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Dáil Éireann debate -
Wednesday, 16 Nov 2011

Vol. 746 No. 4

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

The Keane report favours bankers over the ordinary person. This is hardly surprising considering the make-up of the group which put together the report — 17 officials from Departments, three Central Bank representatives, one AlB representative and one EBS representative. The fact that the Money Advice and Budgeting Service, MABS, was not consulted in any way says it all. The report refuses to accept that debt forgiveness must form the major part of the solution even though current mortgage costs are driving people over the edge.

How can the Minister for Finance be so cruel? Unfortunately, his past treatment of people who suffered from hepatitis C shows he has an obsession with protecting the State even if that means bulldozing the very citizens who make up that State.

There is an underlying problem in that there is a notion that people should not be allowed to avail of debt forgiveness because they do not deserve it. The thinking is that the people who are now in trouble are where they are because they were reckless or stupid in some way. Obviously, no group of people is entirely homogenous and some home buyers were indeed reckless. However, those people are a real minority. The rest, the vast majority, only bought a house to give shelter and comfort to themselves and their families. Some are of the opinion that these people must have been stupid not to know that house prices were unsustainable and would collapse. Who would have told them that? Was it, perhaps, The Irish Times or the Irish Independent? No, they were too busy baling money from their property pages to be able to see what was coming. The same can be said for local newspapers, many of which are now out of business because they were sold on to large media magnates which believed the revenue from their property pages was never going toend.

What about our politicians? The king himself, Bertie Ahern, certainly did not give any warnings to people. He did the opposite when he declared that anybody who said it would end in tears should commit suicide. The Opposition, now in government, certainly did not give any warnings. Its Deputies were so sure the boom would continue they insisted the Government should increase spending, a massive chunk of which would have had to come from building industry revenue. The truth is the State is at fault for leaving people with mortgages that are between two and a half and three and a half times above a sustainable level — at any time. The State caused this problem and therefore must rectify it.

Solving this problem should not mean destroying people's self-esteem. However, that is what the Keane report would bring about if it were put into practice. It would make people work all their lives in order to pay the equivalent of a mortgage without, in the end, owning the house. That is the best case scenario in some cases. If the housing market does not rise by an average of 2% during the next 30 years and if mortgage holders do not get pay rises not only will they have nothing after 30 years of payments but they will end up owing a small fortune. How can this be fair? Why are these people being punished for the crime of doing what they were encouraged to by the media and the powers that be? It should also be remembered that half the money that was taken out towards a mortgage came back to the State through various taxes and charges.

The principal reason for the high cost of mortgages was the actions — more properly, the inaction — of the State, the greatest of which was the failure to regulate the banks. Furthermore houses prices were driven yet higher by cartels dealing in building materials, helped by Government. The current Government has proved no better in dealing with such cartels. To date Irish-based companies sell concrete to Britain for 40% to 50% less than the price they charge in the Irish market.

We are told that the country cannot afford to provide debt forgiveness. The reality is we cannot afford not to provide debt forgiveness. Everybody knows the State has access to €9.7 billion for dealing with mortgage debt yet it refuses to use it. The Keane report states that writing off negative equity for all Irish mortgage debt will cost in the region of €14 billion. In a newspaper article Mr. Constantin Gurdgiev showed that this figure of €14 billion is not relevant in dealing with what matters most, namely, the problems of ordinary first-time buyers. He stated that if debt forgiveness were targeted at this group the cost would be closer to €6 billion to €8 billion. He also tackled the issue of so-called "reckless" people, suggesting that debt write-down should be done on the basis of average house prices in any given region. This would mean a person who built a mansion would not get as big a write-off, which might be called punishment. In such cases people might be left with some negative equity but the affordability of the mortgage would be greatly increased.

If the Government were to use between €6 billion and €8 billion to write off debt that would not be the ultimate cost to the State. People whose mortgages were seriously reduced would have money in their pockets to spend which would go back to the Government through taxes. As a result of this spending, employment would be stimulated and the State's social welfare bill would be reduced. People who were no longer in negative equity could sell their houses if they wished to move, for example, to take up a job opportunity. As things stand, mortgage holders are forced to stay where they are because they cannot sell their house. The recommendations in the Keane report would reinforce this problem rather than alleviate it. If the report is followed through it will make permanent a lack of mobility in the work force. This will cost the State money.

Lower mortgage payments would also result in people not needing or demanding as much for their labour. Jobs which are currently unattractive for reasons of remuneration would become far more feasible for people. People do not want a great deal of cash because one can get nothing with it. With debt relief people would be able to work for what counts as a normal wage in the rest of the developed world and that would increase our competitiveness. As things stand there are very few wage packets that reach the level required to pay off even an average mortgage.

One area relating to mortgage debt that is not taken into account, although we discussed it in the Private Members' motion, is the economic effect such debt has on people's mental and physical health. The current situation puts a massive strain on people. If this is allowed to fester they will be more likely to need our already stretched health services, thus costing the State more money, both directly and indirectly, through days missed at work. The Keane report states it is not possible to tell with any reasonable accuracy whether the 88% of mortgage holders who are paying their original mortgage can afford further hits. Obviously, it is not possible to find this out if one talks only to civil servants from the Department of Finance or the bankers who got us into trouble in the first place, in other words, the people who compiled this report. If they had engaged with an organisation such as MABS, or had looked at data from the Irish League of Credit Unions which has compiled a "what-is-left" disposable income tracker index, they would have concluded that people cannot absorb any further hits. In the latest ILCU study, 25% of those surveyed have a meagre €70 left after essential bills are paid. The introduction of the household tax next year will immediately bring that figure down to just over €60. The inevitability of increases in taxes in the budget will push people even closer to the edge. If further increases in energy bills over the coming year are thrown into the mix it becomes inevitable that the figure of 88%, namely, those still paying their original mortgage, will decrease significantly. Some experts say that by the end of next year, the figure could be as high as 20%.

Unfortunately, it appears that regardless of what is said in this House, the Minister is not for moving. It seems that those who showed ambition by providing homes for their families are to be pummelled and kicked about. At the same time, the Minister for Finance and the Taoiseach are watching on as Greece is about to secure a 50% reduction in some of its debts. Regardless of what the final figure is, it will dwarf the amount of money that would be required to reset Irish mortgages to a sustainable level, out of the mire of negative equity.

In the past, the Minister, Deputy Noonan, has urged people to talk to their banks and to come to an agreement. I have to say this is a good idea. The Minister should be taken up on it. The concept of safety of numbers should be applied when doing so. In other words, a massive group of mortgage holders should come together to renegotiate their debts. It is obvious that the banks are more likely to listen to 100,000 people who are looking for debt forgiveness than to the pleas of a solitary mortgage holder.

I think this can be done by means of a mortgage strike, which would be an act of solidarity. It would require the mortgage holders of Ireland to come together and assert themselves collectively. As I have said, there is strength in numbers. The Irish Congress of Trade Unions passed a motion at its congress calling for a mortgage strike. The motion asked mortgage holders to sign up to a specific website. The manner in which the mortgage strike has been designed by the Irish Congress of Trade Unions means that the strike will be triggered when 100,000 people have signed up to it. It is being done in that way to ensure individuals are not exposed to the immense clout that the banks enjoy in the courts and with our Government.

By acting collectively, the individual mortgage holder will become a new force in the whole bank versus citizen debate. The mortgage strike has two objectives — to repudiate the debt which rightly belongs with European banks and to reset all primary residential mortgages to a level that will release households from negative equity. The mortgage strike will give the Irish people a chance to do something about their situations. It is quite clear that politics has failed us. It is up to people to grab this chance. It is the only remaining option for the citizens of this country to put right the immoral and unsustainable debt that has been imposed on them.

The proposed mortgage strike would continue indefinitely until the European Central Bank agrees to allow all primary residential mortgages to be written down to a sustainable level and to take an equivalent amount of debt off the Irish national debt and onto its own books. The euro was a flawed design from the start. Irish citizens should not have to pay the price for this flaw. I am calling on the Irish Congress of Trade Unions to move ahead with the mortgage strike that their members ratified. If they believed in it strongly enough to ratify it, they should follow through on it.

I welcome the opportunity to speak on this matter. I am pleased that this debate is ongoing in the House. I thank the Chief Whip for facilitating it. This is a matter of great concern to everyone. I commend the level of participation in the debate and the ideas that are being proposed. The issues of mortgage and personal debt are having a damaging impact on our society. The Keane report should be viewed as a vital first step on the road to addressing mortgage and personal debt issues in this country. All the signs indicate that the number of people sliding into difficulties is increasing steadily.

The Central Bank has published figures indicating that 56,000 households were in mortgage arrears in June 2011. According to the Department of Social Protection, some 19,000 people are receiving mortgage interest supplement welfare. When one considers that many households have come to temporary ad hoc arrangements with their lenders, it is clear that almost 100,000 Irish households are experiencing difficulty.

This crisis has been allowed to develop. The banks were lending too freely, with no regulation or oversight and little thought for the day when the Celtic tiger era would end. This crisis will continue to develop if action is not taken. I welcome the fact that the Government is taking on this issue. The Keane report offers a good starting point. Published figures show that between 1995 and 2006, the ratio of Irish household debt to disposable income went from 48% to 176%, which was an increase of 267%. This does not bode well when compared to the increases of 63% in the UK, of 9% in France and of 26% in Canada during the same period.

It is a pity that Deputy Ming Flanagan has left the House. He suggested that we did not raise this issue when we were in opposition during the last Dáil. We certainly did. Ministers in the last Government, which drove the crisis, have to put their hands up in this regard. When Fine Gael was in opposition, it raised these issues with the former Taoiseach and Minister for Finance at every opportunity. Deputy Bruton, in particular, did so.

House prices and exposure to mortgage debt are the main contributors to this problem. We must not forget term loans, credit cards and other exposures. These issues will also have to be dealt with. Many people feel that debt forgiveness is the answer. The moral hazard argument that would have been associated with debt forgiveness no longer holds any water in light of the State's bailout of the banking system. However, I do not think the solution is as simple as debt forgiveness. Nobody likes to hear that every mortgage that is in difficulty has its own set of individual circumstances and that, as a result, any blanket change has the potential to destabilise the economy even more.

Many people have said that the Keane report is flawed and have chosen to ridicule it. The Government has made a good start by inviting groups to make submissions, to examine the Keane report and to come up with recommendations. We need to have an honest debate. I do not ridicule the Keane report because I think it is a good starting point. There are no definitive answers in it, but it certainly starts a debate. It proposes a number of solutions that can be built on.

Some of the tools that are proposed in the Keane report, such as trade-down mortgages, split mortgages and the mortgage-to-rent scheme, emphasise the Government's commitment to ensuring that no family has to leave its home. That is also the primary objective of the Keane report. A methodology or framework for the use of the tools I have mentioned is also outlined in the report. It sets out a defined role for local authorities and housing associations. I expect that the role of housing associations in this country will increase. They play a significant role in Scotland as well.

The banks are capitalised to the extent that mortgage debt is covered. This cost is already in place. We are paying for it. However, there is a tardiness in the banks' approach to dealing with the issue. It is time for them to act properly. They have the tools and the necessary capital. The record of the banks in engaging with distressed mortgage holders is poor. Despite all the spin, jargon and rhetoric, the banks are simply not engaging with their customers. If we are to face up to this issue, the banks will have to sit down with their clients and come to arrangements. They have a clear obligation to engage. Such an approach must be taken across the board by our financial institutions if a solution to this growing problem is to be put in place.

I am glad the Keane report makes it clear that the introduction of modern bankruptcy legislation is an absolute priority. This aspect of the problem does not secure the flashing headlines associated with mortgages and negative equity. However, it is critical. The report of the Law Reform Commission advances us in this area. The fact that we are a modern consumer society with a dependency on credit means it is critical that we now establish a principles based system allowing for debt resolution in a way that limits overall costs to society. In essence, this means a modernisation of our bankruptcy laws. The moral hazard issue remains valid despite the fact that the banks have been so favourably treated. We cannot allow debt in itself to become all consuming, as it has the potential to do, because of our particular Irish set of personal debt circumstances.

We need to create the correct balances between the rights of creditors in terms of their expectations that debt will be repaid and the obligations of debtors in terms of their ability to pay. Having said this, modern insolvency legislation, which must include mortgage debt, is a useful tool that the citizen can use to stop the stonewalling of the banks that is now occurring as they deal with individuals in difficulty.

I am glad the Minister has initiated this debate and honestly acknowledged that there is no magic solution. Until we sort this out, there will be stagnation in our domestic economy and no amount of export recovery will take up the slack. We need to break the impasse created whereby society can distinguish between those who can and those who cannot repay their debts. The historical soft treatment of the banks has clouded the issue and for genuine progress to be made we need clear blue water between our banking system, which should facilitate not drive the economy, and the Government and the Oireachtas.

The problems associated with mortgage debt and personal debt needs clear action. There is no silver bullet or one size fits all solution but we must seek and introduce a range of measures that aid those in difficulties and who face unsustainable mortgages. The Keane report is a decent starting point from which solutions can be developed.

I wish to share time with Deputy Heather Humphreys.

I welcome the opportunity to speak because we have all been approached by people at our clinics who face huge problems paying their mortgages and clearing their debts. As Deputy Joe Carey said, the Keane report is a starting point and it must be looked on as such. From that starting point, the Government will be able to work out a manageable solution.

However, before we get into the solution, it is important to realise we are not talking about statistics. There is a temptation to talk about statistics, to box people into categories and so on. The reality is that, in many cases, these are young families and recently married couples who took the advice of their local bank managers and were approved by the regional bank headquarters and who may have had jobs at the time. They were encouraged by a now Opposition party and were told by a former general secretary of one of the then governing parties it was party time. They built up massive accumulated debt not only for their houses but for cars, holidays and so on. They feel let down and betrayed. It is no wonder because at a time when they have this millstone of debt around their necks they see the bankers — I am not referring to people working in branches but those with serious levels of responsibility — walk away into the sunset with their golden handshake without any sign of retribution. They see the same trend in respect of some former Ministers. Members of the public are right to be outraged in this regard because they do not see why we, as a country, bailed out Anglo Irish Bank and all the other banks but left Joe and Mary Citizen landed with huge amounts of personal debt, which they need to clear.

We have a stark choice. Deputy Luke Flanagan was right in some of what he said, although not in most of it. Do we put everybody out on to the side of the road or do we put in place a plan which will ensure we do not go back to the days of Captain Boycott? In some instances, the local landlord is whatever Anglo Irish Bank is calling itself these days. We do not want a situation where the modern day landlord puts people out on the side of the road. We must avoid that and in so doing, we must be realistic.

Debt forgiveness is not the panacea Deputy Luke Flanagan would have us believe nor is the Deputy's idea that we bring everybody out on the streets and pretend there is no debt problem. When people go home, it still faces them and the reality will dawn on them the following morning like a big hangover. This issue must be addressed realistically.

Some suggestions have been made, such as mortgage to rent and rent to buy. We need to engage properly with the Department of the Environment, Community and Local Government, the local authorities and the housing associations and not pretend that because it is private debt, we cannot somehow engage with the local authorities and the housing associations to try to resolve this issue. They have experience in this regard which needs to be tapped into, as has the Money Advice and Budgeting Service.

In many cases, people are embarrassed when they come into one's clinic or when they meet one on the street. They feel lucky to have a job but they have unmanageable debt and cannot cope with it. They feel they have nobody to turn to. The fact we are debating this issue gives these people some hope that when they come to our clinics, we listen to them.

There is outrage among the public that the taxpayer has pumped huge amounts of money into the banks. We know the banks have been recapitalised but the reality is they are not lending. Two teachers came into my clinic last week, both of whom are in permanent jobs and are blue chip people. However, they were refused mortgages by two of the banks we have recapitalised heavily. They do not understand it as they are in jobs for life and will have pensions, that is if some people do not get their way and send us back to the Stone Age. They cannot buy a house and yet the building industry is on its knees. These people would like to borrow but the banks are not functioning. That needs to be said here because there are very few opportunities when can say it.

I welcome the commitment in the programme for Government to address the issue of mortgage interest relief because it is hugely important. It is also important to assure people that they will not be put out onto the side of the road. We cannot afford to have a situation in which people are living in fear and do not know whether they will have a roof over their heads. If anything comes out of this debate, I would like the Government to reiterate the commitment to protect the family home. We all know of people who are struggling, who cannot sleep at night and who have children going to school. We need to row in behind them and show solidarity.

I echo much of what my colleague, Deputy Joe Carey, said. All I ask is that the Keane report is looked at as a starting point because there is a temptation to come into the Chamber and say the Keane report has a lot of flaws and it is not everything we would like it to be. I fully agree with some of what has been said but the reality is that people want a Government which listens to and empathises with them and which will put a plan in place.

There is no doubt we have inherited the biggest basket case in Europe, although perhaps Greece and a couple of other countries are about to overtake us. We have a serious economic problem and we need to be honest with the people rather than adopt the ostrich-type school of economics where one buries one's head in the sand and pretends one does not have a debt crisis when one does, some of which is sovereign debt and some of which is banking debt. We need to address the crisis and to be very honest with people and not give them false hope because these are not statistics but are families and individuals in our constituencies who need our help. In providing that help, the one thing they rely on is honesty because they did not get any degree of honesty over the past 14 years. They were told to eat, drink and be happy.