Dáil Éireann debate -
Tuesday, 1 Oct 2013

Vol. 815 No. 1

Mortgage Restructuring Arrangement Bill 2013: Second Stage [Private Members]

Deputy Joan Collins

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.

Deputy Clare Daly

I compliment Deputy Joan Collins and her team on bringing forward this legislation. There is no doubt whatsoever that this is the defining issue in Irish society. Hundreds of thousands of individuals are already in crisis as a result of mortgage difficulties, with tens of thousands of others waiting in the wings to join them. The question of whether our society responds to this issue effectively will define the fate of a generation.

The reality is that the measures put forward by the Government are not working. They are unsustainable and will remain so, because they avoid the central issue, namely, the massive debt that cannot be repaid and which feeds into all aspects of people's lives. There are communities all across the commuter belt, in the suburbs of Dublin, Kildare and Wicklow, where people bought homes on the back of jobs in the city centre to which they commuted. Many of these jobs are now gone and people are left unable to pay their mortgages without the services to support them. The perception is that the Government has put forward a solution which deals only with the wealthy people who, in many ways, were responsible for the crisis in the first place, including those individuals who have ended up in NAMA, while ordinary citizens are left paying their bills. There is also a perception - like the other perception I mentioned, it is a reality - that it is those struggling homeowners who have a little equity in their properties who are perhaps among the most disadvantaged in that they are the ones who are being mercilessly squeezed by the banks.

People do not want sympathy. They do not want quangos or personal insolvency mechanisms which they cannot access. They want a solution to their problems, which is what this legislation would provide. It would offer a statutory footing for the protection of the family home, not speculative properties. It points a way forward for people to be released from their debt.

It is not just a human cost to these families, as has been articulated here, but is necessary for society to recover. This is not pie in the sky but is based on the real knowledge of what happened in Norway, as Deputy Joan Collins said, and Iceland. No one is putting these forward as perfect societies, but they are in a hell of a better position than Ireland. The recovery came quicker and people were able to move on with their lives. The model is simple: we value the property at market value with 10% extra. Then the negative equity is parked and if the person engages with the process for a five-year period the unsecured debt is written off and the person can move on with his or her life. The banks have been recapitalised for this. People ask why it must be them and why the people at the top can get write-offs and move on with their lives but others cannot when all they tried to do was put a roof over their family. Every Deputy has heard those stories. Unless there is a debt write-off, there cannot be movement forward.

Where one or more mortgage holders are involved, it is a disproportionate number of women who are disadvantaged. I received four phone calls to my constituency office today, all involving separated people. In all cases, the female partner was left at home with the children, with an unco-operative partner and a millstone of debt. Those people must be able to secure their homes, and I support the measures in the Bill in that regard.

What is proposed is lunacy. Before I came into the Chamber I had a conversation with a man in my constituency who had lived in his home for many years. Over the years, he had re-mortgaged the house. He worked all his life but lost his job in later years and is now in a lower-paid job. He did not have the money to enter into an arrangement with the bank for 12 months because he was too poor, so he was denied access to mortgage interest supplement because of changes introduced by the Government. Due to his inability to access mortgage interest supplement, the bank decided to move in and repossess the property because the resident could not give the bank the money. If the banks get away with that and succeed in ousting people from their homes, the consequence will be that people will be on the social housing list with nowhere to live and, lo and behold, the State will pay more in rent allowance than it needs to pay at the moment to assist people to stay in the family home. That is the lunacy of what is being proposed. It is bad social policy as well as being morally wrong for the people involved. It is incredibly destabilising.

The Government can mess around with its plans, but reality belies its efforts. The reality is that the banks are getting away with the veto and real families on the ground are being left behind. Early on, that was all right, even if it was not morally all right. The Government might have got away with it when dealing with people with mortgages in new developments. This includes people with five-year-old mortgages in ghost estates that were not integrated into the community. Now, it is affecting settled communities where people brought up their families and are rooted in the area. The Kanturk situation is an example. There will be resistance. Irish people and evictions do not go hand-in-hand. The Government is sowing the seeds of a rebellion in the country, grown out of necessity. All people are looking for is a secure roof over their family's heads. It is morally right and socially right and, based on the Bill put forward by Deputy Joan Collins, it is economically viable if the Minister pursues the Bill to the next Stage.

Deputy Thomas Pringle

I welcome the opportunity to contribute to the debate on the Mortgage Restructuring Arrangement Bill 2013. I commend Deputy Joan Collins and her team for putting together this Bill. The Bill is modelled on legislation introduced in Norway in the 1990s after the housing bubble to relieve the debts of embattled homeowners and to ease the burden on them. We need to repeat that approach.

The legislation guarantees the security of family homes, meaning that families in mortgage distress will not suffer the threat of being put out of their houses. Homes will be protected. The legislation removes the veto over insolvency arrangements from the banks. It ensures the banks do deals with families in distress and ensures the mortgage element of the debt is written down so that affordable solutions are put in place. The Bill deals with negative equity among people who are in arrears with mortgage debt. These are the key themes of this vitally important legislation. It should be a key theme of Government policy in dealing with mortgage distress in the State. The legislation was introduced in Norway in the 1990s and has been modified for the Irish situation to take into account the personal insolvency arrangements. This will assist people in dealing with debt. In Iceland, a similar procedure was put in place, whereby the mortgage was re-fixed at the market value plus 10%, making it manageable for people in arrears. That is what we need to do in Ireland.

The media coverage of personal insolvency arrangements shows they will not work for people. What is more disturbing is that they will not be accessible to people. Only one in seven will be able to put up the fee of up to €7,000 to engage a personal insolvency practitioner to deal with their debts. If people had €7,000 up-front, they would use the money for the mortgage rather than to engage a personal insolvency practitioner.

The Bill is necessary because, over the past five years, we have seen the banks calling the shots in the State. The previous Government introduced the bank guarantee in September 2008. The heads of AIB and Bank of Ireland came into Government buildings in their fancy suits and talked to Brian Cowen and Brian Lenihan. Lo and behold, they introduced the bank guarantee. In the lifetime of this Government, the banks call the shots and dictate the pace. We saw this in the case of the personal insolvency legislation, which was amended on Report Stage so that the banks could extend the time someone could be in an arrangement. If someone is lucky enough that his or her fortunes improve over the three years of an insolvency arrangement, the banks can go back for another bite of the cherry and extend the period for five years. We have been kowtowing to the banks for too long in this country and we need some form of legislative backup to force banks to do deals with people.

The voluntary system clearly is not working. The Governor of the Central Bank told the Oireachtas Joint Committee on Finance, Public Expenditure and Reform that the banks are supposed to have issued 35,000 proposals for sustainable solutions. We discovered that 60% of the so-called sustainable solutions consisted of the voluntary surrender of houses, to be sold at the will of the banks. These are the sustainable solutions that the Government wants the banks to put in place, whereby people either voluntarily surrender or are forced to surrender their houses. That is not a solution we should use. We should use legislation to force the banks into a situation in which they must do deals with people. The only way to get out of this crisis and the only way to bring vitality and life back to the economy is to remove the millstone of mortgage debt from people's necks. We need to ease the burden on people, and that is the only way we can do it. Members on the other side of the House will talk about moral hazard but the real moral hazard is in doing nothing and letting the banks continue as they are, offering solutions under which people must voluntarily surrender houses. A bigger moral hazard is for society not to take this measure and not to force banks into write-down situations.

Figures from the Central Bank in June of this year show that 79,000 mortgages have been restructured, yet only 42,000 were not in arrears at that time. Of the 79,000 restructured mortgages, 37,000 are back in arrears. These are not sustainable solutions. The Governor, Professor Patrick Honohan, said, "[D]espite all of our efforts, and despite real progress in policies, processes and staffing, far too many arrears cases have remained untreated." Why have they remained untreated? Because the banks do not have to do anything. They must only sit tight and force families deeper into debt and then they will take the houses and sell them off, leaving families on the social housing lists, as outlined by Deputy Clare Daly.

What we need is legislation to force banks into doing deals.

I also believe the Government should get rid of the sub-prime lenders from this market by going in and forcibly taking over their loans. We own AIB. Why not buy the mortgage debts off these sub-prime lenders and take them into AIB where they can be dealt with and we can force a proper restructuring on them? Unless we do that and unless we remove the burden from citizens, the economy will not recover and there will be years of stagnation. We need to give people the wherewithal to be able to manage the debt they can afford and to participate fully in society again.

Deputy Richard Boyd Barrett

I commend Deputy Joan Collins for the considerable work she and her team have put into this Bill. It is often stated by the Government, in a rather unfair and somewhat disingenuous way, that this side of the House is good at criticising but does not put forward alternatives. That is untrue. On many issues, we have put forward alternatives. It is clear from this Bill that considerable effort has gone into producing a well researched and well thought-out alternative and I hope the Government will seriously engage with the suggestions being made. As has been underlined, Deputy Joan Collins did not pull this out of her hat. She has researched it and looked at a comparable experience in Norway and a solution that worked there. The Government at least has a responsibility to engage seriously with this and even if it does not agree with its every aspect, it should let this proceed to the next Stage so we can seriously debate an issue on which the Government cannot claim it has a monopoly of wisdom. The Minister, Deputy Shatter, may say the insolvency legislation will work but it is clear, after five years of this unprecedented crisis of mortgage distress, that the crisis is still with us and we need to look again at how we deal with it.

We need to be open, if we are serious and if we are being honest about dealing with this crisis that affects 180,000 families - 140,000 who are in distress and 40,000 who have been in restructuring arrangements - and tens of thousands more who are just about making their mortgage payments but are screwed to the wall in the process. If the latter group are victims of further austerity measures, such as stealth taxes and social welfare cuts, in the forthcoming budget in October, they could find themselves going into arrears, as has happened following all of the recent budgets. There is no more serious crisis than this, and if the Government is honest and fair, even notwithstanding disagreements with this side of the House of an ideological or other nature, and if it is open to a serious discussion about dealing with this most serious of crises, it will take this Bill seriously and will allow it proceed for further discussion at the next Stage.

We are talking about a crisis of human suffering for all those families, of anxiety and, in extreme cases, of borrowers taking their own lives. We are talking about a crisis that is having an extraordinarily damaging effect on the economy and its ability to recover. We are talking about a crisis that is all the more galling and enraging, both for those who are its victims and for those who are looking on at it, because it is one where those who are at the sharp end of it have not been bailed out and are not being protected, but those who were responsible for it have been bailed out to the tune of tens of billions of euro and are protected at every hand's turn. The bondholders are protected. The executives who made the decisions who are still on astronomical salaries and expenses are protected while tens of thousands of ordinary families are suffering the threat of the loss of their home, are unable to pay their bills and are having to make stark choices between putting the food on the table and paying off their mortgage at the end of the month.

As was clear to all across the political spectrum at the Joint Committee on Finance, Public Expenditure and Reform when all of those banks came in, the banks' only agenda is their balance sheets. In the case of the bank least under State influence because the State is only a minority shareholder, frankly, it showed a contemptuous attitude towards the pleas of the Government and the public for write-down, fairness etc. They just did not give a hoot. They only care about their balance sheet and shareholders. Some of the nationalised banks sound a little different but, in reality, are behaving in the same way.

Of course, these bailed out banks which the State funded are giving write-downs to some borrowers. They are absorbing the funding that we provided to bail out ordinary householders to give write-offs to the corporate debtors. There is one extraordinary example to which I never got an answer and which I raised on three or four occasions here. How is it that Anglo Irish Bank wrote off €110 million worth of debt for the company Sierra, owned now by Mr. Denis O'Brien, which has got the contract for water meters? It can get €110 million written off but for those who are struggling to keep a roof over their head, the banks, we were told blankly by them at the aforementioned committee, do not do write downs. However, they do it for some, and this is allowed. The schizophrenia of the banks is extraordinary.

I still heard them trotting out the line at the committee that they lent the money in good faith, it is money that is owed and they have the right to get it back, as if those banks somehow were separate entities from the ones that were lending hundreds of millions of euro to the profit-driven developers who pumped up the market in the first place and forced customers into a situation of borrowing far too much just because they wanted to put a roof over their head. The banks pretend these two activities were somehow separate from one another.

Simply, we ask the House to shift the balance. As Deputy Joan Collins has said, some of us would go much further in how we would deal with this but this is a modest proposal to shift the balance, to force the banks to take some hit and to ensure the protection of the borrower's family home.

I put it to the Minister, Deputy Shatter, that it is a test for the Government as to whether it is listening to the people and the Opposition and willing to have a debate. We are willing to have a debate with the Government. We accept this raises questions, such as about how this can be paid for, but the Minister should not bat us off with soundbites. He should have a discussion with us about whether it is possible for the banks to give some write-down in a way that makes borrowers' mortgages sustainable and protects their homes. Let us discuss the detail of that and whether it can be done. I appeal to the Minister not to dismiss the Bill and vote it down because it was not his idea.

Deputy Stephen S. Donnelly

I commend Deputy Joan Collins's proposal.

The proposal would see the mortgages of insolvent borrowers written down to 110% of market value. This would be one specific solution within the new insolvency legislation and I want to illustrate for the House how this would work.

For example, let us take two borrowers, both of whom are insolvent and with no chance of getting out of insolvency in the next five years. They both owe €400,000 and the houses are now worth €200,000. One borrower is a higher earner than the other. Under the new insolvency legislation, here is what would happen. One mortgage would be written down to, let us say, €220,000, which is what that person could afford to pay and live with dignity, the other mortgage would be written down to €300,000, as that borrower is a higher earner and would get a smaller write-down, and after approximately a five-year period, the amounts that had been written down would essentially be written off. There are two advantages to this. First, both borrowers get to stay in their houses and get on with their lives, and second, the minimum write-down required is achieved.

However, there are serious disadvantages. The higher earner is being penalised for being a higher earner by getting a write-down of €100,000 versus a write-down of nearly twice that amount for the next-door neighbour. This creates a very serious incentive for the higher earner to become a lower earner so that he or she can avail of the better write-down. It leads to perceptions of unfairness and inevitably would lead to a certain amount of resentment.

Under Deputy Collins' proposal both mortgages would be written down to €220,000, which is 10% above their market value. The main disadvantage of this is that the banks would end up writing down more money than they would under the new insolvency legislation. However, there are several very serious advantages. The first is that the higher earner is not penalised for being a higher earner. The deal is more transparent because it is the same deal for everybody so the banks do not need to hide who got what. Another advantage is a perception of fairness and, of course, it would be very difficult for the banks to do deals. The Minister may have been following developments in the mortgage arrears crisis in that the banks are doing all they can to stay away from the personal insolvency legislation. Some of them are acting more reasonably than others. I ask whether it is better to go through the insolvency legislation or to adopt Deputy Collins' proposal.

Last year I met with some IMF officials who pointed me to recent research from the IMF which studied over 100 years of housing crises all over the world and which arrived at three main conclusions. First, governments do not tend to become involved in these complicated matters. Second, when governments get involved, it tends to fail and it fails because of perceptions of a lack of fairness - the perception that someone else got a better deal - and because of the complexity involved. Third, the only two successful examples in 100 years were Iceland and Norway - Iceland a few years ago and Norway in the early 1990s. Both of those models, as evidenced by the IMF, are the same as Deputy Collins' proposal; a writing down of the unsustainable mortgages to 110% of market value. This is some serious food for thought.

I acknowledge that cost is the obvious challenge with regard to Deputy Collins's proposal. The banks would have to write down more money. I would like to see a cost-benefit analysis. It is clear there are additional costs and additional advantages. The IMF believes that Deputy Collins's proposal is the only one that has worked anywhere in the world in 100 years. Therefore, it merits very serious examination and some serious cost-benefit analysis because the current process is not working.

Along with other members of the finance committee I met with the chief executives of the four main lenders and with the Governor of the Central Bank, Professor Honohan. I saw threatening legal letters masquerading as offers of sustainable solutions with the blessing of the Central Bank and a huge variance in how borrowers are being treated by banks. Some are being treated quite reasonably while others are being treated very badly. There is a very different quality of offers as between the banks. Split mortgages will essentially result in marginal tax rates of 76% for the next 20 years for people who avail of them; virtually no write-down in capital, in spite of the billions of euro made available for that; mortgages being restructured in such a way that they will suck the cash out of the economy for many years to come.

Deputy Collins's proposal does require more capital but it is the model that worked in both Iceland and Norway. Unfortunately, the process as I see it evolving here is taking us down the path of Japan where boom time debts were locked in for many years and Japan saw two decades of economic stagnation.

While Deputy Collins's proposal is being considered there is an interim solution which achieves the benefits of what she is trying to achieve without the very great capital requirements which may be required. It is a debt for equity solution.

If we return to the previous example the mortgages would be written down to what is affordable, not necessarily to 110% but affordable for the two borrowers. The bank would take an equity stake of the difference which they would get back at death from the estate - hopefully in very many years' time. The advantage is that both borrowers get to continue with their lives. Critically, the banks are not going to knock on their doors and take more money if the borrower's economic situation has improved. This proposal is transparent and fair. It does not require the additional capital from the banks. There is no potential stigma attached because the bank gets paid back in full. Critically, it does not encourage the higher earner to try to earn less so that he or she can get a better write-down.

I would like the Government to undertake a rigorous cost-benefit analysis of Deputy Collins's proposal, on the basis that it is the model that seems to work. I draw the attention of the Minister to the fact that the current process, as it is evolving in front of us, will lock-in economic stagnation for many years and unnecessarily. I ask the Minister to look at the debt for equity solution which I would be very happy to discuss with him. I believe it achieves many of the advantages Deputy Collins is seeking without the potential capital implications for the banks and the State.

Minister for Justice and Equality (Deputy Alan Shatter)

I hope to conclude after 20 minutes and I will then share my time with Deputies Seán Kyne and Joe Costello.

Deputy Collins and the Technical Group have provided us with a further opportunity to discuss the plight of persons in mortgage arrears. This is evidenced by the Private Members' Bill being discussed which proposes the creation of a further new debt resolution mechanism. The Government accepts the motivation of the Technical Group to seek to make further progress on achieving realistic and workable debt resolutions between debtors and creditors. This is a proposition that this Government has made a priority since coming into office in early 2011. Deputy Collins's Bill proposes the introduction of a new personal insolvency arrangement - to be known as a mortgage restructuring arrangement - which would be in addition to the three new debt resolution arrangements introduced in the Personal Insolvency Act 2012.

The central element in the Bill is for the forced restructuring of secured credit or mortgage debt, by writing off part of that particular debt. The process involved is for a personal insolvency practitioner - which is a creation of the Personal Insolvency Act - to prepare a proposal for a mortgage restructuring arrangement on behalf of the debtor for submission to creditors. The Bill would make it mandatory that creditors accept repayment on the terms set out by the PIP. It is proposed that repayments would be based on the reduction of the amount of the secured debt to a maximum of 110% of the current market value of the property. Any residual debt would be classified as unsecured, to be resolved potentially by another debt resolution arrangement. The proposal contained in this Bill is not accompanied by a cost-benefit analysis nor has there been any detailed consideration to that issue given by any of the speakers to that issue and that aspect of matters, other than the reference by Deputy Donnelly.

The content and details of a mortgage restructuring arrangement would effectively be determined by the PIP alone and would be binding on the secured creditor. In addition, the creditor would not then be permitted to take any enforcement or other action against the debtor. The creditor would be allowed, provided they have fully co-operated with the PIP, to appeal to the court. The proposal by Deputy Collins would turn what is a negotiated debt resolution approach to mortgage arrears into an adjudicative process, with the adjudication being done solely by the PIP. Such a development would dramatically change the basic philosophy and working of the legislation and completely undermine the rights of creditors. We cannot turn the PIP into a court nor can we have a system where debtors would decide that they are either agreeable to arrangements or could veto them, but where creditors would have no say at all. If we put such a system in place, I have absolutely no doubt that it would be unconstitutional.

Deputy Collins and her colleagues may believe that the financial institutions are the source of all evil, but it is important, however, that we have a functioning banking system in this country. We cannot deprive the banks of funds they are entitled to recover from borrowers while also encouraging them to make a constructive contribution to the economy by lending money to small businesses and individuals who are financially viable and who wish to purchase homes. We also need to keep in mind that with regard to secured creditors where financial institutions are involved, there is a public interest in ensuring that more taxpayers' money does not have to be put into our banking system. However, no person in genuine financial difficulty and, in particular, no person who bought a reasonably sized appropriate home during the so-called property boom should now be simply sacrificed to pay for the mistakes made by our financial institutions without regard to his or her financial capacity to deal with their indebtedness over a reasonable period of time.

The proposed approach in the Bill - the imposition of a settlement on the creditor without proper regard to all the circumstances - is significantly out of kilter with the negotiated approach taken in the Personal Insolvency Act 2012. Whereas I do not wish to be unduly critical, it would be remiss of me not to point out a number of significant flaws.

First, Deputy Collins's approach to dealing with mortgage arrears is predicated on having the debtor's representative decide what should be repaid to the creditor without any particular regard to other circumstances, such as real ability to pay or the equity level available in the property. Second, there is a significant possibility that permitting such an interference with the legitimate property rights of secured creditors, as proposed in the Bill, would infringe Article 43 of the Constitution. The courts have been very cautious about devaluing or depriving individuals of property rights in any way and any intervention in this regard must be proportionate and take account of the property rights of all concerned. The State cannot impose retrospectively a settlement on parties to a private contract involving the provision of goods, services or capital.

As I mentioned, one of the main priorities of this Government has been to put in place the best solutions possible for people living under the burden of unsustainable debt. When I took office as Minister for Justice and Equality, it was immediately clear that little work had been undertaken to reform or modernise legislation in the areas of bankruptcy and insolvency, despite the enormous financial difficulties being experienced by so many people. The introduction of a modern, practical and humane insolvency procedure and a reformed bankruptcy process through the Personal Insolvency Act and the establishment of the Insolvency Service of Ireland, ISI, were necessary priorities in our path to recovery and growth. The three new insolvency arrangements, offered through the ISI will be of substantial assistance to thousands of individuals crippled by unsustainable debt. They provide fair and equitable solutions for those who have no prospect of repaying their debt, and the solutions are not confined to the rich or those who were rich, as has been suggested by some speakers. According to most recent statistics on the ISI website, to date 50 personal insolvency practitioners and 28 approved intermediaries have been authorised; 4,788 telephone calls have been taken by the service; 1,630 e-mails have been received; and there have been over 85,400 visits to the website.

The guidelines on reasonable expenses provide an essential defensive shield to ensure that neither financial institutions nor other creditors can deprive debtors of funds they need for reasonable household and family expenditure or deprive those in employment from benefiting from continuing in employment where a debt settlement or personal insolvency arrangement is completed. The new personal insolvency arrangement, or PIA, has been the most significant development in addressing the area of mortgage arrears. The PIA will enable the agreed settlement of secured debt up to €3 million, a cap which may be increased with the consent of all secured creditors. It introduces a concept, which I understand is unique in international insolvency law, in providing for the negotiated resolution of secured debt in a court-sanctioned process that provides certainty for creditors and hope and relief for debtors. It offers a second chance mechanism for talented and capable individuals and entrepreneurs to return not only to solvency, but to contributing to the economic development of our society.

To protect the constitutional rights of all concerned and to prevent potential actions for judicial review, the Act provides for enhanced oversight by the courts of the three new debt resolution procedures. This enhancement of court involvement has the significant benefit to the debtor of providing protection from enforcement actions by creditors, either during the negotiation period or during the life of the arrangement. In order to deal with this anticipated volume of work and to facilitate the speedy consideration of insolvency applications, a new cadre of specialist judges of the Circuit Court has been appointed. The Act deals with the law and procedures necessary to operate a modern personal insolvency process and its focus is, by definition, confined to insolvency. It is not, however, solely concerned with those who are currently in financial difficulties but rather it is about dealing in future with those who find themselves in difficulty for a wide variety of reasons and providing a new legal architecture to facilitate addressing those difficulties in a proportionate and fair manner as between debtors and creditors.

It is important that all households can contribute to our economic recovery and that all those affected by unsustainable debt have real hope for the future. The central objective in regard to the personal insolvency arrangement is that it facilitates persons to reside in and retain ownership of family homes when the arrangement has been successfully complied with over the agreed period, which is expected to be six years.

The new approach led by this Government avoids contentious court hearings, long delays and substantial legal costs inherent in earlier approaches. This is a significant objective designed into the personal insolvency arrangement and offers light at the end of the tunnel to the borrower. Deputy Collins would agree that this is a desirable objective. There is a necessity to allow time in order to see this legislation working rather than labelling it as a failure at the time it is starting and people are making applications to have debt issues resolved. We must remain conscious that many people are in genuine distress and cannot pay their debts. Such debts extend beyond mortgage debt and for understandable family reasons in recent years, such people have been juggling finances. However, the Deputy's Bill might risk providing a means of evading obligations for debtors who may be able to pay those obligations. Some may be refusing to pay in the hope of picking up free debt forgiveness.

This Government is determined to ensure that assistance is targeted at those who cannot pay, as opposed to those who will not pay. People cannot expect to maintain a lifestyle which is beyond their means and at the same time expect financial institutions to reschedule or write off outstanding debt, with taxpayers carrying the burden of their doing so. It is also important to recognise that not all creditors are banks and financial institutions. Many creditors are small and medium-sized businesses and individuals who frequently find themselves in financial difficulties due to the non-payment of moneys owed to them.

The debt resolution initiatives already in place include those under the Personal Insolvency Act 2012, those under the code of conduct for mortgage arrears, the targets set by the Central Bank for financial institutions for resolving mortgages in arrears, and court protection permitting an adjournment of a repossession action for consideration of a possible personal insolvency arrangement. Taken together, these represent a significant and credible set of policy responses by the Government in regard to mortgage arrears. These initiatives, and particularly the personal insolvency arrangement, which is at an early implementation stage, must be allowed time to progress.

I assure the House that the matter is being very closely monitored by the Government on an ongoing basis. If necessary, as I have previously indicated, further adjustments or appropriate measures may be brought forward in due course. In that context, we will continue to have regard to legislation that has in the past operated in other countries and any legislation that may currently be in place in other countries to address similar difficulties. As the Minister responsible for the introduction of the new personal insolvency legislation, it is my expectation that the banks will co-operate in the implementation of the Act and not obstruct its objectives, in particular with regard to agreeing personal insolvency arrangements. I share the concerns expressed in this House and outside that, to date, not all of the banks have adequately engaged with debtors in a manner that is in the interest of debtors, banks and the wider community.

It was necessary, given the nature of the crisis which hit this State and specifically its economy and the banking sector, that the initial focus of the Government initiatives to be complied with by the banks has in recent years been on creating a breathing space for debtors in arrears. This has meant various options such as payment breaks, discharging only a portion of capital and interest, interest-only payments and a moratorium on repossessions. That has involved some 70,000 mortgage debtors. These measures have provided temporary relief and occurred when financial institutions had no other alternative. Many persons in financial difficulty benefited from these measures as they relieved immediate pressures, although the measures were, by their nature, temporary. We must now move on to permanent sustainable solutions that offer certainty to both debtors and creditors.

The Central Bank requires the financial institutions to achieve certain targets in regard to proposing and agreeing sustainable long-term solutions. Unfortunately, a disproportionate amount of the proposed sustainable solutions, as reported by the financial institutions for the second quarter of 2013, relate to legal proceedings or the threat to issue legal proceedings. There was, to say the least, an insufficient response from the banks to entering into viable arrangements with mortgage debtors whose financial situation would enable them to conclude such arrangements. This approach could be likened to a doctor deciding to shoot most of his patients rather than treating their condition as the preferred solution.

During his appearance before the Oireachtas Joint Committee on Finance, Public Expenditure and Reform on 26 September, the Governor of the Central Bank, Professor Patrick Honohan, was rightly critical of the slow and legal approach of the banks.

He noted that 74,000 of the 98,000 mortgage holders in arrears of more than 90 days at the end of June were not yet in an arrangement with their lender. He was of the view that the banks are engaged in "wishful thinking" on the issue of resolving the mortgage arrears crisis and may have a belief that many cases will cure themselves.

The Central Bank set targets earlier this year for lenders to provide sustainable solutions to customers with mortgage arrears of 90 days or more. The bank is auditing a sample of the cases to see whether the solutions proposed can be regarded as sustainable and the Government very much welcomes that approach. The Governor was of the view, which I share, that a sustainable solution for mortgage holders is one that is affordable for the borrower in both the short and the long term. Disturbingly, of the 35,000 proposed resolutions offered by banks to the end of June, as required by the Central Bank, 62% referred to surrender or repossession of the property concerned. It should be noted that the approach of the banks occurred at a time the personal insolvency legislation had not come into operation.

It is not acceptable, based on the existing information, that only one regulated Irish financial institution has made more mortgage modification offers that are classified as "sustainable solutions" than threats of legal proceedings to seek orders for possession before the courts. I agree with the view of the Governor that travelling the legal route should only qualify as a sustainable solution when some form of financial arrangement or a more formal personal insolvency arrangement, PIA, cannot be reached or is inappropriate given the circumstances of the case. That would most likely arise where the borrower is not co-operating or where the borrower's financial position is such that their mortgage is not sustainable and where it is not possible to propose an alternative sustainable arrangement and, in such circumstances, the borrower does not agree to a voluntary sale.

I fully recognise that in appropriate cases, the reconstruction of debt in mortgage arrangements will lead where appropriate to the writing off of a portion of outstanding capital. This is an approach and a reality that to date has been avoided by our financial institutions. I am conscious, however, that some of those in mortgage debt have failed, for whatever reason, to engage with their banks or to communicate with them. It is my hope that such individuals will rapidly engage with their financial institution before, rather than as a consequence of, repossessions proceedings. If our financial institutions refuse to constructively and realistically engage, then I have made it clear on a number of occasions in this House and in the Seanad that the Government will in the future take necessary measures to refine our approach to ensure the debt resolution processes work. I realise that banks must have regard to commercial considerations but they must also behave with greater flexibility and insight and apply a broader range of common-sense options based on financial reality. It is my hope and it is the intention of the insolvency legislation that the engagement by personal insolvency practitioners, PIPs, with financial institutions on behalf of debtors proposing realistic and sensible solutions where individuals are caught in unsustainable debt will produce a more constructive and insightful approach from banks that has necessarily been the case to date.

Irish banks have been recapitalised and stress tested on the understanding that there will be losses resulting from excessive financial lending during the property bubble and there is little excuse for their delay in coming to terms with this. They have had adequate time to equip and train their staff to adequately engage with those in arrears. I understand that the banks may have a fear of debt forgiveness. This would be especially so for individuals who could pay but who might contrive to create circumstances for debt write-off where such is not warranted. Despite exaggerated claims by banks, no information on the extent of such action by debtors has been produced. As the Governor of the Central Bank noted during his recent committee appearance, "[T]here are a huge variety of reasons why people are paying other things first". There is no doubt that some of those in debt difficulties have decided rightly or wrongly that they are going to pay short-term debt first as opposed to secured long-term debt.

Taxpayers have been financing the banks. No matter how one might deplore the previous behaviour of financial institutions, everyone in the State has an interest in ensuring the banks' capitalisation is sound and in the banks playing a normal role in the economy. The Insolvency Service of Ireland is fully operational and ready to do business. Given the scale and complexity of the work involved, it is a remarkable achievement that the service is fully operational little more than a year after the publication of the Personal Insolvency Bill on 29 June 2012. PIPs will play a vital role in negotiating on behalf of debtors realistic and workable solutions which are agreed by creditors. A total of 50 persons are registered as PIPs, with more expected shortly.

The economic and financial effects of the proposals in the Deputy's Bill would be damaging should it be accepted. The costs to the financial institutions could run into billions of euro and have consequences for their solvency and stability. There is every good reason for taking care in this area so as not to impose on taxpayers an additional burden arising out of bank debt that would detrimentally impact the capital base of our existing financial institutions. There has been some recent publicity with regard to one of the State's final commitments under the troika programme. The commitment is to examine aspects of the operation of the courts' repossession framework, including by the end of October, the possibility of more expedited proceedings for buy-to-let properties and the assignment of additional functions to specialist judges. In addition, an expert group will consider issues around the more general efficient operation of the repossessions system and is to report by end of 2013. There are no proposals for further legislative changes in this area at this time.

These commitments will not have any particular impact on the engagement between banks and co-operating borrowers in seeking to conclude a sustainable solution to a mortgage problem. The protections available to co-operating borrowers under the code of conduct on mortgage arrears will continue to remain in place. The recent Land and Conveyancing Law Reform Act 2013 provides the power to a court, as it considers appropriate having regard to the individual circumstances, to adjourn a repossession case to enable an alternative PIA to be considered.

The Government's objective in everything we have done in the development and introduction of various debt resolution processes has been to help people in genuine financial distress to facilitate their return to solvency and full participation in economic life and to allow individuals and families struggling under the weight of unsustainable debt to restart their lives. The critical message to all those experiencing mortgage debt problem is that they must engage with their financial institution to attempt to negotiate an appropriate resolution. That also requires the financial institutions to engage properly with customers. Now that the architecture of our new insolvency legislation is settled and up and working, I expect financial institutions to more readily and effectively so engage. However, I fully accept Deputy Collins's motivation in proposing this Bill. I share with her a determination to offer the best possible debt resolution processes to home owners in arrears. This Bill, unlike the Personal insolvency Act 2012, unfortunately, does not achieve that aim and, therefore, I must oppose it.

Deputy Seán Kyne

It is important, as the Minister said, to continue to discuss this important issue, which affects so many of our citizens. I commend Deputy Collins on her work on this Bill. From my limited experience, producing a Bill is no easy task. It requires a great deal of time for research, drafting and re-drafting as well as communication and consultation with the Bills Office. It is not easy to find that time. The upcoming reforms to this House, including additional Friday sittings, should be extended to include provision for additional supports for those producing Bills, whether they are in government or opposition. Ministers have the immense benefit of support staff for such work. That would increase participation in the legislative process.

Deputy Collins's Bill clearly seeks to make use of the provisions contained in the Personal Insolvency Act 2012. The Act was introduced to reform our bankruptcy laws which had become obsolete and were of no benefit to most citizens. The Act came about a decade too late and one can only speculate as to the positive effect it might have had if it had been in place prior to the economic crisis. This Bill seeks to apply the Act's provisions to the issue of mortgage arrears. Mortgage arrears and the high level of personal debt are factors that set this current recession apart from previous ones. Mortgage difficulties can be all-encompassing, detrimentally affecting a person's everyday life. I agree with the intention of the Bill, which is to remove or reduce the burden on indebted citizens.

Just as mortgage arrears take time to accumulate, it also takes time to design and implement solutions. The Government has taken a number of significant steps including, primarily, the Personal Insolvency Act but also setting targets for the banks to address cases more speedily while respecting the measures contained in the code of conduct on mortgage arrears. The mortgage advisory service with its advice telephone line and comprehensive website is rooted very much in the need to be informed.

Borrowers in distress can access information which will help begin the process of resolving difficulties. As with many problems, early action and intervention is crucial to creating sustainable, workable solutions.

It also appears that the Bill seeks to allow for the forced restructuring of secured mortgage debt and the effective writing-off of part of that debt. Under this scheme a person with a mortgage debt would be able to enter into a mortgage restructuring arrangement created by a personal insolvency practitioner which would then be binding. I have concerns about such an arrangement, as any situation which is grounded in compulsory action would be cause for concern as it goes against the principle which has been observed until now, namely, the aim of finding a solution through honest communication, co­operation and consensus.

Imposing a solution which effectively writes off mortgage debt has negative consequences, first, for the creditor, which may or may not be a financial institution, and second, for the taxpayer. The taxpayers' stake in Irish financial institutions is still at a level that would necessitate further public funds on account of the losses which this legislation would precipitate. Further public money for the banks is something which nobody would wish to see.

An Leas-Cheann Comhairle

The Deputy should be careful to ensure the Minister of State has four minutes. There is one minute remaining.

Deputy Seán Kyne

Yes, I will wrap up. I am interested in the comment that similar proposals to those outlined in the Bill have worked elsewhere, specifically in Norway and Iceland. The Bill is worth further investigation to see whether some elements of it could have merit, notwithstanding the workings of the negotiated personal insolvency arrangements. I appreciate that we need time to assess how the new personal insolvency system works.

Minister of State at the Department of Foreign Affairs and Trade (Deputy Joe Costello)

I welcome the opportunity to speak on the Mortgage Restructuring Arrangement Bill. I compliment Deputy Collins on producing the Bill and introducing it to the House in order that we can debate the issue. Mortgage arrears are one of the most significant problems that continue to face thousands of people in this country. We must make every effort to help people in mortgage distress in order that they are able to get on with their lives. As long as a serious effort is being made to deal with the situation, we must avoid any situation where a family loses the roof over its head because of an inability to meet its payments, irrespective of the attitude of any financial institution. That is the key to the approach we should take.

A policy of putting the interests of big developers and the banks ahead of people seeking to purchase a home was a direct cause of Ireland's disastrous property boom and bust. However, this Government is committed to helping home owners in distress to weather the current economic problems and ensure Ireland has a sustainable housing policy. It is essential we do everything we can to help people in mortgage distress. Unfortunately, the provisions in this Bill have a number of serious drawbacks. The Bill essentially proposes the introduction of a new personal insolvency arrangement in addition to the three new debt resolution arrangements introduced in the Personal Insolvency Act 2012. The imposition of a settlement on the creditor without proper regard to all the circumstances is at odds with the negotiated approach taken in the Personal Insolvency Act.

Furthermore, the Bill would encourage people to default where their circumstances do not warrant it. If a large number of people were to do so, it could cost financial institutions billions. While I have little sympathy for the financial institutions, our economic well-being requires that we return to having banks that function. Yesterday saw the anniversary of the disastrous bank guarantee, which only the Labour Party had the good sense to oppose at the time. In any case, the financial institutions are now, in large part, publicly owned, and it would be the public and taxpayer who again would be left to pay for the Bill's provisions.

The Government has developed a credible set of measures to assist those in mortgage arrears. Budget 2012 introduced a special mortgage interest relief rate of 30% for the tax years 2012 to 2017 for first-time buyers who bought their sole or main residence in the years 2004 to 2008 or paid their first mortgage interest payment in this period. This measure offers special assistance to those who bought their homes at the height of the boom and are now likely to be in negative equity. The mortgage-to-rent scheme should be used to a greater degree.

The Personal Insolvency Act is a major advance on previous legislation and should encourage banks to reach an agreed solution with individual borrowers to resolve mortgage arrears problems. Important additional steps have been introduced by the Government to deal with mortgage arrears. They include the code of conduct for mortgage arrears, the resolution targets set by the Central Bank for financial institutions in relation to mortgages in arrears, and the protection included in the Land and Conveyancing Law Reform Act whereby a court can permit an adjournment of a repossession action for consideration of a possible personal insolvency arrangement as an alternative to repossession. That function should be used to a much greater degree.

We have seen the number of people experiencing difficulties with mortgages . As of June 2013, a total of 97,874 or 12.7% of private residential mortgage accounts were in arrears of more than 90 days. That is an horrendous figure. Furthermore, 223 properties were taken into possession by lenders during the second quarter. Of those, 63 were repossessed on foot of a court order and the remaining 160 were voluntarily surrendered or abandoned. I previously outlined in the House two cases in which I have been involved that are live issues. The first one involves a self-employed project manager who became unemployed and was entitled to no support from the State. He has three young daughters in secondary school. He was not entitled to jobseeker's allowance, mortgage interest supplement or support from a community welfare officer. After a lengthy process, he got jobseeker's allowance but he was refused mortgage interest supplement because his wife is working, although it is a meagre wage. The repayments for a home that was bought during the boom are substantial. Despite that, two years later he has been served with an ejectment order because no meaningful restructuring has taken place. That is why it is so important that the current provisions are implemented, and done so effectively.

An Leas-Cheann Comhairle

I am sorry but I must call the next speaker. The clock has beaten us.

Deputy Michael McGrath

I welcome the opportunity to speak to the Private Members' Bill, the Mortgage Restructuring Arrangement Bill, introduced by Deputy Joan Collins. I join other Deputies in thanking and congratulating Deputy Collins on bringing forward this comprehensive Bill. I am aware from my own experience that it requires much work. It is important to note that three of the last four Private Members' debates tabled by the Opposition have been dedicated to mortgage arrears. That means two out of three Private Members' debates in this session and the final motion in the previous session that ended in July were on mortgage arrears. One might say there is too much debate on the issue and ask why we are not discussing other issues. It is vital that we debate this issue and get the approach right because all of us in the House and people throughout the country have a collective interest in giving people in mortgage arrears every opportunity possible to work their way out of their difficulties.

Sometimes, one needs to stand back from the detail of the debate and remember that, at its heart, this issue is about people. It is about men, women and children who are living in houses they might lose through repossession or which they might voluntarily have to surrender. The statistics are frightening. The Minister of State, Deputy Costello, alluded to some of them - approximately 98,000 family home mortgage accounts are in arrears of 90 days or more. If one adds those that are in arrears of less than 90 days, one approaches 143,000 family home mortgages in some level of arrears. If there is an average of three or four people living in those homes, one might well be talking about between 400,000 and half a million people living in houses where the mortgage account is in arrears. That is the scale of the crisis we are facing. We have a collective responsibility to address that and to come up with solutions. That is why I thank Deputy Collins for introducing the Bill.

In recent weeks the Oireachtas Joint Committee on Finance, Public Expenditure and Reform has done some excellent work. It has shed much additional light on how mortgage arrears are being handled. It is rare for a Deputy to compliment a Member from another side of the House but I compliment Deputy Ciarán Lynch on the manner in which he handled those hearings very effectively, not just the hearings with the banks but also the hearing with the Governor of the Central Bank, Professor Patrick Honohan. Not only did we learn a lot about what is being done well in terms of mortgage arrears but we also learned a lot about what is not being done so well.

That is where the focus has to be to determine whether we can improve. It is fair to say that the targets laid down have generated some activity within the banks. We can argue about the nature of that activity but the threat that the Central Bank can impose more onerous provisions concerning losses on the balance sheets of the banks has certainly made those concerned sit up and take notice. It is the response to the targets and the way in which they were initially framed that I take issue with.

During the course of the hearings, we have found out what is not working well. An example concerns the definition of a sustainable solution. It is clear that the definition is too vague. The banks have the final say on what constitutes a sustainable solution. There should be independent oversight of the issue. We have categorically found a lack of consistency in the way the banks are dealing with individual arrears cases. People who appear to be in quite similar circumstances are being dealt with very differently depending on the institution. Sometimes within individual institutions customers are being dealt with quite differently depending on the staff they deal with. We have seen the rolling out of solutions being handled in an inconsistent manner. This was highlighted not least by the issue of split mortgages and by how the warehoused portion of the mortgage is treated in terms of interest.

We have learned that the banks have been relying very heavily on the issuing of threatening legal letters to count towards the targets set by the Central Bank and endorsed by the Government. In this regard, I welcome some of the comments of the Minister tonight. I take the Government at its word when it says it was surprised by the manner in which the banks responded to the target. However, it is clear that this was with the complete endorsement of the Central Bank. The Minister for Justice and Equality, Deputy Alan Shatter, went further than any Minister has in recent times in criticising the banks in that he referred to a disproportionate amount of the solutions involving legal proceedings. He referred to an insufficient response and implied it was like a doctor deciding to shoot most of his patients rather than treat their conditions as the preferred solution. The Minister referred to it as disturbing that, of the 35,000 proposed solutions offered, 62% related to repossession. That would all be fine, except that the Government has endorsed the approach of the Central Bank. The latter has told the banks that in certain circumstances the threat of legal repossession constitutes a sustainable solution. The Government welcomed that approach, but when it sees it being rolled out in practice, it is changing its tune. I welcome that. Some of the Minister's comments certainly represent a step forward but they now need to be followed up by action. The Minister referred to the need to refine the approach, the need for greater flexibility and the need to apply a broader range of common-sense options. That is what we have been calling for. If one stands back from the detail of all the proposals that have come forward, one notes they have essentially been about providing genuinely long-term sustainable solutions to people's individual mortgage arrears cases. There is a need for the Government to follow up on the observations that have been made on the banks' handling of the targets, particularly on the manner in which they have jumped straight to the threat of legal proceedings to repossess homes.

The picture presented to us at committee meetings was that many of the people affected have not responded to telephone calls in a year and have made no repayment in two years. However, I can tell the Minister for a fact that there are many people in respect of whom no effort whatsoever was made by the banks to put in place an alternative repayment arrangement, in addition to no effort being made to restructure the mortgage. The banks went straight to the nuclear option - that is, the option of threatening to repossess the homes - because it allowed them to reach their targets. Any reasonable person would have to accept that is not a good approach and that we can do a lot better.

I have been critical of the Central Bank. The first set of targets related to the quarter ending at the end of June, yet we still do not know whether the banks met their targets. We need independent verification. The audits are now being carried out by consultants acting on behalf of the Central Bank. The Central Bank should have been crawling over the banks in the month of July to determine whether the targets were being achieved.

An issue coming to the fore is that the Central Bank is acting strongly in its role as a prudential supervisor. The definitions provided in the mortgage arrears targets programme were very much designed to fulfil prudential responsibilities rather than to have a role in the area of consumer protection. The Governor, Professor Honohan, made that very clear in the contribution he made at the committee. He implied that the definition pertaining to arrears targets was established from a prudential supervision perspective - in other words, from the point of view of regulating the banks and protecting their balance sheets as opposed to looking after the needs of those in mortgage arrears.

I accept that there will be an increase in the number of home repossessions. It is inevitable, and anybody who says otherwise is not recognising the reality. However, the approach that is currently being adopted will result in an unnecessary number of repossessions because the banks are not, in many cases, engaging meaningfully with borrowers to achieve proper sustainable solutions. Two weeks ago, when we discussed our own motion on mortgage arrears, I acknowledged the need for the banks to be cautious with capital because the capital was given to them by taxpayers, who are still shouldering the burden of having injected it. I would be the first to acknowledge that. Widespread debt forgiveness and free-for-all arrangements are not an option in dealing with mortgage arrears because we must also take into account those who are just about managing to pay their mortgages. That said, it is not an excuse for not putting forward proper solutions for those who want to engage, including permanent interest rate reductions. We have only seen a couple of hundred of those. There should also be proper split mortgages that are sustainable and debt-for-equity solutions along the lines suggested by Deputy Donnelly.

The banks still have not got their internal systems right for dealing with customers. Many people who want to engage and negotiate with the banks have been frustrated by the lack of response. They are receiving telephone calls from the banks at all hours of the night. They are asking the banks, on my advice in many cases, to send their information in writing. The banks refuse to do so, yet they want an answer over the telephone as to whether the proposed restructuring of a mortgage is acceptable.

Let me refer to the Bill. It is, in some respects, similar to a Bill we published ourselves, the Mortgage Resolution Bill. In broad terms, it provides for independent oversight of the way in which the mortgage arrears crisis is being handled. In that respect, I welcome it. I firmly believe there is a need for independent oversight, not in the manner in which the Central Bank is proceeding but in a manner whereby binding solutions can be imposed where an agreement is not being provided for.

I acknowledge that in respect of some of the proposals in the Bill, particularly those relating to negative equity, there is an absolute need for a cost-benefit analysis. There is a need to assess the impact not just on the borrowers, whose primary interest we are dealing with, but also on the banks. We need to know whether these proposals, if implemented, would result in another requirement for large-scale capital injections. The Government should allow this Bill to proceed to Committee Stage, in which we can get into these details and discuss them properly.

Where a creditor disagrees with the proposal for a mortgage restructuring arrangement, he must appeal to a court. Where possible, we should keep the process of resolving mortgage arrears in a non-judicial environment. I refer to the perspectives of both debtor and creditor. We have called for a legal right to be established to a solution for those in mortgage arrears. That must be considered carefully. I have listened carefully to what opponents of this proposal have said, particularly regarding the issue of property rights in the Constitution and the implications for the mortgage market if a third party can intervene in a contractual relationship. That issue needs to be teased out but I see no reason the broad thrust of this Bill cannot be accepted so it can proceed to Committee Stage for further debate. The reality is that we cannot stay on the current path. The current path is not resolving the problem. Anyone who listened to the comments of Deputy Shatter tonight will see that he, as a senior Minister, does not believe the current approach will resolve the issue.

The jury is still out on the new insolvency service. Nobody would be more happy than I would be if it worked and if it could deliver genuine solutions for those who have secured and unsecured debt.

The Sunday Business Post recently reported on a study of over 1,000 individual cases by Grant Thornton Debt Solutions which found that bankruptcy was going to be the best option for 43% of those seeking debt relief deals because many of them were not earning enough to avail of the new insolvency regime. That presents a fundamental challenge and a threat to the new insolvency service and its operation will have to be very carefully monitored. The point Grant Thornton made in its report was that those earning less than the figure for reasonable living expenses set out in the guidelines provided by the Insolvency Service of Ireland would not be able to avail of any deal because a deal must involve some contribution being made by debtors to their creditors in respect of their liabilities. That issue is extremely important. Another Limerick-based personal insolvency practitioner estimated that seven out of ten of those seeking debt relief deals were on very low incomes or social welfare payments. They have no money to pay creditors after reasonable living expenses have been deducted. That issue must be examined immediately. I know the ISI will not publish statistics until the first quarter has expired, but I would expect the Minister to be engaging on an ongoing basis with the service.

We also have the cost of engaging a personal insolvency practitioner being a potential barrier to gaining access to the service in the first place for those who most need debt relief. If one takes a person on a very low income which is below the figure for reasonable living expenses set out by the ISI and where there is no prospect of a deal being agreed, there is no incentive for a personal insolvency practitioner to take on that case because he or she will not get any financial return on it.

I could use a lot more time, but I know my time is up. I thank Deputy Joan Collins for bringing forward the Bill. Fianna Fáil would like to see it pass Second Stage. While it is far from perfect, it is worthy of further debate on Committee Stage. Any debate we can have on the mortgage arrears issue with a view to coming up with credible, practical and realistic solutions is a debate worth having.

An Leas-Cheann Comhairle

Before proceeding, I wish to welcome a visitor to Dáil Éireann, accompanied by the Cathaoirleach of the Seanad, Senator Paddy Burke. I welcome Mr. Ed Fitzgerald, County Executive and Democratic Party candidate for Governor of Ohio in the elections in November 2014. I hope he has a very enjoyable visit and I wish him well in his work.

Deputy Sandra McLellan

I welcome the opportunity to speak on the Mortgage Restructuring Arrangement Bill and commend Deputy Joan Collins on her work on it. It gives us an opportunity to debate what is a very important and extremely serious issue. Sinn Féin welcomes the Bill. Clearly, the Government's hear-no-evil, see-no-evil approach is failing pathetically. The concept behind the Bill is laudable, namely, that the family home must be protected in law. Fine Gael and the Labour Party have taken the opposite approach and removed whatever protection was provided previously. However, we are concerned by how much the Bill relies on the structure of the Personal Insolvency Act as its basis. The Act is barely alive and already there are many obvious problems with it. It has become clear that a public insolvency service would have made more sense and would have been better suited to meeting the needs of citizens rather than financial experts and the banks. A study carried out by Grant Thornton Debt Solutions showed that only one in seven struggling mortgage holders was in a position to benefit from the new personal insolvency arrangements. In other words, the Government's great solution is a dud if one has a mortgage.

There may be a role for Deputy Joan Collin's Bill in the solution to the mortgage crisis. Any measure that protects the family home and assists those trying to pay their way is to be commended and should be fully considered. There are reports that the troika is discussing fast-track repossessions in the case of buy-to-let properties. The primary concern must be to ensure tenants' rights are fully respected and that tenants are not made to pay for a defaulting landlord.

Sinn Féin has presented its proposals, too. Our approach is to put it up to the banks. The Government has been played for a fool by the banks time after time. With the troika egging it on, it has rolled out the banks' agenda. We saw the revision of the code of conduct on mortgage arrears to suit the banks. We saw the Government remove the Dunne judgment, with no attempt being made to replace it with any other safeguard. Now the banks are so cocky that they can appear before the Joint Committee on Finance, Public Expenditure and Reform and state baldly that they are surpassing the Government's targets by relying on repossession letters. They can do this because they know the Government is on their side.

At its heart, the Bill seeks to remove the banks' veto over insolvency and mortgage arrangements. This is an admirable objective and one Sinn Féin fully supports. However, the removal of the veto would ultimately rely on the courts. Sinn Féin would rather see a mortgage restructuring panel, democratically accountable to the Minister, empowered to force the banks into reasonable arrangements. We believe the banks must face reality. We have already seen that this does not come easily to them. The people bailed out the banks, but now they are sitting on that money, while trying to squeeze blood out of a stone in the case of many families across the State.

The mortgage crisis continues to be out of control and the Government's actions have, arguably, made it worse for many in arrears. It is time to take power from the banks. It is time for a solution that would protect the family home and implement fair, sustainable solutions on a case-by-case basis.

Again, I thank Deputy Joan Collins for bringing forward the Bill and commend her for her work.

Debate adjourned.

The Dáil adjourned at 9.15 p.m. until 10.30 a.m on Wednesday, 2 October 2013.