Report of the Interdepartmental Working Group on Mortgage Arrears: Statements (Resumed)

Deputy Pat Breen

I welcome the opportunity to talk in this debate and I welcome the publication of the Keane report, which places the focus very clearly on helping households who are in mortgage arrears. Every Deputy will concur when I say our clinics are good barometers of the depth of the problems ordinary people are suffering. Like many Deputies, I have witnessed the huge upsurge in the number of people attending my clinics who have difficulties meeting their mortgage repayments. Many of their stories are heartbreaking. The collapse of the property bubble caused the country to go quickly into recession and left a trail of destruction in its wake. Many householders are under severe pressure trying to keep a roof over their heads.

Some commentators argue that there should be blanket forgiveness for all. It is important that we differentiate between those who cannot pay and those who simply will not pay. According to the Keane report, approximately 45,000 households are in arrears of more than 90 days and a further 32,000 households are in arrears of more than 180 days. In addition, approximately 56,000 households have already reached an agreement with their lending institutions and have an agreed restructuring plan in place.

The scale of this problem is huge. No two cases are the same. Cases need to be dealt with on a one-to-one basis as there are many complexities involved. In some cases, the problems are compounded by personal indebtedness which is a huge problem. In 2008, for example, the level of personal indebtedness in Ireland equated to every household borrowing more than it was earning, or €158 borrowed to every €100 earned.

It is important, given the sheer scale of personal indebtedness in this country, that we reform our personal insolvency legislation in tandem with any plan to help householders in mortgage arrears. I compliment the Minister for Justice and Equality for the action he has already taken to address this situation. As and from 10 October last, all 360 so-called legacy bankruptcies, which have existed for more than 12 years, have been automatically discharged. Also, the Minister is working on further reforms which he will be introducing early next year. However, I would prefer to see restructuring of loans, agreements with lenders and bankruptcy to be the last resort.

A number of speakers have pointed out that we need to deal with an individual's capacity to discharge his or her debts. This is important and is fundamental to any resolution of the mortgage arrears problem. Also, a number of commentators have criticised this report for placing banks at the centre of the solution. It is essential that those who were central to creating the problem are central to finding a solution. The Central Bank has strengthened its code of practice and now includes in its protections the mortgage arrears resolution process, MARP. The MARP sets out the guidelines which regulated lenders must follow in dealing with arrears and includes a number of important protections for consumers. The Central Bank website contains a useful leaflet entitled Mortgage Arrears — A Consumer Guide to Dealing with your Lender, which answers many of the questions people have in terms of dealing with their lenders. However, having a code of practice is not enough. We need to ensure that it is supervised and that there is enforcement of it. For far too long, a blind eye was turned and easy touch regulation became the norm in this country, allowing malpractices to take place in our banks. We are all only too well aware of the consequences of what happens when banks are not kept in check.

This report recommends the setting up of a specialised mortgage advice service which would be available to householders in distress. It also suggests that this service could be linked to MABS. MABS in my constituency provides an excellent service on a confidential basis to people from Ennis and Shannon. It is essential that any new service be adequately resourced and that expertise to help consumers in distress be available locally. This framework exists within MABS, thus any new service should be built around and linked into MABS.

The economic collapse in this country has left a trail of victims in its wake. As I said earlier, there are many complex cases in this regard. I would like this evening to highlight a particular case which portrays the complexity of the problem. I have been trying to help a couple in their early 50s with teenage children, both of whom are out of work and have been for the past two years. Whatever savings they had are gone and they are at their wits end. They are constantly in contact with my office and fear that one of these days they will end up on the side of the road. Like many other people in this country this couple, when working and doing well, invested in two separate synergy pension plans with an insurance company. Under Irish pension legislation, a person must be 60 years of age to encash a policy and even at that stage can only encash 25% thereof. It will be a further eight years before this couple will be 60. They believe that if they could access at least some of their savings now it would satisfy their mortgage holder.

We are all aware that there is a pension crisis looming in this county, as highlighted by a recent RTÉ documentary. We cannot under-estimate the scale of the crisis ahead. Nevertheless, many people have stopped paying into their pensions plans given the extent of the current economic crisis. This couple fall into that category. They cannot understand why they cannot cash in part of their policy in order to pay off their debt and save their home.

It is easy to understand why people want to spend their money in the here and now, in particular when they are facing the threat of losing their home. There are many similar examples throughout the country. Last week I was visited by another couple whose loan repayments are €1,100 per month and who had offered to repay the bank €400 per month because that was all they could afford. When that was not accepted they offered to repay €600 per month but were told by letter last week that under the Central Bank's code of conduct the bank had options to consider, including a voluntary sale of their property and repayment of their mortgage with the proceeds thereof or to trade down their existing home at its current market value and relocate to a more financially affordable property. How could any couple do that? I heard of another case involving a person who owes €1 million to a bank which accepted repayment in that regard of €500 per month.

Banks need to be more understanding of people, in particular people who genuinely want to repay their mortgage. While the banks say they are committed to working with people in regard to their mortgage difficulties, when it comes to it that is not the case.

I ask that the Minister for Finance take a look at the pension situation. Perhaps given the current economic circumstances couples such as the couple to whom I first referred could be allowed to encash part of their pension savings to secure their home. I envisage individuals in such circumstances having to produce from their mortgage lender evidence of arrears-default. This could be enshrined in any amendment introduced to deal with this situation as part of any change in our pension legislation.

We are living in difficult and unprecedented times and must investigate every option to assist those most in most need. I support the Keane report, which is the first step in tilting the balance back in favour of those householders in mortgage arrears. This Government is committed to helping those most in need, which I welcome.

Deputy Aengus Ó Snodaigh

Ba mhaith liom labhairt ar an gceist rí-thábhachtach seo a dhéanann déileáil le tuairisc Keane. Tá an tuairisc ann féin tábhachtach ach ní dhéanann sé déileáil leis an gceist ina iomlán mar níl na freagraí ann ar chóir a bheith ann, agus muid sa gcruachás ina bhfuilimid.

Tá beagnach 100,000 morgáiste i ngcruachás sa tír. Sin an figiúir oifigiúil ach measaim féin, agus measann a lán dóibh siúd atá ag déileáil leis an gceist seo go mb'fhéidir go bhfuil a dhá oiread sin i gcruachás. An fáth nach bhfuil cruachás na ndaoine eile sin aitheanta ná go bhfuil daoine ag fáil cuidiú óna dtuismitheoirí, tá siad ag dul gan bhia agus ag fáil iasachtaí i ngach áit agus is féidir, chun an morgáiste a íoc. Go minic níl na daoine sin ag íoc billí leictreachais nó gáis nó billí móra eile agus tá na billí sin ag ardú de shíor. Feicimid sin gach uair a fhoilsítear tuairisc ar cé mhéad teaghlach atá ag dul gan leictreachas nó gás toisc nach bhfuil siad in ann an bille a íoc.

Níl aon dabht ach go bhfuil breis agus 100,000 teaghlach i gcruachás maidir le morgáistí. Sin an fáth go bhfuil díomá orm gur cuireadh an tuairisc seo le chéile gan a bheith réalach. Ní dhéanfaidh sé déileáil go gasta leis an gceist seo, ceann de na ceisteanna is mó atá ag díriú isteach ar an gcuid is mó de mhuintir na hÉireann faoi láthair. The focus of the Keane report is on distressed mortgages. As I said, 100,000 mortgages have been deemed to be distressed but I believe the figure is probably almost double that because the 100,000 only includes mortgages in arrears for more than 90 days and mortgages which, at this stage, have been restructured. The number is growing all the time.

The Keane report's recommendations fail miserably to address mortgage distress and my party colleague, Deputy Doherty, identified and addressed many of the failings in an earlier debate on this issue. Part of the reason the Keane report failed so miserably to grapple with the issues was its failure to involve those in the know as to the dynamics and impact of household debt. I refer to groups such as MABS which should have been centrally involved in the deliberations of the Keane group.

Deputy Doherty also outlined Sinn Féin's proposals to address mortgage distress. Mortgage distress is only part of the picture because the number of households managing to make their mortgage repayments but which are under severe pressure as a consequence of having a mortgage coupled with negative equity is much higher. I believe it is another 100,000 households, and I am not the only one who has come up with this figure. Some 200,000 households are probably overburdened by mortgage debt, twice the official number.

These families are doing everything possible, including going without food, light and heat, to ensure they meet their mortgage repayment obligations every month. That is laudable in some ways but not in other ways if families must go without the necessities of life. There was an election in February but many of us have been on the doorsteps again due to the presidential election. We have seen houses with no lights on and people sitting in darkness. That is the scale of the financial crisis many of these families face because the one thing they want to try to ensure is a roof over their heads yet children and other family members are going without the basic necessities.

If the policy response to mortgage over-indebtedness targets only those mortgages which are in arrears, then what is in it for those families who are in arrears and who are building up credit card debts and debts in regard to household necessities such as gas, electricity and even maintenance? They are begging and borrowing but I hope not stealing to pay the mortgage. I know people who have exhausted their savings and those of their parents, friends and relatives to ensure there is a roof over their heads. There is no alternative for these people. Social housing is not available to them. To date, they have invested a certain amount in a house they hoped they could call their own.

These people are the victims of an economic system which created a bubble that collapsed. House prices quadrupled between 1996 to 2006 and there are consequences to that. Ireland's banks must acknowledge that the current debt levels are unrealistic, that there must be write-offs of domestic mortgages and that it must occur urgently.

Obviously, there is a wider macroeconomic problem as a result of Ireland's extremely high level of household debt and that includes the mortgage which, in most cases, is a significant part of it. Household debt diminishes domestic consumer demand which, in turn, leads to job losses. Household debt is one of the biggest barriers to our economic recovery at this time and we ignore it at our peril. The longer we delay, the more likely it is to have greater consequences on our ability to come out of this crisis.

A mortgage may not be in distress but the sheer size of mortgages entered into between 2002 to 2009, in particular, coupled with falling incomes, rising unemployment and underemployment is preventing homeowners from spending. Personal consumption in quarter two of this year was 2.4% below that in the same period in 2010 and the outlook is bleak. That is the scale of the problem and there will be consequences if we do not address this urgently. More jobs will be lost in retail and in production unless we can get our economy back working. Some of this relates to job creation but the rest relates to this huge problem of indebtedness. If the economy is to recover, the Government must take concrete steps to reduce household debt, including writing down mortgage debt.

We also have another problem because we need measures to respond effectively to those whose mortgages are in arrears. We also need measures to prevent mortgages from becoming distressed. There must be write-downs. There are write-downs for businesses and there is NAMA for those who speculated but there is no NAMA for those who are in economic distress in respect of their mortgages. The solutions the Keane report suggested are minimalist. They are not radical and they will not deal with the problem. They will only gloss over it.

The Department of Social Protection spent €66 million in 2010 on mortgage interest supplement for 18,000 households. That is €5 million more than in 2009 and €40 million more than in 2008. The figure for this year will be higher and eligibility is very narrow. If we were to make it available to all the families which actually need it, as was said by the Labour Party before the election, that spend would skyrocket. What the Labour Party said was laudable but writing down a percentage of peak house price mortgages would result in an instant saving for the State in mortgage interest supplement because it would not only reduce the amount of spend on each claimant but it would reduce the number of claimants. Ultimately, it would make a wide swathe of people's mortgage burden more affordable which would release disposable income to stimulate the local economy.

Deputy Peter Fitzpatrick

I would like to talk about negative equity. Is it that the homeowners cannot afford to pay or is that they are declining to do so because their homes are now worth less than their mortgages, which is known as negative equity? Economists are divided on the relative importance. One school thinks that even in cases of negative equity, most homeowners will not default if they can afford their payments not least because default would affect their credit record. A second school believes that once the home is worth less than the mortgage, homeowners have a significant incentive to walk away even if they can make the payments since in many states lenders cannot pursue them for the shortfall.

Since 2007 those most exposed to negative equity are borrowers who obtained high-value mortgages which were commonplace before the credit crunch and they are most at risk if there is a decline in property prices. The term "negative equity" was widely used in the United Kingdom during the economic recession between 1991 and 1996 and in Hong Kong between 1998 and 2003. These recessions led to increased unemployment and a decline in property prices which, in turn, led to an increase in repossessions by banks and building societies of properties worth less than the outstanding debt.

It is also common for negative equity to occur when the value of a property drops shortly after it has been bought. This occurs regularly with car loans where the market value might drop 20% to 30% as soon as the car is driven out of the lot.

This debate about negative equity has grown stronger as the economic climate has continued to descend and the sting of the recession lingers. However, to establish a clear debate, a few issues should be clarified. In addition, certain parameters should be established. Each case must be treated on an individual basis. This is a mammoth undertaking not only in terms of man hours, but also given the cost to the State and financial institutions. The question of whether it can be justified should fall under the remit of a select group. The group should start by seeking people who warrant being considered for support. This is opposed to the approach of trying to eradicate those who should not avail of help. While they may appear to be one and the same, a subtle difference ensures that institutes should err on the side of caution and give borrowers the benefit of the doubt. This approach also prevents a witch hunt in which creative reasons for not including someone are sought. The reason for the purchase of any home needs to be established. Certain reasons would entitle some loans to be the only ones further examined.

It is worth considering whether the mortgage holder provided accurate and honest information at the time of application. It has come to my attention that numerous mortgage holders got their loans with fictitious documents and dishonest statements of affairs. Creative accounting or cheating should not render one credible and worthy of the State's empathy. Furthermore, endorsing such activity should not be considered.

Further knowledge should be sought about one's choice of home. For example, if a couple bought a house to rear a family, settle down and become a part of a community, the question of whether the house appreciated or depreciated in value is immaterial. Those people were never going to sell their homes. Thus, prices and negative equity are irrelevant. People who released equity in their homes for non-family-related activities, such as the purchase of apartments in Bulgaria, going on six-week cruises, etc., should be excused. They have chosen to use their family homes as vehicles to fund their lifestyles or to generate finance for investing in assets. They have used their homes to provide returns. Thus, they have used them in commercial exercises.

It is not for me to guess, but it will be interesting to see whether there is a strong correlation between negative equity and higher-than-standard interest rates. If this is true, as I suspect, it begs the question of whether such people should have received loans in the first instance. If a person's only recourse to a mortgage was via a higher interest rate, it suggests that he or she was a higher risk. I imagine such people's plights were sealed in the hands of non-mainstream lenders. A fundamental question should not be underestimated. Is it that home owners cannot or do not want to pay?

What are the consequences of negative equity? Owing a bank or building society more than one's house is worth means moving is impossible, since one is unlikely to be loaned money by banks. Negative equity also creates a headache for those seeking to remortgage.

The answers to my next questions may add further credence and substance to the debate. What percentage of homes are not in negative equity? What percentage of homes are owned outright with no mortgages? What is their accumulated value? What percentage of homes are mortgaged but are not in negative equity? Will we help those who suffer negative equity in future? Is the benchmark per capita 10%, 20%, 30% or so on? Are there people who are not currently in negative equity but could be in six, 12 or 24 months? Should the signal we send to society be that we must honour our commitments? These questions must be answered when trying to reach a solution. One must always realise that, on the day one buys property with a 100% loan, one develops negative equity immediately.

A wider unmentioned debate needs to be analysed. The proportion of persons holding negative equity varies significantly by purchase date, deposit size, location and housing type.

Deputy Paudie Coffey

For us to learn how we reached this devastating set of economic circumstances, we must examine the reasons for the economic collapse, including the roles of the Government, the regulator and the banks. The previous Government implemented unsustainable economic policies and propagated the property market until the running of our society was dependent on taxes derived from people selling property to one another. There was also a lack of oversight and regulation of the banking sector.

We must be aware of the role of the banks and mortgage advisers in selling mortgage products to many members of the unsuspecting public. Unbridled and loose lending practices saw debt loaded onto families — 100% mortgages, lax contracts and next-generation guarantees made by older generations to subvent mortgages. The result is a total economic collapse, leading to a loss of jobs and income, negative equity, mortgage distress and personal indebtedness.

In contrast with the 1980s, which saw the last recession and unemployment crisis, Ireland now has high levels of personal and business indebtedness. People undertook remortgages to upgrade and extend houses and to buy second properties and foreign properties. Hotels were packed by market shows every Sunday. This was a sign that the situation was getting out of control. The Minister of State with responsibility for small business, Deputy Perry, is present. The saddest aspect is that many small businesses have been mortgaged to acquire loans. What were perfectly viable businesses are under pressure thanks to some of the property deals in which they were involved.

There is no silver bullet or magic wand solution. People's expectations need to be handled with care. It would be dangerous of the Government to give people the expectation that it will pay their mortgage debts. However, we must do everything in our power to assist people in mortgage distress. The Government has been left with a monumental mess by the previous Administration.

The Keane report is a welcome start to the work, but it is not a solution to everything. Its main point is on the appointment of professional, qualified advisers and experts to assist families in mortgage distress. They must work closely with the Money Advice and Budgeting Service, MABS, which has considerable experience in this regard. I understand the Minister for Finance must give the exact detail of whether they will be located regionally or on a county-by-county basis. MABS will operate some type of referral system. MABS does not deal with mortgage distress alone — it also deals with personal indebtedness and unsecured loans, for example, credit cards and term, car, credit union and moneylender loans. It is important that the advisers work closely with MABS and use a referral system.

I call on the Minister to ensure good regulation is applied to moneylenders and so-called independent money advisers, many of whom are former bankers peddling their wares. After contributing to the problem, they have reinvented themselves as money advisers for the same distressed people. I ask the Minister of State and his officials to note my point.

I commend a recent MABS report, Lifting the Load, an initiative of the Waterford office. The report identified three categories of people in mortgage distress. The short-term risk category refers to those who, for example, have lost their jobs temporarily and have fallen into arrears. Mortgage supplement and mortgage restructuring is helping them as well as those in the medium-term risk category. The signs indicate that Ireland sees fewer repossessions than the UK and other jurisdictions do. If possible, we do not want there to be any repossession. The long-term risk category refers to people who have no ability to repay their mortgages. The Keane report's mortgage-to-rent solution can be of assistance to them. However, I note a suggestion made by MABS, that is, if a house is purchased by a housing agency or local authority, the balance of the mortgage that remains due should be written down or another provision should be made so that the burden does not continue on to the family. This would give the family an incentive to continue renting that house. The Minister should examine the MABS report on this matter. The Minister for Social Protection is aware of it, seeing as how she launched it.

The Government, every Deputy and every part of society has a role to play in getting through this disastrous recession. The banks must play their part and pay their way. I welcome that they must pay for the expert advisers. They must also show genuine forbearance towards distressed families and provide every avenue possible to restructure their mortgages, help them through the recession and allow them to stay in their homes.

I welcome the Government's initiative and the report. The details need to be worked out. I also welcome the recent intervention of the Financial Regulator when he warned the banks to stop hiking interest rates and to give people a chance. A wider economic solution and the restoration of confidence, growth and jobs will get us through this crisis. We must all put our shoulders to the wheel, help those who are most in need and learn from the past to prevent a similar crisis recurring.

Debate adjourned.

The Dáil adjourned at 10 p.m. until 10.30 a.m. on Wednesday, 2 November 2011.

Dáil Éireann debate - Wednesday, 26 Oct 2011