I wish to share time with Deputies Catherine Murphy and Seamus Healy.
Debt Settlement and Mortgage Resolution Office Bill 2011: Second Stage (Resumed)
Is that agreed? Agreed.
I welcome the Bill, which represents a constructive effort by the Fianna Fáil Party to attack a problem that is very current and immediate. On this matter it is fair to say it is ahead of the curve and a long way ahead of the interdepartmental group on mortgage arrears which has been fiddling around with this problem while people have got into a great deal of difficulty in recent months and has only now come up with an à la carte list of solutions.
The principle that there should be no debt forgiveness is fairly laudable, but it is only laudable when one thinks about who should be forgiven. The phrase "debt forgiveness" is pejorative of the borrower but not of the lender. The balance in the Bill, which I welcome, has been shifted — perhaps not far enough — away from the prejudice that exists in the Department, the Government and the establishment towards the lender. It is a worldwide prejudice that the lender must always be paid back the full amount. That is the starting point and anything after that is a forgiveness of the borrower. In the particular case of mortgages, which are addressed in the Bill, there is on the one hand a reckless borrower who made a mistake and, on the other hand, a bank or a building society which made several mistakes and which made reckless lending for a living. To redress that imbalance, establishing an office as provided for in the Bill is a welcome development and one that should have been done many years ago.
The Bill proposes to set up an office and if it is possible to get the agreement of creditors representing 60% of the value, the agreement will be imposed, which is certainly an advance. However, it still gives too much weight to the interest of the banker. In any case where bankers have lent recklessly why should creditors representing 60% of the net value of the cumulative loan be able to decide whether the lender is paid back? In other words 41% of them could decide to veto an arrangement. Despite the good ideas it contains, the Bill can be improved. In the case of personal debt where a verdict is handed down on a case-by-case basis, it should be mandatory for the banks and borrowers to adhere to that verdict.
It is imperative that the Bill should include a definition of independence. It should include an arrangement whereby there is proven independence for this body so it is not, as the interdepartmental group was, infiltrated by the bankers.
The Law Reform Commission report on debt management and debt enforcement published last December included draft legislation. As, in effect, the Law Reform Commission did the work, a lack of parliamentary draftspeople cannot be used as an excuse for delay. Given the country's level of indebtedness, it would seem obvious that some rational means of dealing with debt would be high on the agenda. I fully support a non-judicial approach to debt management. The last thing we want is to have hundreds and possibly thousands of people dragged through the courts if it can be dealt with in a less stressful and costly way. The programme for Government suggests converting the Money Advice and Budgeting Service into a strengthened personal debt management agency with strong powers. However, it is one thing talking about it and another thing actually delivering it.
I will have an opportunity to speak about the Keane report tomorrow. Page 17 of that report states:
The State currently has no infrastructure or resources in place to run a non-judicial debt settlement process. This is likely to be very complex and take time to implement.
The Minister for Finance's response to the Keane report seems to indicate that a very conservative approach is being taken. The phrase that is continually used is that the can is being kicked down the road. All sorts of legislation has been rushed through the Dáil, often with inadequate scrutiny, and yet an issue as urgent as this has been left on the back burner. People generally act in their own interests and the contributors pulled together to produce the Keane report left out some vital ingredients, including professional organisations that deal directly with the issue, such as MABS. It also left out professionals who are dealing with the social consequences. Most importantly it left out people who had first-hand experience of the day-to-day consequences of drowning in debt. The product of the Keane report is flat and non-responsive. The only parties really included were banks and Departments.
Not long ago President Bill Clinton spoke about the need for us to deal with the debt problems. He did so after the tragic suicide of somebody he had come to know. While the Government is not opposing this legislation it has not made clear how it will proceed to Committee Stage and what amendments might be involved. We need to know the timeframe for dealing with the legislation and after that the timeframe for introducing the agency and what will be involved in doing so. Only when we get those components will we know there is a determined effort to deal with the problem. What is happening now is very damaging to a particular age group in our society, predominantly young people with families. It needs a much higher priority and we need some answers.
It is important to remember from where the mortgage debt problem came. Part of the problem was that every part of the establishment here — the banks, building societies, Government, auctioneers, developers and media — stressed how young people needed to get on the property ladder, that money was available and now was the time to get a house. Limitless money was available from banks and building societies. The media and the establishment behind the building and development boom forced young people to purchase houses and apartments at greatly inflated prices and now the chickens have come home to roost. Significant numbers of those people are not in a position to repay their mortgages and are in negative equity. Many of them have lost their jobs or had their wages and salaries reduced significantly. They are in a very difficult situation where they are in serious mortgage arrears, with many of them on the brink of losing their own homes. It is important that there is independent advocacy for people like that.
From dealing with people in mortgage arrears who come into my clinic daily, I know that the pressure on those people from the banks and building societies is absolutely enormous. They receive letters and telephone calls at all hours of the day and night. Huge pressure is being put on people by banks and building societies who gave out big mortgages, many of them for terms up to 40 years. It is important that there is an independent advocacy between these people and the various lenders.
Looking at mortgage debt alone is not enough. We need to look at total indebtedness because many people in mortgage debt are also in debt in other ways as well. The whole indebtedness problem needs to be examined. These properties should be revalued and mortgages on the basis of current valuations should be implemented. That is the way to go.
I agree with Deputy Catherine Murphy's remark on the Keane report. It is regrettable that people who were directly affected by the mortgage problems were not involved in producing the report. Having said that it is a worthy report and it gives a basis to get out of the problem, although it is not the final word on the subject.
I am very glad to have an opportunity to speak on this matter and I commend Deputy Michael McGrath for the spirit in which he has brought this Bill before the House. The issue dealt with in the Bill is very important. As everybody in this House knows, there are thousands of families in Ireland living in terror at the thought of losing their homes. People should not lose the roof over their heads. Many of these families got mortgages for overpriced houses which they cannot now afford to maintain, due to unemployment or reductions in their income, or the fact that the mortgage was too big in the first place. These are the true victims of the property bubble which crippled our economy.
It is essential we remove the anxiety and fear which has engulfed so many families, by reassuring them that they are just as entitled to assistance from the State in finding a solution to their problems as any bank which had the benefit of receiving money from the Exchequer in the last few years. It is my firm conviction that a strong message must go out to people who are struggling with mortgage repayments on their family home. That message is that the institutions of the State are firmly on their side, as long as they make a genuine effort at trying to meet their obligations to the best extent that they can. We must provide the people who are struggling with that level of reassurance.
Everybody can appreciate that as difficult as it is to lose one's job, it is an entirely different prospect to lose one's home. One of the reasons I am urging the Government to fast-track the personal insolvency Bill and measures for debt resolution is the potential for severe social strife if levels of repossessions start to increase over the coming years. It has been borne out in economic data that as a people we have a particular attachment to our own homes, sometimes to our detriment. There is nothing that would infuriate our citizens more than the sight of people being evicted from their houses by an order from banks which themselves would be bankrupt had it not been for the intervention of the taxpayer. They would be justified in being furious at such a development.
In the event that there is no option other than for mortgage holders to relinquish ownership of their homes under a leasing scheme, it would be much more appealing and correct for individuals to rent their homes from the local authority rather than from the bank. Several people who are in difficulty have told me of the fury which came over them when they heard of the proposal to rent the property from the bank. I believe that if this can be avoided, it should be.
It is essential that a person's entire debt is taken into account when he or she is being evaluated for debt resolution, rather than just a single large debt such as a mortgage. Deputy Healy mentioned this point. Those in difficulty with their mortgages are much more likely to have other debts which also need to be paid off. It is important that a person's entire debt is taken into account when deciding on the correct resolution.
I urge the Minister to ensure that groups such as the Free Legal Advice Centre and MABS are consulted before a final decision is made on the set of measures which will be taken to help people in distress. I look forward to seeing this in the personal insolvency Bill he is preparing.
While I support the concept behind the debt settlement and mortgage resolution office, I have some concerns about the enormous amount of power which such an office would have in considering the debt levels of citizens and I remain to be convinced that there would be adequate supervision of such power to ensure it was not open to abuse. While I appreciate and support the idea behind this office, the practicalities of such an office need to be ironed out.
Without wishing to be alarmist, I want to stress once again how important it is that the institutions of the State stand behind the people on this matter. My own personal political hero, Michael Davitt — his own portrait is by the front desk at the entrance hall — campaigned on an issue that was not unlike the issue which we have before us today. His deeds and actions should be remembered at a time like this, and he fought so that people could retain their homesteads instead of being thrown out on the street. We would do well to remember the thoughts and actions of Michael Davitt when deciding on the assistance to give to people in mortgage difficulty. Let us fast-track the Government legislation which will help people out of their debts. I hope that good progress will be made before Christmas.
The banks have been substantially recapitalised. Some of that must cover the proportion of mortgages which people cannot afford to repay.
I welcome the opportunity to speak on this very important and relevant issue, one that will dog the lives of the people of my generation for many years. Many of us have been condemned to a life of mortgage debt as a result of what has happened in recent times. Finding a solution to ease that problem falls to this Government in part. The banking system should have a much bigger role to play in finding a solution. I commend Deputy McGrath and the Fianna Fáil Party for bringing this Bill before the House. It is timely. It is well written, well presented and well constructed. I also welcome the Government's reaction to the Bill. People at home will feel supported when they see a broad consensus in the House on an issue that is so sensitive to them.
I watched an interview last Sunday morning on Al Jazeera TV with Michael Sandel, who is professor of philosophy at Harvard University. He claims the reason so many riots are taking place across the G20 countries this weekend and the reason for so much unease is the lack of justice to date in the bank bailout arrangement. To find a solution to the mortgage issue, we must go back as well as look forward. The bank bailout has caused envy, hurt and anger for so many people who feel so frustrated and cheated. It has been explained to us so many times why it was necessary, as well as the mechanisms necessary to bail out the banks. We understand that the system must be propped and if the system fails, so much more is at stake, but we have never debated the justice element of it. We must have that debate in this House. It must be full, open and honest so that we can address the issue for the people. We must do that before we can move on.
Another element of justice comes into this debate, which is the issue of negative equity and blanket debt write off. Negative equity in itself is not a problem and I do not see it as something we have to deal with here and now. The corollary of the argument about negative equity, that people should be compensated if they owe more than the value of their house, is that we should tax people when they enter positive equity. I know we have capital gains tax when one sells a house, but I am talking about a tax on positive equity. People who buy houses now will enjoy positive equity for years to come. Negative equity does not cost anybody anything while they can afford the repayments. We must focus on how much people can afford to pay. That brings the onus back on the banking system which must work constructively to re-engage with people and restructure their loans before problems arise, instead of talking to people when they are in arrears for six or nine months, and offering 12-month reviews which come around far too quickly. The banks could do so much to be more productive, proactive and constructive in dealing with restructuring. We must focus more of our debate on people's capacity to pay, as opposed to negative equity, which is a red herring when people can afford payments. Because house prices will rise again, equity will always ebb and flow.
As an example of people's capacity to pay, a person could be paying €500 per month on a car loan for €25,000. The same monthly sum would service a house loan for €150,000. We must focus on people's capacity to pay, which is the urgent issue.
Debt write-off must be considered when people are prepared to surrender their home and are proven beyond doubt to have unsustainable loans. That is a matter of fact that banks are refusing to deal with so far. They are not grasping the nettle when people are willing to walk away from their homes, trade down or move to a different set of circumstances and give it up. In the American system one can give back the keys and walk away. The banks will have to start grasping that nettle here and let people walk away. There is no point in trapping people in an indeterminate cycle of debt that can ruin health, families and individual lives.
Banks have taken massive capital hits on commercial loans. In the case of sustainable mortgages, in the long term these could be restructured with no capital loss to the banks. The banks should adjust the loan balance to an amount that is affordable on a monthly cash flow basis, and park an amount of capital that does not accrue interest until borrowers find themselves in a better situation, which in most cases will happen despite the current gloomy outlook.
Given the large amounts of money involved, this surely has to be a better option than write-offs for people who have, and will have, a limited amount of regular income. While I am on the side of the mortgage holder, there will be plenty waiting to abuse any measure that will be put in place to assist genuine cases. The risk of moral hazard and the justice issue will come into play if people receive mortgage write-offs.
We should examine the genesis of this problem and debate not just the logistics and mechanics, but also the moral merits of the bank bailout. That should be explained to the public in their own terms. The banks must engage immediately in active restructuring. In addition, the negative equity discussion should be replaced by a debate on people's ability to pay.
I thank other Deputies for sharing time with me and for providing me with an opportunity to speak on this legislation. Since the publication of the Keane report last week the Government has consistently said it is open to all ideas and comments from people to try to resolve the country's mortgage arrears problem. It is our role as legislators to provide solutions for the problems facing many of our constituents. Our debates on the Keane report and on this legislation show that we are doing just that — we are showing the people that we need to tackle this problem in a serious and considered way. While the focus of this debate has been on mortgage arrears, that is not the only debt problem we are facing, as Deputy Dowds said earlier. We also need to look at the overall issue of personal debt. As this Bill indicates, overall personal debt is a mounting problem for which we need to find a solution. There are many possible solutions to the debt problem.
Earlier today, I listened to the presentations made to the Joint Committee on Finance, Public Expenditure and Reform from organisations such as FLAC, Threshold, New Beginning and others. They had many interesting ideas to share. In the coming months, we will meet with many other groups who have their own proposals on dealing with personal debt problems. I look forward to talking to these groups and listening to their ideas. It is important that we should hear as many proposals as possible so the Government can make an informed and coherent decision on the measures that need to be introduced.
I thank Fianna Fáil Deputies for proposing this Bill, which is their submission on how to deal with these issues. I support the principle of the Bill, that we must give people a structure to resolve their debts. We must focus our support on those who cannot pay their debts, due to unemployment, negative equity or substantially reduced household earnings. It is in the interests of future economic growth, and in the public interest, that people should not be saddled with debts they simply cannot repay. Creditors must also know that the money they are owed will come back to them either in part or in full. We must examine both sides of the issue so we can provide a solution that will be of benefit both to consumers and businesses. We should not forget the important role local businesses play in towns and villages across the country. Many such businesses are currently struggling, so personal debt resolution along with other measures such as the partial credit guarantee scheme will be of great help to them.
There are issues that the Bill does not address and they will have to be taken into account at some stage. For instance, there are no costings for the proposed debt resolution orders or mortgage arrears. When it comes to debt resolution orders, the Bill does not indicate who will pay for the unsettled debt after the 12-month period. Will the State pay these debts? Who will pay for the write-offs? This has not been accounted for. The Bill does not set out how the debt settlement and mortgage resolution office will work, how many staff will be required or how it will be funded. These issues need to be fleshed out in time. We need to be clear and careful in our calculations so we can show the public exactly what we propose to do. We are no longer in a position where we can overshoot budget targets and expect somebody to pick up the tab. People need to know that we are working on the best solutions for their problems in as cost efficient a manner as possible.
People worried about their debts will be somewhat comforted by new rules announced by the Central Bank a few days ago concerning the number of times they can be contacted in any one month by a financial institution. That is just one small step but it is in the right direction. The Minister's commitment to publish the personal insolvency Bill by March 2012 is another positive step. I urge the Minister to prioritise this legislation so we can get an overall solution to the issue of household debt as soon as possible.
The issue of personal debt is one of gargantuan concern. The backdrop to this Bill concerns families in crisis, which has a profound impact on the personal lives of many of our fellow citizens and the community at large. It is fair to say that relationships are in trouble and people are struggling to survive. The issues of debt settlement and mortgage resolution require urgent joined-up thinking by the Government. I welcome this debate and the fact that we will not have a vote on this Private Members' Bill.
The Bill proposes mechanisms for tackling personal insolvency, some of which are welcome and worthy of further detailed consideration. If we are to provide non-judicial solutions to personal debt, these must be accompanied by simultaneous reform of the judicial options. While I welcome the Bill, as presented it fails to deal with the issue of bankruptcy.
Any proposal aiming to tackle debt issues must comprehensively address personal and mortgage debt. MABS has made the point that "it is counter-productive to address mortgage arrears without simultaneously seeking to manage the issue of personal debt". The reverse can be said of the proposal before us. It is pointless tackling personal debt without tackling both mortgage arrears and the entire bankruptcy regime.
The Minister for Justice and Equality has commenced reform of bankruptcy laws and has indicated he will introduce comprehensive proposals dealing with judicial and non-judicial solutions. It is important that we do not delay in rolling out a new personal insolvency regime that facilitates people in negotiating reasonable and practical settlements. That is why it is vital that our lending institutions be fair and work with and listen to people who are struggling. Agreed solutions must ensure that people with unsustainable debts can continue to participate fully in society. Irrespective of whether they bought a primary residence or a buy-to-let property, citizens could not have envisaged the economic devastation that has befallen us. Therefore, we have an obligation to work with them. How many people honestly anticipated the level of unemployment, the huge reductions to salaries, the mounting mortgage arrears of many citizens and the considerable decline into negative equity?
This Bill superficially recognises the difference between owner-occupiers and owners of buy-to-let properties in so far as the mortgage resolution order is only available for family homes. However, a comprehensive resolution must recognise the interplay between buy-to-let properties and the consequential impact these may have on family homes. As Deputy Dowds stated eloquently, it is important that we do not allow circumstances in which people are forced, under any guise, to leave their family homes. We must never, under any circumstances, go to back to the days when people were left on the streets.
A negative aspect of the proposed mortgage protection order is that it has the potential to prevent those benefitting from it from continuing to run their own businesses. The Bill contains a blanket requirement to disclose the mortgage protection order to all those with whom one does business. Where borrowers actively engage with lenders on negotiating a rescheduling of their debts, this ought not to affect their ability to earn a living and carry on in business. The Minister of State, Deputy Perry, who is doing a sterling job as Minister of State responsible for small and medium size enterprises, is fully aware of the points I make. We must support people in trying to create jobs. We must support small enterprises and small businesses to help us trade our way out of our economic difficulties. We must help people face the hardships they are enduring with practical support and measured options. As the Minister said, we must recognise that losses are likely to accrue in financial institutions.
Where there is negotiated rescheduling, people should not be adversely affected in carrying on their duties and engaging in business. At the very least, their credit ratings should not be affected solely because of a negotiated rescheduling. Mortgage arrears and personal debt are complex problems that require careful cross-party consideration and support. There is no easy solution or silver bullet but we must seek a fair balance between the competing interests of the taxpayers and those with unsustainable debts.
I welcome the proposals put forward by Fianna Fáil. It cannot go without comment that in the autumn of 2009, I, on behalf of the Labour Party, introduced a Private Members' motion that indicated the crisis coming down the tracks and the necessity for a structure to deal with stressed mortgages. Regrettably, on that evening Fianna Fáil, which was then in government, talked down the extent of the problem. The response of the Government from then on was to wait to see what happened. Action was not taken as a result of the two reports the Government had commissioned at the time. I refer to the initial and final publications of the Cooney report. The Cooney report was published on the day the Dáil went into recess last summer and it was not debated in this House. The report's final recommendations were published in November last year. Those recommendations were not debated in the House either. I welcome the Government's affording to us an opportunity this evening to debate this issue extensively and to allow Members on both sides of the House to discuss the Keane report.
There are two opinions on the Keane report. These are informed by where one stands on the issue of blanket debt forgiveness. It is very obvious from commentaries on the Keane report over the past week or so that those who are in favour of blanket debt forgiveness are those who oppose the report. The report, in its essence, is not a finished document. It is prescriptive. It lays out a very comprehensive structure for dealing with the mortgage and personal debt crises. Underpinning this are a number of key principles, the first of which is that those who are honestly trying to meet their obligations to pay their debts will not be put out of their homes. This is enshrined in the document and will be what the report will achieve. Second, the report recognises that the affordability of meeting debt repayments is at the heart of the problem rather than negative equity. This means it is not the size of one's debts but one's ability to deal with debt sustainably that is at stake.
There have been some criticisms of the Keane report in the House and outside. I will deal with them on a case-by-case basis. It has been suggested that this matter was not dealt with inclusively; it should not be in the report. We saw today individuals from outside this House offering their views at a meeting of the Joint Committee on Finance, Public Expenditure and Reform. The sequence of the process is correct. We are now allowing other agencies to enhance the Keane report rather than having a report whose recommendations would take five to ten months to implement.
Enhanced mortgage relief has been criticised. The principle behind it was that people who took on mortgages between 2002 and 2006 would receive an enhanced mortgage relief. The Keane report is emphatic this should not happen. It is right that it should not. Members of this House who criticise the Government for not implementing the measure need to come clean. Are they saying they are for or against the measure? The measure will cost €14 billion to implement. Where is this money to be found? Do the Members believe this is the right approach? It is not because not everybody in negative equity is having difficulty meeting his debts. This must be realised.
The Keane report is very clear about where MABS stands in dealing with this difficulty. MABS is providing a service in the community but it is not comprehensive or operating at the same level across the country. The Keane report recommends that a personal debt service be structured such that it would enhance MABS and work alongside it. On occasion, the service will be based in MABS offices. Through the Keane report, we are enhancing the service of MABS. More specifically, we are bringing in professionals with expertise in this area who will rebalance the relationship between borrower and lender.
Some consideration must be given to the broader issue of mortgage interest relief. We must first ascertain why this was introduced in the first instance. It was introduced to assist people who had lost their jobs in the hope they would return to work in the short term. It was introduced in a period when houses were increasing in value. None of these conditions now obtains. The prospect of long-term unemployment faces citizens and house prices are continuing to fall.
We must acknowledge many measures that arise in conjunction with those alluded to in the Keane report. These are laid out in the report, which lists a comprehensive series of measures for those who cannot pay some of their loans and those who are in unsustainable circumstances. It deals extensively with them. It also sets out that we need to modernise bankruptcy and insolvency laws because the current ones are inadequate and antiquated. It sets out three specific proposals: a review of the judicial process, a non-judicial debt settlement approach, and the issuing of debt relief orders.
We must engage in a process of normalisation. We have seen that this week. The Central Bank issued a statement this morning on introducing more prudent lending practices such that people's mortgages would be related to their ability to afford to buy a house. We are witnessing a return to 20-year mortgage schedules and other measures that were put out the door during the bubble years created by Fianna Fáil. We will also see the creation of a house price database, the legislation for which is on Committee Stage. This is critical to normalise the housing market and for the introduction of affordability.
The principle of the approach taken by the Government is that resolving debt requires long-term affordability. The assessment of the debt is crucial and it must be dealt with on an ongoing basis. A professional service is required to do that. Ultimately, in the absence of not taking such an approach, people who are in current difficulties may move to more unsustainable positions and their problems will become worse over a period of time. I commend the Government on bringing forward the Keane report. I welcome what Deputy Michael McGrath has brought before the House. The Bill is not robust in several areas and, if I had more time, I would go into it but it does show that at last Fianna Fáil is moving in the right direction in resolving a difficulty of its making.
With the permission of the House I wish to share time with Deputies Timmy Dooley, Brendan Smith and Michael Healy-Rae. I congratulate my colleague, Deputy Michael McGrath, on his initiative in bringing forward this urgent and necessary legislation and on the energy, time and effort he has undoubtedly put into it. In so far as I can I will approach the matter in an non-partisan way but I am bound to comment at the outset on the last sentence of Deputy Ciarán Lynch, who stated that the Bill was not sufficiently robust. This triggered something in my memory. That was precisely what those in the Government said about my Industrial Relations (Amendment) Bill before they put it into cold storage. I am concerned that this Bill will follow the same fate. The Government decided that since it could not argue logically against the Industrial Relations (Amendment) Bill, it would not oppose it. Not opposing it did not mean the Government would advance it and I am concerned that this Bill will face the same fate. Whatever about the Industrial Relations (Amendment) Bill, this Bill is crucial and compellingly urgent. There are perhaps hundreds of thousands of ordinary men, women and families suffering. I thank God that I have never been in the situation where I could not pay my mortgage and no words of mine could do justice to the suffering and angst those who cannot pay must be going through.
Immediately after the election several of my constituents in difficulties with their mortgages approached me, some of whom were in considerable difficulty. Many admitted to me that they voted for the Government parties because they had specific proposals. Both election manifestos devoted a considerable amount of time and space to this matter and these people had voted for the Government parties on this basis. Perhaps because it is difficult to find Government Deputies in Limerick since the election, they approached me to ascertain what exactly was happening.
Month after month I raised the matter with the Taoiseach on the Order of Business. I made no political capital out of the Taoiseach's replies. When I asked him when he was going to do something for people in mortgage arrears, his replies ranged from "next session", "next month", "perhaps later this session", "this year", "next year", "I do not know" and "I will write to you". Eventually, the Minister for Finance was sitting beside him one day and he volunteered that he had the material and he would write to me. I must confess in fairness that he did so. Unfortunately, he wrote to me seven weeks after I raised the matter in the Dáil, indicative of the urgency with which the Government has approached the problem.
Let us consider the history. When the Government assumed office in March 2011, one in nine people in the country were in serious trouble with their mortgage, in other words they were more than 90 days in arrears. Now the number is down to one in eight people and all the anecdotal evidence is that the problem is growing rapidly. Both Government parties devoted a section of their election manifestos to the problem. Obviously, they thought deeply about the problem. They regarded it as urgent and as a top priority. As evidence of this the programme for Government, which runs to approximately 28 pages, contained one and a half pages of specific proposals on mortgage arrears. To the best of my knowledge not one of these has been honoured. In fact, they are being abandoned one after another as the pressure increases in the public domain. The Government took no notice of the Opposition but as people such as David McWilliams and other high profile economists began to write about the problem, the Government, in an effort to kick the can further down the road, decided on the time-honoured device of setting up a committee to advise them on how to do what it had specifically promised to do six months previously. This was a 22 man committee, rather a large committee to produce such an innocuous report. Most of the committee consisted of civil servants and bankers. I have no wish to guess how many of them are experiencing negative equity or difficulty paying their mortgages but I suspect few are.
I was able to reassure my constituents by informing them that the Government had set up a committee and would come up with specific proposals. I pointed out that the committee had two months to report and something would happen in two months and urged them to cling on, not buy this or that necessity and to keeping paying the mortgage or try to meet the arrears for two months and something would happen then.
What happened during the past 14 years?
Lo and behold what happened last weekend? The Keane report was published. I contacted all the constituents who had been in touch with me. I have a large file on the matter which is growing every week, the Government will be pleased to hear. I informed them about what was in the Keane report. Their reactions ranged from shock, dismay, disbelief and despair that eight months down the road we have a report that gives the banks an à la carte set of options. In other words, it suggests to the banks that since they are dealing with this problem all the time, it offers some other options if the banks are so minded to use them but, if they do not wish to use them, that is too bad. This is what the Keane report amounts to in essence. It took two months and 22 people to do something which a one-man committee could have done in two hours. There is not one suggestion in the Keane report that I have not read in the various commentaries on mortgage arrears written by academics journalists and so on. Some of the solutions were suggested to me in pubs in Limerick.
In between rounds no doubt.
I do not understand the point of the Keane report but I know what the Government's reaction will involve: the setting up of another committee to kick the can further down the road and make people suffer more. This time it will be a 165 person committee; I presume the Ceann Comhairle is excluded. Now, the 165 man committee consisting of the Dáil is supposed to examine the report and come up with recommendations on the recommendations. When this process has been concluded, the Central Bank must go through it. No doubt it will have more recommendations to put on top of the existing recommendations. Then, Laurel and Hardy — I apologise, the Minister for Finance and the Minister for Justice and Equality — will examine it with their civil servants, amounting to a committee by another name. I presume they will have suggestions to add to the existing suggestions.
Deputy O'Dea can make a decision at 3 a.m. just like that.
There have been three reports after eight months. Deputy Lynch was a good person to stand up for the working class people who were struggling to pay their mortgages and to get by from week to week. She has forgotten her base. She went into Government like the rest of the Labour Party.
The Deputy has three minutes remaining.
One word I have heard Ministers use consistently with regard to this problem is "urgent". The word "urgent" is defined in any dictionary as compelling or requiring immediate action or attention. Apparently, that is not in the Government's dictionary. All one finds in the Government's dictionary is "interdepartmental committee" or "no definitive timeline". The Government's dictionary appears to be rather small and it is probably the only dictionary in the world where cleanliness is next to godliness. Everyone from former US President, Bill Clinton, the Financial Regulator, Matthew Elderfield, and the Governor of the Central Bank, Patrick Honohan, agree that flushing this problem out of the system is the sine qua non for economic recovery in this country. This problem must be tackled sooner or later and we call on the Government to tackle it sooner. If the Government has no interest in people who are suffering and trying to pay their mortgages and it wishes to prolong the agony, let us think of what is required to restore the economy and let us begin to dig ourselves out of the pit, however we got into it.
Since these promises were made, partly on the basis of which the Government was elected last February, several people have lost their homes, but that does not tell the whole story. Other people have moved from one category into another, namely, from the "saveable" category into the "beyond rescue" category. Others have moved into the "rent to mortgage" category where they will be permanent cottiers of the banks.
That is the legacy Fianna Fáil bequeathed us.
It is clear the Government must act, why put hundreds of thousands of innocent men, women and children through unnecessary suffering? Even if Deputy McGrath's Bill was accepted by the Government and passed immediately, it would require the establishment of major infrastructure, as would the enactment of a Government Bill. In that case and based on the Government's timetable, it will be the end of 2013 by the time this mechanism kicks in.
The Deputy is dead right. It should have been done two years ago.
If Deputy Lynch is so concerned about the urgency of addressing the issue, why does he not recommend to his colleagues in government that they accept the Bill in order that we can at least begin the process now, rather than in 12, 14 or 15 months?
The previous Government should have acted two years ago.
Do two wrongs make a right? That is what the Deputy appears to be arguing. The Government does not have a case. It is standing naked before the people it promised to assist. I can show Government Deputies my constituency files which note people's remarks to me during the general election campaign that they would not vote for me but would vote for Fine Gael or the Labour Party because those parties would help them with their mortgages. The voters have been sadly disappointed.
We told the truth.
Unfortunately, all the indications are that people will remain disappointed and mortgages will not be the only issue they will be disappointed about in the next three or four years.
I welcome the opportunity to contribute to this important debate. I too compliment my colleague, Deputy Michael McGrath, on the tremendous work he has done to produce this Bill to meet an urgent need in a relatively short period. To address the remark from across the floor that the mortgage problem dates back two years, while we all know the economic crisis started in late 2007 and 2008, the problem has only become this acute in the past six to eight months. The Law Reform Commission produced a significant body of work on this issue and its report has been helpful to Deputy McGrath in the preparation of the Bill. I remind Deputy Ciarán Lynch that the commission first reported in Christmas week of 2010. To suggest, therefore, that the issue could have been resolved or options were available two years ago is wide of the mark.
The Cooney report was not discussed in the House.
It was acted upon.
If I am allowed to continue, I will explain the position to Deputy Lynch. The difficulty is that the Government has spoken at length about transparency and doing business differently in the House. It has produced an agenda for Dáil reform and arranged topical issue debates during which Deputies may put forward ideas. While it has technically accepted the Bill, this legislation will join other Bills in cold storage. Friday sittings have been arranged to discuss Private Members' Bills which will be placed on a shelf. The Government Dáil reform agenda is a whitewash. It is not prepared to listen to good ideas emanating from the Opposition.
This is a good Bill. We recognise it does not provide all the answers but the Government could use it as a template and amend it accordingly. Deputy Ciarán Lynch indicated that if more time were available he would pick through its deficiencies. Let us continue to debate the legislation, pick through it and amend it where necessary. We do not demand that it be passed in its entirety. We recognise that it is a body of work that has been informed to a large extent by the work of the Law Reform Commission. It also has the benefit of Deputy Michael McGrath's considered judgment on this matter, following his work with various interest groups, agencies and individuals who have been affected by the mortgage and debt problems. The Deputy has done the best he can to produce comprehensive legislation. He is not so proud that he would refuse to accept amendments if the Government identifies deficiencies in the Bill.
Let us see real Dáil reform on an issue that is not the property of an individual political party. I do not suggest mortgage and personal debt problems must be resolved by the Fianna Fáil Party or that they are the Government's problem, which was the way things were done in the past.
Does Deputy Dooley accept that his party caused them?
We often hear that my party was in power for 14 years. If one examines the record of the current Government parties while in opposition during that period, one finds they were large on criticism but light on detail and alternatives. We are providing the Government with an opportunity to accept this Bill as a platform for proceeding and amend it accordingly. This can be done by taking a collective and shared approach because, as I stated, no party, group or individual has complete ownership or control of the people affected. The Government should show people there is a reason to have faith in the Oireachtas and that it will do something it failed to do in opposition, namely, work with my party.
The Deputy's party failed to do it in government.
I am disappointed the Government is not prepared to work with us.
We recognise the importance of taking a non-judicial and non-adversarial approach to debt settlement. This is the appropriate and sensible approach to the problem, as recognised in the Keane report. It is critical, however, that the solution adopted addresses personal debt and mortgage debt together because any attempt to deal with them in isolation would be a recipe for disaster. The proposals we have made provide a platform for addressing personal and mortgage debt. The debt settlement arrangement is important. The independent insolvency trustee we propose would have the authority to manage both aspects of the problem. Negotiating with creditors will not be an easy job because when creditors are not paid it impacts on the wider economy and those to whom the creditors owe money. We recognise, however, that if one continues to kick the can down the road by failing to address the issue, the economy will ultimately be the loser. The option of applying a five year restructuring term gives people the capacity to work through the immediate crisis, while giving the creditor some expectation that if the circumstances of the individual concerned improve, he or she will have the capacity to have their debt repaid. It also provides for an option of writing off or writing down the debt where it is clear that there is no hope that the individuals concerned will pay.
The Bill takes a balanced approach by providing that agreement would have to be reached with 60% of creditors in terms of value. This is a good solution. The debt settlement order provided for will bring finality and avoid a scenario in which the goalposts are continuously moved.
The proposal that individuals experiencing difficulty with their mortgage could apply to the new debt settlement and mortgage resolution office is a workable solution. The office would then work with the bank and the mortgage holder would be taken out of the mix for the time being. It is also vital that a binding order be issued to ensure the banks also know where they stand.
The principal flaw in the Keane report is that it places banks at the front and centre of the entire process. The failure of the banks to face up to the problem of the speculative and commercial debt associated with the property boom necessitated the establishment of the National Asset Management Agency to unbundle this debt from the banks' balance sheets.
That is correct.
Notwithstanding the widespread negative comment about NAMA at the time, its establishment had the effect of cleansing the banks' balance sheets. While it has not resolved the problem and NAMA has come at a significant cost, the agency has created greater transparency, unbundled debt and simplified the balance sheets of the banks. As a result of its transparent balance sheets, Bank of Ireland has been able to attract outside investment. We need a similar approach to be taken in respect of debt settlement and mortgage resolution. The Keane report is flawed to the extent that it proposes that the resolution of the problem be placed in the hands of the banks. Rather than address the problem, the banks will continue to believe it will be possible to retain the full value of their loans, which is an unworkable approach.
Deputy Michael McGrath has met people who are dealing with this issue on the coalface, including representatives of New Beginning, the free legal advice centres and other groups. He has also consulted Members of the House who are encountering these issues daily. The people he has met do not believe the Keane report provides a basis for resolving the problem.
Yes, they do. The Deputy is incorrect.
The people to whom I and Deputy McGrath have spoken take a different view. If Deputy Lynch checks the blacks of today's meeting of the Joint Committee on Finance, Public Expenditure and Reform, he will find that the Money Advice and Budgeting Service, the free legal advice centres and other groups do not share his view. I would be pleased to debate the issue with him at another time.
The individuals affected by debt and mortgage problems need finality. As Deputy O'Dea noted, the fear of losing one's home is a phenomenal burden. The increase in the incidence of suicide is a clear indication of the fear in the minds of people who have a family. Losing one's home carries a stigma and people worry about where their children will sleep at night. There is an onus on all of us to bring a resolution to this.
I appeal to the Minister of State to accept this Bill, take an aggressive approach to its amendment and bring it through this House to finality. It should not be allowed to go off the radar, otherwise there will be no certainty for those people who are affected by this crisis. That uncertainty impacts on their livelihoods and, in many cases, on their lives.
There is also the enormous impact on the economy to be considered. The fear associated with the loss of a home or with not knowing where one stands in terms of one's debts impacts on the real economy. In order to resolve the entire crisis we need the real economy to become fluid again with transactions and movement. Sadly, that will not happen when all this pent-up debt is there, structured in a way that does not allow the real economy to progress as it should.
I am very glad to have an opportunity to make a short contribution in this very important Dáil debate. This Private Members' Bill makes a positive and important contribution to the current discussions on the very serious mortgage debt problems. Although the Bill is not, and does not claim to be, a silver bullet for all the problems facing many thousands of people throughout the country, if it is acted upon in time it will substantially ease the difficulties facing many of those people.
With the publication of this important Bill we in Fianna Fáil demonstrate again that we are a positive and constructive Opposition that puts forward solutions and valid and positive proposals. This legislation, prepared and put before the Oireachtas by my colleague, Deputy Michael McGrath, proposes to establish an independent non-judicial debt settlement system which can deal with both personal debt and mortgage debt.
I compliment Deputy McGrath and other members of the parliamentary party on the enormous amount of work they have done in preparing these proposals. As Deputy Dooley remarked, they consulted widely. Organisations which have been helping people who struggle with personal debt and mortgage difficulties, the Free Legal Advice Centre, the Financial Regulator, Mr. Matthew Elderfield, the recent Keane report and the Cooney report of late 2010 have all outlined the need for such a system. Some days ago, the Governor of the Central Bank, Professor Patrick Honohan, spoke out clearly on the inaction of the banks and lending institutions, noting they had restructured relatively few mortgages. He stated, "Insufficient capital cannot be a reason for inaction".
This Government came into office with a strong line in rhetoric but a weak line in terms of policies that could be implemented. It promised it would put the interests of mortgage holders above those of the banks but where is the evidence of that? Contrary to what people were told before last February the banks have not been instructed to absorb the European Central Bank interest rate increases. In regard to mortgage interest relief the programme for Government contains a commitment to increase the relief to 30% for those who bought their homes in the period 2004-08. We were told the commitment was to be effective from last June but it is yet another broken commitment.
The programme for Government rightly devotes a page and a half to the crucial issues of distressed mortgages and housing. It contains some noble aspirations but is woefully short on specifics. One of its proposals was to expand MABS to become a debt management agency with quasi-judicial powers but this has hardly been mentioned in the eight months since the Government took office. This Bill deals with that issue but does a great deal more. It ensures that those who are in debt or have mortgage arrears will not be helpless or abandoned when they face the banks. The system we advocate in this Bill will assist people in a fair and consistent manner to get to a situation where they can realistically move to paying their debts and mortgages in a restructured manner.
I welcome the announcement by the Minister for Justice and Equality, Deputy Shatter, during the debate on the Keane report. He stated the Government would not oppose the Private Members' Bill introduced by my colleague, Deputy McGrath, but I am concerned that he linked this to the publication of the Government's personal solvency Bill as this Bill is not due to be published until March 2012. That timeline will not work. In spite of what Ministers say, this problem is getting worse. According to the Central Bank, the share of Irish private home loans in arrears or restructured rose to 12% in the three months to the end of June. As FLAC pointed out, one in ten mortgages was in trouble at the end of 2010. By March the figure was up to one in nine. Now we see that almost one in every eight mortgages is struggling.
This problem must be tackled now. This Bill, drafted by Deputy McGrath and based on the Law Reform Commission report and proposed legislation, is an important and necessary step in tackling the issue. Deputy McGrath stated yesterday:
The Bill can form the basis of a radical overhaul of Ireland's personal insolvency regime and can allow thousands of distressed borrowers to see some light at the end of the tunnel. That is what lies at the heart of this legislation.
In implementing legislation we need to achieve the best possible system to deal with indebtedness which is such a problem for so many households. The time to move on is now.
I thank the Fianna Fáil Party for allowing me time to speak. I compliment Deputy Michael McGrath for introducing this Bill to the House. In recent years many consumers who are buried under a mountain of debt and who face financial hardship have been unable to agree settlement negotiations with their lenders. This is due, in part, to the recent economic crisis. Some lenders are willing to accept settlements if they are convinced that full future payment is unlikely. However, the debt settlement practices and the laws that apply to unsecured debts, such as those on credit cards often do not apply with secured loans, such as those used for cars and home mortgages, which are based on collateral property. Often a lender will opt to repossess the automobile or foreclose upon the home rather than work out a settlement. This is totally unacceptable.
Mortgage debt settlement is more difficult to negotiate than standard debt settlement such as settling credit card debts. Given that a mortgage loan is a secured loan the home acts as collateral and if a person does not pay the full amount owed on the mortgage the bank has the option to take the home and sell it. However, if the property has fallen in value, as in the majority of situations, it is possible to end up owing more on a mortgage loan than the home is worth. The banks will be unable to recoup the amount they loaned if they foreclose to sell. When they know a person owes more than the house is worth, and consequently they will not get their money back through foreclosure, they may be willing to allow a mortgage debt settlement.
People and families facing problems paying mortgages who want to settle their debt need to consider which of the two major options for settling mortgage debt is best for them. Generally, in options such as renegotiating the terms of the mortgage a bank will try to get the person to repay the full amount owed but will either lower the interest rate or stretch out the repayment terms so that the monthly repayments become more affordable. For example, if one owed a bank €100,000 it might agree to let one pay back the full amount over 40 years instead of 30 years. One's monthly repayment would be more affordable but one would pay back a larger amount in the long term because of the extra ten years of interest payments. This is better for the bank but in some rare cases one may not want this and would prefer the bank to lower the total amount owed so that one's debt would be in line with the current value of the home.
Shortselling one's home is the best alternative for those who do not wish to keep their house — hardly a majority of cases. With a short sell one gets the bank to agree to let one sell the home for below the amount one owes. The bank then accepts the full proceeds of the sale as satisfaction of the debt, forgiving the remaining balance. Not many banks in Ireland are willing to do this at present.
Squeezed between high levels of unemployment in a weak economy on the one hand, and with reduced and in some cases still declining property values, many of us are in a very tough place, underwater on loans we can barely, if at all, pay. It is generally worse for people who bought their homes in recent years during high rising values when the belief was that the worst-case scenario was that one could always sell one's home and walk away free and clear from debt. Unfortunately, that is no longer an option and we need to examine other options, including various kinds of mortgage reorganisation. The classic way to consolidate debt is by combining it, that is, replacing two or more debts with a single loan. By doing this a homeowner might be able to refinance at a lower rate of interest or extend the time in which he or she must repay his or her loan. Both options would assist in reducing monthly repayments. In view of the fact that in taking out a new mortgage one would incur new origination fees, the decision on whether to proceed must be carefully weighed.
Another way to reorganise one's finances is by paying off a mortgage. This is sometimes done by taking out a new, lower payment loan in order to pay off the older, less desirable loan. It is similar to combining mortgages. On other occasions it can be done by ruthlessly combing through one's budget to find additional money each month and paying this off against the principal, one-off loan. This reduces the term of the loan because it is paid off faster. However, some loan agreements may include clauses which impose fees in the event of early repayment.
If a homeowner is in financial debt, he or she may be able to negotiate a deferral in paying his or her mortgage. This is where the lender allows the borrower to take a holiday on payments for a few weeks or months and is most appropriate when there is a short-term downturn in the borrower's finances. Unfortunately, this is now the position in the majority of cases.
The banks which we own have a vital role to play because they caused the majority of the problems with which we are dealing in the first instance. As stated in the debate on the report of the interdepartmental working group on mortgage arrears, they led people up the garden path and encouraged them to believe it was acceptable to borrow any amount of money because they would have no difficulty in paying it back. That, of course, has proved not to be the case. I compliment MABS and the citizens information centres, the staff of which have done an excellent job in dealing with this problem on a daily basis.
I compliment Deputy Michael McGrath on bringing forward this Bill, which shows he is being active in opposition.
I thank the Minister of State.
It is good to see Bills being introduced by Opposition Members. Some of us on these benches were engaged in that process for a long period.
The debates taking place in the House this week on this Bill and the Keane report give all Members an opportunity to contribute their views on the issue of personal insolvency and mortgage indebtedness. This is an important issue which requires thorough consideration by the House. The problem of personal over-indebtedness is one with which so many of us have become well acquainted in the course of our constituency work. Many of the Deputies who have contributed to the debate on the Bill have given some further insight into the levels of stress and difficulty faced by ordinary individuals as a result of their financial circumstances. For many, indebtedness has not arisen as a result of reckless spending but rather as a direct consequence of the economic downturn, whereby an income shock — through reduced income or job loss — has impacted seriously on their capacity to pay their debts. In my experience, the people concerned want to pay their debts but simply cannot manage to do so within their existing means. They worry constantly about the next bill or demand from a creditor. Many are threatened with the prospect of court action. This is a problem which must be addressed in order that we can adopt a more humane approach to the resolution of the issue of personal debt for those who genuinely cannot pay.
As the Minister for Justice and Equality, Deputy Shatter, stated, the Government will not be opposing the Bill on Second Stage. We very much value the contributions of all Members to this debate and the search for viable solutions. The Government is fully committed to the reform of insolvency law and practice. I welcome the fact that the Minister's proposals for a personal insolvency Bill are in the course of being finalised on the basis of intensive consultations with the relevant Departments and interest groups. I have no doubt that he will be in a position to produce a coherent and comprehensive Bill which will take account of all of the significant issues involved.
I am sure Members will agree that the Law Reform Commission has done valuable work which has been of great assistance in informing our debate. The Government will be taking into account the recommendations made by the commission in its December 2010 report on personal debt management and debt enforcement. However, it will also have the benefit of the findings of the Cooney and Keane reports on this issue.
As has been borne out by the discussions to date on Deputy Michael McGrath's Bill, reform of the personal insolvency regime is not a simple task. This is an extremely complex area of the law, in the context of which the consequences and implications of new policies must be carefully assessed. There is a delicate balance to be struck between the various legal rights of the parties involved. We must design a system which is fair to both creditors and debtors alike. Not to do so would make worse a situation that is already difficult for the parties concerned. The new debt resolution system must offer workable solutions to those who genuinely cannot pay their debts, while also building in appropriate mechanisms to deal with those who will not pay their debts. Any new debt resolution process must have at its core solutions which are appropriate to the level of the individual's indebtedness and which are based on his or her ability to make payments.
Much of the recent debate in the media and this House has been debtor focused and failed to mention the rights of creditors — particularly smaller unsecured creditors — in any debt resolution process. While the ideal situation for many would be to reach agreements with their creditors that would be acceptable to both sides, this may not be an option in some circumstances. It would leave court-based solutions as the only remedy. As everyone is aware, court based processes are costly and for most people are best avoided. The development and introduction of new workable, non-judicial debt resolution processes would offer additional solutions without costly legal fees. While it would be naive to suggest this will solve all debt problems in their entirety, it will provide a framework within which a mediated solution can be worked out if that is appropriate to the individual circumstances involved.
It is incumbent on us, as legislators, to ensure our response to the issue of personal indebtedness is not clouded by mortgage debt alone. While mortgage-related indebtedness is a significant problem, personal indebtedness has a wider context and any new personal insolvency system must address this. In itself, this presents a difficult challenge. In view of the complexity of the issue, the Government has agreed that Deputy Michael McGrath's Bill should not be opposed. However, as the Minister made clear, the Government will progress its own legislative plans in this area. This approach should allow Members on all sides to contribute to the best possible examination of a range of solutions to the problem of personal indebtedness and should ultimately result in the development of a better legislative framework.
I thank all the Deputies who have contributed to this extremely worthwhile debate.
I wish to share time with Deputy Seán Fleming.
That is fine.
I thank the Minister of State for her contribution and acknowledge the fact that the Government is accepting this very constructive Bill which was brought forward by Deputy Michael McGrath whom I commend for the Trojan work he has done in analysing the problems and developing constructive responses to the serious financial difficulties being experienced by many families.
In addressing this matter, Fianna Fáil's objective is to try to ensure family homes will be protected from repossession and that families will be in a position to remain in residences in which they have invested so much time, energy and money. To this end, we have already brought forward the Family Home Bill, to be introduced in the Seanad, which seeks to regulate the activities of debt management service providers. We also want to see full implementation of the recommendations brought forward last November by the expert group. These include the roll-out of the deferred interest scheme; reform of the mortgage interest supplement scheme; the introduction of a non-judicial debt settlement system; and the modernisation of the bankruptcy laws.
On 12 July Fianna Fáil launched a strategy on mortgages and personal debt. This came about on foot of the efforts of my party's working group on mortgages and personal debt which was ably led by Deputy Michael McGrath and Senators MacSharry and Thomas Byrne. These three men are members of the generation most affected by the problems under discussion and they are trying to address the current situation in a real way. They were capably assisted in their work by Deputy Ó Cuív. The package of measures brought forward by my party's working group includes the aforementioned Family Home Bill and the Regulation of Debt Management and Advisors Bill. We do not have to explain why this was necessary and we can just consider some facts relating to mortgages to make clear the scale of the problem facing us.
On 29 August the Central Bank published the latest data on mortgage arrears and repossession for the period ending June 2011. Those figures indicated that 7.2% of private residential mortgage accounts are in arrears for more than 90 days; that is from more than 777,000 private residential mortgages to a value of €115 billion. The recent ECB interest rate increases, coupled with the hikes in variable rates charged by banks, have put immense pressure on families who are trying to keep up with mortgage repayments and keep a family under a roof. Deputy McGrath's Bill is essential legislation that can be used to address the concerns of many people who may have lost their jobs and do not see themselves in a position to maintain mortgage repayments. The Bill is based on the Law Reform Commission's report on personal debt management and debt enforcement. I commend the commission for the effort put into the initial research.
Unfortunately, many people are in a position where they will have to resort to a mechanism like that outlined in the Bill. The Oireachtas and the new Government has been far too slow in responding to the problem and putting in place the type of structure needed to address the problem. The new Government is now nine months in office and was voted in because the public wanted to see some action and new ideas. Unfortunately, we have not seen it yet, although it is positive that the Government accepts this Bill. We must see immediate action.
If the Bill is accepted it will ensure that an independent body separate from the banks and courts will be put in place that can intervene and assess each case individually, ensuring that a system or structure can be put in place to allow people to stay in their homes. We face an evolving process and a first step must be ensuring that those who are unable to pay can avail of some structured process. I endorse this Bill and hope it will be considered promptly on Committee Stage, where all parties can agree on a structure to be put in place.
I welcome the opportunity to speak on the Debt Settlement and Mortgage Resolution Office Bill 2011. To give more acknowledgement to what is involved in the legislation I will mention the full title, which is a "Bill entitled an Act to reform the law on personal insolvency; to provide for a non-judicial debt settlement arrangement process concerning personal debt; to provide for a non-judicial mortgage resolution order concerning mortgages over family homes; to provide for a debt relief order for personal debt where a debt settlement arrangement or bankruptcy is not appropriate; to reform the law on the enforcement of personal debt, including individual enforcement mechanisms; to provide for the establishment of a debt enforcement office, which includes a debt settlement and mortgage resolution office; to provide for the licensing and regulation of personal insolvency trustees and debt collection undertakings; and to provide for related matters." It is a comprehensive and extensive title which provides a good summary of what is involved.
I compliment my colleague, Deputy Michael McGrath, from Cork South-Central, on his outstanding work on the issue. It was not just a question of producing a simple Bill as he had to study the matter over months. This is not an issue which has cropped up in the past month or two but has bubbled under the surface for some time. We all know this from speaking with people in our own constituencies. Deputy McGrath has done tremendous work, which has culminated in today's debate. There has been much effort behind the scenes studying all possible implications of the Bill and the Deputy has used his experiences as a constituency Deputy.
I compliment the Government for agreeing to take this Bill as it is too easy for it to find a technical reason to vote a Bill down. I hope people outside these Houses can at least see that the Dáil is working in unison to try to solve some of the problems facing the people who are most financially distressed. They will see that party politics are not being played in the Chamber, which is another good message for the people.
It has been explained to me that the legislation will be dealt with through the Department of Justice and Equality, which I found surprising. Matters involving insolvency and bankruptcy come under the ambit of that Department, although one may assume it would be a matter for the Department of Finance. That is a further example of the complexity of these matters, showing that debt resolution, mortgages, bankruptcy and insolvency traditionally tend to end up in the courts. As these are legal agreements, one can see why the Bill is a matter for the Department of Justice and Equality.
We are all familiar with the problems we are here to tackle, which are due to various causes. The first cause is over-lending by the banks, although there was also over-borrowing by people. Debtors ran into difficulties when incomes declined because of cuts in pay or unemployment and they were unable to meet all their liabilities. In some cases two people in a family may be unemployed. The scale of the over-lending shocked me when I first encountered it in my constituency clinic in Castletown a couple of years ago, as such instances did not just happen today or yesterday. People presented at my office some time ago and they tended to have sub-prime mortgages. I asked how much they got and the value of their houses and some of the people told how the cost of the house, a wedding reception and honeymoon, car loan and credit card and other debts were put on the mortgage. The sub-prime agency looked to consolidate the debt; instead of a person having six monthly payments it was wrapped up into one payment that was easier to manage, although the people involved would pay for it for 35 years at an exorbitant interest rate.
I can understand how an ordinary person would take that offer when it was presented rather than have many different bills. I spoke before not about 100% mortgages but 130% mortgages. Some people did not know there were 100% mortgages in existence but they did not know what was going on. I have dealt with cases of people with 130% mortgages, as the value of the house might be €200,000, with a mortgage value of €270,000 by the time other debts were included. The question is how the banks rationalised this process, and I believe they fiddled the books. They knew property values were increasing by 20% per year and within a year or two the mortgage book value would be less than 100% in comparison to the value of the house.
This was done by some of the main banks, as well as non-covered institutions and sub-prime lenders. We should not forget that local authorities are also wrapped up in this. In my experience, local authorities are the most inflexible; banks can take a pragmatic view when dealing with a client but local authorities cannot take action without a circular from the Department. A finance officer will not be able to act without such a circular. With shared ownership loans I have asked if people can move from variable to fixed rates or vice versa but this was not allowed. I put down parliamentary questions on the issue last year and this year. There is little flexibility in local authorities.
That is in the past and we must deal with the future. We had the Cooney report on mortgage arrears last November and the Keane report in the past week or so. The Law Reform Commission's report on personal debt management and debt enforcement was also published. This proposal takes the best of those reports and makes additions to make the process more effective for people. Each of those reports was good in its own right but none represented the full picture. Deputy McGrath has brought the best of all of those to ensure we have a non-judicial process in front of us for consideration. It is a complicated process. I will not go into too much detail. It involves a debt settlement arrangement, a new debt settlement and mortgage resolution office, a debt relief order as well, and in some cases we also have in the legislation a mortgage resolution order. It is very important for people to know that exists as well because people had shied away from it in some of the earlier reports.
It is important when we talk about mortgage resolution orders to look at what has happened. The majority of what the Central Bank terms restructured mortgages are not in fact restructured mortgages. Of the 69,000 mortgages that it said were dealt with by way of restructuring, 26,000 of those were restructure of interest only. Six months of a reduced interest rate is not really a restructure of a 30-year mortgage. It is only a temporary relief. The Central Bank's figures are exaggerated. It refers to 10,000 cases of reduced payment of mortgages greater than interest only. I do not call that a major restructuring because they are short-term. They are not restructuring the mortgage at all. The mortgage will continue for the same life. Approximately 9,000 term extensions and reduced payments were made and some arrears capitalisation. Arrears capitalisation is what I call restructuring. It is one of the few genuine cases of restructuring that has taken place in the marketplace. Some of the options provided for in the legislation deal with interest-only payments and mortgage extensions. That is restructuring, but I hate people taking a second generation mortgage. That is what happened in Japan. People were ending up with a 70 year mortgage, running to nearly three generations. Japan is still one of the most heavily indebted countries having had a property bubble and bust many years ahead of anywhere in Europe and it still has not got over it.
Reference has been made to a repayment holiday. The Minister for Finance indicated that it would be a possibility to allow people to catch up on all their other debts. What happens is that a bank is only interested in its debt, whereas if a person goes to the money advice and budgeting service, MABS, it looks at the full picture. Some people can have up to 30 or 40 bills in various shops and suppliers and in different areas.
An interest rate adjustment downwards is a restructuring. It is to be hoped, with negotiations at EU level and the funding that has gone into the European Central Bank, it will have provision in the next ten years to provide, not a six month or 12 month reduction in mortgage interest rates, but something that goes back over a five or ten-year period, if need be, and a deferred interest scheme or a mortgage-to-lease.
What we propose is a comprehensive set of proposals. I am pleased the Government has taken the legislation on board. The Minister for Justice and Equality has said he will bring forward his own legislation, which we welcome. Our spokesperson on justice will deal with that when it comes to Committee Stage but before it gets that far we will have extensive discussions on Second Stage following the report. Essentially, we can all agree that we are maxed out on reports. We have enough reports and we know the problems. It is time now for action.
I use the term "maxed out" because people are familiar with it from credit card use.
I compliment Deputy Michael McGrath on his outstanding work. It is good that the Opposition is being constructive. It is very easy for an Opposition party to come to the House and oppose for the sake of it. We want to provide more credible and sustainable opposition in order that people will see that genuine alternatives that will affect individuals are being proposed by the Opposition rather than opposition for opposition's sake. I thank the Minister for agreeing to accept the principle, thrust and general approach of the Bill and allowing it to move on to Committee Stage.