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Dáil Éireann debate -
Tuesday, 18 Oct 2011

Vol. 744 No. 1

Report by the Interdepartmental Working Group on Mortgage Arrears: Statements

The Government last week published the report of the interdepartmental group on mortgage arrears. The group was requested by the economic management council to examine the further necessary actions that could be taken to address the increasing problem of mortgage over-indebtedness. The Government is aware of the increasing stress that some households are facing arising from difficulties in meeting their mortgage commitments and felt it was timely to ascertain what additional measures could be introduced to assist people dealing with such difficulties.

The group was chaired by Mr. Declan Keane, an accountant who was on secondment to my Department from KPMG. Officials from my Department, the Departments of the Environment, Community and Local Government, Social Protection, Justice and Equality and Public Expenditure and Reform were on the group. The Central Bank of Ireland was also represented and the group included some industry expertise from the banking sector.

The principle of a fresh start for people facing difficulty in dealing with their mortgage commitments is a key priority for the Government. The approaches set out in the report will give people a fresh start and allow them to break the shackles of unsustainable debt, which can have such a destructive effect on family life.

When the economic management council requested work to be carried out in this area, two core objectives were set for the group. First, there was a desire to ensure that mortgage holders who were experiencing real difficulty should, where appropriate, be assisted in remaining in their own homes. Second, any framework and range of supports for mortgage holders must be able to distinguish between those who cannot afford to pay their mortgage on their primary home and those who choose not to pay their mortgage.

As a Government and society we must be open and willing to assist the first group in an appropriate way. However, where people are able to meet commitments they entered into, it should not be for society as a whole to offer benefits or gains to such groups at the expense of others who may have a greater need. This is even more relevant against the background of the severe fiscal circumstances that the country now faces.

The early reform of the personal insolvency legislation will be a central element in the majority of the resolution mechanisms proposed in the report. It will act as the catalyst for change in the relationship between the borrower and the lender. This report offers a range of solutions, which take account of the very different circumstances of each borrower and the difficulties they face.

The range of solutions includes: split mortgages which would allow borrowers to recalibrate the mortgage payment to a more sustainable level. This enables mortgage holders to reduce their weekly payments at the present time. When their circumstances improve, they can then increase their repayments. Trade down mortgages and sale by agreement mortgages offer solutions in other circumstances. These approaches allow families to move to homes more suited to their current needs; whether it is to obtain employment or to move to a more appropriately sized home for their family. Only where the mortgage is unsustainable would the mortgage to rent schemes become options. These schemes would allow people to stay in their homes albeit within the context of the social housing network. It would lift the crushing psychological burden of unsustainable debt, which can weigh on a family forever.

We all agree that the resolution of mortgage is complex and the decisions to be made by individuals should not be taken lightly. The report advocates the creation of an independent mortgage advice service to guide borrowers through the range of options open to them. This independent mortgage advice service will help ensure that the borrower selects the best option for him or her.

The key overall finding of the working group was not surprising and reflects the general finding of previous groups. That is, that there is no magic bullet or solution to address the problem of mortgage difficulty. Any attempt to address this problem in a global way would be very costly and will not offer sufficient real assistance to those people most in need of support.

There has been some commentary that clearing the negative equity of mortgages would resolve the difficulties in the mortgage market. The Central Bank has estimated that this option would cost approximately €14 billion. Such an approach would not address the key difficulty of making the mortgage payments affordable, which is essential to solving the difficulties experienced by people in arrears.

The main cause of mortgage holders going into arrears is that the household experiences an income shock, such as that which arises from a loss of employment, and not from negative equity at a particular point of time. While it is accepted that negative equity causes significant concerns for indebted households and that it can have a negative impact upon consumer and wider economic sentiment, it does not of itself cause people to go into mortgage arrears or experience affordability problems. The Central Bank estimates that only 10% to 13% of households in negative equity are also in arrears. Blanket approaches to deal with the problem of mortgage arrears by writing off debt would, therefore, be a costly and inappropriate public response to the problem of mortgage arrears.

The issue of mortgage difficulty can only be addressed in an effective way on a case-by-case basis. The circumstances of each household are different and each household will need to be treated having regard to its individual circumstances. The level of income, the size of the outstanding mortgage and other particular requirements or demands on the household will all have to be considered. The option that will be most appropriate for the particular household can only be considered when all of these factors are taken into account. This case-by-case approach, therefore, is the only appropriate way to deal with such a multifaceted problem.

Underpinning any proposed solution, will be the need to modernise our bankruptcy and personal insolvency law. The current legislative resolution framework for personal insolvency, the Bankruptcy Act, is antiquated and does not meet the requirements of the modern credit market. Accordingly, it is necessary to put in place a more modern framework, one that will not unduly penalise people who can no longer, through no fault of their own, meet their current debt commitments. It will be very important for people to have a realistic option of selecting bankruptcy as a means of debt settlement where the burden is just too great. The Minister for Justice and Equality, Deputy Shatter, will shortly introduce proposals for this important reform of the personal insolvency legislation. It should be recognised that while the Government will bring forward this legislation speedily it is by no means envisaged that it should or will become the debt-resolution option of choice for a significant number of mortgage holders. There is an onus on the banks to recognise the economic fact that bankruptcy settlement will often not be in the interest of any of the parties and that alternative solutions such as those advanced in the report and others need to be developed.

Another important recommendation is the proposed support and advice for distressed mortgage holders. This is a very complex and stressful situation. The solutions proposed in the report and any others that may be provided by mortgage lenders together with the proposed significant reform of personal insolvency law will create new options that will have to be evaluated and carefully considered by people with distressed mortgages. Many of those affected may need specialist advice and assistance to guide them. MABS currently provides an important service, but the type and scale of the demands that now arise in the case of mortgage debt are of a different nature from the financial issues MABS was initially established to assist. Specialist financial, legal and accounting expertise will be required for the growing problem of mortgage and related debt. Also, the structure of the existing MABS service, based on more than 50 independent companies throughout the country, militates against the provision of such a specialised service. The report, therefore, suggests that a more centralised and specialised service should be provided that could nevertheless link into MABS and take referrals from the existing MABS service. To an extent this would mirror the approach already adopted by the banks, which operate a more centralised service in their dealings with people with problem mortgages and would allow for a more informed view of the actual approach that banks are taking in their dealing with mortgages in difficulty. The report proposes that the banks should fund this service and this is a view I would endorse.

The group found that existing forbearance approaches are a very worthwhile and appropriate response to most people experiencing mortgage difficulty. The key factor for mortgage sustainability is long-term affordability. Unfortunately, some people will experience temporary affordability difficulties arising from, for example, a loss of employment, but if they can secure alternative employment in the future they may be able to overcome such a temporary difficulty. In such cases, the forbearance approaches as set out in the code of conduct on mortgage arrears such as extending the term of the mortgage, reduced payments, interest only payments and the deferred interest scheme are all appropriate for consideration having regard to the individual circumstances of each case. The Department of Social Protection mortgage interest supplement also makes an important contribution for eligible households. Therefore, this forbearance approach allows a household experiencing temporary mortgage difficulty important breathing space to enable that household to get back on its feet and resume meeting its full mortgage commitments at a future time.

However, the group also recognised that, unfortunately, there are some mortgages that, even with the best will of all concerned, will not be sustainable on a long-term basis. Where there is little prospect of people ever being in a position to build up reasonable equity in their mortgage, the appropriateness of forbearance measures in such circumstances will need to be considered. In this context, consideration will also need to be given to the current unlimited duration of the mortgage interest supplement scheme. This scheme, which provides an income supplement to an eligible household that will meet most of the mortgage interest payments, can allow both the borrower and the mortgage lender maintain the status quo for an extended period of time. However, if the only reason a mortgage can be sustained on an extended basis is the fact that the Exchequer pays the bulk of the interest payments, then it has to be recognised and accepted that this is not in the long-term interests of the taxpayer or the other parties. Other more sustainable approaches will need to be considered.

The report outlines a so-called decision tree approach to assessment and suggests a range of solutions that may be appropriate. These include the following. Trade down mortgages could be suitable where the owner of a higher value or larger property trades down to a lower value house and will consequently have a more affordable mortgage. Given housing market developments, it may be possible for a person to trade down to a larger home. Split mortgages could be suitable where a household is not currently in a position to meet the commitments of the full mortgage but could meet the commitments on a reduced amount and perhaps repay the remainder over time from income or capital increases. Sale by agreement can apply if an alternative solution cannot be reached and the borrower and lender agree to sell the property and resolve the shortfall in the mortgage in an appropriate and reasonable manner, after the sale taking account of the borrower's circumstances. Mortgage to rent would be suitable where the borrower and his or her home are social housing eligible.

The report also makes clear that these solutions are not intended to be exhaustive or prescriptive. Other solutions can and must be developed by mortgage lenders to address individual cases. My Department will seek to advance this in its contacts with the banks.

The State has a responsibility to provide housing to those whose resources can no longer allow them to pay for housing. For example, many people in receipt of mortgage interest supplement on a long-term basis are likely to have an eligibility for social housing support. Recent information shows that the number of households in need of housing support has increased and there is, therefore, a need to boost the stock of available social housing in the State.

The mortgage to rent schemes allow the State to increase the number of social housing units directly and provide it directly to those in need. Two options are presented for development within the mortgage to rent scheme. The first envisages the involvement of appropriate Department of the Environment, Community and Local Government approved housing bodies, and the second will involve mortgage lenders entering into long-term leases with housing authorities. In each case, the borrower and the lender, as part of the MARP process, reach an agreement that the mortgage is not sustainable on a long term basis. Where the person would qualify for social housing support if the house was repossessed and the person's home is deemed suitable for social housing purposes, which in both instances will be decided by the local housing authority, then the possibility of utilising one of these proposed mortgage to rent schemes arises. The primary advantage of such a scheme is that the person stays in his or her home and his or her family remains in the local community of which it is part. It also ensures that the social housing list is not unnecessarily extended. The conversion of the home to social housing is done in a confidential manner so there is no social stigma attached. I should clearly say that there should never be stigma attached to a citizen of this State seeking assistance in his or her time of need, but unfortunately this is not always the case. It is proposed to launch these schemes on a pilot basis initially, and the Minister of State, Deputy Penrose, will outline greater details on these schemes in due course.

The challenges facing mortgage holders and society at large since the inception of the banking and economic crisis are significant. Nevertheless, we have already taken significant and essential steps to overcome them. The challenge for the Government is to manage and lead that process at a time when the resources are limited and the options are constrained.

All of us recognise that this problem is complex. Neither the work of the group nor this report were designed to offer the complete solution to the mortgage arrears problem. As is recommended in the report, further solutions need to be developed by the mortgage lenders and these need to be assessed by the Central Bank. The report sets out some very important recommendations on where the State should play its part by supporting mortgage to rent schemes, establishing a mortgage advisory function and introducing more appropriate bankruptcy legislation. It also sets out a clear framework for assessing individual situations and a range of suggested solutions.

Others, in this House and outside, may also have other important contributions to make. I look forward to Deputies on all sides contributing to this very important debate and will consider all helpful and practical suggestions to tackle the problem of mortgage distress, both in my closing response and in the ongoing consideration by the Government of this important issue.

I welcome the opportunity to contribute to the debate on the report of the interdepartmental group on mortgage arrears, known as the Keane report. Every Member needs to take ownership of the issue of mortgage arrears. We all need to engage fully in the wider debate on the levels of personal debt and mortgage debt which are crippling many families in Ireland today. Obviously, there is a particular responsibility on the Government to come up with solutions, given its power to take initiatives and to make and implement policy decisions. In that respect, I sincerely hope the Government will listen closely to the response of all Members to the Keane report. While I have criticisms to make, I will also endeavour to be as constructive as possible, as will my party colleagues.

I readily acknowledge that there is no silver bullet or one-size-fits-all solution for dealing with the growing problem of mortgage arrears. We are all aware of the scale of the problem, from looking at the official figures from the Central Bank and at a human level from daily direct contact with our constituents. While the figures are stark, the true picture is even worse. The official figures from the Central Bank, which give the picture as at the end of June, do not include persons with arrears of less than 90 days. Indeed, being one or two months behind on the mortgage can be a highly stressful and worrying experience for an individual or a family, and can in many instances be the beginning of a greater arrears problem. Since the end of June, which are the last official figures available, we have had a further European Central Bank interest rate increase, which was passed on by many banks, and unemployment remains stubbornly high. Unfortunately, it seems certain that the arrears figures at the end of September, which will become available in the coming weeks, will show that the mortgage arrears situation has deteriorated even further.

On balance, my overall reaction to the Keane report is one of disappointment. The report places too much emphasis on the role of banks. For example, the report states:

A range of solutions are recommended. These ... need to be further developed over time, by the banks.

The report seems to put the banks at the centre of resolving the mortgage arrears crisis but that is not appropriate. I do not believe that is a role they can play.

While the Minister and the Central Bank can correctly point to the fact that the banks have renegotiated and restructured about 70,000 mortgages, the majority of those have been adopting the straightforward options of going interest only, reducing the person's payment, extending the mortgage term and capitalising arrears. In fact, of the 70,000 mortgages that have been restructured by agreement between lenders and borrowers, 65,000 simply centre on amending the amount which is being repaid, extending the term and capitalising arrears.

As regards the more innovative solutions which are being put forward by other groups and which were put forward in the last report by the Hugh Cooney group, the banks have been sadly lacking. We should not be looking to the banks for solutions to this crisis. The banks' priority is to protect their own financial position and not that of borrowers. It is up to the Government to take account of the wider social and economic consequences of the mortgage arrears crisis. The Keane report singularly fails to achieve this.

Even when a solution is given to the banks, in many cases they fail to implement it. One only has to look at the deferred interest scheme put forward in the Cooney report last November as evidence for that. That report was published in November 2010, yet I am not aware of a single case where the banks have entered into a deferred interest scheme arrangement with borrowers. Many banks dragged their feet on agreeing to implement it. Some of them subsequently said they would sign up to it but they are not advertising it or making distressed borrowers aware that this option is available. I am not aware of individual cases where it has been. Perhaps at a policy level the Minister can confirm whether the banks are implementing the deferred interest scheme arrangement that the Cooney report put forward. Some of the solutions put forward in the Keane report have a role to play, but the distinct lack of a clear implementation plan with a strict timetable of key milestones to be achieved diminishes the overall effectiveness of the report.

This debate is important but we need firm and decisive action from the Government at the conclusion of the debate. Expectations had been allowed to develop that the Keane report would come forward with radical but realistic proposals that would be of practical assistance to distressed mortgage holders. The disappointment of groups working with distressed borrowers has been palpable. Many of them will be appearing before the Committee on Finance, Public Expenditure and Reform tomorrow, as will Mr. Declan Keane, to his credit, to take questions from members of the committee. Those appearing will include, New Beginning, the Free Legal Advice Centres, FLAC, the Citizens Information Board and the Money Advice and Budgeting Service, MABS. Some of these groups and others have been highly critical of the Keane report, so we should ask ourselves why. I believe it is because of the lack of radical solutions in the report and the lack of a clear implementation plan with a timeline for implementing the policy decisions that will emerge from this.

The seeds of those expectations about radical solutions were sown before the election and subsequently enshrined in the programme for Government where the Government promised to put the interests of distressed mortgage holders ahead of the interests of big developers and banks. The programme for Government states:

The recommendations of the Cooney report are inadequate to address the scale of the current crisis. A more radical approach is needed to protect families in fear of losing their home.

While we cannot assess this report as the Government's response, because clearly it is under consideration, the Minister's contribution at the conclusion of this debate and the implementation plan put forward by the Government will be the benchmark by which the Government is measured.

Some of the proposals in the programme for Government have already been abandoned, while others have been discredited. Six specific proposals were put forward by Fine Gael and Labour in the programme for Government. The first was an extension of mortgage interest relief to give those who purchased between 2004 and 2008 — the so-called negative equity generation — additional mortgage interest relief. That was to give people an extra €166 per month on average. That was meant to happen by June but it did not. It has now been put back into the budget mix with no commitment whatsoever from the Government that it will be implemented. In fact, the Keane report is damning of that particular provision in the programme for Government. The Keane report's authors make it clear that it represents an inefficient use of public resources in a non-targeted fashion.

The second proposal was to force banks to absorb the ECB interest rate increases, but that has not happened to date. In fact, the banks have not even been instructed, encouraged or given policy guidance by the Minister to do so. We had a welcome intervention by the Financial Regulator on the issue of banks hiking up their variable interest rates, but that was the regulator acting independently. The Office of the Financial Regulator is independent and that intervention was not made at the Government's behest.

The third proposal was a two-year moratorium on family home repossessions, building on the 12-month moratorium that is already in the code of conduct. However, there has been no mention of that being implemented.

The fourth proposal was a fast-tracking of personal bankruptcy reform. We are now told that will come about in the first quarter of 2012, but I do not regard that as fast-tracking.

The fifth item in the programme for Government was to convert MABS to a personal debt management agency. There is no mention of that in the Keane report. We have had the appointment of 100 extra advisers but we do not have any proposal to set up a statutory agency with real powers to intervene and resolve the mortgage crisis and the difficulties people are facing.

The sixth and final proposal in the programme for Government was to make greater use of the mortgage interest supplement scheme. We now have conflicting advice on that matter in the Cooney and Keane reports. The Government built up people's expectations in this regard and has thus far singularly failed to deliver. The truth is that nothing of any practical significance has been done so far to give assistance to distressed borrowers.

I now turn to a few specific areas in the Keane report. I have already referred to the mortgage interest supplement. We now have two reports saying different things and giving conflicting advice. The Cooney report suggested reforming the mortgage interest supplement scheme and relaxing some of the outdated restrictions, such as the rule that if one person in a couple is working 30 hours per week or more, he or she is prohibited from benefiting from the scheme. Most Members of the House would agree that that should be changed in light of the economic reality many people are facing.

The Keane report, however, recommends that the Government should move away from the mortgage interest supplement scheme once new alternatives have been developed. In my view, the recommendations of the Cooney report better serve the needs of people struggling with their mortgages. The mortgage interest supplement scheme is a cost effective way of giving real financial assistance to people to meet their mortgage interest commitments. More than 18,000 people have availed of that at a cost of around €70 million. One must compare that with rent supplement which is costing the Exchequer about €500 million per year. If the mortgage interest supplement scheme was properly reformed, and it is certainly in need of reform, it would be a cost effective tool available to distressed mortgage holders which could help them to meet their commitments and at least pay the interest on their mortgages.

The second proposal I wish to address concerns the two variations of the mortgage-to-rent schemes, which are put forward in the Keane report. The fundamental question surrounding those two schemes is what happens to the residual debt. This is something to which the Keane report alludes. My own view is that these schemes will not work until one has established a proper debt settlement system that can deal with the legacy of mortgage debt that will arise where someone must voluntarily surrender the family home. Drawing attention to a disadvantage for the borrower, page 25 of the Keane report states: "There may be a mortgage shortfall that will still need to be dealt with." That is true and a fundamental element of the problem. Where a house is to be repossessed either by court action or voluntary surrender and there is a shortfall, which will be the case in many instances, people need to be clear about the fate of that shortfall. In the case of the mortgage-to-rent proposal, the mortgage holder would no longer own his or her property and instead pay rent. He or she would have to pay the shortfall from the sale of that property. He or she would no longer own the house but could not walk away from it. He or she would be lumbered with all the debt and the bank would get paid everything it is owed and more. How is this an attractive solution for the people in these circumstances?

I do not believe it is realistic that chunks of mortgage debt would be written off by the banks where persons remain in the home. The Keane report addresses this proposal. We have not proposed, nor have we advocated, a formal scheme of mortgage debt forgiveness because it is fraught with difficulty. There are knock-on effects that need to be thought through very carefully. There is no doubt, however, that the banks have been writing off mortgage debt in a small number of cases. We have had confirmation of this. The incidence is likely to increase. Representatives of Allied Irish Banks confirmed recently at a meeting of the Joint Committee on Finance, Public Expenditure and Reform that, thus far in 2011, the bank has written off approximately €600,000 in mortgage debt in a small number of cases.

The application of debt forgiveness among banks needs to be actively supervised by the Central Bank and the Financial Regulator to ensure they are working to a common set of rules and that all borrowers are treated fairly and consistently, both between banks and within individual banks. People can have a very different experience depending on what branch or bank official they deal with.

The intervention of the Governor of the Central Bank following the publication of the report last week was interesting. Mr. Honohan called on the banks to ramp up their efforts to restructure mortgage loans much more quickly or write off some of the debt where relevant. He made the point that the banks have been provided with billions of euro in capital to restructure loans that are unsustainable.

The Keane report cites trade-down mortgages as comprising an option that can be developed. I am not certain it will be an attractive option for a great many people. Many people in negative equity are trapped in the properties in which they live. In a very large number of cases, those properties are too small for them. The inhabitants' original intention was to live in an apartment for a small number of years with a view to buying a bigger property upon settling down or having a family. I am not sure many people in negative equity, especially younger people, have the option to trade down. Many are already in shoe-box apartments and have great plans to have a family or develop their lives. The proposal is not a realistic one that will be of benefit to a great many people.

The split mortgage proposal that Declan Keane makes is interesting but does need to be tweaked. The concept put forward by New Beginning has a role to play. It involves shelving a portion of the mortgage. That portion would not accrue interest and thus the bank would take a hit thereon. This must be acknowledged. One could argue it is a form of debt forgiveness but the banks have been adequately capitalised, as has been pointed out, to deal with this crisis. The element of burden sharing set out in the New Beginning proposal should be considered actively.

The appointment of 100 advisers will help some borrowers who lack the know-how or confidence to negotiate the restructuring of their mortgages. As the Minister will know, the MABS national management forum has expressed serious concerns over how this system would work. Rather than appointing 100 advisers with no real powers, a much more effective approach would be to have an agency that could put a binding solution in place between the bank and the borrower.

While the report acknowledges that 50% of the arrears to date are outside the covered banks, the report fails in any way to deal with the problem of non-Irish banks. What if the non-Irish banks refuse to co-operate or to finance any of the measures proposed? What will happen to the 50% of mortgage holders who have loans with these banks? This is a reasonable question for the Minister and I hope he can address it at the conclusion of the debate.

The report simply claims that: "Short of prescriptive legislation, the Government is not in a position to force solutions on the market." Prescriptive legislation is exactly what we need. It should lay down very clearly the criteria that must be used and give effect to the tools and wide range of options which are available and should be used by the banks.

As the budget of 6 December draws near, we will all have an extensive debate on the exact cuts required. All the pain that will inevitably be imposed on the people will be for nothing unless we tackle the mortgage crisis head on. The mortgage crisis has implications for the whole of society, not just those with mortgages.

The Minister indicated in the press statement that accompanied the report last week that there would be an implementation strategy at the conclusion of this debate. I welcome that. Such a strategy is distinctly lacking in the report. The strategy needs to have deadlines and set out clearly the Government's priorities in this area and how it proposes to address the issue.

Unsurprisingly, one of the few groups to welcome the report last week was the Irish Banking Federation, while organisations representing home owners, such as FLAC, MABS and New Beginning, all highlighted their disappointment with the fact that this report puts no onus whatsoever on the banks to implement any of the report's proposals.

The truth is that the Government has yet to introduce any real practical measures to assist people who are struggling with mortgages and other forms of personal debt. It has been acknowledged time and again that the mortgage crisis cannot be resolved in the absence of radical reform of Ireland's personal insolvency regime. The Minister alluded to this in his contribution. The Keane report states: "Early introduction of reformed bankruptcy law and new non-judicial debt settlement arrangements is vital." The group does not see a solution to the mortgage problem without it.

Last November, the Cooney report stated the expert group on mortgage arrears and personal debt:

[I]s of the view that significant reform is now required in regard to Ireland's personal insolvency regime. Such reform must have the broad objective of bringing about an efficient and cost-effective process for the settlement of arrears of personal debt.

Speaking at a conference in UCC last Friday, the Financial Regulator, Mr. Matthew Elderfield, alluded to this time and again. He made it very clear that in his view, there would not be a solution to the mortgage arrears crisis until the reform of that regime and a non-judicial debt system was established. It is not necessary to wait several more months before we act on this advice.

The Law Reform Commission, as the Minister knows, published extensive proposals on this area last December. It went so far as to publish a draft insolvency Bill. Fianna Fáil has adopted this Bill and amended it to take account of mortgage debt. That is why tonight, during Private Members' time, we will be asking the Government to support the Debt Settlement and Mortgage Resolution Office Bill. This establishes an independent debt settlement office that can deal with personal and mortgage debt. The Bill would allow people struggling with unsustainable debt to see some light at the end of the tunnel. We call on all parties to support this important Bill during Private Members' time tonight and tomorrow. I urge the Government to come forward on Thursday with proposals that are meaningful, tangible and to which people can relate. They should take account of some of the very good recommendations in the Keane report, the recommendations in reports that have yet to be implemented and the urgent need to have proper reform in the areas of bankruptcy and personal insolvency. We will contribute constructively in that regard.

As we all know, Ireland is in the midst of a severe housing crisis. Every indicator shows housing need has been rising steadily since 2008. Almost 100,000 families are on the social housing waiting list. This is twice the number that were on it in 2008. The numbers of claimants for rent supplement and mortgage interest supplement have increased dramatically during the same period, from 63,658 to 96,809 and 5,212 to 18,564, respectively. This is occurring when homelessness charities are reporting an increase in demand for their services.

While access to housing was always unevenly spread during the boom years, the economic crisis has deepened housing inequality and housing need.

The economic crisis has created a new category of those with housing needs as people with mortgages are hit by falling incomes and rising rates as they fall into greater arrears. For the majority of these house owners the consequence is a mounting level of unsustainable debt. For some, crippling debt has given way to court repossession orders and the loss of the family home. We are familiar with the figures from the Financial Regulator which show that of the 777,321 residential mortgages held in the State, some 55,763 were in arrears for more than 90 days at the end of June 2011. The figures also show that 69,837 residential mortgages are categorised as restructured, including interest-only payment plans and, of these, a total of 30,442 are also in arrears. All of this adds up to the fact that 95,158 residential mortgages are in arrears of more than 90 days or have been restructured. We are aware that the situation has become worse since then but, as of June 2011, some 12% of residential mortgage holders are in some type of mortgage distress. Also, tens of thousands of others are not in mortgage distress at present but are at risk of mortgage distress in the immediate future. The problem facing these households is very simple and the Minister has referred to it: the gap between their falling income and rising debt is widening to a level that is unsustainable.

Unemployment stands at 14.3% and looks set to rise further in the coming period. While fears of recession throughout the EU have forced the European Central Bank to rethink further interest rate rises in 2011, inflation shows no sign of abating. Pressure on disposable household income will continue for the immediate future and, meanwhile, levels of debt remain unsustainably high. According to the Central Bank, the level of household debt to disposable income remained high at approximately 200% in early 2010, which was down from a peak of 230% in the third quarter of 2007. Even if household debt as a percentage of disposable income falls, the rising cost of living and a continued decline in wages will mean that household debt, and with it mortgage debt, will continue at unsustainable levels in future. All of this shows the severity of the problem and the fact that the future is not bright in respect of this problem resolving itself naturally with the given indicators.

The human cost of mortgage distress is obvious for all Members to see. We see it among our families and friends, in our communities and among those who come to our clinics with tears in their eyes. Hundreds of thousands of mortgage holders are being forced into simple choices between feeding their families, paying the bills, paying energy, school or doctors costs or paying their mortgages. This is the sad reality of the situation in which Ireland has found itself. The real fear of losing the family home is forcing some to choose mortgage payments over paying for food or medicine. I believe the story of the woman who came to me is not unique. She told me that she had not slept properly for six months because the bank was refusing to deal with the issue that her debt was unsustainable. I agree with her point that there is no way that she will be able to pay off the full amount of her mortgage in her lifetime or in her children's lifetime. In addition to the immediate financial impact, there is also great emotional cost and stress which disrupts family life, leading to psychological ill health or marital breakdown in some cases. This real cost must be factored into the discussion.

During the general election Fine Gael and the Labour Party promised to take urgent action to address mortgage distress. The programme for Government includes six specific commitments on mortgage distress. One of the most important was a commitment to direct mortgage providers in receipt of State support to cut their costs over and above existing plans in a fair manner by a sufficient amount to forgo a 25 basis point increase on their variable mortgage rates. As the European Central Bank hiked up mortgage interest rates not once but twice, the Government took no action to force the banks to absorb these increases despite a clear programme for Government commitment.

I have many difficulties with the decisions the Financial Regulator has taken, especially on credit unions, but I take my hat off to Matthew Elderfield. It was left to him to stand up last week and do what the Government should have done when he ordered the banks to stop increasing variable interest rates. That is making the mortgage situation worse and it is penalising those on variable interest rates simply because the banks got it wrong on their trackers. There is no economic justice to what the banks are doing to people who are trying and struggling to pay off their mortgages.

I put the question to the Taoiseach some moments ago. Matthew Elderfield knows full well that he does not have the power to force the banks not to raise the variable interest rate. He can only cause disruption, for want of a better word, within the banking system and audit them and breathe down their necks. Today, the Irish Banking Federation refuted the order from Matthew Elderfield. However, he stated in an interview that if the banks did not respond, the Central Bank would not be found wanting and would go to the Government and call for the necessary legislation to be put in place. Given the indications from the Irish Banking Federation today, will the Minister at least state clearly that, if there is an increase in variable interest rates, which will make the situation worse, he will not be found wanting and will introduce immediate legislation to empower the Central Bank to put a cap on banks without undue delay? I call on the Minster to do this so that there will be no fear for the 200,000 mortgage holders who are trying to pay their mortgages. Some may be in distress already and others may not but all should be assured that regardless of what happens, the Government, the regulator and politicians are on their side and will ensure that the banks will no longer penalise them in this regard.

The programme for Government committed the Government to increasing mortgage interest relief to 30% for first-time buyers who bought between 2004 and 2008. It committed to introducing a two-year moratorium on the repossession of modest family homes where a family is making an honest effort to pay their mortgage. It promised to fast-track personal bankruptcy reform, to convert the Money Advice and Budgeting Service, MABS, into a strengthened personal debt management agency with strong legal powers and to make greater use of mortgage interest supplements to support families who cannot meet their mortgage payments. Months after taking office, however, no action has been taken to date on any these commitments.

In response to a growing media debate on the impact of the crisis, especially at the end of the summer months, and to high profile criticism from economists such as Morgan Kelly, the Government rushed to form an interdepartmental working group on mortgage arrears. Some of us believed this would be simply another group that would not come up with any comprehensive solutions. Others, who continue to see the Government in its honeymoon, took the view that they should give it the benefit of the doubt. Most people working at the coalface on these issues hold that the findings are a deep disappointment and that they do not provide anything close to a comprehensive solution to the issue of mortgage distress. The core proposal is to leave it up to the banks, to leave those in mortgage distress at the mercy of the banks and saddled with decades of unsustainable debt. Throughout the country tens of thousands of families who waited to see if the Government would provide a credible route out of mortgage arrears are disappointed. Instead, they have been given a minimalist response that will do little to address their distress. Some of those who sat at home and waited for the report asked what else we expected given that it is a group made up of 17 civil servants and five bankers.

The report also proposes a number of schemes such as split mortgages, mortgage-to-rent and mortgage-to lease which, if established, may assist a small number of people in mortgage distress. Such measures are welcome but they will not remotely address the severity of the crisis. The report also proposed a strengthened mortgage advice service for those in distress. Depending on the detail, such elements could form part of the much needed comprehensive solution but, in their current form, offer little in the way of a meaningful response.

Having had three expert group reports published in almost two years, it is incredible that the main conclusion of the report before us is to leave the resolution of this problem to the banks. The Minister stated the lenders need to produce more solutions. Clearly he and his Government have not learned anything because this matter can no longer be left to the banks. The State must step in.

The report explicitly rules out a number of the Fine Gael and Labour Party programme for Government commitments. Increasing mortgage interest supplement, extending mortgage interest relief and transforming MABS into a personal debt management agency with strong legal powers are all ruled out and the report does not include any proposals on insulating mortgage holders from European Central Bank interest rate increases. Given that this is not a Government report, it begs the question as to what is the Government's position on the commitments it made in the programme for Government. When will we hear that the commitments the Government parties made prior to the election and those given by them in writing after the election will be acted on or is this a case of more broken promises from a Government that is not yet a year in office?

What is clear is that the Keane report does not provide the solutions urgently needed for the hundreds of thousands of families who are in or are threatened by serious mortgage distress. I welcome the Minister's statement that the Government is willing to listen to alternative proposals and accept there is no magic wand or silver bullet. Immediately after the PCAR results were published, I stated in this House that the Government, in deciding to resolve the problem in the banks by throwing billions of euro at them, must also resolve the problem facing mortgage holders. It has taken a long time for a report on the issue to be published that will allow a proper debate to take place on what solutions we will provide.

There is now an urgent need for the Government to act. It must establish a comprehensive mechanism for addressing the root causes of mortgage distress because the problem cannot be left to the banks to solve. Speaking in the House last week, the Taoiseach invited the Opposition to put other options on the table for his consideration, stating that all proposals would be seriously examined. I will take him at his word and, in light of the weaknesses in the Keane report, offer what I consider to be a viable alternative. There is a need 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 decisions taken by lenders are an appropriate response to mortgage distress. Where such a response is found to be wanting, the board must have legal powers to enforce the appropriate solutions and penalise lenders for failing to act in an appropriate manner.

Four principles underpin Sinn Féin's response to this crisis. In the first instance, the priority must be to do everything humanly possible to enable people to remain in their family home. In the event that families do not wish to remain in the family home or such an option is not financially sustainable, a range of other options must be available to meet their housing needs. Underpinning these principles must be the objective of debt sustainability. The ability of the mortgage holder to service any new mortgage arrangement must be clearly demonstrated. Finally and crucially, mortgage lenders must absorb a significant portion of the losses on the value of the mortgage.

Sinn Féin does not believe the taxpayer should foot the bill for the mortgage crisis, nor do we 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 to absorb a significant proportion of these losses. The four key principles I cited — maintaining the family home, providing appropriate alternatives, ensuring debt sustainability, and sharing the burden fairly — provide the basis for a solution to the causes of the mortgage crisis that is both fair and sustainable for borrowers, lenders and the taxpayer.

At the core of Sinn Fein's proposals is the principle of debt restructuring, which would involve reducing the debt burden on the household. The primary option used would be debt-for-equity swaps. The principle is simple. For a family to remain in their home, the value of their mortgage would be reduced by their lender in exchange for an equity stake in the property. The calculation would be based on reducing the mortgage to a sustainable level without undermining the viability of the banks. Such swaps could only function up to a maximum of a 49% equity stake by the banks. Borrowers would retain the option to buy back the swapped share at current market value as their financial position improved. The lender would have no property management functions and would not receive rent for its share of the property. However, if the house were sold at a later date, the bank would recoup its share of the sale price of the property. Following this formula, the borrower and lender would share a portion of the loss in the value of the property. In addition to the debt-for-equity solution, other restructuring options should be available, including a reduction in the interest rates on the mortgage loan, an extension on the length of the mortgage loan and a reduction in the principal and-or interest on other unsecured loans held by the household.

Ensuring that the borrower can sustain the new debt arrangements in the long term is crucial in determining the viability of any restructuring. While such debt restructuring will provide a solution for many families currently in mortgage distress, there will also be those for whom debt-for-equity swaps do not provide a solution. A range of options needs to be available for mortgage holders in such circumstances. These may involve trading down to a smaller home with a smaller mortgage or trading up to a larger home and carrying a portion of the old mortgage to the new loan. The involvement of a local authority or voluntary housing association in either a shared ownership or mortgage to rent arrangement may also be an option. In some circumstances, the only solution to the mortgage crisis will be to allow the borrower to walk away from the property and make a fresh start. While this would represent an option of last resort both for the lender and borrower, in some cases it may be the only viable option.

It is also important to stress that in tackling the mortgage crisis the Government must not lose sight of the broader crisis in social housing. Funds must not be diverted from the already depleted social housing budgets, because to do so would push those already in grave housing need further down the housing queue.

Cost is the big unknown in all of this, whether in the Keane report or the other solutions that have been put forward. The Keane report suggests a blanket debt forgiveness scheme would cost in the region of €14 billion to clear all of the negative equity in mortgage portfolios across the State. This figure does not tell us anything about the potential cost of addressing mortgage distress in a targeted manner. At the end of March, distressed mortgages amounted to a staggering €12.5 billion. The figure is now significantly higher and expected to rise further. The banking stress tests carried out by BlackRock earlier this year estimated that lifetime loan losses on residential mortgages could be between a base case of €9.9 billion and a stress case of €16.5 billion. Based on these figures, the Central Bank estimated that the three year cost of these scenarios would be €5.8 billion for the base case and €9.5 billion for the stress case. These losses were based on an assessment of costs of enforcement at the time of liquidation, insolvency and-or balance sheet write-down.

The longer this problem is left to fester, the higher the costs will be. Taking action now on the basis I have outlined is the only way of ensuring the final cost is kept to the lowest levels possible. The solution will require the establishment of an independent body with the power to enforce a solution on the banks and a mechanism to have banks take an equity share in properties, with mortgage holders being required to cede a stake in their homes in exchange for a debt write-down. Another basket of options will also be necessary to deal with cases where this solution does not fit.

We must address not only the housing crisis but also the broader crisis in the economy. We cannot have 100,000 mortgage holders, equating to perhaps 250,000 people, in financial mortgage distress. A number of months ago, the Minister called on people to spend. Those in mortgage distress cannot afford to spend money in the domestic economy. We have given the banks citizens' money to address the problem of mortgage distress. We can no longer leave it to them to provide a solution. Instead, an independent body is needed to address the problem. The new board Sinn Féin proposes would not go through each of the 100,000 distressed mortgages. By providing for the imposition of penalties in the event of failure, the banks would be incentivised to consider the basket of proposals and do the job required of them. Until now, they have failed to do so. Last weekend Mr. Matthew Elderfield again stated he would breathe down the banks' necks. Some weeks ago he and Professor Patrick Honohan attended the Joint Committee on Finance, Public Expenditure and Reform where he stated he was telling the banks to do more. We met the heads of the banks and it was amazing to look at the expressions on their faces as they told us they expect to do nothing in regard to this crisis.

Deputy Halligan will be breathing down Deputy Doherty's neck if he does not bring this to a conclusion.

We learned the lessons. Whatever happened in the past, whatever lack of action there was, we must park it. This crisis is too big for any of us to be scoring points or making political capital. There are people in serious distress. If we knock our heads together, there will be enough solutions for us to tweak and shape and find a proper comprehensive solution. The Keane report is not that, although there is much that is good in it. Let us go with it but we need something bigger, better and comprehensive. I am willing to step up to the mark and support the Minister if the proposal is a comprehensive one. There are other agencies willing to act and there is good will if the Minister wishes to take this on. We on this side of the House will not be found wanting.

It is as well to remind ourselves of the latest statistics from the Financial Regulator that show 56,000 householders were in arrears at the end of June 2011. I have little doubt the figure will now be well in excess of 60,000. Coupled with an estimated 40,000 households which have had their mortgages restructured and 19,000 households in receipt of mortgage interest supplement, or welfare payment, it is reasonable — even conservative — to assume there are now considerably more than 100,000 households in difficulty with their mortgages. I welcome that the Minister will initiate a report which will be brought before the Dáil. However, it will do little to ease the suffering and financial hardship endured by people in homes throughout the country. The report raises many more questions than it answers for many of the householders who are tearing the hair out of their heads wondering, come the weekend, how they will pay their mortgages.

I have a number of questions for the Minister who may be able to answer them. Was there any consultation with any of the front line groups such as the Money Advice and Budgeting Service, MABS, New Beginning or the Free Legal Advice Centres, FLAC, all groups working with distressed home owners day to day? They have some good proposals which I do not have time to put to the Minister but am sure were sent to the Government. Did we take into consideration the many people who appear to be off the radar, for example, those who took out loans through city and county councils on shared ownership schemes? Many of these people are in distress and in mortgage arrears. Did we enter into consultation with the individuals in the respective councils who deal day to day with those people who are trying to negotiate their mortgage terms?

Why is there no costing of the report's proposals? I missed the Minister's introduction and perhaps it was contained in it, but I put the question. Who will fund the new quango, the independent mortgage advice service? Who will fund the purchase of homes from distressed borrowers? How exactly will local units of foreign banks be forced to take a hit on their loans? We need to have answers to these questions. Who will fund the additional cost of housing those who will inevitably lose their homes, as the report states? Why does the report in effect offer no prospect of a debt-free future by virtue of it postponing reform of bankruptcy legislation that would take into account people's overall means and needs, a matter that has been discussed in this House on a number of occasions?

I refer also to the Government's election promises in regard to mortgage relief for those in negative equity which would have allowed savings of about €166 per month. The Government also pledged to force banks to squeeze their own costs before they squeezed those of customers to help holders of variable rate mortgages. The negative equity disaster has left hundreds of thousands of young families trapped under a mountain of debt they will never be able to pay off in their lifetimes, no matter how long or how hard they work. Whatever earnings they bring in, they cannot pay because they are in so much debt. Contrary to what some people may say, this negative equity was caused not by reckless borrowing but by reckless lending by the banks. We do not want to go through that matter all over again but it is a fact. These are the same banks into which the Government has, to date, injected €63 billion of taxpayers' funds. Last July the Government gave €19 billion of capital to Irish banks to cover potential future losses on loans. Surely some of those funds could have been put to far more productive use in restructuring negative equity mortgages on family homes? The Minister might return to the House on that point.

I fully acknowledge the mortgage arrears problem is serious and is an immediate priority for the Minister, but I am disappointed that no provision of any kind has been made for those who, in spite of being in negative equity, are just about making their mortgage payments at the expense of other basic necessities. How many of them are dreading the next budget? They are just about paying their mortgages — nothing more — and are not able to invest into the economy. None the less more money will be taken from them which will drive them into arrears.

I refer to the mortgage to rent scheme, the State rental scheme whereby local authorities take ownership of mortgage properties and rent them back to residents. I believe the scheme is ill-conceived, the tangible proof being that the report is geared to minimise the risk to banks, not to the home owners. The Government is buying homes for social housing by seeking funds from the original borrowing institution. This is a win-win situation but only for the banks. Little thought has been put into how morally demeaning it would be for a householder who, having put thousands of euro into his or her home, will lose ownership of that property but must still pay to keep the same roof over his or her head. These many people are not responsible for what has happened in the economy and will face a mortgage shortfall into the bargain. That is not fair. It is thoroughly unfair to those people who are not responsible for this situation in the first place. Surely a reduced mortgage payment by a householder, whatever sum he or she can realistically afford, is a far more reasonable solution than trapping people in an interminable rental situation.

I spoke in the House some months ago about renegotiating mortgages, which surely makes sense. The Minister will know that when people go into arrears by more than €5,000, €6,000 or €7,000, they give up paying because they do not see any point in paying more. We should have forced the banks to take payments based on people's incomes, a payment of a reasonable amount every week. That would mean that banks would get something every month. This is not happening at present in spite of all claims to the contrary. In The Irish Times today there is a report of people who came to court with proposals but the banks said they were having none of it. The banks are not being fair to people who are going in to renegotiate.

I know the Minister must meet these people because I do every day of the week. They want to keep their homes, and while they cannot afford to pay €600 or €1,800 a month, they can pay something. Why can we not commit the banks to this plan of a person paying something based on what he or she earns rather than have them put that person out on the street or drive them into negative equity? Simply put, that is the way forward. I am not an economist by any stretch of the imagination but I meet people in my constituency every day of the week who are in arrears with their mortgage or suffering negative equity who do not want to be in a position of having to tell the banks they cannot pay them.

The Minister should look very carefully at the proposals made by MABS on how to deal with negative equity and mortgage arrears. I reiterate there must be a proposal in this document whereby a person can say to the bank that they have reduced earnings because they have lost their job or are on two days a week or whatever, and we should be able in that instance to force the banks to accept a percentage of whatever that person is earning and ensure they do not lose their home. At least the bank would get something.

The Deputy has one minute remaining. He is sharing time in his 20 minute slot.

We are not sharing time. I will use up my minute if the Acting Chairman does not mind.

The Deputy must move the adjournment of the debate.

Will the Deputy move the adjournment of the debate, please?

I ask the Minister to consider some of these proposals because I would not like to vote against this motion. However, based on some of the proposals contained in it and others that are not, I may be forced to do so.

I wish to confirm that the Deputy is sharing time.

I apologise. I am sharing time with Deputy Maureen O'Sullivan.

Debate adjourned.
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