Tuesday, 25 October 2011
Report by Interdepartmental Working Group on Mortgage Arrears: Statements (Resumed)
I thank the Minister of State for outlining to the House his ideas on mortgage resolution. I am pleased to hear that the Government considers the Keane report as just that - a report - given that many of its recommendations do not go far enough. I also acknowledge the Government's willingness to listen to other ideas.
Fianna Fáil has published three Bills, namely, the Debt Settlement and Mortgage Resolution Office Bill 2011, the Regulation of Debt Management Advisors Bill 2011 and the Family Home Bill 2011, about which Senator MacSharry will speak further. These Bills make concrete proposals. The Debt Settlement and Mortgage Resolution Office Bill 2011 completed Second Stage in the Dáil last week. I hope it does not die in that House because one of the flaws of the Keane report and, to some degree, in the Minister of State's contribution is that too much power is being vested in lending institutions to come up with solutions. The proposals would give lenders the responsibility for approving financial plans and restructuring mortgages. A mortgage advisory council should be set up on a statutory footing and given decision making powers and the ability to assess the underwriting of the original mortgage proposal and ability to pay. It should be able to hear the arguments from lenders and borrowers before making a decision independently of the banks.
The Minister of State is correct to point out that the banks have not played ball. More than 50% of the mortgages in this country were given by non-Irish institutions. This is why it is crucial that the resolution office be put on a statutory basis with arbitrary decision making powers and the ability to rule on issues arising for mortgagees. That will not be done by employing 100 additional advisers in the Money Advice and Budgeting Service.
I agree that the market is dysfunctional. No new mortgages are being written and first-time buyers are in a quandary in regard to the value of houses. Prior to the Government's announcement of the two pillar bank approach and its rejection of the proposed sale of EBS to a US consortium, that building society was writing one in two first-time buyer mortgages. It is no longer offering mortgages now that it has been joined with AIB. We are thus facing a major problem as a result of creating two large banks in this State. The only other alternatives are Ulster Bank and, to a smaller extent, KBC. We need to maintain competition in the market.
What are we going to do for the tens of thousands of people who cannot repay their mortgages? As the Minister of State noted, more than 30,000 restructured mortgages have already fallen into arrears. This is happening because the banks were required under previous statutory guidelines to enter into 12-month restructuring arrangements. They are not restructuring the full mortgage, however. They are simply agreeing to their customers paying X euro for 12 months before reviewing the arrangement. This is not giving people a clear route out of the debt problem. As we cannot trust the banks to offer the solution, a statutory body is needed to make the decisions.
I noted with interest the proposal on enhanced mortgage interest relief. I have repeatedly asked Fine Gael to honour the commitments made in advance of the general election to increase mortgage interest relief to 30% for those who bought their houses between 2004 and 2008. This would average €166 per month. The Government must pursue that policy.
In regard to variable mortgages, the Financial Regulator was 500% right. We have to tie the banks. The month before last, ICS increased its variable interest rate by 0.5%. The average variable rate with the ICS is just under 5%. I believe it is 4.79%. It is crippling people. The last increase led to an increase of approximately €150 a month in net payments on an average mortgage, at a time when people's salaries are decreasing. These institutions are not living in the real world. The Minister of State must support the regulator on that. I am glad he said that in his statement. It is something we can enforce in the cases of the banks over which we have control. There is no silver bullet in this regard. Time is of the essence. I am sure all Members receive hundreds of e-mails and representations from people in their constituencies who are experiencing difficulties. We cannot wait for another report.
I would like the Minister of State to confirm that firm measures will be included in the upcoming budget, which will be announced in early December, to help people in mortgage arrears. I hope I am right to assume that will be done. The situation is getting worse. I will not even get into the buy-to-let issue. We have produced three Bills that deserve to be considered by the Government. If the Minister of State takes one thing away from here today, it must be that the lenders should not be allowed to make decisions on restructuring on their own. The debt settlement and mortgage resolution office that we have proposed - the Government may wish to call it something else - needs to be established on a statutory basis. Such an office should be in a position to rule on these things. I thank the Minister of State for his time. This is not the last debate we will have. I reiterate that time is of the essence.
The Minister of State is very welcome. I thank him for a strong and sound speech. I am delighted he has acknowledged that the Keane report is just a starting point. Everything that is being done by the Minister of State, the Minister for Finance and their Government colleagues in response to this problem will define how an entire generation views politics. That is it in a nutshell. I cannot imagine anything worse in our lives as a family than losing our family home. As the Minister of State rightly said, this serious issue has personal, social, family and economic repercussions for society as a whole. We are speaking against the backdrop of the continued unemployment of 442,000 people. As 185,000 of them have been unemployed for more than a year, they may be classified as long-term unemployed.
There is no easy solution to the mortgage crisis. A complex crisis of this nature needs to be considered ethically. I would like to make a few points. I will mention an option that I would like the Minister of State and the Minister for Finance to consider. The Minister, Deputy Noonan, has given me a commitment that he will examine it. It is important that this matter be dealt with urgently. I welcome the local authority pilot schemes even if I am not excited about them. Such schemes will be of use to very distressed people only. I suggest that a maximum of 10% of home owners fall into that category. In all other cases, we need to take a serious look at how we can help people to own their homes and meet their repayments.
This is a big problem. As the Minister of State said, some 45,000 households are in arrears of 90 days or more. Of the 70,000 accounts that have already been restructured, some 30,000 are failing to meet the terms of the restructuring. I agree with him that we must help those who cannot pay, as opposed to those who will not pay. I am not in favour of debt forgiveness. Everything we are proposing must be understood against the backdrop of the fact that the banks have already been recapitalised to the tune of €9.5 billion on the personal debt issue. I understand that a further €5 billion is available. Those moneys would cover losses of between €25 billion and €35 billion in mortgages. That is a lot.
I would like to comment briefly on a few of the new proposals in the Keane report. I will outline my criticisms or otherwise of them. The proposal regarding trade-down mortgages would allow the owners of higher-value or larger properties to trade down to a more affordable mortgage and carry the negative equity with them. Will the Minister of State clarify that? If mortgagees trade down to properties of less value and carry the negative equity with them, how will this work for them? Will an amount that is separate from the new reduced mortgage continue to be outstanding? How could that be achievable or payable?
I see great merit in the proposal regarding split mortgages. It is one of the best solutions, but it needs to be thought through line by line. It is in this context that I intend to refer to the proposed equity option plan. As I have said, the mortgage-to-rent proposal relates to very distressed mortgages only. The sale by agreement proposal really suits the banks. The banks have been recapitalised, as we said. It is a win-win for the banks. They have been careful to ring home owners about this rather than writing to them about it. The only person this proposal will suit is the foreign buyer who intends to go home. It is not good enough for the Irish buyer.
A positive proposal, which can be described as a split mortgage based on an equity option plan, was shared with Members in the audio-visual room the other evening. It gives the Government and the banks an opportunity to put solid structures in place to allow people to plan their way out of this situation. It gives home owners back their spirit and restores their dignity. I will give a precise example that relates to a family home with a current market value of €280,000 and a current mortgage amount of €317,000. The original term of the mortgage was 25 years. The current monthly repayment on the remaining €317,000 is €763. As this is an interest-only payment, it is never-never land. It is not much good. It is not getting the family closer to ownership. If they were to make repayments on an annuity mortgage, including the capital, they would be paying €1,800 a month over 25 years, which they cannot afford. If they switch to an equity option plan, the current interest-only repayment of €763 per month would now finance an annuity mortgage, including the capital, of €128,000.
Basically, I am proposing that such a mortgage should be split. Families would qualify on the basis of what they can afford. The family in this case can afford to make repayments on €128,000, which is 40% of the overall mortgage. The bank would take 60% of the equity. It is now split in two, between what the family can and cannot afford. The 60% is parked but it does not become a non-performing loan on the bank's books if a small percentage - less than 1% - of simple interest is charged on it. Each year, the owner would be sent a valuation certificate stating that he or she owns a certain amount and has an option to buy back a certain amount. If they were able to buy back an extra €5,000 in year one, that would give them 42.25% equity and the bank would be down to 57.75% equity. This is a long proposal. More details about this equity option incentive plan can be found on eoip.ie. It would enable the home owner to maintain ownership of his or her home.
It also shows the public that the bank is taking some responsibility for helping with the restructuring and maintaining the ownership. I will finish by asking a final question. How will the Government deal with foreign banks based here, such as Ulster Bank, that have Irish clients?
I welcome the Minister of State back to the House. I was delighted to note his sense of urgency and to hear his perspective on the banks. It was quite a contrast with the sense I got when I read the Keane report. I join him in emphasising the political urgency of our response to the Keane report, not only in relation to the scale of mortgage arrears, which is what the Minister of State's comments largely focused on, but also in relation to the personal debt crisis that continues to unfold as we speak and from the perspective of the Government's commitment to eradicating the poverty of our people.
I have spent 25 years working with the people of the communities of Tallaght west and especially with the An Cosán organisation, which is located in Jobstown. I view our response to the personal debt crisis, including the mortgage arrears issue, as a prime opportunity to tackle poverty. Rather than happening after we have sorted the bank debt crisis, it should happen alongside and parallel to the development of a banking sector for our country. This is one way of developing a new and socially sustainable political and economic model for this country. My perspective is that the hammering of those with personal debt should not be a core ingredient in the salvaging of the banks. I accept, in light of what he has outlined, that it is the Minister of State's perspective too.
As we know, stories are appearing in the media every day about households that have drastically cut their expenditure on food in order to pay their debts. In my own experience of working with families, I have witnessed how the almost impossible task of paying debts while meeting the most basic needs of families exerts almost unbearable pressure on people, sometimes resulting in loss of life. I know of a case in which a life was lost in light of this. Our current debates about the eradication of poverty are not sufficiently informed by socially agreed and empirically based income standards. I will return to this in a moment in the context of one of the suggestions I would like to make on foot of the report. We need to keep these issues foremost in our minds as we figure out how to deal with personal debt crises, while ensuring that households in debt retain a sufficient income to meet basic needs. Otherwise, we will unravel our social fabric and our commitment to fairness and justice in the search for an ideal economic solution.
I will focus my remarks on two aspects of the Keane report, namely, its recommendation for an independent mortgage advice function and its proposals on new bankruptcy legislation. The Keane report recommends the creation of an independent mortgage advice function. Additional advocacy, advice and support for people who may be negotiating with large, sophisticated commercial lenders is to be welcomed, yet the structure and the resourcing of this new body and its mooted link to MABS require more consideration. In the current environment, an holistic approach to debt is necessary. In order to provide adequate and efficient advice to people on all of their debts, all of their debts must be considered, both mortgage debt and personal debt. It seems somewhat illogical to require debtors to seek advice on mortgage debt from the proposed new body, and then expect them to seek advice from MABS on all other forms of debt. How should people in already stressful situations reconcile both sets of advice in order to get a clear picture of their overall financial situation? What is needed is an adequately resourced agency that provides necessary advice, but which is also a robust advocate for the needs of the debtors. I am not necessarily arguing that it has to be MABS.
Page 18 of the Keane report recommends a three-tiered approach to bankruptcy legislation. We need such an approach, and I note that this also echoes some of the very helpful work of the Law Reform Commission. It needs to be three tiered to create effective debt settlement and to be supportive of poverty reduction. We need a range of options to manage debt for the good of the individuals and the good of society. A range of options can recognise multiple debts, provide a machinery for debt management, arrange for the write off of debt in individual cases, the amount that cannot be repaid over the insolvency period, and ensure that a minimum income of debtors can be protected to meet their basic needs while repaying debts. The Minister of State referred to some of this in his speech.
The bankruptcy tier of this legislation will give people access to a mechanism which, if worst comes to worst, will allow them to pay as much of their debt as they can over a limited period and in that way, will allow them to earn the opportunity of a fresh start. Not everyone currently in serious debt will want to be declared bankrupt. Many people just want to be able to manage their debt, and it is to that non-judicial aspect of the debt settlement process that I want to address my final remarks.
The Government should give very serious consideration to the FLAC proposal for a debt resolution agency, which is something that is influencing some of Fianna Fáil's Bill, and something that will bring us in line with European best practice and that will oversee the resolution process of multiple debts and not simply mortgage arrears. What is needed is an agency with statutory powers to make independent binding adjudications, where necessary, that are subject to a right of appeal to the courts. It is an agency that needs to take an holistic approach to all debt, taking into equivalent account the interests of the lender. Equally importantly, this agency should be provided with the statutory authority to allow the debtor entitlement to a minimum income. I wish to draw the Minister's attention to the extensive work of the Vincentian Partnership for Social Justice, which has been working for over 12 years to develop and implement a robust methodology to determine the minimum essential standard of living for various household types. This methodology has taken into account what has gone on in other EU states.
Finally, I would like to finish where I began. There ought to be a genuine sense of political urgency to deal with these issues, particularly to put in place adequate and appropriate personal insolvency legislation. Can the Minister of State confirm that we will soon have that Bill before the House? I hear it in the Minister of State's words, but it is not necessarily reflective in the report before us. Is there an appetite to bring this forward soon, even if it means that when legislation is enacted, banks will have to write off some debt, including mortgage debt, and start spending the money with which we capitalised them?
Over the course of this debate, I expect we will hear similar proposals coming from both sides of the House. That is as it should be, because this is a national crisis facing us and we are all seeking the same types of solution.
We are all aware of the different comments in the media and so on relating to the debt crisis. One of them comes from people who already own their own homes. They would say that in their day, they saved up and sat on orange boxes until they had enough money, and that they cannot understand why people did not take their time and wait until they had enough money to buy their own homes. It is important to point out that people who bought their home in Ireland 25 years ago - perhaps even 15 years ago - were able to do that at a price three times their income, with Government benefits such as the tenant purchase scheme, first-time buyer's grant, stamp duty and mortgage interest tax reliefs to the extent that they were subsidised to almost 50% of the entire purchase price. It is important to bear that in mind when we are looking at those today who represent one generation of people dealing with this particular crisis and for whom the cost of their home was at least eight to 12 times their annual salary. When we talk about taxpayers' money and so on, we need to be aware that taxpayers' money has been firmly engaged in the home ownership market for many years before we got to where we are today.
We should acknowledge that Mr. Keane has said that this report is not the final word, but rather a step along the road, and as such I welcome it. It is fundamentally flawed in that it does not deal with the buy-to-let market. Allied Irish Banks acknowledged that up to 20% of its buy-to-let mortgage book is impaired, which means that it is more impaired than the domestic loan book. Unless we take into account that aspect of this crisis, I do not believe we will come forward with proposals that will actually go to the root of the problem in the Irish housing market. We need to have a robust examination of the buy-to-let mortgage books of all the lenders before we can really know where we are.
The Keane report mentions the need for insolvency legislation, and we are all agreed that this is absolutely critical and that we need to move with it as quickly as possible. I welcome the recommendation in the report on independent advocacy. However, I do not think that is even remotely close enough to what is required. Any solution that puts banks at the centre of this difficulty will be unacceptable to the people of Ireland. In my opinion, we need a three-tiered system. We should have independent advocacy. We need to have a non-judicial debt settlement process. We need to have the banks coming into that non-judicial debt settlement process as equals with the borrower, who is represented by an independent, fully qualified able advocate. Only when we have that type of a system can we move forward.
There are two proposals in the Keane report on mortgage to rent schemes, one of which relates to the voluntary housing associations and one of which relates to the leasing to local authorities of distressed mortgaged homes. The second proposal is entirely unacceptable. It leaves the legal title with the bank and it is entirely repugnant to the people of Ireland that they will pay taxes for repossessed homes. I know there are difficulties with the troika, but I see no reason local authorities could not create a special purpose vehicle in which they can take legal ownership of distressed homes. The tenants of those properties, as they would become, could have all of the benefits of social tenancy, including the right to tenant purchase of their homes and the right to incremental purchase. We have to give hope to those whose homes are repossessed. We cannot leave them sitting there forever in homes they once owned. The day they are forced to lose them, they must know they will be able to recapture their ownership.
My final point concerns split mortgages. To be honest, I was disappointed with the Keane report. It was almost like an apologist for the banking sector in not allowing the interest on the parked portion of the mortgage to be forgiven. That is unbelievable and outrageous. One cannot talk about split ownership. That is unacceptable.
I only need 30 seconds. We must look to the banks to take a share of the burden. I strongly advocate shared equity. At the very least, the interest on any split mortgage should be parked.
I agree with the Minister of State; we must move forward, as the market has ceased to operate. I strongly advocate the establishment of some type of third banking force, as we cannot continue as we are.
I thank the Minister of State for attending the House to discuss this issue. He will have heard many of the points made on the last two occasions on which we debated it. I am critical of the Keane report along the same lines as New Beginning, but I do not want to rain on anybody's parade, as it is another effort by a group of people to come up with solutions. Almost always I find myself disagreeing with Deputy Joe Higgins on his views and colourful contributions. I have to say, however, that he got it in one on the Keane report which is effectively about sending the fox back into the hen house to give CPR to the hens that have just been attacked.
This House is very much in agreement. Having been a Member for nine years, the great tragedy of the Seanad is that there is a Whip. We were forced to vote down the Family Home Bill on Second Stage a number of months ago, pending the amendment of the Debt Settlement and Mortgage Resolution Office Bill which was accepted on Second Stage last week. It is a shame that there is a Whip because we could have been ahead of the game otherwise. I, therefore, ask the Minister of State to read his script from that night rather than his script of tonight. They are extremely different in acknowledging that there is a major problem.
I know. The demands of ministerial office are such that the Minister of State does not get to write his own scripts. If he did, there would not be such inconsistencies.
I agree with other Senators that the banks must share the burden. Could the Seanad discuss the Bill accepted in the other House in Private Members' time without a vote? It is now parked in the Dáil and will be prevented from being brought to us until such time as it moves forward or is dropped. It can be amended; in the other House Deputy Michael McGrath said improvements could be made to it. It would be workable, as the Minister for Justice and Equality, Deputy Alan Shatter, acknowledged, but we do not have much time to deal with the matter.
I encourage the other House to re-examine the Family Home Bill. I take the point that there would be a judicial process, from which we want to move away, if we can. I agree; therefore, let us just do it. That is what the Debt Settlement and Mortgage Resolution Office Bill seeks to do. In the interim, however, giving the courts such powers - having been a banker - would scare the living life out of every banker whom I know, to the extent that no case would get nowhere near the courts. The same innovative minds that came up with derivatives to lose many billions of pounds, dollars and euro all over the world would be put to work to ensure mortgagees who have lost one of two incomes in a household and are now under serious pressure because they have borrowed up to 12 times their income to purchase a house would be kept in it.
What would be wrong with embracing the concept behind what we have asked the Troika to do for us and those three bodies are doing for Greece and other economies? We should say to people, "If you are a good medium-term bet, let us elongate your mortgage and come up with different terms. Yes, let us pay a dividend to the bank in which we, the State, are a shareholder, but let us also give you dignity by being able to stay in your own home and pay your bills." That is why I am not in favour of the solution proposed: "We will stick you in a council house and you will be fine."
I do not doubt the Minister of State's commitment or that of the Government. I asked New Beginning what was it that had kept Fianna Fáil and the Green Party in government, that kept Fine Gael and the Labour Party in government, and kept officials from taking this step? Is it the all powerful within the banks or the banking division of the Department of Finance that stops us from taking this step to help the public? Instead, it is being kicked out through Mr. Declan Keane or Mr. Hugh Cooney before him, or the implementation strategy which will be put in place following debates in the Dáil. What is it that is stopping us from taking this one radical step to give the public what it wants? The reason the people destroyed Fianna Fáil was there was no sense of ownership of public policy. The public should be given this to let them see that in some way they are purchasing the same thing which, as a State entity, we are purchasing internationally. If that is done for them, the Minister of State will be in government forever.
I want to see real progress being made in this regard but not debt forgiveness. People should be given dignity by being allowed to stay in their own homes. We need innovative steps to ensure this happens.
I welcome the Minister of State's comment that, in addition to the Keane report, the Government is open to many suggestions on what can be done to move matters forward. That report is not the answer to all of the problems, but it is an important block in finding the solution. I share the criticism that the report does not represent consumer groups or mortgage holders, on whose behalf many Senators have spoken in this debate. The Minister of State is aware of New Beginning. The Joint Committee on Finance, Public Expenditure and Reform is holding hearings to thrash out proposals and possible solutions offered by such groups. There is a real sense of urgency, as the budget will be announced in six weeks time. Having heard the comments of the Minister and the Minister of State, I know it will contain measures to tackle this issue.
The family home is important, whether it ends up being rented under a local authority mortgage-to-rent scheme or through a voluntary housing agency. It is important the family unit stays in the home and the children continue to attend their local school. We must do whatever we can to keep people in their homes.
Some mortgages are distressed, while others are not. In addition, some people cannot pay, while others will not do so. We need to work with people in paying whatever they can. There is no blanket solution because these matters need to be tackled on a case by case basis. As the property market is stagnant, we need to get back to a position where properties can move. People should be able to buy again, trading up or down-sizing, as they wish.
Personal insolvency is an extremely important issue that needs to be addressed. In 2010 the Law Reform Commission produced a report on the issue which is also mentioned in the programme for Government. The Minister for Justice and Equality, Deputy Alan Shatter, is working on it and has promised to produce legislation to deal with it. He has been working hard since his appointment; therefore, I have every confidence that the legislation will be forthcoming.
There are many templates on how to deal with the issue. We need only look across the water to see what is being proposed. It is being proposed in Great Britain and Northern Ireland that they move move away from the courts in obtaining a debt settlement to avoid lengthy and expensive court hearings. It is possible to do this and there are many examples. We need to get on with tackling the issue in this country, as we have had too many reports. If we are to relieve people of their debt - I am not saying we will have a debt write-off - we must put them in a position in which they can work and reignite their entrepreneurial skills which will be very important to the recovery of the economy. I am very conscious of the language I am using. We must always bear in mind that there are some who simply cannot pay but who still have something to offer. They are burdened with endless debt. Our outdated bankruptcy law is not doing them any good and certainly is not contributing to future economic development. These are the issues that need to be tackled.
The report represents one step and one solution. We cannot go on as we are. Mortgage interest relief is a stopgap; it is not the solution for everybody. It is a forbearance issue, from which we need to move on. It is urgent that this matter be addressed and we should proceed on a case by case basis. The most important step for society at this point is to keep people in their family homes.
I welcome the Minister of State and the openness of his intervention. I am certainly no expert on this subject, but I believe it is one that goes to the heart of every household. It is, therefore, a burden we must all share. In finding a solution, we must work together.
In my reading of the Keane report, I did not see definitive solutions for distressed homeowners. The report raises more questions than it provides answers. It has left me with the distinct feeling that the balance has been struck very much in favour of the banks, which is why I welcome the Minister of State's comment that we need to consider other solutions and reports. The report falls short of addressing the overall debt crisis, which is desperately needed.
I have some specific questions on which I seek clarification. The mortgage-to-rent scheme has been recommended as one of the tangible supports needed for distressed homeowners with unsustainable mortgages. The introduction of two mortgage-to-rent schemes was referred to. One envisages utilising an approved housing body, otherwise known as the housing association. The Minister of State outlined that the idea would be for the housing association to buy properties from mortgage holders at a discount on the current market value. The report does not set the level of discount, but the equivalent scheme in the United Kingdom refers to 90% of current market value. The mortgage lender would provide a 75% long-term loan for the housing association, secured on the property. The Department of the Environment, Community and Local Government would provide the remaining 25% equity. The mortgage holder would pay, or partly pay, the mortgage with the proceeds of the sale. This would obviously involve some write-down of the outstanding mortgage, but the report does not specify whether the debt would simply be written off by the bank or whether the mortgage holder would still be liable. Perhaps the Minister of State will clarify that aspect for me. The mortgage holder would stay in the property as a social housing tenant, paying differential rent to the housing association, with the Department of the Environment, Community and Local Government paying up to 80% of the market rental figure to the housing association.
I welcome the Minister of State's comments, but my concern about the specific mortgage-to-rent option, which forms part of my overarching concern about the report being limited in its recommendations and conclusions which result partly from the working group not consulting representatives of wider society or the organisations on the ground responsible for implementation, is that it places a considerable financial risk on the housing association which would have to borrow large sums to run the scheme. If the mortgage-to-rent scheme is to become a reality, it is imperative that a formal consultation process with the housing association sector be embarked on first and that the sector be meaningfully involved in setting up the scheme. Will the Minister of State provide an assurance that such a formal consultation process will be put in place before the setting up of the scheme, given that housing associations are effectively being asked to borrow money to remove large property debts from the balance sheets of the banks?
I share the concern of many who have stated the recommendations are narrowly focused and do not address the personal debt problem. I refer to mortgages. As the Minister of State outlined, we need a more holistic all-debt approach that recognises that the mortgage arrears problem is part of the overall personal debt crisis which is crippling tens of thousands of people. I was looking at the proceedings of the Joint Committee on Finance, Public Expenditure and Reform on the monitor last Wednesday when representatives of MABS said they could not separate mortgage debt from other forms of personal debt because 91.5% of people contacting its offices with mortgage debt concerns were also overwhelmed by personal and other household debts. It is for that reason MABS suggested it be bolstered by the addition of 100 advisers instead of creating a 100 personnel-strong mortgage arrears agency, as proposed in the Keane report.
I join the Minister of State in saying we need to redouble our efforts, as we must all be part of finding a solution. I ask the Minister of State to encourage all relevant Departments to consider the nine principles to overcome personal debt proffered by FLAC and other national front-line organisations dealing with mortgage arrears, personal debt, poverty and housing rights. The report should be viewed as a useful framework to shape a policy response. The solution to the overall debt crisis will have to be arrived at in one way or another. In the interests of cost-effectiveness, both social and economic, like all present, I believe we need to arrive at it sooner rather than later.
I welcome the Minister of State. I am eagerly awaiting the outcome of the referendum on Thursday to see whether Oireachtas Members will be given powers of investigation. The sub-prime lenders must be investigated to determine how they operated their businesses. I fully accept there was reckless borrowing throughout the Celtic tiger years, mainly driven by a political belief that the good times would never end. Serious, reckless lending was being engaged in by lenders, particularly sub-prime lenders. I have always believed lenders should have a duty of care towards their borrowers, but this was not evident in the period in question.
Having been a community welfare officer in recent years, I can give an example of what I am trying to explain. It concerns a young man who had a 25-year mortgage of €168,000 with an Irish mortgage provider. All was fine until he decided to pay off his van and car loans and the debts on three credit cards. As he was getting married and needed money for his wedding, the loan was extended to €250,000. In his application to the lender he clearly stated what he was earning per month, namely, €2,500. His repayment, however, was €2,600 over a period of 40 years. He clearly demonstrated to the lender that he was not able to pay the mortgage for 40 years, but it gave him the money nonetheless. It put a noose around his neck for the rest of his life and that noose is tightening as the days go by.
The mortgage interest supplement will work in the case of a realistic mortgage, but not for an unsustainable one. We need to consider this issue because most of the unsustainable mortgages are held by people on social welfare in receipt of help from the State. MABS believes there should be some debt settlement because too many will never get to the bottom of their debt problems. I totally agree. Sub-prime lenders, rather than the taxpayer, should be made to endure the losses incurred.
I am encouraged by the Minister of State's very clear and strong statements. I totally agree that the banks cannot slither away from their responsibilities. They have been provided with public capital to allow for a debt write-down in the case of persons with unsustainable mortgages. As they are manifestly unsustainable, it is time they were written down.
The Minister of State has said that in any restructuring plan ability to pay and having a reasonable disposable income are essential ingredients. The report proposes the creation of a new independent mortgage advisory agency to act as an advocate on behalf of mortgage holders during discussions and negotiations with lenders. When will this agency be set up? It is urgent. Will it be an arm of MABS or a totally new agency?
With regard to third-party guarantees, I feel sorry for elderly persons who guaranteed loans on very expensive homes for younger people. I have stated before the not widely known fact that where one guaranteed a loan for a borrower 20 years ago, that guarantee is still in place if that borrower gets into financial trouble, even if the original loan has been paid off.
That guarantee is still in place if someone finds themselves in financial trouble today. The banks can go back to that person and put it to them that they guaranteed a loan for another person and unless one has informed the banks that the loan has been paid off and one wishes to withdraw it, the guarantee is still in place. That is a fact but many people are getting caught out. It is important that such anomalies are taken out of the equation because too many people are being sucked in.
We are all aware of the problems homeowners face. Young couples and families are in distress having bought homes at highly inflated prices during the boom. People not much older than me were saddled with vast mortgages they have no hope of paying now as a result of the economic recession and job losses. We know these people were given mortgages almost without question. The banks were eager to lend at the time and it became the norm for young people to be saddled with vast debts. After the 2007 credit crunch and when the end of the boom arrived, many young families found themselves in drastically reduced circumstances. Job losses and the subsequent reductions in the standard of living resulted in a deep recession. Many people are trying to hand back the keys to the white elephants they own and are trying to emigrate in search of work. Others, struggling to hold on to these houses, must make daily choices between food, medical and utility bills.
As the Minister of State noted, at the end of June 2011 there were 777,321 private residential mortgage accounts held in Ireland to a value of €115 billion. Of these, more than 55,000 accounts were in arrears for more than 90 days. This compares with 49,000 accounts in arrears for more than 90 days at the end of March this year, only a few months ago. Worse, the Dublin Simon Community has reported a continuing increase in demand for its services and it estimates that up to 2,000 people in greater Dublin are homeless.
As previous speakers have noted, the banks have not offered many constructive ideas but they continue to empty our citizens' pockets with coolly detached efficiency. They argue that they did not indemnify themselves against potential losses when they were handing out loans left, right and centre. We call for full disclosure from the banks on indemnifications around potential losses. If the banks did not hedge against bad debt we want to know why. This bad judgment means it is only fair that the lenders shoulder their share of the losses incurred by reckless lending. The fact that the banks are escaping scot-free became apparent with the release of the Keane report. It left the burden firmly at the door of distressed borrowers and it did not offer any practical solution involving burden-sharing with the lender, nor did it criticise the lenders. The report has been widely disparaged and much has been made of the narrow spectrum of the report's parameters. For example, the team was made up mainly of civil servants and it was headed by a partner of one of the big-four accountancy firms. These firms worked hand-in-hand with the banks and they have been criticised in the past for their lack of fault reporting when auditing the lending practices of the banks. As suggested earlier, the Keane team did not consult MABS or other firms, a foolish omission to say the least given that MABS is at the front line in assisting those who cannot cope with their crippling debts.
The Government must address this crisis urgently and it cannot be left to the banks. More and more homeowners are reporting aggressive debt collection tactics and a refusal to communicate from lenders. Any practical alternative must be based on four people-centred principles. We must maintain the family home. We must ensure the banks engage actively with distressed borrowers in the first instance to come up with positive and manageable solutions, such as reducing the value of the mortgage in exchange for an equity stake in the property, which could be bought back at a later date. The lender should have no property management functions and receive no rent for its share of the property. However, if the house is sold at a later date the bank should recoup its share of the sale price of the property. In this way the burden of loss could be shared by both parties. Proper housing alternatives must be provided if the family home cannot be maintained. Borrowers should have the option of trading down to a smaller property or seeking the help of local housing associations. However, funding must not be depleted further in the crucial area of social housing, given the disarming rise in homelessness, as I have remarked already, and the travesty of ghost estates. We must consider debt sustainability and sharing the debt burden fairly. This is crucial. To illustrate this point we should consider the commitment to pay off bondholders to the tune of €13 billion when €12.5 billion could write off all distressed mortgage debt in the country.
A sustainable solution to the debt crisis facing our communities must be found. We all agree as much and no one would deny it. As Senator Zappone suggested, we should consider personal debt, not just housing debt. Central to this is getting people back to work. This will heavily revolve around budget measures, growing the economy and regulating credit and the banking sectors. With regard to housing debt, the priorities must be: to maintain families in their homes; to deliver social housing for those in need; debt sustainability; and debt burden sharing. This must be at the core of any Government-driven response.
I welcome the Minister of State to the House. I was impressed by his speech today and by his commitment to try to work to solve some of the problems with mortgage arrears. In this sense I welcome the Keane report as a first step in dealing with people who can afford no longer to pay their mortgages, such as those with sub-prime mortgages, and those who might benefit from the mortgage-to-rent schemes. These are good for a limited number of people. I have come across many people who would welcome the chance to continue living in their house but who cannot afford to own the House. A remedy has been proposed on a pilot basis and I believe it will work. I am less convinced of the Keane report with regard to those who can pay a certain amount or a substantial amount towards their mortgages and who, if times improve, might be able to pay the lot.
Suggestions have come from outside such as those from New Beginning and others including a man called Ger O'Toole who was in with us. There is scope to improve what is recommended in the Keane report and I welcome the Minister and the Minister of State's commitment to listen to outside ideas. This cannot be solved purely on a case-by-case basis, principally because those dealing with it, that is to say the officials in banks on the end of a phone, are incapable of doing so.
Senator Reilly referred to the refusal of lenders to communicate and this takes a number of forms. They may talk but they are not communicating. This is the problem and I have encountered it while dealing with the issue for many people. One cannot dry the marrow from the bone. It is harrowing to hear of people, including young couples with families, who do not even have €5 to buy a present so that their child can go to a birthday party because they are putting all the money into the repayment of the mortgage. We must do something about it. This is why there is all-party agreement in the Seanad that we will stand together on this issue and help people in distress.
Tá an t-am ag sleamhnú thart. We must concentrate our efforts in respect of the Keane report in the areas I have outlined in order to arrive at an equitable solution for those who find themselves in the dreadful situation to which I refer.
I welcome the Minister of State. However, I do not welcome the Keane report and I placed that fact firmly on the record last week. The report, which took five months to compile, is farcical. I concur with much of what Senator Reilly said. Like her, I would be interested in obtaining some details with regard to Mr. Declan Keane and his background. Mr. Keane adhered to the brief he was given but he certainly did not endeavour to solve the problem of mortgage arrears in any way, shape or form.
I intend to begin by offering one or two solutions because there is a need for immediate action. I suggest that the Minister for Justice and Equality consider introducing legislation which would give judges the power to consider the requirements of borrowers when handing down decisions. At present, judges are only in a position to consider the needs of lenders.
Senator Zappone referred to the expansion of MABS and the creation of some sort of facilitator to deal with all debt. The domestic economy is effectively in a state of collapse. In the context of insolvency measures, we are discussing the need to deal with the problem as a matter of urgency but it took Mr. Keane's group five months to report. It has been stated that legislation relating to insolvency will be introduced in March. The Government will have been in power for a year at that stage. I do not know what the budget is going to contain, so we will be obliged to await developments.
There has been a great deal of discussion with regard to moral hazard, which only applies to certain individuals. Moral hazard did not apply in respect of major developers. Neither did it apply to bankers in the context of the decisions they made to lend people money. I have yet to see a developer or a banker holding up his or her hand and declaring "Mea culpa". Moral hazard also did not apply with regard to many of the people in these Houses who, through the Department of Finance, facilitated much of the lending that took place in the past. I have yet to see any of these individuals state that they should have put a stop to what was happening. They issued a report when it was all over but they had been warned about what might happen for the preceding 12 years. The action they took was somewhat late.
Reference was made to taxpayers being adversely affected. It is the latter who have been obliged to pay 30% more taxes. Many of them were also probably affected by the decision taken by the banks last week to increase business charges by 0.7%. If they have variable mortgages, then those to whom I refer will certainly be paying more money to their banks at this stage. Despite all this, these people are being referred to in the context of having a moral hazard. As I informed the representatives from New Beginning when they came before the Joint Committee on Finance, Public Expenditure and Reform, we need to keep people on the pitch for as long as possible. We must ensure that as many people as possible continue to contribute to the system for as long as possible. Unfortunately, I also include the banks in this regard.
The banks must allow people to remain in the game. In that context, a certain level of debt could be parked for a period of ten to 15 years. For example, 40% of a debt could be parked and the borrower could then repay 60% and some interest. The banks would eventually get all of their money back plus some interest. They will not obtain the exorbitant levels of interest they are seeking but they will get a certain portion.
Solutions will be required in the next three to four months, not the next two to three years. As I stated last week, prior to the summer those of us on the Government benches were obliged to vote against the Family Home Bill sponsored by Senator MacSharry. I must admit that I had grave difficulty in voting against that legislation. Why is it not possible for those in government or Mr. Keane to engage in discussions with New Beginning and other interested parties? Why is it not possible to bring them and Mr. Richie Boucher and the new head of AIB, whenever he or she is appointed, together in order to find a solution to this problem? Legislation is not required in order to encourage people to discuss and resolve particular matters. However, we must find the solutions to which I refer quickly. If we do not and if we continue down the current route, there will be very few people left who will be in a position to pay their debts. The way the domestic economy is going, there will soon be no money to pay the wages of nurses, doctors and Members of these Houses. That will leave us in a right fix.
If people become organised and decide not to repay their debts or whatever, the country will be faced with a real problem. That reflects the gravity of the situation. I suggest that we make decisions as quickly as possible. I read the Minister of State's script and much of what he said is extremely strong. I also read the statement made by the head of regulation at the Central Bank, Mr. Matthew Elderfield, at a recent event in Cork. I am of the view that Mr. Elderfield needs to do more than just make statements. I do not want to know what he has to say, I want to know what he intends to do. I will certainly want to know, by the time the budget is introduced, what the Government proposes to do.
I can inform Senator Mulcahy that he will not be obliged to wait until the budget is introduced in order to discover what the Government proposes to do. It is the Government's intention - as set out by the Minister for Finance, Deputy Noonan - to put in place a full implementation strategy in advance of the budget. This will mean that no one will be obliged to wait until the first week of December in order to discover what are the Government's proposals. We will be proceeding to deal with this matter in the coming weeks. That is what the Minister for Finance said in the Lower House and I am in full agreement with him. It is the responsibility of Senator Mulcahy and the other Members of this House to ensure that we deliver on what we have proposed. That is what holding a Government to account involves. I have just provided the Senator with a bold statement and I reiterate that we are going to do what we have said.
The Government is going to proceed in the manner proposed because it has prioritised this issue in the context of the publication of the Keane report. Mr. Keane is outside of the Government and I understand that his services were provided free of charge, and on a pro bono basis, by the company - PricewaterhouseCoopers, PwC - by which he is employed. I do not intend to make a big song and dance in respect of this matter. However, I reiterate that Mr. Keane is employed in the private sector and that he was retained to carry out a job of work for the Government. Are we bound by his report? The answer is "No". We appreciate the work Mr. Keane has done and we intend to build on it in order to see what we can achieve by way of developing an implementation strategy.
The Keane report was presented to the economic management council of the Government. As Senators will be aware, the Taoiseach, the Tánaiste and Minister for Foreign Affairs and Trade and the Ministers for Finance and Public Expenditure and Reform, Deputies Noonan and Howlin, respectively, are the members of that council. The latter are the four members of the Cabinet who have huge responsibility in this area. Why is that? It is because they prioritised the issue. Having received both the Cooney and Keane reports, we want to proceed to deal with matters because now is the time for action.
The Government has been apprised of the position in respect of this matter and I assure Senators that we want to take action. The implementation strategy will be published in the weeks prior to the budget. There may well be issues in the budget which we will be obliged to address in the context of the country's fiscal position. However, it is the intention of the Government to publish the implementation strategy soon.
I am not been patronising when I state that the contributions of Members in both Houses and in the committees are important. We are not merely talking to ourselves. The relevant officials are, on a cross-departmental basis, having regard to the suggestions people are putting forward and are seeking to discover whether certain proposals, if adopted, could work and could make a difference in the fullness of time.
We need to publish the personal insolvency legislation - the heads of which are currently in development - as soon as possible. Without such legislation, we will not have a stick with which to beat the banks. One of the reasons nothing has happened in respect of this issue is because the banks are awaiting the legislation, which will transform the position with regard to personal insolvency. The current system whereby people can, from a financial point of view, be placed in cold storage for up to 12 years, is Victorian in nature and is completely out of kilter with the insolvency legislation that applies in other jurisdictions. In the absence of the legislation to which I refer, we will not have the incentive necessary to lure the banks to the table in order that the necessary deals can be made. The personal insolvency legislation is crucial and it will be introduced.
One of the first actions taken by the Minister for Finance, Deputy Noonan, on entering office was to totally transform his Department's banking unit. He brought in a person from the outside who has particular experience relating to the private sector and the operations of the Central Bank to run the unit. We have given a commitment to enter into immediate discussions with the banks in order to identify the aspects of the Keane report which could make a difference in the context of the immediate solution that is required. Those discussions are ongoing.
I do not believe that the Irish banking system possesses either the personnel or the capacity to deal with this matter at present. I recently met a very practical individual who was previously involved with bank restructuring in the UK banking market. After its collapse in the mid to late 1980s, the issue of negative equity in the south of England was addressed over a period of five years. The individual in question stated that solving the problem was not rocket science. It requires debt to be written down, the term of the debt to be extended and a change in mindset in the banks to ensure they have the capacity to address the problem. The personnel in our banks do not have the capacity to deal with the problem because they remain in denial and have been traumatised by the crash they caused. As I stated previously in the House, our bankers do not have the capacity to understand where the problems are in their communities. They need to understand banking all over again. Without a change of mindset in terms of personnel and expertise in the banks and without having in place codes such as the mortgage arrears resolution process, MARP, we will not make progress. If we are to address the issue, we require a complete change of attitude and mindset in the banking system, both in covered and non-covered institutions.
On the specific issues raised, the Leader of the Opposition, Senator Darragh O'Brien, made a sensible point that when the Opposition proposed good ideas, the Government should be minded to support them and work with the Opposition. That is a position I share and where the Government has not done so, we should have done so. We want to act on a cross-party basis to secure agreement on this issue. I concur with the Senator that we cannot wait until the budget. He will have heard remarks I made to colleagues on that issue.
Senator Fidelma Healy Eames also referred to the banks. She is correct that the losses have been provided for in recapitalisation. The response to the stress test published in March provided the banks with the capacity to move this matter on. The dilemma we face is that as one takes money from the system, it must be replaced with more money. We have placed great store on the two pillar banks in providing a functioning banking system. They have given us a commitment that, in the lifetime of the recapitalisation, at least €3 billion per annum will be invested in the economy, including through mortgage financing. We have an obligation to ensure they hit this target, sector by sector and quarter by quarter. Evidence has emerged, however, that it is not being met. This is a key issue and one the banking unit of the Department of Finance is constantly taking up with the banks. We will follow up on it.
Senator Katherine Zappone raised a fundamental issue, namely, the need to take a holistic approach to the issue of personal debt. The problem we face is not confined to mortgages but extends to credit cards, car loans and the totality of debt. A considerable amount of non-mortgage debt is relatively unguaranteed compared to mortgage debt. The Senator is correct that those who find themselves affected by the chronic mortgage debt crisis are the same group who have considerable debts hanging over their heads in a range of other loans. A middle agency needs to be established. The report is clear in this respect, but the Government, through the Department of Social Protection, the Department of Finance and a number of other Departments, has yet to work out what is the best option. We need an agency which will work out a plan for each individual. Some of the banks are relatively good at doing this, for example, Ulster Bank is employing companies to work out new restructured plans on a client by client basis. The question is how to establish such a mechanism on a statutory basis within a new agency. To be honest with the Senator, this must still be worked out. Throwing 100 advisers at the problem may not solve it.
If I contact my bank in an effort to restructure my mortgage and it produces what it perceives to be a solution, where do I go if, having provided the bank with all the relevant documentation, I disagree with the proposed solution, given that we do not have an appeals mechanism in place? Should I take the matter to the appeals board which is currently in a bank? We need an independent agency to perform this role.
One can call it what one likes. Its role must be to examine the facts and determine what is fair in each case. The Government is still working this out. If I had the solution tonight, I would give Senator Katherine Zappone the details, but we do not yet have such a solution. I accept her point, however, that the issue is the totality of the debt and it is crucial that the unguaranteed element of the debt is not excluded.
Senator Aideen Hayden is correct that a substantial tax subsidy has been provided to enable people to buy their own homes. This includes first-time buyer's grants, mortgage interest protection, tenant purchase schemes and so forth. It is also the case that higher interest rates applied in the past, for example, in the early 1990s interest rates reached 17% or 18%, albeit for a short period. This issue forms part of the Government's assessment.
The Government is examining whether a third banking force is needed. The programme for Government includes a commitment that we will assess this question and the assessment is working its way through the Department. The Minister for Public Expenditure and Reform, Deputy Brendan Howlin, is taking a particular interest in the matter. Do we need a new force to start lending again in the Irish market? I concur with Senator Aideen Hayden's view that the housing market is highly dysfunctional. The Government will consider any proposals in this regard. I noted the Senator's comments about mortgage-to-rent schemes, under which banks would be allowed to keep a portion of homes and consider the possibility of introducing split mortgages. It appears from the Keane report that we do not have a means of forgiving the interest portion of the mortgage. This is a problem. As other Senators noted, the only pilot scheme was launched by the Minister of State with responsibility for housing, Deputy Willie Penrose, last week. Given the complexity of the issue, many of the relevant details will have to be worked out as the scheme progresses.
Senator Marc MacSharry made a passionate speech in which he proposed a radical step. While I agree with him in many respects, it may be the case that a number of small radical steps, rather than one large one, will be needed if we are to meet current requirements. I agree with Senator Deirdre Clune's comments on personal insolvency.
Senator Jillian van Turnhout asked whether, in the case of mortgage-to-rent schemes, debts would be written off by the bank or with other owners. I will revert to the Senator on that issue. She also asked a fundamental question on the risk to a housing association if it were asked, through one of these schemes, to take on, if one likes, a house and the debt pertaining to it. We cannot approach this issue in a draconian fashion. Our approach must be based on proper consultation with the housing associations, as the Senator correctly noted. Housing associations may well be in a better position than housing authorities because they are, in many respects, more imaginative in the measures they can take. I was a member of South Dublin County Council many years ago. The shared ownership scheme, under which a portion of the house is owned by the local authority with the remainder owned by the person concerned, is a classic example of an approach that works.
I concur with Senator John Kelly on reckless lending in the sub-prime market. I will raise with the Department of Finance his interesting observation that where a guarantor is in place, the guarantee remains valid. I have not heard that before. On the Money Advice and Budgeting Service, although three Departments are still trying to work this out, it is part and parcel of our implementation strategy. I took a note of Jim D'Arcy's comments on the Minister of State's pilot scheme.
Speaking in the round, the issue before us will not go away. It is the Government's firm resolve to produce an implementation strategy soon, one which will ensure people can remain in their homes, set out the options available to individuals and take a much more aggressive position on the banking system. Senators will have heard the views of the Central Bank and the Financial Regulator, Mr. Matthew Elderfield, on this issue. I agree with them. The discussions taking place between the banking unit in the Department of Finance and the banks should not be underestimated. We can get to a better place only if there is a worked-out agreement across the State and through the banking system that will get people out of the appalling situations in which they have been placed. That is the resolve of the Government. The support of this House and its Members in achieving that objective is much appreciated.