I move: "That the Bill be now read a Second Time."
I move this Bill because of the complete inaction by either the Government or the banks to resolve a crisis that now affects almost 100,000 home owners and families. The Government failed to deal with the specific problems faced by family home owners when it introduced the Personal Insolvency Act. This Bill is designed to operate in conjunction with the Personal Insolvency Act and the Insolvency Service of Ireland.
The statement by the Central Bank Governor, Professor Patrick Honohan, that 62% of the sustainable solutions offered by the banks to meet the Central Bank targets for the end of June this year involved the demand for voluntary surrender - that is, hand back the keys - or repossession is quite incredible. Is the Government really prepared to sit back and watch banks put potentially 60,000 families on the roadside, based on the targets for the end of June, leaving people languishing on social welfare housing, which is already in crisis?
There is at present a terrible situation in Dublin South-Central where people who are waiting on medical priority for turnover of houses in the area have been informed recently there is no money in Dublin City Council for the turnover of those houses, and that St. Teresa's Gardens regeneration will be a target because the Department of the Environment, Community and Local Government is the only one with the money. Is the Government talking about putting more people on the social housing list, which is in crisis, or putting them into the rented property market where rents have already increased greatly in recent months, particularly in Dublin? If that is the case, I will throw the threat into the Minister's court and say to him that there will be a fight-back against these evictions and repossessions. People will not accept having other people thrown out of their family homes, as in the situation in Kanturk at present, where a family is threatened with repossession and eviction. I fully support the people who are supporting that family in Kanturk. I have not been able to get down there myself yet but I will do so.
I know Ministers will come in here and say the Personal Insolvency Act can be used by home owners in difficulty to put pressure on the banks to come up with affordable solutions or restructuring of mortgages. Increasingly, however, appointed personal insolvency practitioners are saying loud and clear this is not the situation. It is becoming clearer every day that ordinary home owners will have difficulty using the Personal Insolvency Act to force banks into affordable solutions. It is also becoming obvious that, rather than deal with the problems of ordinary home owners, the Personal Insolvency Act was designed to meet the needs of investors with large debts and multiple creditors.
The recent report from Grant Thornton, Debt Solutions, found a huge number of debtors earning less than the reasonable living expenses set out in the Insolvency Service of Ireland guidelines, which leaves debtors with nothing to contribute to creditors under a debt relief deal, effectively making the system redundant for these people. Some 43% of applicants seeking debt relief deals - some 430 applicants out of 1,000 - were told bankruptcy is their only option. Bankruptcy is not a choice for families. It may be a choice for bankers, although not really for them either, but morally and socially it is not an option for families.
The Personal Insolvency Act should have included specific measures to deal with mortgage arrears of average households. Bankers and developers have been bailed out. If people have multiple properties and debts, they use the Personal Insolvency Act. However, the average family trying to keep a roof over their heads is expected to rely on the mercy of the banks.
Another key point Professor Patrick Honohan made at the Committee on Finance, Public Expenditure and Reform last week was that, in his opinion, the claims by banks about strategic defaulters were "phoney" - his word, not mine, but I agree with him completely. That formula concerning strategic defaulters should not be used, willy-nilly, by anybody when they are talking about people in distress in their family homes. Nevertheless, in drafting this Bill, I have gone to great lengths to ensure only those genuinely in difficulty and engaging honestly in disclosing their financial situation will be able to secure a mortgage restructuring arrangement.
Moreover, such an arrangement will only be available to owner occupiers and in the case of private residential dwellings.
Section 1 of the Bill defines a mortgage restructuring arrangement, MRA, as an "arrangement to restructure the terms and or payment schedule of a secured debt held in respect of the principal private residence of the debtor or debtors concerned". Such arrangements would only apply in respect of a family home and where it was clear that the homeowner could not meet his or full mortgage repayment. In devising these provisions I looked at legislation introduced following the mortgage property crisis in Norway. A property bubble developed in that country in the late 1980s and went on to have a significant impact on its economy at the beginning of the following decade. The legislation in question was introduced against that background with the objective of providing protection for the family home.
This Bill would operate in conjunction with the Personal Insolvency Act 2012 and avail of the services of the personal insolvency practitioners appointed by the Insolvency Service of Ireland. It is not being proposed as an alternative to that legislation but to deal specifically with an issue not addressed by it. In essence, it would offer a guarantee to the owners of suitable family homes. Section 10(2)(c)(i) specifies that a mortgage restructuring arrangement would "not contain any terms which would require the debtor to make payments of such an amount so as to have insufficient income to maintain a reasonable standard of living for him or her and his or her dependants". Section 10(2)(c)(vi) provides that an MRA would "not require that the debtor dispose of his or her interest in his or her principal private residence or to cease to occupy such residence unless the provisions of section 5(1)(a)(iii) apply". The referenced section, 5(1)(a)(iii), sets out one of the conditions of eligibility for an MRA:
in the case of a property which is substantially larger and or more costly than is required to sustain a reasonable standard of living for the debtor and his or her dependents, the debtor can provide evidence of why he or she is unable to lessen the debt owed by selling the property and purchasing a smaller property in a location and of a size appropriate to meet his or her needs and those of his or her dependents in maintaining a reasonable standard of living
This reflects the unique provisions of the Norwegian legislation and, together with section 10(2)(c)(vi), would effectively offer a guarantee that distressed mortgage holders would not lose the family home provided they complied with disclosure, engaged with their lender and kept up repayments on the restructured mortgage.
Section 5(2) reflects a situation we have encountered in many instances, where only one person is left to engage with the bank, often because a partner has left or is refusing to engage with the lending institutions. These are mainly women with young families trying to protect their home. The provision states that where two or more debtors are jointly party to the secured debt to be covered by an MRA, "those debtors may jointly propose a Mortgage Restructuring Arrangement or one or more but not all debtors may propose a Mortgage Restructuring Arrangement". This is an important provision which I hope the Minister will take on board.
The legislation seeks to counteract the veto afforded to the lending institutions in respect of owner occupied homes in the Personal Insolvency Act. It would provide that where a personal insolvency practitioner proposed a mortgage restructuring arrangement which was not voluntarily agreed with the bank, he or she may then refer the matter to the appropriate court. Section 12(3) states:
In determining an application under this section the court shall make the order directing the creditor to comply with the Mortgage Restructuring Arrangement as proposed unless it is satisfied that—
(a) the debtor has not acted in good faith in making the proposal for the Mortgage Restructuring Arrangement,
(b) the debtor is not eligible to have his or her secured debt covered by a Mortgage Restructuring Arrangement under the terms of this Act, or
(c) to do so would cause significant and irreparable loss to the creditor and that creditor has cooperated to their fullest ability with the debtor and personal insolvency practitioner.
This is another important provision which seeks to redress the imbalance of power between lender and home owner.
Many of the Bill's provisions reflect the amendments we brought forward to the Personal Insolvency Bill late last year. This legislation is necessary to make the banks deal fairly with people. The legislation introduced in Norway in the 1990s adopted a novel approach to dealing with people in negative equity who were unable to make their regular mortgage repayments. It is a situation that applies to 7% to 10% of private residential mortgage holders in this country. In such cases the property should be revalued, the security in the loan set at 110% of market value and the balance, that is, the negative equity, regarded as unsecured debt. Provided people meet the terms of the restructured arrangement, they could then deal with the unsecured debt at a later date, over five years, as set out in the Personal Insolvency Act.
It is important to reiterate that any such write-down would be considered only in the case of owner occupiers who demonstrated that they could not meet their existing payments. The Bill would not provide for a blanket write-down of negative equity, notwithstanding my personal and political view that such is necessary. It would involve the lending institutions taking some hit on their loan books, but that will have to happen in any case. If the banks repossess homes and sell them at market value, the negative equity becomes an unsecured debt which will not be paid because people simply do not have the money. There is no way around this reality. It is better to leave people in their homes rather than having thousands, perhaps even tens of thousands, potentially evicted. I urge all Deputies, including Government backbenchers, who are aware of the nightmare in which people throughout the country have been living in recent years to support the Bill. It offers a solution that is morally sound and reflects the social and economic reality for many people in Ireland.