbed to near 80,000 in 2009. I have been unable to find the figures for 2010. In Ireland the number of repossessions is low; it is not even up to the hundreds. It is important, therefore, to put the question in context.
No Member of the Oireachtas could give the banks credit for what they have done, but having dealt with them on behalf of individuals in serious financial difficulty, my experience is that the main banks are adhering to the code of conduct. The sub-prime lenders ran amok and gave loans to people who never had a possibility of repaying them. These lenders are flying in the face of the commitment given by this and the previous Government that people will be given every opportunity to outlast the financial difficulty they face. They are being allowed to get away scot-free.
On 25 July the High Court heard the case of Start Mortgages Ltd. v. Gunne. It seems to be the case that in some circumstances the banks are not allowed to repossess property. I have only seen a brief outline of the case, but case law is catching up on us fast. I am sure the Attorney General will advise the Minister and the Department on whether the legislation needs to be amended, but in this case it could potentially be appealed to the Supreme Court. We will await the outcome of that case.
I do not know if this Bill would be of great benefit. If I thought it would be, I would be the first to stand up and support it strongly. However, I do not see how it would help us in the here and now when the banks are not forcing people out of their properties, yet circumstances could change. There is anecdotal evidence of a logjam and that at the end of the two year process provided for in the code of conduct the banks could start a flood of repossessions, but I do not see that happening, as they have acted responsibly. Some people acted irresponsibly when taking out loans and I question whether we should enact laws to allow them not to pay for the property they bought and signed for. Some will be caught because we cannot save everybody. The previous Government insisted on saving all of the banks and that has been shown to have been a poor decision for the country. What we must try to do is ensure we do the best we can for most people, but we cannot save everybody.
I congratulate Senators Marc MacSharry and Thomas Byrne on drawing up the Family Home Bill 2011, the spirit of which I commend. Sometimes the Legislature needs to be led by public opinion, but it also has to be one step ahead. I disagree with Senator Michael D'Arcy that the Bill is not required at present. We are in grave and uncertain times and if we were to enact legislation in keeping with the spirt of this Bill, we would be a step ahead and able to introduce its provisions to deal with the potential immediate danger arising from the non-payment of mortgage arrears. It is on that basis that I would prefer the Bill to be enacted in order that we would be prepared for what will result from the increasing credit squeeze and the lack of significant economic growth. The Bill could be reassuring for citizens.
The Free Legal Advice Centres have commented on the Bill, the purpose of which is to give options to the courts in dealing with those in mortgage arrears. This is to be welcomed. The options range from deferring debt payments into the future which would work for some individuals with short-term problems to more radical solutions which would require the lender to reduce the level of debt. This in itself, without it being exploited, offers reassurance and it means that the Government and the Seanad are listening to the day-to-day concerns of citizens.
Bearing in mind Senator D'Arcy's comments, we might not be in a position to do as proposed. David Hall of New Beginning said that, by the end of March of this year, more than 11% of the 782,429 private residential mortgages held in Ireland, to the value of more than €116 billion, were either in arrears of 90 days or had been restructured. That could be the tip of the iceberg. I suggest that the principle and spirit of this Bill be taken on board on an all-party basis. I am sure the Government could adopt it. I am not an expert on this but am sure Fianna Fáil would agree to it if the spirit of the Bill were taken on board by the Government side. I suggest that we have, for once, leadership in a way that will provide succour, security and confidence to citizens.
FLAC stated that, while it is certainly necessary to provide solutions relating to mortgage debt, it is concerned that a feature of this recession is that so many people are indebted to a number of creditors. It implied it is crucial to have a settlement that takes an overview of the entire range of a person's debts and that mortgage debt that is likely to present a serious problem feature within that holistic solution. I commend the Bill to the House and support it.
I welcome the opportunity to discuss this very serious Fianna Fáil Bill. It is fitting that this is the last debate in the House before the recess. In a previous debate, we outlined on a number of occasions the serious issues that affect those facing negative equity and, more important, the inability to repay their mortgages. We sometimes forget the realities and the facts. The reality is that 80,000 people with mortgages have renegotiated. Of those 80,000, 40% have non-performing loans. We are facing a very significant difficulty in the housing market; there are no two ways about that.
That the market is currently non-existent is an issue for the country as a whole. It is a zombie market. Until we draw a floor under mortgage repossessions, we will never return to what could even remotely be called an active market. I very much believe we need measures to resolve the current problem. I welcome the opportunity our colleagues have given us to debate this issue.
As colleagues are aware, we put forward other proposals for the Government. It has acceded to considering the issue of mortgage arrears. We have asked the Government to examine mortgage-to-shared-equity schemes and mortgage-to-rent schemes. These proposals will be considered seriously by the Government.
I accept the points made by our colleagues. The Bill represents a serious attempt on their part to make progress on mortgage debt. Unfortunately, however, I have reservations. The Bill is too focused on a judicial solution to what is not necessarily a judicial problem. Largely removing responsibility from the judicial system would be in the best interest of distressed mortgage holders.
I am concerned about the decision of Ms Justice Elizabeth Dunne. There are six references to the Land and Conveyancing Law Reform Act 2009 in the Bill. On that basis alone, it makes it significantly flawed.
The Bill focuses very much on extending the period within which people can reside in the family home within the context of finding a final solution. Unfortunately, evidence from the United Kingdom and elsewhere shows that when people cannot pay, extending ad infinitum the potential for them to remain in their existing circumstances is actually damaging to their long-term prospects. What is needed is a mechanism to draw a line in the sand by way of achieving a final resolution. In that context, the Bill's dependence on MABS is a flaw. MABS is not a statutory body, nor is it a body capable of reaching a final applicable settlement. It does not have the necessary statutory powers. If one refers to the programme for Government, which was agreed by both parties in government, one will note MABS is being converted into a personal debt management agency with strong legal powers and the capacity to reach settlements. This is a necessary prerequisite to what is being proposed in this Bill. I am not suggesting what is proposed is not without merit but that a number of prerequisites need to be realised before the Bill could have the teeth I believe its advocates would like it to have.
Section 6 considers alternatives to an order for possession. Unfortunately, I am not convinced that Fianna Fáil's advices on the constitutionality of the provisions are necessarily robust. We probably need more opportunity to flesh out this aspect of the matter. There is a danger in the sense that many mortgages were negotiated with the assistance of mortgage brokers. This presents an issue for the average mortgagor in that attestations were signed relating to their incomes. Perhaps an unforeseen consequence of what is being proposed in the Bill would be that borrowers would be made liable or, under section 7, guilty of committing fraud. I refer to the way in which many mortgages were negotiated during the Celtic tiger years. While the proponents of the Bill have the best of intentions, I, as a practising solicitor, am well aware that the realities of what happened on the ground may not be best reflected in the provisions of the Bill.
The commitment to considering the matter further within Government through an interdepartmental group will result in far more information and far greater clarity regarding the way in which Government thinking is developing. The group is due to report in September of this year. I would very much like if it were possible to re-present this Bill along the lines of the group's proposals based on there being greater clarity on the legal position. As a new Senator, I am not sure if it is possible. I commend my colleagues on their genuine and sincere efforts to resolve in the House the problems of distressed homeowners.
We have discussed this Bill before and I have noted with interest the comments of Senator Hayden. Let us call a spade a spade; no one has an overall solution, just as there was none in the Labour Party motion agreed in the House. On this side of the House, we made a conscious decision to proceed as we have done because 50,000 homeowners are in arrears for 90 days or more. There were 148 repossessions of family homes in the first quarter of this year.
The Labour Party motion proposed that the Government should consider the establishment of schemes to support distressed homeowners. Colleagues have raised issues in this regard. If there are elements in this Bill that have merit, Senators should allow Second Stage to be passed and then propose amendments. There is no difficulty in doing this. This House has a role not only in scrutinising legislation but also in producing it. I ask colleagues of all parties and none to turn words into deeds. Second Stage could be allowed to pass this evening with the support of the Senators and, as Senator Hayden rightly stated, further or detailed discussion should happen on Committee Stage, during which we will be more than happy to consider amendments. However, I do not want a situation to arise whereby this is kicked back to a report. I am interested in hearing what the Minister of State, Deputy Brian Hayes, has to say in his response to this genuine effort to come up with a solution.
The part of north Dublin from which I come was the fastest growing area in Ireland. It has the highest proportion of first-time buyers who are stuck in apartments and, as a result, cannot have families and are scared they will be reduced from two incomes to one. Those who are not yet in arrears have no money to spare because they have already faced two rate hikes from the ECB but they are likely to face two more this year. At every opportunity, the banks seek to change variable mortgage rates and tracker mortgages are also becoming more expensive. Some people are paying 5.25% on variable rates while other unfortunates who dealt with sub-prime lenders like Start Mortgages are paying 15% to 17%. This is not going to get easier. Senator Mac Conghail indicated earlier that the situation is not grave yet but, while I acknowledge the spirit in which his remark was made, we should equip the courts with the tools they need to deal with the underwriting of the original mortgages. Were the lenders right to offer these mortgages?
I do not intend to be confrontational but this is a frustrating business. We can allow the Bill to pass Second Stage. With a 58 seat majority, it will not bring down the Government but it presents the Seanad with an opportunity to turn the words of this well crafted Bill, over which my colleagues have laboured for two years, into deeds by allowing it through Second Stage. We are prepared to consider amendments to address the Government's concerns. This Bill is important for thousands of families. We passed a Labour Party motion in the interest of showing that we would do our business differently. For once, let us do our business differently this evening.
I thank Senator Darragh O'Brien for sharing his time. This Bill is analogous to the debate we held earlier in that most objective contributors recognised the failures that occurred in the church at the centre, in dioceses and in the State. If the issue of child protection is to be our priority, we have to correct the failures within that area. In this instance, however, we are dealing with failures by the Government and Opposition of the day, the regulator, the Central Bank and the Department of Finance, all of which led to the property bubble. As a consequence, a large number of people who were prudent in most of their financial dealings are now faced with the threat of losing their homes and shelter for their family. As they thereby come to rely on the State, it makes no sense for us to ignore this issue.
This Bill is the first serious attempt to address the issue and it has been worked on by Senators MacSharry and Byrne and others over a lengthy period of time. Passing it on Second Stage without division, as we often do in this House, does not prevent it being changed by a Government Bill, and amendments from all sides can be tabled on Committee Stage. In this way, the House would send out the signal that we are concerned about people with young families who are at risk of losing their homes. Some of these people have already committed suicide. Do we not feel an obligation to prevent further tragedies?
Another reason to act now is that the number of distressed mortgages and small business loans which are not in NAMA could give rise to added concerns about the solvency of our banks. It behoves nobody to allow that to continue without trying to address it.
I encourage the Seanad to show its independence by accepting the importance of this legislation and identifying defects on Committee Stage. I appeal to the Senators opposite not to send out a signal that we are abandoning people who are in genuine difficulty because of the recession and who can see no solution unless the State becomes involved.
I commend Senator MacSharry on tabling this Bill. As Members of the last Seanad, we spoke at length about protecting the family home. The objective of the Bill is laudable because I do not know what we would be without our homes. The issue of home repossessions continues to seep through our constituencies, with ripple effects on children, relationships and families. The issue should not be underestimated because, as one couple told me recently, worry has entered people's beds. Family home repossessions also put pressure on State agencies and local authorities, not to mention the NGOs that work in the area of housing.
The spirit of the Bill, therefore, is laudable. We should view it as a spur for considering new ideas, creative approaches and realistic schemes to release families from the threat of repossession so they may continue to enjoy a working relationship of some form with their banks while maintaining their dignity. The aims of the Bill accord with our public policy of keeping families in their homes. Countless reports and statistics point to a correlation between a secure home and education and health. A secure and unthreatened home is the foundation for a better future for our children. Bearing in mind our earlier debate, children should be at the centre of our deliberations.
Home repossessions invariably involve a lengthy process of negotiations between banks and mortgagees. The period before repossession can be very stressful for families who are just about keeping their heads above water to make their repayments. Such families have yet to become repossession statistics but none the less they suffer anxiety and stress because the mortgage is only one of many bills they must pay.
The Bill gives rise to certain issues, however. It prohibits repossessions in a number of instances, including the enforcement of a power of sale, a possession order and a well charging order. Section 4 provides that repossessions will be prevented where it is shown that the Central Bank's code of conduct on mortgage arrears has not been followed. However, pursuant to the Central Bank Acts the code and the revised code already have a legislative basis. As the language used in the code is explicit in requiring lenders to apply the protections of the code to borrowers, the provision under section 4 appears to be accommodated in existing schemes. Codes also offer a more flexible means of responding to a changing environment and can be easily adapted to fill gaps and deal with new developments. As Senator Hayden noted, the Bill is overly reliant on judicial solutions to a problem that is not judicial in nature.
Section 5 prohibits repossessions in the absence of an independent report prepared by MABS. Has the opinion of MABS been sought regarding this consultancy role? Does it have sufficient resources to supply such reports in a timely and efficient manner and what principles would it apply? I fear that, similar to the backlogs that exist in the Garda vetting unit, the result could be further delays that prevent banks and mortgagees from working together to produce alternative solutions.
In regard to the reference in Section 5 paragraph (b) to the "original mortgage application", is it not the case that the rules of evidence would demand that the original documentation be presented, in which case this section is unnecessary? I note the efforts of the group of lawyers, working as New Beginning, in their examination and defence of mortgage holders. It is my understanding that this issue of the accuracy of documentation was a key aspect in the defence of those facing repossession in that case, as it should be. Section 7 ties in with this in the provision that a mortgagor will face repossession where he or she has perpetrated a fraud on a bank. However, if a mortgage applicant claims to be earning a multiple of his or her actual wage, is there not, in the context of the relative bargaining positions of the two parties, a higher obligation on a bank to seek proof of such claims instead of relying on what might be termed "constructive knowledge"?
It is incumbent on us as legislators to arrive at new and more reasoned solutions to the problems that arise on a daily basis in this area. I accept that this is what the Members opposite seek to do in bringing forward this legislation. However, there are other, more appropriate, solutions we can consider. Two years ago, I spoke to a retired and honourable bank manager who said his claim to fame was that he had never foreclosed on a home during his 30-year career. His solution to the problem of mortgage debt arrears was that in the case of a mortgage of €300,000, for example, where the mortgage holder can no longer make the repayments, that he or she be reassessed and, on the basis of that reassessment, the mortgage split into what he called a "live" portion and a "parked" or "warehouse" portion. The "live" debt would be serviced based on the applicant's current ability to repay, while the remainder would be warehoused, with the mortgage holder having to meet only a small payment at a simple interest rate on that portion. This would facilitate people in meeting their repayments while ensuring the debt, instead of becoming a bad debt, remains as a performing asset on the bank's books.
In the United States, legislation has been introduced whereby mortgage repayments must account for no more than 37% of a person's or couple's income. This will support home owners' ability to meet their mortgage repayments while protecting the sustainability of their financial commitments and, thus, their quality of life. While Senators opposite referred to the lengthening of mortgage repayment terms, I would go further in proposing that we consider inter-generational mortgages. People nowadays have smaller families and larger homes. This working generation should not have to shoulder the entire burden of debt accrued via the neglect, irresponsibility and lack of regulation of previous Administrations. We must look at these and other solutions.
I commend Senator Marc MacSharry on his efforts in bringing forward this legislation. Our motto in tackling these issues must be carpe diem. I look forward to the Minister of State's response.
I welcome the Minister of State, Deputy Brian Hayes. He, the Minister for Public Expenditure and Reform, Deputy Brendan Howlin, and the Minister for Finance, Deputy Michael Noonan, were described by Senator Susan O'Keeffe as the "Celtic troika" in their attempts to right the country's finances. I welcome the Bill introduced by Senator Marc MacSharry. It is one element of the effort to rearrange the financial architecture of the State, as the Minister of State and his colleagues are seeking to do. An article in The Economist on 15 September last year entitled Houses Built on Sand showed that Ireland had the highest rate of house price inflation, by a factor of two, among all the OECD countries. CSO data show that the cost of a second-hand house in Dublin increased from €104,000 in 1997 to €512,000 in 2006.
We must move away from the policies that did so much damage to the economy. The construction industry brought down the banks, and the banks, in turn, brought down the country, which led to our rescue by the IMF and the ECB. One of the basic principles to which we must return is the notion that a house is for living in rather a means of securing capital gains or tax breaks. There must be resistance to the inordinate lobbying power enjoyed in the past by the sectors which caused the problems in our economy. In the week of the Galway races, we all recall what used to happen in the famous tent. It was far too easy for members of bank management to go in the back stairs of the Department of Finance on 28 September 2008 and emerge with almost unlimited moneys.
The banks built up the problems that came to light in 2008 through lending practices over several years. The largest sectoral increases in bank lending, in the years after joining the euro, were in real estate, which increased from €4.8 billion to €97.5 billion, followed by lending for financial intermediation, much of which went into higher property prices, which grew from €18.3 billion to €97.5 billion. By contrast, agriculture and industry accounted for only 1.2% of the total increase in lending. This type of irresponsible banking must be curtailed in future. It is important that we retain a focus on this issue, because the Civil Service, as we have learned, did not have sufficient expertise to do so. The Wright report indicated that only 7% of staff in the Department of Finance have an economics qualifications. It is vital that Senators and Deputies bring forward legislation to make up those gaps in oversight and expertise. I welcome the decision to put the appointment of chairmen of State bodies before the Oireachtas for approval. All appointments to the boards of the Central Bank board and the Financial Regulator should be subject to scrutiny. Those people have done immense damage to the country.
We must encourage a culture whereby a house is primarily a principal residence, not a source of tax-free capital gain. The provision of housing should not be a benefit gig for builders in a tent at a race meeting. There must be no support for any fiscal privilege, as it is called, attached to trading up. In the past, a person who could not afford to live in a smaller house might move to a larger one to avail of a larger tax write-off. All such capital gains were tax free. In future, housing policy must be based on keeping people in their houses, as Senator MacSharry's Bill seeks to do, with a fairly modest cut-off in terms of salary multiples. I am not particularly interested in the problems of people who might have to leave large estates in County Meath or trophy houses on Ailesbury Road. Going back to the rule of two and a half times a single income or three and a half times a joint income, one might conclude that the average house should cost approximately €100,000, based on average earnings.
As the country with the worst house price inflation and the most irresponsible lending by banks, which bankrupted themselves in so doing, there is much to do to address the housing problems in this State. The Regling-Watson report posed the most fundamental question in pondering what on earth the banks thought they were doing. As we approach the third anniversary of the bank rescue, we still do not know the answer to that question. The banks have been remarkably successful in avoiding being accountable to either House in terms of providing any rationale or justification for their lending policies. Senator Jim D'Arcy observed that the numbers affected by the issues dealt with in this Bill are small, but the potential danger is great. An immense burden has been placed on a generation by irresponsible banking and lackadaisical central banking.
Restoring affordability and sustainability to the provision of housing should be a main objective of Government. When the Minister of State with responsibility for housing, Deputy Willie Penrose, was in the House recently, we argued that NAMA should sell its housing stocks so that somebody can live there. The State should not feel an obligation to keep house prices artificially high for fear of the impact on certain assets in some balance sheet or other.
I welcome the Bill introduced by the Fianna Fáil Members. It shows that Senators are seeking solutions to a serious problem and finding ways to assist individuals, such as those in north Dublin to whom Senator Darragh O'Brien referred, who bought their homes at the peak of the boom on the basis of advice from professionals to get on to the housing ladder as quickly as possible. As part of the ongoing rearrangement of financial architecture in the State, the Government should reconsider the restoration of building societies. Contrary to subsequent developments, they started out as mutual benefit societies which sought to help people who wanted to become home owners. Unfortunately, they were incorporated into other corrupt institutions.
Part of trying to get the country's finances in order is to have a safety net for home owners, as proposed by Senators Byrne and MacSharry. While I was sorry there was not unanimity on the previous motion, this is a matter in which the House should send a unanimous message that it will assist the many home owners in mortgage difficulties. House prices got way out of line with everywhere else as The Economist pointed out, as well as way out of line with economic growth and incomes.
I was interested to hear the contributions from all sides of the House on this important issue. I congratulate Senators MacSharry and Byrne on publishing this Private Members' Bill. Having proposed seven different Private Members' Bills in 14 years in both Houses - all of which were rejected I hasten to add - it is always encouraging when Members bring forward their own legislation. It takes much work. Whether the Bill is successful, raising an issue ultimately leads to it being addressed by legislative and non-legislative means. I know Senator MacSharry has worked hard on the issue of home repossession.
One of the great advantages to a Minister attending the Seanad is that it gives him or her an opportunity to brush up on constitutional knowledge. From reading articles 18 to 24 in the Constitution, I note I have no standing in this House and the Government is responsible to the other House, not to this. Recently, I read an interesting book that stated that as the Government has no standing here, this House could do its business without the Government represented at all. This would be an excellent idea at 7 p.m. on a lovely evening like this.
I am a sort of invisible man here. I will give the Government's viewpoint but it is a matter for Senators to decide what position they will take. It is also important to recall that no Bill becomes a law until it is passed by both Houses of the Oireachtas and both have the power to initiate Bills.
Home repossession is an issue that involves many Departments, including Finance, Social Protection, Justice and Equality and Environment, Community and Local Government. Sometimes, that may have an advantage in that various people have to be brought together to work out a solution. Other times, it is like early 1990s governmental babble for getting nothing done. The programme for Government has given a firm commitment to address home repossessions but it requires the buy-in and support of all Departments. This Private Members' Bill will help ultimately in framing a solution that can work for people.
Senator Hayden's point on whether a judicial response to this matter is required is valid. I believe it is not. What is ultimately required is a solution outside of the courts. That does not mitigate the right at some point for legislation.
The Government does not support the Family Home Bill 2011 as it is unnecessary. Measures are already in place to reduce the risk that families in genuine difficulties with mortgage repayments could be evicted from their homes. The Central Bank code of practice on mortgage arrears is a more flexible way of dealing with mortgage arrears cases than an Act of the Oireachtas. Non-judicial resolution procedures are more appropriate to deal with cases of people in genuine difficulties in meeting their mortgage repayments.
The Bill, as drafted, could also risk serious legal uncertainty and may raise constitutional issues. Article 15 of the Constitution unequivocally prohibits both Houses of the Oireachtas from proposing a law or a resolution which may be deemed unconstitutional. While I accept that the Opposition does not have the benefit of the advice of the Attorney General and other law officers of the State, the Government believes this Bill, as drafted, is unconstitutional.
The Central Bank's code of conduct on mortgage arrears applies to mortgage lenders in their dealings with borrowers in respect of the principal private residence in the State. Adherence to the code is mandatory for all mortgage lenders registered with the Central Bank. It sets out the framework that lenders must adhere to when dealing with borrowers in mortgage arrears or pre-arrears. For the purposes of the code, pre-arrears arise when the borrower contacts the lender stating that he or she is in danger of getting into repayment difficulties.
The code contains two safeguards to prevent the repossession of family homes. First, the lender must make every reasonable effort to agree an alternative arrangement with the borrower, or his or her nominated representative, before applying to the courts to commence legal action for repossession of the borrower's primary residence. These alternative arrangements are considered as a mortgage arrears resolution process, MARP. It sets out a procedure that lenders must apply to mortgage accounts where arrears have arisen and remain outstanding for 31 days from the date the arrears first arose. A lender must explore all options for alternative repayment arrangements when considering the case.
The second safeguard provides that where a borrower co-operates with the lender, the lender must wait at least 12 months from the date the borrower is classified as a MARP case before applying to the courts to commence legal action for repossession. When determining the 12 month period the lender must wait before applying to the courts to commence legal action and any time period during which the borrower complies with an alternative payment arrangement, makes an internal appeal or makes a complaint to the financial services Ombudsman must be excluded.
The Government believes detailed customer rights in mortgage products must be set out in a code of practice rather than specified in an Act of the Oireachtas. The reasons people may be unable to meet their mortgage repayments varies considerably. So too do their prospects of being able to meet their repayments in the future. It is important, therefore, that resolution measures be flexible and are able to respond quickly to changing circumstances.
The code of practice is a more effective mechanism to protect home owners. It sets out rules to address a wider set of circumstances and can be quickly altered to address changing circumstances. If we set this out in primary legislation and there were difficulties with it - or, alternatively, the primary legislation was shown to be non-operable - it would require a fundamental change in the legislation to change it quickly. There are many court cases in which precedents are established through the courts which alter the Government's view on regulation or legislation. The view is that it is easier to do this by way of a code than through primary legislation.
I will now turn to some of the specific measures in the Bill. I am particularly concerned with sections 5 and 6. Under section 5, the courts would have no power to make an order for repossession if the Money Advice and Budgeting Service, MABS, reports that the borrower has no capacity to repay money due on foot of the mortgage. This would seem to place a significant burden on MABS and give inordinate weight to reports prepared by it. We must remember that MABS is a non-statutory body and is essentially an advisory service.
I can immediately see two difficulties with this approach. First, it does not take into account the value of the family home that the borrower lives in. Public policy should be concerned primarily with supporting families in genuine need. Second, what would happen if MABS were to determine that the borrower did have the capacity to repay the mortgage and the borrower did not agree with that determination? Would MABS, for instance, be indemnified if the borrower decided to pursue legal action? I believe that any commitment to alter the status of MABS at this stage is premature. I agree with Senator Hayden's comments in this regard.
The view of the Government is that we do want to transform the role of MABS; we have a definite view as to its future role. However, to change the legislation in this way, before the primary legislation dealing with MABS has been altered, is really putting the cart before the horse. I ask people to think about that. It would not have the effect that colleagues understandably want it to have. MABS will ultimately be changed, but the effect in the legislation would be ahead of this change.
The Minister for Justice and Equality is taking the lead in introducing non-judicial debt settlement systems. A personal insolvency Bill is in the course of being developed in the Department of Justice and Equality to provide for a new framework for settlement and enforcement of debts and for personal insolvency. While this will encompass reform of traditional bankruptcy law, its primary focus will be on introducing new non-judicial debt settlement mechanisms that both debtors and creditors can use in a fair and workable way.
Section 6 lists six new orders that the courts may issue as an alternative to an order for repossession. One of these proposed alternative orders is that the terms and conditions of the mortgage be amended to change the interest rate to a fixed or variable interest rate, as the court considers appropriate, taking into account prevailing market conditions. If the courts were allowed to make such an order, it would give them the right to retrospectively and unilaterally rewrite valid contracts freely entered into between two competent parties some time in the past. Giving the courts this right would create unnecessary uncertainty in the law. Such uncertainty over mortgage contract arrangements would also make it very difficult to raise much-needed international funding across mortgage books into the future.
Another of the proposed alternative orders is that the court could order that the borrower remained in the family home as a court-approved tenant of the lender for a rent and on terms fixed by the courts. I could not accept this approach as I believe it would be unfair to lenders to force them to become landlords against their will. Furthermore, it takes no account of the scale of the existing family home and the borrower's accommodation needs. The problem is highly complex, as colleagues have said, and a one-size-fits-all solution will not work. I made that point myself in the House when I addressed this issue by way of a Private Members' motion some weeks ago.
The banks have developed, and continue to develop, a range of solutions designed to deal with individuals in an appropriate and fair manner. The expert group on mortgage arrears put forward 62 recommendations which should extend those solutions and also, importantly, ensure fair and consistent treatment of consumers. These recommendations are currently being implemented and need to be given some time to take effect.
Notwithstanding this, the Government is fully committed to ensuring that all possible solutions are fully considered and that appropriate solutions are applied fairly and consistently. In this regard, a new working group is being established under the economic management council to consider the state of implementation of the key expert review group recommendations and develop further necessary actions to alleviate the increasing mortgage over-indebtedness problem. This is an issue of considerable priority for Government. The strength of the economic management council is the fact that the Taoiseach, the Tánaiste, the Minister for Finance and the Minister for Public Expenditure and Reform are key members, and they take on work which cross-cut departmental priorities for the Government.
I ask the House to give us a bit more time to work up a number of solutions to deal with this issue. Even though the rate of repossessions is low so far - even this year alone, it has been low - the problem is not going away. This is a problem that has been stored up, as Senator Barrett said, not just because of the disastrous decisions taken by the banking sector but also because of the appalling regulation by the Financial Regulator and the Central Bank that went on for far too long. We need to get back to traditional banking - banking that is based on common sense and in which the customer is at the centre of the bank's endeavours, rather than the property bubble which was allowed to get way out of control.
I thank both Senators for introducing this Bill. The view of the Government is the view of the Government but, as I said, it is a matter for colleagues to make up their own minds.
I welcome the Minister of State back to the House and I welcome the fact that the Fianna Fáil Party has tabled this Bill. I find myself agreeing with much of what was said by Members on the Government benches and by the Minister of State. There are many shortcomings in the Bill; however, it is something that could be introduced by the Government. If it is not minded to support this Bill I hope action will be taken to deal with the very real issue of the crisis that many homeowners are facing in this country and also the issue of homelessness.
Recent figures released by the Central Statistics Office showed that for the first part of this year, house prices fell by about 12.5%. That shows we have not reached the bottom in terms of house prices, and there is the potential for further reductions. The ESRI also announced recently that it believes we will not return to the house price levels we saw during the boom years until 2030. We are faced with a real crisis. There are 86,271 mortgage holders who are classified as being in serious distress. This figure includes defaulted and renegotiated mortgages. More than 11% of all mortgage holders are facing some form of difficulty. This figure increased by 6,000 in the first quarter of 2011. This represents 500 families who are falling into serious mortgage distress every week.
We are here today trying constructively to come up with solutions to help families who are in mortgage distress. It must be pointed out that the reason many of those families find themselves in distress, and the reason many people find themselves unable to pay their mortgages, is the instruments and policies that are being delivered by this Government and that were implemented by the previous Government in trying to fix the fiscal problems faced by the country. The reason many people are finding it difficult to pay their mortgages is that they have lost their jobs, are underemployed or have seen their social welfare cut - and, of course, they have been subjected to the universal social charge and all of the other levies, taxes and wage cuts that have been imposed.
There is no doubt that there is a direct correlation between the policies which the Government will put in place to try to adjust what is a very real problem in terms of the fiscal situation and the fact that there is a knock-on effect for many families. They have less money to spend and are trying to juggle between paying the mortgage, heating bills and other bills. I also accept that this is a very complex issue. However, it is galling for many people to find themselves in this situation when they were encouraged during the Celtic tiger years to be part of the boom and buy a property. Getting on the property ladder was the thing to do. People feared that if they did not purchase a house during that time they would be unable to do so in the future.
Many people in their 30s are those most affected by this. It is the generation which isliving this nightmare more than any other. Some people bought multiple properties as speculators. I do not have any grá for any of those individuals. My primary concern is for people who bought a home and made an investment for themselves and their families. Those people find it galling that we arrived at this situation because the banks here were lending recklessly.
All of the Irish banks competed with each other. There was a race to the bottom in terms of who could lend to people at a cheaper rate, give them the best possible rates and offer 100%, or sometimes 110% or 120%, mortgages. There was a rush to get as much cheap money as possible from German banks, bondholders and individuals, all of whom had no difficulty fuelling the property bubble, lending money into the banks and creating that situation.
We spoke about white collar crime in the House earlier and the link between politicians, developers and the entire political system in terms of the property bubble. White collar crime is not a victimless crime. This issue is linked to that. This week one bondholder in Anglo Irish Bank will be paid €800 million. Over the course of the coming weeks €18 billion in borrowed money will be transferred from this State, which we had to borrow at a very high interest rates-----
It is still money that we have to borrow in any event.
Some €15 billion of the €18 billion will be used to pay back bondholders. Some of it is to recapitalise the banks but much of it is to pay back the bondholders which the Government committed to paying back. Much of the money involves unguaranteed bonds which will be paid back by the Government. I gave the example of one bondholder who will receive €700 million.
The total amount of distressed mortgages is €12 billion. There does not seem to be any problem in putting together convoluted schemes or setting up structures and policies to deal with the developers. We set up NAMA, which was quite complex, because the Government at the time had to fix a particular problem. There does not seem to be a difficulty in terms of complexity in there areas, but it seems to be a difficulty in helping those with distressed mortgages.
If we continue with the kind of policies initiated by the previous Government the path of austerity which it laid down will result in cuts of €4 billion, €5 billion or €6 billion this year. Whatever the total figure will be it will amount to money being taken from the pockets of many families who are already struggling to pay their mortgages. We will create an even bigger problem.
Of course we have to look at instruments and ways in which we can help those who are currently in distress, for which there is no easy solution. We also have to be conscious that we do not add to the problem and end up in a situation where in a year, two years or three years the figure of 80,000 increases to 100,000 or more. That will happen if we continue to make the mistakes made by the previous Government.
I welcome the Minister of State to the House. I particularly welcome the idea of the Economic Management Council having a working group. Perhaps it would help if in three months time it or the working group came back to us and let us know how they are getting on.
As we all agree, there is no quick and easy solution. If there was I am sure the Minister of State would have found it by now and we would not be sitting here. Senator MacSharry has contributed to the urgency of this debate with his Bill. I am heartened by the response of the Minister of State today in regard to what is happening. Many of the solutions will be found by people sitting around tables, holding discussions and trying to work out the best solutions. They need to be flexible. The Bill was brought together at a time when the need for flexibility was not so obvious as it is now.
I am certain that the spirit and content of the Bill will form part of those conversations. We on this side of the House want to make sure that there is not a further delay. I appreciate the comments of Senator Cullinane. I do not believe there is a delay for the sake of it. While he may have no standing we would welcome the opportunity for us to have something further to addor to listen to what the Economic Management Council is considering in six, eight or ten weeks time. Perhaps we could all contribute to that debate, which could send a signal about the unity of the Seanad or its capacity to be flexible.
I do not agree with Senator O'Brien's idea that we should send a signal to the wider world about how clever we are in here that we would all agree to a Bill and negotiate amendments or whatever. That is rather cumbersome. If the Bill is not right-----
If, based on advice, the Bill has been deemed not to be constitutional then we should not try to agree with each other just for the sake of it, which is what I understood was suggested by Senator O'Brien, or for the greater good of the Seanad or unity outside the House. I do not think anybody outside this House believes anything other than that politicians are unified in trying to find a solution to this problem. That is why we are all here.
I do not agree with passing the Bill and taking Committee Stage for us to amend it if it is not right in the first place. There are far too many people relying on the outcome of any judicial and non-judicial decisions made by the banks or Government. I disagree with the Senator on that point. If that were possible I would like to hear the response of the Minister of State.
I welcome the Minister of State to the House. I liked his discussion on the Constitution and the independence of the Seanad. The term "A nod is as good as a wink to a blind horse" came into play at one stage. He said he is part of the Government while we are independent and that it was up to us to make a decision because he was not going to tell us what to do. I hope that my colleagues opposite listened to the esteemed Minister of State and will take his comments on board.
He referred to the code of conduct which is a very technical area. I commend Senators MacSharry and Byrne for publishing the Bill. It is an enormous piece of work and a great deal of thought and effort has gone into it. Senator Byrne discussed a particularly interesting aspect of the Bill with colleagues from Fine Gael in the Dáil. A proposal on the debt for equity option is contained in section 6. This is a very practical solution which has not as yet been included in legislation. It provides that a house owner can go to court to make the bank take a share in the property thus avoiding an upset to the balance sheet of the bank. Senator Byrne discussed this provision a year ago and a former Fine Gael Deputy from Offaly worked with him on this issue. It is a practical solution which will work. The balance sheets of the banks will not be put out of kilter. It would mean that monthly repayments would be reduced but so too would the house owner's share of the ownership. When the individual concerned is back on a firmer financial foothold, he or she can buy back the equity. For example, if a house had been purchased with a mortgage of €500,000 and is now valued at €200,000, the bank could take a share in the house which in this example would mean a three fifth share in the property. The monthly mortgage would be reduced by an equal amount. As my colleagues have said, if the banks pursue the owners through the courts and have them kicked out of their houses, these people will end up depending on the social welfare system and the State will have to provide them with housing in any event. There is no point in the banks taking possession of a house to sell it because the banks are not willing to lend money to any prospective purchaser. We are in a financial quagmire as regards property and this Bill is a very good attempt at a resolution.
I note Senator O'Keeffe has called for no delay, ironically, on the day the House will rise for the summer recess. She also called for action and this Bill is just that. She said that she did not agree with parts of the Bill but once Bills are before the House they can be changed exponentially because everyone's input is put into the pot, so to speak, and changes are possible.
I am interested to note the constitutional and legal advice on this issue. However, the code of conduct cannot be used by borrowers in a repossession court case. If a bank has not followed the code of conduct, this can be taken to the Financial Regulator but that is not much good to a person whose house has been repossessed. This is the same Financial Regulator who was not doing his job previously. It is not an inspiring suggestion that one should go to the Financial Regulator to say that the banks are not following a code of conduct. This is not a sufficient solution and there is no real penalty for the banks if they do not follow the code of conduct. In that respect, Fianna Fáil will call for a vote on this motion. The problem is massive and people with more knowledge of economics than me have told us that this is the second tsunami, that it is like NAMA, only bigger. The banks will eventually come to us looking for more money. The numbers are relatively small as a result of the moratoriums put in place by the previous Government. I maintain that Senator O'Keeffe's suggestion is rhetoric of the highest order. We can sit here all this week and we can tease out the problems that have been identified by the learned people in the Office of the Attorney General. Other speakers have highlighted that the distress is causing people to take their own lives. People are dying as a result of this undue delay which so concerns Senator O'Keeffe. We are going on holidays tomorrow and this Private Members' Bill will not be passed by the Government but I hope her colleagues will show some independence.
We started the day on a very positive note and we are preparing for our holidays. It is somewhat ironic that our last bit of business is this major issue which affects thousands of people. I commend Senator MacSharry for this Bill. I assure him I read his letter and I have studied this proposal which I regard as a genuine attempt at a solution and he has put substantial work into its preparation. It deals with a very important issue and he must be commended for raising the debate and setting the agenda. I do not think anyone has the solution yet, neither the Government nor the Opposition nor anyone else. In my humble opinion, there eventually will be a write-down in mortgages for ordinary people because it was lulu, Monopoly money that existed back in the mid-2000s. As was quoted by a previous speaker, the cost of €104,000 for a three bedroom semi-detached house in Dublin increased to €516,000. That €516,000 did not really exist; it was borrowed when there was no logical reason for lending it. Section 6 is very interesting. Fifty per cent of mortgages given out at a certain point in the past decade would fall into that category as described in subsection 6(2). Were they to be stress-tested and tested in court, it would show that all sorts of shenanigans and fraud took place regarding the preparation of the documents. It is unreal that, for instance, overtime payments and travel expenses were taken into consideration when evaluating a person's income. There is no such thing as a permanent job anymore and yet, overtime and travel expenses were being taken into consideration when deciding to grant a mortgage. This shows how nonsensical the situation had become.
I know of at least two cases in one of the major banks where accountants fraudulently prepared income and expenditure for applicants and this is appalling. There is much merit in section 6. There should certainly be stress-testing of impaired mortgages. I refer to section 6(1) which proposes an interest-only period for a maximum of four years and the write-down of the value and the extinction of the time period. Many of the measures in these proposals have been happening for people entering into negotiations with their banks and once a case goes to court it is beyond such negotiation. I dealt with one case where a mortgage had been an interest-only payment since 2005 and now the person cannot even fund the interest-only payment. There is significant merit in the proposals but we probably need to be make more fundamental and radical changes.
The economic management council is a good idea and it has worked. We have seen what has happened in Brussels and I commend all involved.
I know people are anxious to leave but this is a very important discussion. We may be having discussions about the role and the future of the Seanad but that is the last thing on the mind of anyone on the point of losing his or her home. The Government has a serious responsibility to devise practical solutions to this problem. I acknowledge that important steps have been taken. For example, I welcome the Minister of State's indication that there are proposals to assign greater powers to the Money Advice and Budgeting Service, MABS. That service is doing good work, but its staff are snowed under.
I commend the Members opposite on their noble effort in bringing forward this legislation. We look forward to working with them in devising constitutionally and legally sound legislation that will address these issues.
I support the proposals put forward by Senators Marc MacSharry and Thomas Byrne. The key message that must go out from this House is that, collectively, the body politic understands the effect, at a micro level, of what has happened at the macro-economic level. We must demonstrate an understanding that decisions made at high levels which led to major economic problems have had serious consequences for individuals. The message must be that the same level of consideration we are giving and seeking at national and international level for our national debt problems will be applied to individual citizens of our Republic who find themselves with unsustainable debt burdens which could lead to the loss of their family home. I have offered suggestions in this regard which I hope we will pursue in the autumn. They include the mobilisation of personal pension funds and the repatriation of foreign-held national pension assets which could be used domestically if an appropriate, modest bank were set up with some portion of the funds.
The Taoiseach and the Minister for Finance have appropriated a certain amount of credit for the renegotiation or rescheduling of our national economic commitments. They have done on a larger scale what Senator MacSharry and his colleagues are proposing we do on a smaller scale for individual citizens. The recent changes to the terms of Ireland's EU-IMF deal are essentially the slipstream collateral benefits of Greece allowing the mortgage on its national home to be put on an interest-free basis for several years. We found ourselves in the same continental ghost estate as Greece and, as a result, a certain amount of collateral benefit accrued to us. These are the same types of arrangements that some distressed home owners in this State have been offered by their banks and the same type of renegotiation of mortgage terms that this legislation proposes should be extended to all distressed home owners.
A rather vicious disinformation campaign is being waged in those countries that provided the assets which were unwisely given as loans to Irish home owners. The basic thrust of this disinformation is that we were irresponsible, dissolute, feckless drunks who borrowed the savings of German hairdressers to go on a ten-year binge of oysters, Mercedes and holidays in Marbella. On a point or order, I understand "feckless" is an appropriate word for use in the Chamber; it would only be inappropriate if I were to omit the "less" part. We all know that is not an accurate portrayal of what happened in this country or of the behaviour of the great majority of people who now find themselves in distressed circumstances.
The great bulk of the debt which was ultimately incorporated into our banking bailout, and which has become the noose with which we are being strangled internationally, arose as a consequence of the decision by a large number of individual citizens to do as their parents, grandparents and great-grandparents had done, namely, to purchase a house. They did not necessarily buy plush mansions or lavish palaces. In general, they bought the same types of houses their ancestors had bought, the difference being that they paid grossly inflated prices for them. They did so because they were advised by professionals, who had a fiduciary responsibility to provide good advice, that the old rules had changed, that one no longer had to think in terms of two and a half times one's salary but instead should aim for a multiple of three, four or five. People were no longer limited to borrowing 80% of the purchase price and in some cases were lent more than 100%.
People did not necessarily make irresponsible personal decisions. While everybody who purchased a home at an unwisely inflated price - I include myself in that group - has a degree of personal responsibility, the reality is that for many of our citizens, they did it because the very priest class of advisers - bank managers, mortgage advisers, accountants, people whose advice one could trust on the basis that they knew more than oneself about these matters - told them the rules had changed. All we are doing here is seeking to apply the same justice and logic to individual home owners that we are asking, on the macro scale, of the Germans, Finns and French. Authorities in those countries also had a fiduciary responsibility to their pension fund holders - the German hairdressers and so on - to invest their funds wisely; instead, they invested in the bubble Irish real estate market. We are asking that the same level of consideration be shown to distressed home owners that we are asking others to show to us.
I welcome and support the legislation. We must give high priority to the issue of family home protection by way of this and other measures in the coming year.
I thank Senator Marc MacSharry and his colleagues for introducing these proposals. However, I do not support the draft Bill because, like the Minister of State, I am of the view that it is unconstitutional. The judgment delivered by Ms Justice Dunne on 25 July casts doubt on the legality of any repossessions in respect of a certain cohort of distressed mortgage holders. It is interesting to note that in all four of the cases she dealt with, the moneys were advanced in 2007 and the borrowers ran into arrears by 2008.
Ms Justice Dunne's findings point to a defect in the Land and Conveyancing Law Reform Act 2009. The Government will have to introduce amending legislation to deal with that. The judgment observes of the 2009 Act, which sets out the obligations, rights and powers of mortgagees:
It only applies therefore to mortgages created by deed after the 1st December, 2009. It appears that there is a lacuna created by the repeal of [section] 62(7) in that, as I have found, those lenders who did not have an entitlement to apply for an order pursuant to [section] 62(7) by the 1st December, 2009, are not in a position to avail of the provisions of the 2009 Act to apply for an order of possession, as their right to apply for such an order is not saved by the provisions of the [Interpretation Act 2005]. It is not for the court to supply that which is not contained in the 2009 Act.
The 2009 Act has created its own problems in repealing section 62(7) of the Registration of Title Act 1964 and replacing it with a provision that does not apply in certain circumstances. One assumes a significant number of cases were on hold pending this decision. This development emphasises the importance of looking carefully at legislation. Even the best brains in the Attorney General's office and in Departments do not foresee all the implications and potential legal anomalies of legislation, as is clear in this case.
I agree with the Minister of State that certain aspects of the Bill are not constitutional. For example, section 6(1)(e) refers to "an order that the principal sum due on the mortgage be reduced". In layman's terms, that is similar to informing someone who owns 100 acres that a court can make an order stating that he or she now only owns 50 acres. In a technical sense, that is what the section does and it would not stand up to scrutiny if the Bill were passed and referred to the Supreme Court by the President.
Other speakers referred to the market that previously existed in the context of mortgages. Earlier, I mentioned the four cases in respect of which Ms Justice Dunne handed down her judgment on 25 July and I outlined the fact that those to whom these cases relate borrowed all of the moneys involved in 2007 and got into serious difficulties within 12 months of doing so. The difficulty in respect of the period 2004 onwards is that one could not give people advice. My experience of that period was that when approached by people if I informed them that what they proposed was not a good idea and that they should not proceed with it, they would go elsewhere. That was the problem which we in the legal profession encountered at that time. My major complaint in respect of the period to which I refer relates to mortgage brokers and people being encouraged to borrow because the structure relating to how we earned our fees was based on how much money was loaned out. As a result, mortgage brokers were shopping around and giving out loans which should never have been extended to people. I agree with other Senators regarding alterations being made in respect of the incomes people were deemed to earn and the fact that bonuses, travel expenses and overtime were taken into account in this regard as if these were entitlements that would automatically be paid into the future. That was not the case.
I agree with the Minister in respect of the Bill. While I welcome the discussion on the matters to which it relates and while I accept that a solution must be found as soon as possible, I do not believe the legislation deals adequately with the problems.
There is no more prevailing image in Irish history than that which depicts a family being evicted from its home. If one looks at any of the drawings and paintings relating to evictions in the past, one can see that people's suffering is amplified when there are children involved. In general, artists always depicted children as being confounded by what was happening to their homes and as wondering to where their families would go next.
The battering rams used in evictions may no longer be in use but, unfortunately, the emotional battering ram to which people can be subjected still exists. There is a need to treat this matter with a sense of urgency. During the lifetime of the previous Seanad, Senators MacSharry and Healy Eames used to lead the charge in respect of this issue on an almost daily basis as they sought to keep other Members up to date on developments. In many ways that indicated the partnership that existed between those then in government and those in opposition. I have always been of the view that such a partnership is required in respect of an issue of this nature.
I accept the assertion by a previous speaker that it would be better if these matters could be resolved without involving the Judiciary. On the other hand, there is no indication that this will happen. The banks have not sent out a message to the effect that as a result of their being recapitalised, and so on, they have a contribution to make in the context of easing people's suffering. Neither the previous Government nor the current one have been successful in obtaining such a reaction from the banks. We are not privy to the conditions that were attached to the recapitalisation programme. Do we have an input or a say in respect of how the banks operate? The State is a shareholder in several banks and has appointed people to their boards of directors who should make the case in respect of the individuals to whom I refer. However, I have not seen any results in this regard and people have already been evicted from their homes.
I realise that it was made in goodwill but I do not accept the logic behind a previous speaker's comment to the effect that because there has not been an acceleration with regard to the number of homes being repossessed, there is no need to be concerned. A couple of issues arise in this regard. First, introducing legislation, particularly if it appears to be strong in nature, sends a signal to the banks that it can be used in respect of them. The second issue is that there is no guarantee that an acceleration will not occur in respect of repossessions. I would be quite surprised if such an acceleration did not occur. The banks have not extended a flow of cash to small to medium-sized businesses. We are all aware of businesses which could do a great deal with a cash flow of €10,000 or €20,000.
We cannot obtain any answers in respect of what is happening with the banks. There appears to be cross-party agreement regarding this matter but we have not yet made a breakthrough. The position will be the same in respect of repossession. It is for this reason that the legislation must be passed. The Bill does not represent a knee-jerk reaction. Senator MacSharry has been working on it for a considerable period and I am aware that he has consulted widely with many of the players involved. Those who represent people who have already been or who are likely to be evicted have shown an interest in the legislation because they see it as something which will fill the vacuum.
It would have been great if we could have progressed the Bill beyond Second Stage. Some Senators on the Government side made excellent points and these could have been discussed further on Committee Stage. If it had been necessary to tweak the Bill to some degree or even to alter it substantially to satisfy constitutional requirements, that could have been done on Committee Stage. If the Bill does not proceed, other legislation will not be introduced in this area. The Government may be in a position to inform us that it intends to introduce alternative legislation but I do not believe that will prove to be the case. That is a pity because it sends out the wrong message from this new Seanad. We have more or less agreed that we will keep partisanship to a minimum in this House and that we will try to be co-operative and positive. That was in evidence on today's Order of Business when Opposition Senators praised the Government for the progress it has made in Europe in respect of renegotiating the interest rate relating to our loans. That is the spirit which is required in the Seanad at present. Partisanship is too expensive emotionally.
I suppose it is somewhat late to do so but I request that the Bill be allowed to proceed to the Committee Stage, particularly as this would be good in the context of what we are trying to achieve. If the Government is eventually obliged to adopt the legislation in full, then so be it. It would be bad for the image of the Seanad if this legislation were allowed to fall now. It would be a major breakthrough if it could proceed to committee stage in the interests of those who spend their nights worrying and who cannot sleep and in the interests of their children, who are concerned with regard to whether they will have a home in which to live six months from now. Strong action is required and perhaps at this late stage the Government will agree to allow the Bill to proceed.
The Minister of State was always one of the best performers in this House when he served here as a Senator. He often took a stand that was extremely independent-minded in nature in respect of particular issues. Perhaps there is a possibility that he found his time here productive and that, in the context of some of the positions he adopted in the past, he might decide to give the legislation a chance and allow it to go forward.
I take this opportunity to welcome to the Visitors' Gallery Mr. John Lee of the Daily Mail, the only person in the media who had the courtesy and manners to acknowledge the existence of this House and to come here to listen to this important debate.
Regardless of whether it is in order to do so, I welcome Mr. Lee and I apologise to the Leas-Chathaoirleach.
I thank all Senators for their contributions. There is much in the Bill that everyone would welcome. As the Minister of State indicated, the Government has four main issues with this legislation. The first of these is that the Bill is simply not necessary. However, almost everyone agrees that it is necessary. The Minister of State said that the existing code of conduct is good. The programme for Government clearly states that the code and the recommendations put forward in the Cooney report are inadequate. It is now proposed that an interdepartmental working group of the economic management council be established to examine this issue.
Relying on the code of conduct in its current form is similar to handing passengers on the Titanic inflatable armbands as the ship went down. Senator D'Arcy stated that so far the code of conduct is working. That is not the case.
The Central Bank stated on 1 July that 66% of financial institutions were not living up to the realities of the code of conduct.
The issue of the code of practice being statutory was raised by Senator Fidelma Healy Eames. It is statutory only in the sense that the Financial Regulator is empowered to make it under statute, but, as Senator Mark Daly said, one cannot individually challenge a bank in court in this regard. Therefore, in that sense it is not statutory. The banks are the ones which do this. For example, a bank will ask if an official engaged with punter X and offered an extended term. When the official confirms that he or she did so, the bank will ask what extended term the official offered, to which he or she will reply "an additional two years". A 48 year old homeowner with ten years remaining on his or her mortgage knows he or she could meet his or her repayments if the ten-year term remaining were extended to 20 years. When has such a term been extended for anybody? The answer is it has not been.
It concerns me that the bankers, as Senator Sean Barrett said, are still getting up the backstairs in Government Buildings. When I was on the other side of the House, I said this was happening and that it was wrong. This is not about protecting the banks but about protecting the fabric of Ireland and families. We want to protect what is provided for in Articles 41.1 and 41.2 of the Constitution. It is unconstitutional not to support the main thrust of the Bill and allow its passage on Second Stage. A number of the issues raised can be embraced on Committee Stage when a new section could be inserted to address a particular issue or a particular provision could be deleted if it might pose a danger to its constitutionality. There is much to support in the Bill.
There is the legal uncertainty. Senator Colm Burke mentioned the case taken by the New Beginning group which wrote to every Member of the House asking him or her to support the Bill. While Ms Justice Dunne has taken issue in this respect, that does not impact on the 2009 Act; it merely interprets it. Clearly, the Government, as the Minister of State said, might have to rectify the matter and could do so on the first available opportunity on Committee Stage of this Bill.
We would all like it if this was a non-judicial issue, but the reality is it is such an issue every Monday. The Bill contains proposals to sort out that matter by giving options to the courts. It would not prohibit repossession in every instance, but it would give tools to the courts to help families. If enacted, very few such cases would go to court. The bankers who were so creative and innovative when they came up with derivatives to bust the world to the tune of hundreds of billions of euros and dollars would focus their minds on coming up with derivatives that would help families to meet their obligations and allow them to stay in the family home.
Senator Colm Burke mentioned section 6(e) in terms of a debt for equity swap and said he was concerned that it might not be constitutional. However, in the middle of June he voted in favour of a motion brought forward by Senator Aideen Hayden supporting a debt for equity option.
Senator Michael D'Arcy started for the Government side and I wrote down a number of the words he used. He said: "There is nothing in this for us." I am bound to say to the Minister of State that before this debate took place the Cabinet insisted on the Whip coming down on this issue. Having considered the points made, the only reason he and his colleagues have not to support the Bill on Second Stage is that, "There is nothing in this for us." This is not about who came up with the proposal. We do not want ownership of it. This is a collective approach. It has often happened that a Bill has been agreed to on Second Stage and a wide variety of changes have been made on Committee Stage. Unlike what Senator Susan O'Keeffe said, that is the nature of the legislative process. Good legislation is all-encompassing. I beseech all Members on this one occasion to take the Minister of State's advice and use their own mind because I know from speaking to many of them in recent weeks that they want to support this legislation. There is enough support for it to be passed on Second Stage. It does not offer the ultimate solution, but would be a start, as all speakers have acknowledged. Let us embrace it now; carpe diem . Let us do it together. I commend the Bill to the House.
The Seanad Divided:
For the motion: 20 (Sean Barrett, Thomas Byrne, Eamonn Coghlan, John Crown, David Cullinane, Mark Daly, Terry Leyden, Fiach MacConghail, Marc MacSharry, Paschal Mooney, Rónán Mullen, Labhrás Ó Murchú, Darragh O'Brien, Marie Louise O'Donnell, Ned O'Sullivan, Averil Power, Jillian van Turnhout, Jim Walsh, Mary White, Diarmuid Wilson)
Against the motion: 23 (Ivana Bacik, Paul Bradford, Colm Burke, Deirdre Clune, Paul Coghlan, Michael Comiskey, Martin Conway, Maurice Cummins, Jim D'Arcy, Michael D'Arcy, Jimmy Harte, Aideen Hayden, Fidelma Healy Eames, James Heffernan, Imelda Henry, Lorraine Higgins, Maire Maloney, Mary Moran, Tony Mulcahy, Michael Mullins, Susan O'Keeffe, Tom Shehan, John Whelan)
Tellers: Tá, Senators Ned O'Sullivan and Diarmuid Wilson; Níl, Senators Paul Coghlan and Susan O'Keeffe..
Question declared lost.
The House will adjourn sine die but will meet again in the middle of September at the same time as the Dáil. Before we adjourn, I wish Senator James Heffernan who is getting married in a week or two the very best of luck. I also thank Deirdre, Jody, the ushers and all other staff members for their work. I hope everybody will return suitably refreshed. I suppose those on the opposite side of the House will be refreshed and ready to have a go at me in September. I wish everybody the best of luck and hope they enjoy the few weeks break. We hope to be back on 14 September.