Tuesday, 15 May 2012
Mortgage Arrears: Statements, Questions and Answers
It is good to be back in the House to address this very important issue to which I know colleagues have referred continuously, and correctly so, given the importance of the issue to the country. Senators will be aware of the significant increase in mortgage arrears and the difficulties that excessive personal debt poses for a growing number of individuals and families. At the end of last year approximately 71,000 mortgage accounts were more than 90 days behind with their payments. At the end of 2009, the year in which the Central Bank commenced collecting these statistics, only 29,000 accounts were in a similar arrears position.
The problem of mortgage arrears, therefore, has grown significantly over recent years and is now an issue that requires and is receiving urgent attention by the Government. First and foremost, of course, it is a very real and immediate problem for the mortgage holder. Many people in difficulty with their mortgage could never have envisaged the scale of the economic downturn which has left them unemployed or on much reduced incomes. This shock has severely impacted on their desired ability to meet their mortgage commitments. There is a cost to mortgage distress that goes well beyond the mere financial. The desire to own a home is a deeply rooted and valued characteristic of Irish people. It can also provide a wider utility to people, such as security and a sense of community. An inability to meet mortgage payments, therefore, can also cause people and their families to be very concerned about their ability to remain in their home and about the negative impact such an eventuality could have on the wider aspects of their lives.
The Government is fully conscious of the increasing stress - both financial and more generally - that some households face arising from difficulties in meeting their mortgage payments. A number of important measures are already in place to protect mortgage holders who experience difficulty with their mortgage repayments. These include the Central Bank code of conduct on mortgage arrears about which I have previously spoken in the House. Among other measures, it provides for the following: each lender to put in place a mortgage arrears resolution process; a lender must make every reasonable effort to agree an alternative payment arrangement with a co-operating borrower who is experiencing mortgage difficulty; and places a moratorium on legal action by banks against co-operating borrowers. As the Central Bank statistics on mortgage arrears show, these measures are being deployed. A significant number of mortgages, more than 74,000 at the end of last year, have been restructured, while the level of repossessions remains very low in relative terms.
Forbearance, therefore, is a very worthwhile and appropriate response to most people experiencing mortgage difficulty. The approaches set out in the code of conduct on mortgage arrears can provide a household experiencing temporary mortgage difficulty with the necessary and important breathing space to allow that household to get back on its feet and resume meeting its full mortgage commitments at a future time. However, the Government has also recognised that other more structural approaches, beyond initial forbearance, will also be required in some cases. This was confirmed when the report of the interdepartmental group on mortgage arrears was published last autumn. The group came to the conclusion that the mortgage problem is complex and in some cases a response other than forbearance will be required. In particular, it stated a range of practical solutions tailored to individual circumstances will need to be developed and deployed for people in most difficulty with their mortgage.
The Government's overall approach to this issue is clear. First, we should not create incentives that would encourage people who can pay their mortgage to stop doing so. Most mortgage holders are fully up to date in their mortgage payments and this practice should be supported. Any risk to this strong compliance culture would rekindle problems for the banking system and by extension for all of us as taxpayers. It would also give rise to serious concerns about the supply and cost of future mortgages. However, the second and equally important consideration for Government is the recognition that some people, through no fault of their own, will not be able to fully meet their mortgage obligations and every effort should be made by banks and public authorities to allow people in such circumstances to remain in their family home where appropriate and possible.
The Government has accepted the Keane report recommendations and has put in place an implementation framework to advance this agenda. The Government attaches a very high importance to this work. Since last March, a special Government committee focused on this issue has been meeting on a regular basis to ensure that a high priority is assigned to the delivery of the implementation of the Keane report recommendations across relevant Departments and Government agencies. The committee is chaired by the Taoiseach and includes all the Ministers with a role in this broad area. In addition, a high-level steering group, chaired by the current Secretary General of the Department of Finance, has been in place since the end of last year with a clear mandate to drive this process at official level. The Central Bank is also a key player on this group. Specialist expertise - legal, banking, policy analysis and project planning - has also been assigned to the Department of Finance to assist this group and also to support the relevant Departments to progress the items that fall within their remit.
Significant progress has recently been achieved in some of the key areas. The provision of mortgage advice was identified as an important measure in the Keane report. In particular, it indicated that an independent mortgage support and advice service be established to advise mortgage holders in arrears or pre-arrears in assessing their options. The report stated that the need for this service would be time-limited to approximately three years.
As part of the overall implementation process, a special group was established to work on the advisory function element of the Keane report recommendations. In particular, it was asked to consider the following: the most effective and efficient way of delivering this service; the deficit or gaps, if any, an independent mortgage advice service should or could address; the type of service required; and the body that should provide this service. The role envisaged for personal insolvency trustees in the Department of Justice and Equality's draft general scheme of a personal insolvency Bill, as published in January, had to be considered to ensure that there would be no duplication or overlap of service.
Some decisions have now been made on this. The Minister for Social Protection and the steering group are satisfied that the mortgage advice service should be a separate service from MABS but with close ties to ensure access and cross-referral. It has been decided that the statutory Citizens Information Board, CIB, will assume an overall co-ordinating role in the mortgage advice area owing to its remit for the provision of information, advice and advocacy to citizens seeking to access public services. The CIB is the most appropriate agency to lead this important task and provide the strong management for its delivery on a nationwide basis.
MABS, as Senators are aware, assists people who are over-indebted, and need help and advice in coping with debt or budgeting problems at a local level. There are 53 MABS companies, with voluntary boards of management employing 277 money advice staff, operating nationwide. The role of money advisers is to help clients to assess their financial situation, make a budget plan and deal with creditors. In 2011, some 22,400 new clients were seen by MABS and the MABS national helpline received approximately 29,600 calls.
This compares with 19,000 new clients and 24,700 calls to the helpline during 2009. The need for this important service continues and unfortunately has increased due to our economic situation. It is necessary to ensure that MABS can continue to focus and deliver its core services and that the CIB, linking from MABS where appropriate, can better focus on the growing and more specialised task that will be required to assist on mortgages. More work is being carried out on this issue, in particular on the mechanism regarding the provision of one-to-one advice to mortgage holders where necessary, and it is intended to finalise the framework for this shortly.
Regarding the involvement of the Department of Social Protection in the broad mortgage arrears area, Senators will also be aware that the recent Social Welfare and Pensions Act made some changes to the social welfare mortgage interest supplement scheme to link it better with the provisions of the code of conduct on mortgage arrears and, in particular, the operation of the forbearance options available under the code.
Progress has also been made on the Central Bank work stream. The bank continues to engage with all mortgage lenders to ensure that they will shortly be in a position to provide a broad range of loan modification and resolution options to mortgage holders in significant arrears. In this regard, the Central Bank has reviewed the operational capacity of some banks to effectively manage their arrears. This is part of the process where all lenders must submit their board approved loan modification and resolution options and a segmentation of their mortgage portfolio by the end of May. The intention will be that banks will propose solutions for each category and develop them into products for activation during the second half of this year.
It is important to state that one of the ambitions of the Government, in its discussion with the banks and in the banks' discussions with the Central Bank, is that a broad range of specific options would be available for people in this position. The Government's position is that this will come to an end at the end of May and it is anticipated that the roll out of those options across the banking sector will be a reality in the second half of this year. There has been frustration on all sides of both this House and the Dáil about the progress so far but the meat of this issue is the banks themselves, in co-operation with the Central Bank, the Department of Finance and others, providing those realistic options for people with distressed mortgages. I believe there will be significant progress in the second half of this year as a result of the negotiations that have occurred up to this point.
The Central Bank has also recently issued revised guidance on the code of conduct on mortgage arrears and the 2012 consumer protection code. The intention is to clarify the protections and limits on contact that banks can make with consumers in arrears. It is important that mortgage holders in difficulty, or who feel they may experience difficulty in the near future, should approach and discuss the situation with their lender as early as possible. It is also important that banks can effectively contact their customers as soon as a repayment difficulty emerges and, indeed, at other stages of the mortgage arrears resolution process, MARP. Good and effective engagement between borrower and lender will be essential to address and reach a satisfactory outcome to a repayment difficulty, and for the proper maintenance of such a satisfactory outcome.
This communication and engagement is a two way process and it is important that neither side is handicapped in making effective contact. Some lenders were unsure of the precise nature of contacts that were possible and in its recent change the Central Bank has, for example, clarified that a "communication" means a successful communication, that is, a conversation held with the consumer, a letter sent, a text or an e-mail. However, the code of conduct on mortgage arrears has not changed. It will continue to protect consumers from undue pressure by emphasising the requirement for all lenders to be proportionate and not excessive in their communications and engagement. However, the guidance has removed an uncertainty about what does and does not constitute a contact.
Personal insolvency reform is also a key measure in the mortgage arrears resolution process. As Members are aware, the Minister for Justice and Equality published the draft heads of a personal insolvency Bill earlier this year. This draft Bill was submitted to the Oireachtas Joint Committee on Justice, Defence and Equality and its findings were published on 6 March 2012. Its views and those of other interested parties are now being considered by the Government in the further drafting and finalisation of the Bill. This will be radical and complex legislation. Significant detailed policy development and drafting work is being carried out at present by the relevant Departments in consultation with the Office of the Attorney General. It is accepted that the preference would have been to have produced a final Bill at this stage. However, the drafting of such a complex Bill gives rise to significant legal and drafting considerations that must be teased out fully and worked through in detail before publication. While this work will take longer than originally envisaged, it is necessary and will be to the benefit of the final Bill when it is published and accepted by both Houses of the Oireachtas. The troika is aware of the detailed work under way and has accepted the publication of a Bill will take a little longer than originally envisaged. The Minister for Justice and Equality has indicated the draft legislation will be published before the summer recess and Members of the Oireachtas then will have the opportunity to consider the full details of the Government's proposals on this crucial proposed legislation.
It is fair to state the reform of the personal insolvency legislation will be the ultimate game-changer in respect of the resolution process. There is acceptance, from the troika to the Government and all parties in this House and elsewhere, that the real change which must occur to resolve the position of those who are in acute mortgage distress can only happen on foot of necessary changes in the personal insolvency legislation. That is, as I have described it, the game-changer because it provides the legal context within which the banks then will be able to resolve all these matters. I made the point earlier all this is notwithstanding the schemes the banks will bring forward. While some banks already have brought forward novel schemes in respect of negative equity loans, shared loans and so on, there must be further engagement with them. However, the crucial change must be the personal insolvency legislation, in that it tips the balance in favour of resolving many such outstanding mortgage problems, which ultimately is where one will discern fundamental change in this area.
In addition, work is advancing on the Department of the Environment, Community and Local Government's mortgage-to-rent scheme. A pilot scheme involving Allied Irish Bank has now been established and up to 50 cases are being progressed by the Clúid housing association and various banks. While the primary focus of the Government has been on mortgage arrears, it has not forgotten it also is necessary to provide assistance to other mortgageholders. The recent implementation of the programme for Government commitment to increase the rate of mortgage interest relief to 30% for first-time buyers who took out their first mortgage in the period 2004 to 2008, at the height of the market, is important in that regard. Moreover, it will be of some general assistance to those who are most likely to have the greatest affordability challenge on their mortgage.
Everyone recognises this mortgage arrears problem is complex and will not be solved by a single solution or in a very short period. It will take a range of responses from a number of different bodies and will take time to fully implement and have effect. However, the Government is fully committed to making the sustained effort and already has seen significant progress across a broad range of areas. The Government will build on this over the next couple of months and further significant steps will be taken in the implementation of its plan to address the mortgage arrears problem. Ultimately, however, it is the regeneration of the economy, the restoration of employment levels and income growth that will address the real social and economic problems associated with high levels of personal indebtedness. That is why Government is focused, through its many new initiatives, on fostering and generating economic growth. The successful achievement of this objective will restore consumer confidence and bring the tangible and sustainable recovery that the country needs.
I welcome the Minister of State. I recognise the work he is doing in this regard and in the many areas of his portfolio and wish him continued success because he has been to the forefront of a number of difficult issues with which the Government has had to deal. I was pleased he recognised the frustration the public and Members feel at the slowness of this. It is a complex issue which cannot be resolved overnight but I am incredibly disappointed it has taken until 15 May. The Keane report was given to Cabinet at the end of September last year. I disagree that significant progress has been made in this area and I will tell the Minister of State why, although I wish him the best of luck in this regard because I do not see this as a political issue in that we need to address the issue of mortgage arrears.
Unfortunately, the situation is getting worse as each month goes by. The Minister of State was correct to say the vast majority of mortgages are being paid but fewer mortgages are being paid in full. In every quarterly report since December 2010, the percentage of mortgages in arrears was 7.4% but the percentage of mortgages in arrears as of last December was 12.1%. The figures for the first quarter of 2012 will be available next week but I would bet my house that we will see another increase. These figures only take into account mortgages in arrears of 90 days or more. A sizeable portion of restructured mortgages continue to fall into arrears. If we look at the percentage of mortgages between 30 days and 90 days in arrears, the situation is even worse than 12% of the overall mortgage book, which is almost 770,000 residential mortgages.
The Minister of State mentioned that forbearance can deal with some of the issues, which is correct, but the reason the situation is not getting any better is that we have not grappled with the banks on areas such as "zeroising" of interest. I refer to the banks which we have formally recapitalised, the covered institutions, the other banks which avail of ECB funding to keep themselves afloat and to Ulster Bank, which is guaranteed by the British Government. When someone is in arrears, the interest keeps piling up, so the situation never gets any better. Will the Minister of State look at that, although not necessarily as part of the personal insolvency Bill because I do not really believe it will be the game changer he expects it to be? I hope I am wrong and I will say so if that turns out to be the case later on this year. Much very good work has been done by the committee on the Bill and I commend all colleagues who have been involved in it. I have seen the final report from it. The final arbiter in the Personal Insolvency Bill is the bank. That is a fundamental flaw given the manner in which this Government is dealing with this. We should look at a separate debt settlement and resolution office - an independent arbiter. We cannot have a situation where the bank still makes the final decision.
As the Minister of State mentioned, more than 74,000 mortgages were restructured last year but they are restructured on the basis of the banks' agreement. I am sure many people have said to the Minister of State and to colleagues that the financial needs form, although required to some degree, is extremely invasive. Everything else must go bar the mortgage repayment. Citizens are effectively going to banks cap in hand hoping they will do them a deal. I have heard anecdotally that some of the institutions are dealing with people in a much more proactive fashion and I commend them. I refer to Bank of Ireland in particular. Where banks are operating well they should be commended and therefore I am pleased the Minister for Finance has accepted my colleague, Deputy Michael McGrath's Private Members' Bill, the financial institutions transparency Bill. If an institution is doing well, is abiding by the law and dealing in a proper manner with its customers then such an institution should be commended and held up as an example of good practice. On the other hand, the Financial Regulator cannot even name any institutions which are not up to the required standard. It leaves us with very little teeth. My colleague, Senator Marc MacSharry asked specifically that I convey his apologies to the House as he is unable to be present. The Minister of State will know that Senator MacSharry has been very involved in this area but due to unforeseen circumstances he is unable to attend today.
I ask the Minister of State to watch carefully the initiatives taken by the banks on new products. The initiatives on the negative equity mortgages are all very well and I agree this is a step in the right direction but I ask that the Department of Finance - if possible through the Financial Regulator - compile statistical information on the number of people who were able to avail of such mortgages. I do not believe these mortgages will work well and in my view the scheme will not deal with as many people as will need this assistance. Young couples, in particular, are in one-bedroom apartments all across the city and country and they cannot move on. They may have a family or else they cannot start having a family because they cannot see a way out of this situation. I am aware that the Minister of State has a particular interest in and commitment to this issue. I must underline the urgency with which the mortgage arrears situation needs to be dealt with does not seem to be present. The Minister of State referred to the code of conduct on mortgage arrears. I asked him about this last December and I will ask him again to consider the policy of local authorities with regard to people in arrears who are in affordable and shared ownership. These are not governed by the code of conduct. I have much evidence from the Dublin local authorities as to how they are dealing with people and they are not covered under the code of conduct. I welcome the increase of 30% in mortgage interest relief for first-time buyers who bought between 2004 and 2008 but this has left out a significant number of people. In my view, that relief should also apply to people who purchased a principal private residence in those years; such people may have sold an apartment and bought a house which is their principal private residence. I have made a number of inquiries to the Department of Finance but these people are not covered by the scheme announced in the budget because they were not first-time buyers. However, this may be their only home. They may have traded up from an apartment as a result of family circumstances and they cannot avail of the increased mortgage interest relief.
The Citizens Advice Bureau will be the body providing the mortgage support and advice which is a new function but I am flabbergasted at the delay. Last year, the Minister for Social Protection, Deputy Joan Burton, welcomed this initiative and she stated 100 advisers with financial and legal expertise would be available to help borrowers in mortgage arrears in the discussions and negotiations with their bank. It is proposed the service will operate in a similar manner to MABS which is funded by her Department. I ask where is this service. MABS does its level best to provide a service but the proposed service does not yet exist. It is now May and nothing has happened. The situation will get worse. I appreciate that the issue of debt write-down is a significant problem and there are many risks associated with it. The Government has issued conflicting messages over the past months as to the capacity of the banks to take those hits and the possible effect on the market.
I refer to the recent report of the Irish League of Credit Unions which shows that more than 50% of people in this country have less than €100 left after all bills are paid. It is a question of how to free up money to give those people a breathing space. These are people who are at this moment will fall into arrears as additional costs become apparent. At present 87.5% of them are paying their mortgage. They lie awake at night and, like most people, live from one pay cheque to another. I have not heard of one bank that will approach people with an extension on their mortgage terms.
The Government has not dealt with the issue properly. I am not asking the banks to write down debt. If someone with a 25 year mortgage is crippled paying €1,500 per month then the Government should instruct the banks, as part of a code of conduct, to please give people a bit of space. They can base a new agreement on their age profile, re-underwrite them, provide new life assurance policies and everything that is required to ensure that the mortgage is secured and allow an extension of a mortgage. For example, they could agree an extension from a 25 year mortgage to 30 or 35 years. I know from talking to people and groups that the measure would immediately release a lot of the pressure that is on those individuals and will free up a few hundred euro for them each month. It is not a write-down of bank debt. I agree that future bank provisions must be put forward. There are practical things that we can do. I ask that the Minister of State examines the measure and expedites the Personal Insolvency Bill as soon as possible.
The first quarter, Q1, figures for 2012 will be published next week. If they reveal that more than 12.1% of mortgages are in arrears, which I expect them to be, then we will be dealing with a crisis. The Government needs to step up to the plate and accept that this is a crisis and that there are things that it can do now and quickly. It is not just the responsibility of the Government but of our Oireachtas. We cannot keep waiting for reports or services to be established or codes of conduct for banks. We cannot expect the banks to do the devil and all for us because, in the main, they are not.
I wish the Minister of State the best of luck with this measure and to which he is very committed. I would like to see that commitment clearly stated by the Government by setting out a timeframe now when it will provide some relief. I am not necessarily talking about debt write-downs. I am interested to hear his response to my few points and I thank the Acting Chairman for her indulgence.
I want to inform the Minister of State that my first meeting today was with banks on behalf of two people who face a repossession. I am not sure whether he deals with such people directly or has such cases on his books. I am sure that everyone of us have some of those citizens of the country to deal with.
I do not like to use the term "repossession" if one can find a position that is acceptable to the bank. Instead, I call it "the hand back". One hands back the keys and, if the bank sees sense, they write down the remainder of the loan. I shall not name anybody or bank that I dealt with this morning. Unfortunately, I have not seen any sense. The individuals that I was dealing with had accepted that the people in question had no prospect of paying back their loan. They are on social welfare and they both owe approximately €400,000. A repayment is not doable.
We should not pretend that we will be able to save everybody with this insolvency Bill because we will not. For some people the best option will be to hand back their keys and write down the remainder of the loan, which means a non-recourse loan. I am told that there are constitutional issues for people here regarding legislation. If we can amend the Constitution to get rid of this House then we can amend it to deal with non-recourse loans.
I was surprised with the bank's attitude today because it accepted that these people had no chance of making it. Yet it said to me that it will become a matter for its credit committee which will make a decision and a determination will be passed on to the bank. The information will then be passed back to me. I would like to know who is on these credit committees and has the membership of every credit committee in the State been named. I wrote to the Financial Regulator today to look for the name of every credit committee within the covered institutions of this State and within the institutions controlled by the Financial Regulator. I would like to see who these people are. They seem to accept there is no prospect of people making it, while at the same time determining they will not write it off.
I would like to focus on the mortgages we need to deal with. I refer to the people who will make it with a small leg-up. Figures were released by the Central Bank today. I brought the wrong paper. I am looking at the numbers. Household debt is decreasing by over 1% every quarter. That is fairly substantial. According to the Central Bank, the overall level of household debt stands at €184.6 billion today. That represents a reduction of 13% from the peak in 2008. That is a fairly significant change in four years. Household debt is decreasing by an average of 1% per quarter. The people who are doing this are those who can afford to do so. That is having an effect on the overall economy because people are not putting money into the economy by spending it on nights out or weekends away. They are repaying their debts, which is the prudent and responsible thing to do. Those who are in real trouble are the people who cannot afford to do that because they do not have the disposable income to do so. Some 71,000 of them are in difficulties of 90 days or more.
I do not want to speak about the aspects of this matter that were discussed by the Minister of State and Senator Darragh O'Brien, such as the mortgage to rent scheme and the Keane report. Perhaps I will speak briefly about the Citizens Information Board. Are an additional 100 officials capable of dealing with the 71,000 people I have mentioned? That question needs to be asked. I wonder whether it can be done with 100 staff. I probably do not think it can. As I said earlier, some of the 71,000 people who have been in difficulty for 100 days or more are not going to make it. Many of them will make it as long as they get advice and information to help them in that direction. They need to reach the stage where the terms and conditions can be altered.
As the code of conduct has been mentioned, I will speak about local authority loans. I am currently dealing with the director of the finance and housing service in Wexford. Like Senator Darragh O'Brien, this is the area I know best. Local authorities have not yet been given an instruction on how to deal with people. They have asked for it, but it has not been provided by the Department of the Environment, Community and Local Government or the Department of Finance. In my experience, these people have been the very best. They went the extra yard to get their homes. They saved more than others under the affordable homes scheme, for example. We are familiar with that scheme from our service on local authorities. These people have done exceptionally well.
If I were to speak at length on the personal insolvency Bill, I would be talking in a vacuum to some extent. I have not seen the final report of the Joint Committee on Justice, Defence and Equality on the Bill. I am a member of the Joint Committee on Finance, Public Expenditure and Reform. I look forward to reading the report.
I have said for a long time that I am concerned about the data that was compiled by an American corporation, BlackRock, when it assessed the banks. It made an adjudication that €6.5 billion should be added to the recapitalisation account in respect of home owners. I have a real concern that if the data is not accurate, the State and the Government will be required to provide more funds, in effect. I would not like that to happen. I want the banks to step up to the plate. I do not want the banks to go back to the people who have taken loans from them and are meeting their payments. They should not increase the interest rates imposed on such people in order to allow other people's loans to be written down.
I would like to make two other points before I let Senator Healy Eames in. The level of exceptional liquidity assistance from the European Central Bank and our Central Bank continues to stand at €128 billion. The existence of that fund allows the banks not to chase in a very vigorous manner the people to whom they gave loans. The people I am getting on best with, sub-prime lenders, want their money. They realise there is no point in imposing a judgment on somebody and leaving it at that, because those people will not be able to pay the money in the long run. We must differentiate between the people who cannot pay, the people who are trying it on and the people who are trying to get away with not paying. I do not want to see the people who are making their loan payments and paying their mortgages being saddled with higher interest rates because of those people who are trying to get away with not paying.
I thank Senator D'Arcy for sharing his time and welcome the Minister of State to the House. I have been out campaigning on the stability treaty for the past four days and in the course of my campaigning the strong feeling I have picked up is that homeowners and families see the stability treaty as a means of reining in national budgets and that this is a good thing. However, the question being raised with me is how the banks and the financial system can be reined in so that they never again lend to the same ridiculous level as they did to create this crisis. What reform of the financial system is planned to prevent a repeat recession of this nature, which we know was fuelled by the banks?
Another concern raised is one on which I spoke in the past when Fine Gael was in opposition, but the issue has come to the fore during my campaign. People are deeply worried about the potential loss of their homes. The threat of this changes everything so that nothing else is of concern. It is bringing serious stress on families so that they are unable to enjoy life. Although I say this reluctantly, we are moving too slowly on this. Solutions are being brought forward too slowly. However, I am delighted to learn the Central Bank is giving mortgage lenders until end-May to categorise arrears cases and propose solutions for each category. It is high time this was done and it would be good if the Government could give us a date by when these solutions will come about.
I note the banks intend to come up with products by the end of October. My concern in this regard is that the products must be honest attempts to solve the issues rather than a sneaky way to sneak money from already hard pressed couples and individuals. Terms and conditions often find another way to add costs. Given the current difficulties, can the Minister of State do anything to expedite the proposed products? Will these products only be open to people in difficulty? Will they be open to everybody to allow restructuring? Will intergenerational mortgages be considered? The split mortgage proposal has huge merit. Are banks implementing this already? Are they looking at what couples can afford to pay, allowing them to pay back what they can and parking the rest for now? I suggest they should not park the rest without allowing simple interest accrue. Some simple interest should accrue on the parked amount so that it does not become a bad debt on the banks' books. This is important, because otherwise we will hear in a few years that there is so much bad debt on the banks' books.
We should consider how situations like ours have been managed in other countries. In Iceland, households were helped by an agreement between the Government and the banks, which are still partly controlled by the state, to forgive debt exceeding 110% of home values. I agree there should not be an incentive to default, but we need forgiveness at particular levels. Is there a fair sliding scale of forgiveness that could be considered?
I will finish on the important question of the promissory notes. I know the Minister for Finance, Deputy Noonan, is working hard on this. If we get a deal on these and we get a write-down of the banking debt of approximately €40 billion, will we be able to offer some level of debt forgiveness to homeowners? We are talking here about approximately €10 billion, in the case of the people who bought during the peak from 2006 to 2008 and paid huge stamp duty. I wonder whether in that circumstance something will be considered. I look forward to the Minister of State's reply.
I welcome the Minister of State, who seems to be getting fond of the House, as we see him here quite a lot.
The major issue in dealing with mortgage arrears is making exceptions for one group but not for another. It will never be easy to strike a balance. If somebody decides to enjoy himself and have good time while his neighbour balances his budget and pays as much as he can, his neighbour will be envious if he gets off without making repayments. We need to allow people to access their pensions now in order that they can keep up their mortgage repayments or keep their households or businesses above water. Specifically, people should be allowed to access some of their money. Advisers recently have been offering to transfer pensions to the UK and elsewhere in order that people can do this. The Irish Brokers Association says that allowing people early access to their pensions has the potential to unleash €1.5 billion and to get 50,000 distressed borrowers out of financial trouble. It would also allow people to spend, thus stimulating the economy, rather than seeing the cash set aside in savings accounts. That is what we badly need at the moment.
There is also a misconception that people would be worse off in the future. Early withdrawals might reduce other lifetime costs by virtue of them being met earlier. Such a proposal would also mean that people may be more willing to invest in pensions at an early age. We live in a free society and people should be allowed to make that choice, whether it is good or bad. This is not a nanny state and it would be good for the country as a whole. The Government recently dismissed this idea but it cannot maintain its current position forever. South Africa offers access to pension savings and research by Alexander Forbes, a consultancy, found that 70% of members were taking their benefits in cash before retirement. It also said this encourages people to sign up to a pension scheme. Australia's pension system requires compulsory enrolment in a scheme but members are able to take all the benefits as a lump sum at the age of 55 and many people use this money to pay off their debts. Some even spend it all but at least they have a choice. They may eat up their savings and have to fall back on the state's means tested benefit at 65. However, if people have voluntarily paid a pension or have several pensions and badly need to meet their mortgage repayments, why can they not access them now?
With regard to the new bankruptcy and insolvency legislation, I am concerned about the time it will take to implement it. It may be in place by next year but that is too far away. While Greece is having major problems, its debt adjustment legislation has resulted in 12,000 cases being dealt with in the two years since its introduction. Under the scheme, individuals have to prove in court their income is not sufficient to continue paying their debts. Setting said living expenses, equal repayments are made to both secured and unsecured creditors from remaining funds over a period of four years. After that, debts are written off. There might be a problem with our personal insolvency law as it would mean people would have to keep up their repayments. An Athens-based consumer lawyer said and if there is no legal tool to combat the situation, people cannot psychologically cope with the stress and they will abandon payments. That is a crucial issue that we must consider. Has the Government examined this legislation?
It was reported in The Sunday Business Post that mortgage lenders plan to introduce new products later this year aimed at dealing with arrears in the market. The proposals include mortgage to rent, split mortgages and negative equity mortgages and they will be submitted to the Central Bank for approval by the end of this month. I hope the Government will support products such as split mortgages, which would mean that part of the loan would be temporarily frozen. Although the bank would take a hit on some of the interest while the loan is frozen, it can still anticipate full repayment of the loan eventually. It could ease the burden on more than 50,000 homeowners. The point has also been raised regarding guidelines and mortgages. Some couples are paying for cars or holidays but they are not paying their mortgages. This seems unfair to those who are barely scraping by. The editorial in the Irish Independent pointed out:
In most other countries, the authorities publish guidelines which specify quite clearly how families looking to delay mortgage payments can live. In Britain, the guidelines say that private education and private healthcare are out while only one holiday a year is permitted. It is time that we did something similar on this side of the Irish Sea.
Is the Minister of State doing anything on this issue? Could we easily use the UK model as the basis for similar legislation here?
I heard of one woman who is able to pay her current mortgage costs but would like to restructure them over a longer term. The bank made her apply for a new mortgage but she is unlikely to qualify given that the banks have tightened up their criteria. Does the Minister of State aim to change this situation? People are being prevented from exercising common sense.
It is interesting to see how Spain, where the housing bubble was similar to ours, is dealing with the problem of mortgage arrears. One mechanism banks are using to hold down bad loans is through encouraging struggling customers to switch from normal mortgages to interest only repayments. The latest data reveal that terms are being modified on 26,000 mortgages per month. Spanish banks are also consolidating credit card debts and personal loans by adding them to mortgages. We should remember that personal debts such as credit cards, which carry extremely high interest rates, are related to mortgage problems because people do not have the cash for repayments and instead they pay up to 18% interest.
The case of Laura White is very interesting. Ms White was saddled with a mortgage debt she could not repay but was relieved of her burden in a landmark case of debt forgiveness. The personal finance journalist, Jill Kirby, wrote:
The fact that it was Bank of Ireland and not one of the wholly owned Irish banks that came to this mortgage arrears settlement... is significant.
The bank has benefited from recapitalisation by the Irish state and taxpayer, but it is also 80% privately owned with prominent North American investors, who it can be speculated have a more realistic attitude to clearing arrears, writing off debt and giving both the bank and customer the opportunity to move on.
It remains a mystery to everyone why billions of euro that was designated for arrears write-offs have not yet been used for this purpose by the other Irish banks; the White case shows it can be done.
Mr. David Hall has pointed out that up to €10 billion has already been put into the banks to cover expected losses in the residential market. He argues that the money is there but that the banks and the Government simply have to find transparent and fair solutions so that those who can pay will do so and those who cannot are allowed to move on from the fear of losing one's home. Sorting the crisis will also offer a shot in the arm to the wider economy. Perhaps the Minister of State can elaborate on why this is not being done.
An interesting idea which caught my imagination was floated by John Teeling, who recently sold the Cooley Distillery for more than €70 million. Mr. Teeling has proposed establishing a new company which would purchase mortgages from the banks at their current value. The company could then negotiate individual deals with customers based on their circumstances and what they can afford to pay. Losses would need to be distributed between the banks and the State. Such a move to create a sort of NAMA for mortgages would take the decision making process out of the hands of the institutions which made the loans in the first place. Mr. Teeling stated that ongoing price falls meant that home owners were coming home poorer than when they went to work and that the situation was not sustainable. Has the Government considered this idea? It is at least worthy of consideration.
We need more detail on what the Government is planning in regard to mortgages and I would welcome the Minister of State's views. We need to have this debate. It will benefit many people because we can come up with imaginative ideas that may lead to solutions.
I welcome the Minister of State. I was disappointed in the speech of the Minister of State. When talking about the Government approach, the Minister of State said "First, we should not create incentives that would encourage people who can pay their mortgage to stop doing so", and "the second and equally important consideration [but it was second] for Government is the recognition that some people, through no fault of their own, will not be able to fully meet their mortgage obligations". We are all aware of significant numbers of people who cannot meet their mortgage obligations through no fault of their own. That should be the first recognition by the Government, not the second.
I am concerned by a number of other comments in the statement of the Minister of State. There is another agenda in the public domain, which is motivated by the banking sector. It is the idea that significant numbers of people are engaging in what is termed delinquency. I find the language objectionable. The idea is that mortgage delinquency has risen since last year. I refer Senators to an article in The Sunday Times which suggested that people are choosing strategic delinquency in anticipation of new legislation, not because of severe economic distress but on the basis of negative equity only. The sources behind the story are unnamed and not one shred of evidence has been produced of a single borrower deliberately not making a mortgage payment. On the other hand, we are all aware of statistics provided by the credit unions that people are leaving themselves with an insufficient amount to live on because they are paying their bills.
There has been an imbalance over the past number of years in terms of how people engage with financial institutions. The Minister of State cited one of the points of significant progress arising from the Keane report as the fact that there is a cohort of advisers to stand up for people in trouble in order to put them on an equal footing with the lending institutions. The evidence before us remains that lenders are not engaging with organisations on behalf of distressed borrowers on a level playing field. They are agreeing to repayment schedules that they cannot, under any circumstances, hope to maintain. It is like a crash diet that promises weight loss within 14 days. One one can do it within 14 days but cannot do it for 14 months or 14 years.
The Government has rowed back somewhat on the mortgage arrears resolution process, MARP. In his statement the Minister of State said "This communication and engagement is a two way process and it is important that neither side is handicapped in making effective contact." We had a situation where people were being hounded by lenders, driven to suicide and this led to protocols preventing lenders from over-engaging with borrowers. It is a rowing back if we are redefining communication to allow people to be hassled to an even greater extent than at present.
There is far too much emphasis on personal insolvency reform as a way of resolving the problem. I refer to the heads of the proposed legislation on personal insolvency as currently drafted, assuming those on the outside have their way and secured debt is included under personal insolvency legislation. A certain cohort does not want mortgage debt to be included in the personal insolvency legislation. The Government should resist that under any circumstances because if we are to have any resolution of debt, it must include secured debt.
There is a view that putting this on the table will bring the banks kicking and screaming into a resolution of mortgage situations in a non-judicial, out of court settlement process. This will happen under the Act or, as I have been assured on many occasions, the fact that the legislation exists will bring the banks into some sort of resolution environment. As proposed, the heads of the Bill indicate that there will be such a level of veto for the secured creditors that it will not be possible to bring them kicking and screaming into anything and that in reality, there will be a further veto for the banking and financial institutions sector that will not result in any progress. I ask the Minister of State to ensure that the veto of borrowers over any agreement needs to be reduced significantly and perhaps removed, as is the case in other jurisdictions, so that a settlement can be imposed by the courts if necessary.
I am concerned that the real question is not being addressed. For the past number of years, lending institutions in particular and this and the previous Government have kicked this can forward. The financial institutions seem to be the centre of our attention but the issue of housing should be the main focus. A significant number of people will not be able to continue to afford to pay for the homes in which they live, even under a debt write-down scenario.
With the best will in the world, the mortgage to rent system will only be dealing with a very limited number of people in a very limited circumstance. It will not be an option for the vast majority of people who find themselves in mortgage distress. On the other hand, 100,000 families are on the housing waiting list and the private rented sector has grown from 11% to 19%, and rents are beginning to rise. It has been noted already that pressure is being brought to bear in this sector. The mortgage market is moribund and the housing market is almost completely zombie. The Government must ask itself what it will need to do in housing terms for the people who will be impacted by this debt.
A previous speaker mentioned that leaving it all to the lending institutions is not the best policy and I agree. The Government needs to consider solutions that lie outside of the lending institutions other than the mortgage to rent system. The option of the State taking responsibility away from the banking sector needs to be considered. I ask the Minister of State to reconsider this option as it has been proposed previously. We should consider a mortgage to debt equity approach, which would include transferring some of this debt out of the banks into an arm's length institution, rather than pouring this money into the banks and getting nothing out at the other end. We should create a wholly owned State subsidiary than can acquire these mortgages at a haircut price and move forward by taking some of the equity from distressed homeowners where it is possible for people with a reduced level of debt to continue on into the future. We are a society of homeowners and it is not possible to change overnight the way this society works. It is not possible to take 10% plus of every mortgage-holder in this State and create a solution to this dreadful situation by pushing it into the housing market. We do not have a housing market that is capable of coping with it and nor is the social rented sector capable of doing so.
Any solution in Ireland will have to require people to remain in their own homes. We need to move away from the financial perspective, away from the banks' balance sheets, and start considering where people in this country are going to live.
Cuirim céad fáilte roimh an Aire Stáit agus ceist an-tábhachtach á phlé anseo. Bun agus barr an scéil ná go bhfuil daoine a bhfuil morgáistí acu ag aireachtáil an brú lá i ndiaidh lae agus faoi bhrú ag na bainc. Ní fheiceann siad go bhfuil an Rialtas seo ag déanamh tada fiúntach dóibh. Feiceann siad go bhfuil gach rud á dhéanamh ar son na banc, go bhfuil muid ag cur airgid isteach iontu agus go bhfuil muid ag freastal ar lucht na mbannaí agus lucht na hEorpa agus mar sin de. Ach maidir leis na daoine bochta atá ag fulaingt gach lá faoi ualach breise costas agus mar sin de, níl an Rialtas ag déanamh faic na ngrásta dóibh.
This Government was elected with the support of many families struggling with mortgage arrears and desperate for a solution and some relief. This was a significant pre-election issue and both Government parties made it a priority and made several pre-election commitments. These crystallised into the programme for Government, which included increasing the mortgage interest supplement, extending mortgage interest relief, and transforming MABS into a personal debt management agency with strong legal powers. It also proposed that mortgage holders should be insulated from ECB interest rises. However, the Government is failing to deal with the problem of mortgage arrears. The hopes and expectations of the countless home owners who backed Fine Gael and Labour have been dashed. According to the Central Bank, some 107,708 mortgages are now in distress. This inaction is hurting families and putting them under immense strain, so concrete action is required.
The Government has prevaricated, procrastinated and has totally refused to act. Three expert group reports have been produced over almost two years; any excuse to delay action has been grasped. The Keane report was published last October but it was a disappointing document with little to offer many families who are desperate for some relief. It effectively proposed to leave those in mortgage distress at the mercy of the banks and saddled them with decades of unsustainable debt. There is no question but that this is not a credible route out of our mortgage arrears.
The Keane report specifically ruled out many of those pre-election commitments entirely. The report was clearly flawed to begin with by the composition of the group tasked with its drafting, and in particularly the preponderance of bankers on it. Arguably more remarkable, however, has been the inaction since then. The report took eight months to prepare but in the intervening months, according to media reports, only one family has received any assistance from the Government in the form of a pilot mortgage-to-rent scheme. A staggering 92 families fell into mortgage distress every day in the three months from September to December 2011.
We understand the personal insolvency legislation has been delayed. Why is this so? Is it on account of pressure from banks? The banks have been capitalised with billions of taxpayers' money and are well insulated from any losses. Neither implementing the report nor producing an alternative, they seem satisfied merely to hope the problem goes away. It is plain to see, however, that the problem will not disappear. We need more action.
Sinn Féin is of the view that this could have been handled in a distinctly different manner. The key objective is debt sustainability. The ability of the mortgage holder to service any new mortgage arrangement must be clearly demonstrated. Four key principles underlie our proposals: maintaining the family home, providing appropriate alternatives, ensuring debt sustainability and sharing the burden fairly.
We are aware of the difficulties and have been realistic. We are well aware that a blanket debt forgiveness scheme for all those in negative equity is unaffordable. However, more targeted debt resolution and restructuring mechanisms, such as debt for equity swaps, ought to be considered. Crucially, mortgage lenders must absorb a significant portion of losses on the value of mortgages. We have argued for a strengthened distressed mortgage resolution process with a stronger code of conduct for mortgage lenders. This process must be backed up with an independent distressed mortgage resolution board to ensure that decisions taken by lenders represent an appropriate response to mortgage distress. Where such a response is found to be wanting, the board must have legal powers to enforce the right solutions and penalise lenders for failing to act in an appropriate manner.
Mortgage lenders must absorb a significant portion of losses on the value of mortgages. Sinn Féin does not believe that the taxpayer should foot the bill for the mortgage crisis. We do not believe it is necessary for the taxpayer to compensate banks further for the loss in value of their residential mortgage loan books. There is sufficient capital in the banks at present to absorb a significant proposition of these losses. Considering the billions of euro given to banks both by the last Government and the current one, there is no credible argument against the banks shouldering their fair share of the burden of mortgage distress.
Serious consideration must be given to targeted debt resolution and restructuring with banks absorbing part of the cost in order to enable people to protect their family home. We welcome the fact that Permanent TSB has cut its variable mortgage rate by 0.5%, which we have long called for. However, PTSB still has rates which are considerably higher than Bank of Ireland and AIB. PTSB should have rates which are similar to the other State-owned banks. It is remarkable how little leverage the Government utilises over the banks, given that a number of them are State-owned.
We can no longer afford to let the problem deteriorate and force families to endure high levels of stress and worry over their inability to pay mortgages when solutions are available. Leaving this matter to the banks to sort out is the wrong approach. If we do so, it would appear that we have learned little or nothing from the experience of recent years.
I share Senator Hayden's idea of a third force being established. There should be a role for local authorities, so I would be interested to hear the Minister of State developing that idea. I also welcome proposals in the recent Social Welfare Bill which place an onus on banks to address mortgage-holders who are currently in distress. Prior to the law being passed, the mortgage relief supplement would have been given willy-nilly. The banks were happy not to negotiate with individual distressed mortgage-holders because they knew the Government was going to provide the money. Now, however, there is a 12-month moratorium during which they have to renegotiate and reschedule their debts. At the end of that period under the new scheme it will mean that the substantial amount of money the Government has been paying out will, hopefully, be saved and used in other areas for the benefit of the general public. The Minister of State made some reference to that but I would be interested to know what his views are.
I agree with the recommendations that have been approved concerning the reform of bankruptcy legislation. I cannot understand why we do not have a similar system to that in the UK, given the close proximity between the two countries. There have already been several high profile cases, as well as lower profile ones, whereby people went to the UK to avail of the bankruptcy laws there. Why can we not bring our legislation into line with our nearest neighbour in this regard? I do not understand the lack of logic in not doing so. Why is the bankruptcy law different here?
As regards the most recent initiatives that have been launched by NewERA, it was widely reported that a lady from Dublin managed to get her mortgage substantially reduced. I am sure everybody is familiar with it so I do not want to go into the details other than to say that the original cost of the property was substantially reduced so she ended up owing only €60,000. After the property was sold, the bank absorbed the losses which were over €100,000. She was then left with €60,000 to pay over six years. On the face of it, that seemed like a good development but the down side of it, as far as I am aware, is that individual will now be denied getting back into the credit area for a significant number of years. Her credit rating has gone through the floor and she will have to pay off the €60,000. At the end of it, there is no chance that if she ever wanted to borrow money again she would get it, or at least for a considerable length of time. Therefore there is a down-side to this somewhat compassionate view, as it was put across, that the banks were somehow adopting a humane approach. In an emotional radio interview, the lady herself more less thanked the banks for their humanity, when the reality was totally different.
I agree with the overall thrust of what has been said here today, which is that the banks have a greater responsibility in this area. There is no sympathy for the banks despite the fact that there is some difficulty.
Would the Minister of State agree that the encouragement to create a third banking force through Permanent TSB is a positive sign? Perhaps he can indicate how it will be financed. Will that bank be open, for example, to a takeover or an injection of equity from banking forces outside the country? There are a number of banks that, I understand, are already looking at Bank of Ireland and AIB - not in the current climate, but they are waiting to see how things develop in terms of recapitalisation. They are predatory banks that are looking to expand and acquire. What is the Government's view on the financing of Permanent TSB? Would it welcome an injection of outside equity in the much the same way as the American investors invested and took stock in Bank of Ireland? That may be an obvious question but I am not sure about the procedures in terms of the way it will be financed or recapitalised. If a white knight came along and said he wanted to take equity in Permanent TSB, would such an offer of investment be welcomed?
I welcome the Minister of State. Senator Hayden offered an interesting opinion on the setting up of an independent agency that might take some of the debt unto itself, manage it and work it out. I would be interested to hear the Minister of State's opinion on how such an agency might sit when juxtaposed with any proposed management of the tracker mortgage issue, which might involve the establishment of a similar type agency to remove the tracker mortgage impairments from the bank's balance sheet. It points to the complexity of the issue. The Minister of State might have an opinion on that.
I thank colleagues for their contribution on this crucial issue for the country. The Government is mindful of the significant issues we face and our responsibility to deliver a coherent reply and response to this problem. No one is suggesting in this debate that there is some kind of magic one-size-fits-all solution to this problem. We know that and the Senators know that. I sense from colleagues on all sides a growing frustration about the pace of change and the pace of the reform agenda that we clearly want to implement and support. That frustration is also shared in government. If there were a means to magic away this problem by some immediate solution, there would be a solution. The difficulty is that the problem is multifaceted. I reassure the House that this is a number one priority for Government. In my limited time in government, and it is very limited in terms of inexperience compared to other people in this House, when the Taoiseach and the Tánaiste of the day set up a specific committee to drive a policy such as this, it sends out a clear signal to all arms and wings of Government in all its various guises that the Government regards this issue as a priority. The establishment of that committee under the Taoiseach has given that jolt, if it was needed, to the entire aspect of Government to come up to the plate, resolve this issue and bring forward the necessary proposals that we need to see put in place. I assure the House that the Cabinet sub-committee under the Taoiseach is prioritising this issue and making sure that we make progress.
We have the Keane report. I heard someone suggest it took eight months to complete when in fact it took, from start to finish, eight weeks to put in place. The draft heads of the personal insolvency legislation were published in January. That was also a priority concern for the Government and we are making progress on it as well. If one considers the individual plans the banks will bring forward, I have made a commitment to the House - as is the case through the Central Bank comments on this issue - that by the end of this month those specific plans and the options they will then make available to borrowers in the second half of this year will be in place. We will see a significant range and variety of options. As colleagues on all sides have said, no two cases are the same; there are a variety of options that need to be put into the field. We will see significant progress there.
The Government is clear about the fact that when the Blackrock Solutions assessment of the capital requirements for our banks was done following the latest range of capitalisation in March of last year, it was made abundantly clear that a figure of €10 billion was set aside for the purposes of the banks writing down and writing off specific loans that were required. We have not seen as of yet substantial movement by the banks in that regard. That is wholly frustrating for us all. However, I believe we will begin to see that process in place and a more concentrated approach by the banks once the range of options are in place. We will see progress on the options that need to be put in place in the second half of this year.
Significant comments have been made about the role of the advisers the Government will put into the field, as it were. I understand that by June at the latest the Minister for Social Protection will make announcements in that regard. The objective of those advisers being in place is that we need to have an independent third party assessment following a borrower and lender discussion through the market process. In other words, if borrowers and lenders engage honestly and openly with each other and a solution is arrived at and if lenders believe that solution is unfair in regard to the conditions being put in place, the objective of having the role of such advisers - we do not need to be caught up about agencies - is that we need to hear specific people with specific skills and experience in this area who, on behalf of us all, can give a third party assessment as to whether that solution is fair. That has been the entire objective of Government here. I fully accept what people have said. Up to now there has not been any independent role in this respect. The banks produced a solution and one like it or lumped it, as it were; one could effectively appeal it, but one would appeal it to an internal committee of the bank. That is not acceptable. My understanding is that new advisers who will be established under the office of the Minister, Deputy Burton, will give that third party advice which will ask the banks and those lenders to arrive at a solution that is as fair and equitable as possible in the circumstances that have arisen.
I would ask people to be patient with us. The Senators rightly pointed to the degree of frustration that has been encountered so far. I readily identify and admit that but I point out that a good deal has happened in a relatively short period. The objective of Government, across all agencies and Departments, is to make sure that we can make significant progress in the time ahead.
We acknowledge that the mortgage to rent scheme will have a limited but important impact on the mortgage arrears numbers but other solutions such as the trade down mortgages or slit mortgages operated by the banks under the oversight of the Central Bank will have an important role in regard to distressed borrowers. These are solutions but I refer to what I said at the outset of my speech that what is ultimately required in the Irish economy is a period of stability and growth when we can see some activity and transactions in the housing market again. I refer again to the fact that the Government has put a number of measures in place under the most recent budget to encourage the number of transactions to improve the housing market. Unless we see that we will not see an ultimate solution to the general position in the economy.
Senator O'Brien raised the issue of a separate agency to deal with the mortgage issue. A separate agency to deal with the mortgage debt problem would complicate the system and would give rise to significant concerns on the part of investors that blanket debt write-off is envisaged. The objective of having these advisers - this is an area for the Minister, Deputy Burton - is that they would be that third party eyes and ears, as it were, in trying to arrive at a fair solution for people. We must be more concerned here about the advice and the expertise of people and less concerned about the process of agency. The point has been made that there is a distinct difference between the role of MABS and the role that is envisaged for the advisers when they are in place.
The task is that they will become that independent voice. Ultimately, this is a scheme that would have to be set out. I ask Senators to be patient. I said that the Minister for Social Protection will be making an announcement about this imminently. I presume when she makes that statement she will come into the House and answer the Senator's questions on that.
Senator Healy-Eames asked how banks will be reined in to ensure financial and banking problems do not arise again in the future. I suppose stronger regulation is the key as is the control of the banks arising from the provision of the bank guarantee scheme. The Credit Institutions (Stabilisation) Act places a requirement on boards of directors to act and have regard to public interest. The Central Bank has greater staffing and other resources.
On coming into office we established a very strong stand-alone banking unit in the Department of Finance. Behind this banking unit and the reconfigured Department of Finance are very strong bilateral discussions between the Department and the banks on a daily basis. I ask people to be aware of this. We need to see significantly more progress and I am the first to admit it, but the suggestion discussions are not taking place between the Department and the banks on a daily basis is not true.
I must tell Senator Hayden I did not refer to mortgage delinquencies and I do not accept the premise.
There is an article in a newspaper but I do not accept it. What the article was based on is entirely anecdotal. No substantial study has been made whereby anyone can make this conclusion. The great majority of people want to pay but cannot do so because of their circumstances. I ask people to be fair in their reporting of these matters. Obviously in circumstances where people are crippled with mortgage repayments they will try to find a way out and it is our responsibility in working with the banks to ensure such solutions are ultimately fine. The Senator is correct to state most people want to continue to make their repayments and I fully accept this.
Senator Quinn asked whether people could use some of their pension payments now for the purpose of paying back debt to allow them return to the real economy and function. I have heard him ask this question previously and his colleague, Senator Crown, also referred to this point. It would have a knock-on effect on the domestic economy and would raise concerns about its effect on mortgage arrears and about the current level of pension savings not being sufficient to meet the expectations that exist. We will examine the issue. All of these issues are being worked on. If such a situation were to arise the question for the State would be whether a person using his or her savings for future income requirements would create a greater liability for the State because it would be expected to make up the balance. This debate must be held. Certainly there is some logic to some freeing up to allow people to do so but it would probably be in limited cases. We are examining it, but we would have to balance the potential liability of the State.
Senators raised the issue of personal insolvency legislation. Senator Quinn mentioned the UK legislation, and the Bill proposed by the Government is similar to this but goes further in dealing with secured debt, which the UK legislation does not. One of the reasons we have produced the Bill in draft form is to ensure it encompasses international best practice. We have learned from some of the defects of the UK legislation, which is why the Minister, Deputy Shatter, wants to ensure he has robust legislation that will stand the test of time, will deal with the problem and will unlock the potential as I mentioned in my opening speech.
These are my reflections at this point. I note the colossal interest of the House in this issue, which is shared by us all. I understand people have shown significant patience with the Government and, as I stated, I readily admitted there is frustration throughout the Government about the pace and scale of meeting the challenge. However, we are getting there. In the latter half of this year we will begin to see a range of options being rolled out on negative equity, split mortgages and other options being worked through. They will not solve everyone's problem and I very much take the point made by Senator Michael D'Arcy that in some cases the circumstances will be so difficult and dire for individuals that they may well be faced with the option of moving on. The entire focus of the Government, as was stated in the programme for Government, is to ensure people can remain in their homes. In the great majority of cases this can be successfully achieved if the banks work with us and produce the solutions required. In the great majority of cases this will be achieved. However, as has been rightly stated there will be a minority of cases where it cannot be achieved because of the level of indebtedness and unrealistic prospects faced by people.
The Government is always open to examining new ideas. It is very easy to make a political speech on this but quite frankly it will not solve anything. It is an appalling mess that must be sorted out. By endorsing the recommendations of the Keane report, and through the insolvency legislation we are bringing through the Houses and our dialogue with the banks which I accept is slower than was originally envisaged, we are showing our determination to resolve the issue and produce the options required. I accept what Senator Darragh O'Brien stated. The situation will deteriorate as the economy deteriorates. The key task we face is to get the economy to a better position so people are given a chance to stay in their homes. This is the objective of the Government and we can achieve it if we work together. The Government is minded to support positive ideas from this House and the committees.
I welcome what the Minister of State has said. I do not in any way deny his commitment to resolving this very complex and difficult situation. We do not have time to prevaricate. I hear anecdotally that some people - to what extent I am not sure - because of an expectation that something will be done are trying to position themselves to avail of it. This needs to be watched and checked.
Has anything been done to classify the borrowers? I would categorise them into three groups. Considerable write-offs will be faced with regard to those who are very distressed and will not be in a position to repay the amount of money they owe at any stage in the foreseeable future. There are also those who are over-leveraged and struggle even to make interest repayments and whose debt is of a magnitude that will severely retard them financially and economically for many years. The CSO stated €7 billion of the €11 billion estimate of negative equity involves those aged between 30 and 40 years. Generally such people are the drivers of an economy. If they are distressed to this extent we need to examine what can be done to relieve them of a proportion of this pressure. There are also those whose debt is manageable. These are people whose repayments are 20% or less of their income, which I regard as quite manageable. If it has not already been considered, will the Minister of State consider trying to quantify these categories? Has any evaluation been done of the impact of the first two groups I mentioned on the likelihood of economic recovery? As the Minister of State correctly said this is pinned on growth, which will come from exports and consumption. Those in the first two groups will not be in a position to contribute towards consumption in the foreseeable future. We could be speaking about a period of 15 years.
Has the overall cost of the likely write-down in this area been established? This needs to happen sooner rather than later because of the retarding influence it will have on growth. Has the Government quantified the likely effect on banking? This will have an effect on credit and it could give rise to much uncertainty. A view exists that considerable write-down of personal and business debt will have to take place and some of this has not been faced up to.
The Minister of State has alluded to the fact that the banks have not been playing their part to date. I wish to put some anecdotal evidence before the House. A person contacted me 20 minutes ago. Six weeks ago the person had a meeting with the bank and got the Margaret Thatcher approach of "No, no, no". The person received a letter today asking to put the proposal in writing to the bank which would then evaluate it. That shows a change of mentality and approach by the banks in the past six weeks.
I am not going that far but I believe there is a softening in approach and they are reviewing proposals. I have seen that in three different cases. It is reported today that personal debt has reduced by 1.3% and people are saving. I believe there is a softening on the part of the banks.
I thank the Minister of State for his response to the debate so far. It has already been acknowledged, particularly by AIB, that its buy-to-let loan book is impaired to a far greater extent than its domestic loan book. I am concerned that insufficient analysis has been done to date on the buy-to-let market. The repercussions of default in the buy-to-let mortgage market will be felt in the overall housing market because we do not have a non-recourse lending system against, ultimately, family homes.
Some people are in what I call a rent-to-rent situation. They bought property mainly from 2004 onwards and now may have moved job, gone to another part of the country or even emigrated. I am principally concerned about people who are living in this country and who may be renting in one location while letting their original purchased property. I understand they are not eligible for the mortgage interest tax relief on the property they own because they are not occupying it as their principal residence. They get very little tax relief on the rent they pay for the property in which they live. They are also subject to the non-principal private residence tax. Through no fault of their own they are stuck in negative equity, in arrears and getting no benefit from the system we have in place and are paying additional costs they would not be paying were they residing in their own home. Perhaps the Government would consider some changes to alleviate that situation.
I refer to the question I asked the Minister of State about Permanent TSB. The Government's policy seems to be to create a third banking force in order to generate more competition in the mortgage market. This has led Permanent TSB reducing its mortgages, albeit only by a small amount. I know my question might have sounded somewhat tongue in cheek. However, would the Government welcome a major force outside this country if it was prepared to inject equity into this potential embryonic major third banking force? How will the Government capitalise Permanent TSB in order to make it competitive?
The Senator is absolutely right: I did not answer and I apologise to him. We have seen some progress in this area following the most recent report of the troika, including, as one Senator mentioned, a reduction in the interest rate. I very much agree that it is in all our interests for a third banking force to be re-established. I understand that significant proposals on Permanent TSB will be placed with the European authorities by June. It is accepted that the only way forward for the bank would be to park its tracker book, which is a significant drag on the totality of the loan book. That the troika made this announcement in its most recent visit is a welcome development. The Government would be delighted to see significant investment in the bank from abroad. While we are going forward with a two-bank policy with the banks downsized by comparison with where they were, the dilemma is that we do not want to create an uncompetitive environment for the future. It is crucial to have competition and if Permanent TSB could be that force, the Government would welcome it. However, it requires others to invest in it. If it is restructured in such a way that some of its loans could be parked - a kind of good bank-bad bank idea - it may well become more attractive for international investors who might see an opportunity in it.
Senator Sheahan outlined the case of a party which up to recently got a very negative response from the bank, which now seems to be moving. I very much welcome that and we need to see more of it. If we begin to see the range of options being put forward by the banks and pushed by us on them to deliver, I believe we will see the kind of progress we want. While I hate to say this, the banks are traumatised by all of this and it requires an enormous cultural change in the Irish banking system. I was struck by the recent comments of a new CEO of one of the banks, who told me that a previous CEO had never been inside any branch of a bank, such was the kind of near papal view that some of these people had. They were regarded as being so big that they did not need to go into ordinary branches, and speak to ordinary bank workers or ordinary people about lending policy. With their lending policy they totally destroyed the country and they need to rethink how they get money into the real economy. They also need to eat a considerable amount of humble pie in that process. That will require them getting into communities again as they did ten years ago, thereby understanding the needs of businesses - small and big - and understanding what is required to get credit going. We are beginning to see that but much more needs to be done.
Senator Hayden rightly raised the issue of the rent-to-rent exclusion. These people get no benefit whatsoever. They are excluded from any scheme because they are letting their principal house. Obviously it would require an amendment to the Finance Act, which we review on a regular basis. I will again raise the issue with the Minister for Finance. I have come across a number of such cases. They are people who are hit for everything even though it is their only home.
The Governor of the Central Bank recently asked forcefully why the banks are not getting on with resolving the problems on the buy-to-let side. He indicated that until this boil was lanced - as it were - we would not see the kind of resolution required. While the Central Bank publishes a detailed data series on the arrears position of primary residential mortgages, it does not publish comparable data on buy-to-let mortgages. However, the bank has published some data on this subject. In a conference the bank hosted in October 2011 on the Irish mortgage market, it estimated that by the end of December 2010, some 10.9% of buy-to-let mortgage balances were in arrears of 90 days or more. Separately, in a presentation to the Oireachtas committee on finance in October last year the Central Bank indicated that at the end of December 2010, 57% of the buy-to-let loans of the four banks included in the 2011 Central Bank financial measures programme report were interest only. It is a major problem that must be addressed. I agree with the Governor of the Central Bank that until it is addressed, we will not have the ultimate solution to this problem.
An issue raised by Senator Walsh concerns the question of whether we have quantified the categories and classifications of those in this distressed situation. At the end of this month the banks will report to the Central Bank on all the proposals they will put into the Irish market in the second half of this year. Part of that report will deal with that question, quantifying who owns what, the age groups and the classifications therein. It will then be a matter for the Central Bank, I presume, to publish that information for the public. The banks have been working on this for the past six months or so and the Central Bank has made it clear to all the banks that this is a key part of its matrix on which it has not received information so far. I presume that when the report from all the banks goes to the Central Bank at the end of May, the Central Bank will publish the data the Senator is seeking and we will see the level of indebtedness for the age cohorts and for the income cohorts.
The Senator asked if any study has been carried out on the drag on the economy as a result of not dealing with this problem. The Keane report addressed this, although I am not sure if it quantified the amounts involved. However, it did a small amount of work on this area. I agree that until this issue is resolved there will be a substantial drag on the economy. As Senator Sheahan said, people are saving or are not spending. I have encountered appalling cases in my constituency where 80% of people's disposable income is spent on mortgages, a circumstance that is unsustainable. We need those people spending again in the domestic economy. I am sure work has been carried out in the Department of Finance in terms of quantifying the drag, and if I can get that information to the Senator, I will. In the first instance, however, it is a matter for the Central Bank to publish the level of indebtedness, the groups and the age cohorts. I presume it will do that after it receives the data on the last day of this month.