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JOINT COMMITTEE ON FINANCE AND THE PUBLIC SERVICE debate -
Wednesday, 7 Oct 2009

House Repossessions: Discussion with Respond!

I welcome delegates from the Respond! housing association, Mr. Pat Cogan, chief executive, Mr. John Hannigan, company treasurer, Ms Aoife Walsh, national communications officer and Mr. Cormac Ó Dúlacháin, senior counsel.

The presentation will be followed by a question and answer session. I request that all mobile phones be switched off.

I wish to draw attention to the fact that members of this committee have absolute privilege but this privilege does not apply to witnesses appearing before the committee. The committee cannot guarantee any level of privilege to witnesses appearing before it. Further, under the salient rulings of the Chair, members should not comment on, criticise or make charges against a person outside the House or an official by name in such a way as to make him or her identifiable.

I invite Mr. Cogan to make his presentation.

Mr. Pat Cogan

I am the chief executive of the organisation and I am a Franciscan priest. I have been with the organisation from the beginning. We are here today to present the committee with a proposal of real importance, a proposal to assist those homeowners who at risk of repossession. We feel this is a key item. Mr. Ó Dúlacháin is a barrister and he will deal with any issues regarding the law and will give some legal perspectives on other jurisdictions. Ms Aoife Walsh is our public relations officer and she will talk about some of the general aspects. Mr. John Hannigan is our company treasurer and will explain the detail of the proposal.

To give some background information on Respond!, it is the largest not-for-profit housing association in the country. Our business is to seek to alleviate poverty and to create vibrant socially-integrated communities. It is not just about social housing but it is about integrated housing for rich and poor and Respond! is looking towards the long-term benefit for the population as a whole. Respond! does this by providing access to housing, education, child care, community development programmes and other supports. We have about 350 employees, apart from about 5,000 volunteers. Half of the 350 employees are part-time workers working in child care, preschooling and after-school homework services. We have about 60 preschools around the country and after-school homework services. We have a very strong community-based family resource programme which is being developed on an ongoing basis. Respond! has constructed just under 5,000 homes and nearly 400 houses are currently under construction. If we ever get to that point, next for construction will be 866 homes which are out of planning and ready to go on site and we have more than 1,000 houses in the initial planning stage. We are working with the Department in respect of putting some demonstration schemes in place under the new leasing arrangement and also in respect of the new incremental purchase scheme.

We are worried about the official figures showing the number of people in mortgage arrears. Approximately 14,000 people were in mortgage arrears in June 2008 but since that time unemployment has risen by nearly 100% and it now stands at 429,000. The current estimates for families in arrears is 25,000. According to ESRI indications, the figure is about 35,000 homes in arrears and under risk of repossession. This is an increase of between 65,000 to 150,000 in arrears.

The repossession cases in 2009 increased by 67% and the current figure is approximately 800 cases. These are cases going through the courts. There are many cases in which houses are surrendered to the banks. We find it almost impossible to get figures in this respect from the banks. We are simply trying to form a guesstimate on the basis of the figures in other jurisdictions. A paper delivered yesterday by the Economic and Social Research Institute gave some cause for concern, as its estimate of the number of cases of repossession was much higher than ours.

According to the rating agency Moody's, some 2.3% of residential Irish mortgages are in arrears. There has been an increase of 130%, or 1.3 percentage points, in the number of mortgages in arrears. It is significant that the mortgages in question are worth €3.45 billion. I would like to remind the committee of the reasons for the crisis in arrears in personal mortgages. The immoderate promotion of home ownership by successive Governments has contributed to the fact that Ireland has the highest rate of home ownership in Europe. We seem happy to treat social housing as a residual form of housing, or housing of last resort. As we work in local authority estates, for example on educational programmes, we deal with social housing all the time. The situation in social housing estates is getting worse because insufficient resources are being invested in education and community development in such areas from the outset. Social housing seems to be State's last resort, rather than its first option, when planning its housing provision.

The failure to implement the Planning and Development Act 2000 for the benefit of the State, rather than for the benefit of developers, also contributed to this crisis. The Planning and Development (Amendment) Act 2002 did not improve the overall prospects of the housing sector. We are all aware of the overselling in the private property market. There was some reckless lending on the part of the banks, particularly those which got locked into sub-prime practices. Many developers seemed to have a greed and desire for massive profits. The Government failed to allocate funds to build and provide social housing. The country's contorted approval processes also presented problems. It took an average of three to five years for housing projects to be approved through the normal processes. We contacted everybody to see whether things could be moved on, but we were absolutely bound by contorted approval systems. Ms Walsh will give the committee details of the scandalous dearth of social housing, particularly by comparison with the overall production of housing in the country.

Ms Aoife Walsh

One of the graphs in the document furnished to the joint committee demonstrates the extent of the country's neglect of social housing needs since the 1970s. In 1975 local authorities were providing one third of all housing provided in the State, in the form of social housing. In 1985, when we were in the middle of a recession, 27% of all housing was being provided by local authorities for those in need. It is alarming that during the boom years after 1995, when we had the so-called "Celtic tiger economy", just 6% of all housing was dedicated as social housing. It is obvious that construction peaked in 2006, when 93,000 houses were built. Another graph shows that the increase in the cost of a house during that period could mainly be attributed to increased land costs and developer profits. It can be seen that interest rates, average earnings and the consumer price index increased in line with each other during that time. The big increase in the price of new houses was linked to the cost of land and developer profit. We have calculated that if the pre-boom trend had continued, and taking factors such as average earnings, house building costs and the consumer price index into account, the average house price should now be approximately €140,000. It is important to note that mechanisms for controlling the price of land were open to the Government in the Planning and Development Act 2000. It is alarming that the most vulnerable people in society did not benefit from the wealth that was generated in the country during the Celtic tiger years. It is shocking that the waiting list for local authority housing increased by 30%, to 56,000 families, between 2005 and 2008. In effect, the waiting list is the same as it was in 1966. Some 74,000 availed of the rent supplement social welfare scheme last year, at a cost of €440 million to the State. It is fair to suggest the cost in question will be even greater this year.

Mr. John Hannigan

As public representatives, the members of the joint committee will understand the implications of the figures we are giving because they deal with them on a regular basis. People have been losing their homes and will continue to do so. There has been an increase in homelessness. It is a fact of daily life wherever one looks. Another implication of the potential for further repossessions is the possibility of these houses being drip-fed back into the market. It has been mentioned that 56,000 families are on housing waiting lists. According to figures provided by the ESRI and us, there is the potential for another 35,000 families to be added to the lists in the next two or three years. That would be significant, obviously, as it would have massive costs for the State. Some 440,000 are in receipt of rent allowance, but that figure has the potential to increase to a level that would cost the State another €180 million a year as more people have their homes repossessed. It is obvious that the private sector will continue to provide poor standard accommodation. That has been demonstrated through the inspections carried out by the local authorities.

I would like to mention some aspects of the state of the economy that have not been the subject of much discussion. In recent years the cost of housing and the availability of credit have meant that both parents in a family have had to work. There has been a form of social breakdown, as children have had to be looked after by people they do not really know but get to know over a period of time. Issues such as the environmental impact of long commutes also need to be considered. Existing housing estates and neighbourhoods could degenerate if no money is available for repairs and maintenance from people who are concerned about repossessions. The committee has been given some figures setting out total housing need as it stands. We are aware that 56,000 have applied for social housing but have not been given it and that 76,000 are in receipt of a social welfare allowance. There is a cross-over of approximately 14,500 in that respect. The minimum number of likely repossessions, as set out by the ESRI and others, could bring the total housing to a level as high as 140,500. The ability of the State to finance such a level is obviously in question.

It is important that some action is taken. Inaction is not an option at this time. The solution we have proposed might not be the only one, but it should be considered as part of the raft of measures that should comprise the Government's housing policy. Specific details of the home ownership mortgage support scheme that we propose have been provided in the paper furnished to the committee. We have set out details of how it might work, including the qualification criteria for individuals. I will summarise it briefly before opening the matter up for discussion.

There should be some State support and targeted support for the individuals involved. The banks should be involved in how the support is administered and run. We have costed this possible solution. We think it would cost approximately €109 million a year for the Government to support the interest cost supports and incentivise the banks to keep people in the scheme. The alternative for the Government — to allow repossessions to take place, to help homeless people to find a home and to provide homes through existing State processes — would cost €180 million a year. That would be far more expensive than the scheme we are proposing. We can provide detailed costings at a later time if the committee wishes. While the proposed scheme would be costly, it would be cheaper than continuing to go down the route of increased repossessions. It would allow people to stay in the homes they are used to, which would be cheaper and have education and health benefits also. If people are not as stressed, they will not have to look for time off work. In such circumstances, it is hoped the unemployment rate would not be as badly affected. We have set out in the detailed paper how the scheme would work. The individual would have part of his or her loan written down or deferred owing to impairment. As the banks would have already taken this impairment into account, it would be unlikely to have a significant impact on their accounts because they will have recognised that there is an impairment in respect of the assets in question. The scheme recognises that there is a potential market value for the house and that this amount should, therefore, be paid. We suggest that the individual should pay a minimum of 30% of their income towards the cost of interest for a period of two to three years. The Government would provide support for a period of two to three years.

The cost of the scheme to the banks is probably lower than one would anticipate in terms of the other third because their costs are not the same as what they charge to individuals. Their cost is determined by the wholesale market. The interest element for most of the securitised loans the banks have in foreign markets only incorporates the interest cost over a period of time. For this reason, they will not lose as much as they may anticipate. According to our calculations, the banks will lose less if they take the route provided in the scheme than they would lose by seeking repossession in the courts, even in the Circuit Court where it is cheaper to do seek repossession.

We have applied a number of qualification criteria to try to target the scheme at those who are most vulnerable, namely, those who purchased houses between 2000 and 2008 and first-time buyers. As highlighted in an ESRI report published yesterday, 78% of those who bought houses in this period are first-time buyers, the group most at risk of being at default. I have outlined one of our proposals. Mr. Ó Dúlacháin will outline some other proposals which may be considered in other jurisdictions.

Mr. Cormac Ó Dúlacháin

Since the outbreak of the financial crisis, the United States has adopted a much different approach to the crisis than that adopted here. From the outset, the US adopted a twin-track approach. First, it tried to identify and correct what was wrong systemically with its banking system. Second, at an individual and personal level, it immediately started to make interventions, which included a raft of federal responses to individual cases of debt and a number of other schemes. None of this has been done here.

Since late 2007, 18 states have passed local federal laws dealing with mortgage foreclosure. Most of these states have introduced a mandatory requirement for mediation before any foreclosure action can take place. The logic behind the mediation drive in the United States has not been to apply a sticking plaster, defer interest or try to ride the storm but to fundamentally recognise that these debts cannot be repaid on an interest or capital basis in the long term. The focus of the mediation approach has been to negotiate a new loan or mortgage. It is simpler to have those living in a house take out a new $200,000 mortgage which they can afford than to evict them and try to find someone else, perhaps two years later, to whom one would lend exactly the same amount, namely, €200,000.

A twin-track approach has not been taken in this jurisdiction. In a legislative sense, only two steps have been taken. The first intervention has been the introduction of a code of conduct with the backing of law. This provides for nothing more than a six month delay between the first date of default and the date on which a financial institution may commence legal proceedings. It is a sticking plaster, as this delay between first default and legal proceedings would probably have occurred in any event under normal circumstances.

The second intervention has been to transfer jurisdiction to the Circuit Court. This measure has been coupled with Circuit Court rules which effectively provide for speedy and cheaper repossession. It is a minimalist intervention which has not been supportive and does not indicate an acceptance that a serious issue of restructuring of personal debt needs to be tackled. The challenge is whether to intervene or ignore 200,000 people in negative equity and close our minds to 40,000 people who face repossession over the next two or three years. The dilemma is to identify the best structures for intervening effectively.

I welcome the delegation. Unfortunately, I must leave shortly to attend another meeting but my colleague, Deputy Ciarán Lynch who is Labour Party spokesperson on housing, will remain. The paper presented by the delegation makes a positive contribution to an extremely difficult and growing problem. This is the first opportunity we have had to examine its proposals in detail. The delegation will probably be aware that groups from different parts of the country have also sent proposals. Some time ago, for example, I received proposals from a group in Sligo.

Last Easter, a deputation from the joint committee paid a visit to the United States at short notice for a series of meetings on the emerging crisis. This was shortly after the collapse of Bear Stearns and in the share price of Anglo Irish Bank. The deputation travelled to Washington and New York for a number of meetings, including with various committees of the United States Congress and Senate, the Department of the Treasury and Federal Reserve. One of the striking things to emerge from these meetings was that the United States had adopted a twin-track approach to and awareness of the banking crisis, as it was then evolving. Not only was banking being addressed but serious consideration was being given to the individuals who had been part of the sub-prime home acquisition process.

To go back even further in the history of the United States, specifically to the 1980s when the savings and loans associations collapsed, one of the steps taken by President Ronald Reagan, a republican, was to nationalise overnight, through the Resolution Trust Corporation, the institutions that were in difficulty. Part of the package involved offering mechanisms to save, where possible, those individuals in the underlying properties that were the subject of some of the faulty loans.

I regret that the National Asset Management Agency Bill, while proposing to allocate a vast amount of resources — approximately €54 billion, including a €7 billion overvaluation of distressed loans — does not seek to address the secondary debt problems which will follow, namely, the mortgage and personal debt problems. For this reason, the paper is interesting and timely.

At the time of the emergency bank guarantee and subsequently, the Labour Party sought to have a three-year moratorium on house repossessions introduced. I understand a couple of our guests are members of the Bar. Labour Party members who are at the Bar have on a number of occasions privately expressed the view to me that if the NAMA legislation is passed in its current form, it is anticipated that many more cases will come before the courts, possibly after Christmas. Given the legal experience of several members of the delegation, do they share this concern that many more repossessions are waiting in the wings, as it were, until the National Asset Management Agency has been established?

The main commercial banks that are subject to the guarantee, Bank of Ireland and Allied Irish Banks, appear to have taken a reserved position in relation to repossessions, whereas the sub-prime mortgage providers have been very tough. In the cases I have come across, sub-prime lenders are charging people high legal fees once they enter the repossession structure. I have seen fees quoted of up to €28,000 being added on to the mortgage costs in a case where a person was in default on a sub-prime mortgage. I am not talking about the main Irish banks who are the subject of the guarantee. If the costs involved in repossession became the norm, they would be potentially enormous. What I like about the scheme is that where somebody can pay something the lender can be obliged to accept partial payment, even though it is not satisfactory, in recognition that the person is making an effort to meet the debt. Currently many lenders will take nothing unless one pays the full debt, particularly the sub-prime lenders. Many of the operators in the Irish market do not allow partial payment. One can pay nothing and once one is in default for more than two or three months one is then in a default mechanism at which point one is informed that a legal process will be initiated and the legal and transaction fees begin to be added on.

In the short term and in the context of the NAMA legislation, does Mr. Ó Dúlacháin see a way in which those immediate concerns can be addressed? I am aware of people who started off thinking they owed three and five months outstanding on their mortgage, which might have been €5,000 or €6,000 and very rapidly they were into arrears, including costs, of €20,000 to €30,000. From then on they were sinking. Recovery from that point becomes almost impossible. Does Mr. Ó Dúlacháin have any experience of that or any observation to make? Does he believe there are many more cases pending? Has he had an opportunity to discuss this paper with the Department of Finance and the Minister? If so, has any response been forthcoming from that source?

Mr. Cormac Ó Dúlacháin

The rate at which cases come before the courts is dictated by banks and individual institutions and they may play ducks and drakes as to when and how they feed them into the system.

If and when they feed them into the system, as the current law stands, there really is no defence because the judges have no general social discretion. If they are to apply the law, the orders will follow. In fact, it will not even get beyond the county registrar to the court. As the law currently stands there is a reliance on a kind of grace and favour attitude towards the financial institutions. Essentially the law has to be readjusted so that the negotiation between the lender and the borrower becomes rights based, that there is some legal leverage that the borrower can use against the lender. Otherwise, it involves grace and favour and kowtowing. There is a relationship of dependence upon the financial institutions. Effectively, as the law stands, what comes into court will simply go through the system.

Once financial institutions begin to recover orders for possession, debt orders or report people to the credit bureau it has to be understood that the Irish Credit Bureau communicates with every other European credit bureau so the consequences for people of having default reported is not simply that it affects them nationally, it affects them internationally and remains on the record for a significant period.

Unless one legally intervenes by creating either legal rights and obligations to go to mediation, reconstruction or to confer legal rights on courts to take social circumstances into account and defer making orders for possession in specific circumstances one is leaving the matter at large effectively as if we were back in the Victorian era with Victorian laws.

Mr. Pat Cogan

We have not been invited to meet officials in the Department of Finance. Perhaps we can take that next step through the committee.

Ms Aoife Walsh

The point Deputy Burton made about there being a slowing in the rate at which repossession cases are coming before the courts is correct. Bank of Ireland and AIB were the two banks that adopted a one-year moratorium, as opposed to a six-month moratorium when the bank guarantee was introduced. The cases are not coming before the courts at the moment but when the guarantee expires in February 2010 we will probably see the real situation. Those figures possibly under estimate the current situation because they do not include voluntary surrenders.

Another key problem that has not been raised is the concern that when NAMA is in place that banks will begin to increase their interest rates. That will put even more people into arrears. To date, Permanent TSB has been the only bank to increase its rates but once the legislation has been passed and NAMA is in place all banks will follow. That will have a detrimental effect on more people as well.

Mr. John Hannigan

On the question from Deputy Burton about whether we know how many cases there are, we do not know. The reason is that the banks do not currently release that information to anybody. That information has been requested on several occasions by us and other research organisations. We are aware that there are discussions between the Financial Regulator and the banks but at this point we cannot get any specific information about the number of people who may be awaiting repossession. We are concerned that the numbers are significant. We get a great deal of contact, especially when we go to the press, about the issues we have raised today and previously. People tell us they are in the middle of repossession but they have not reached the end of the process.

I invite members to ask questions rather than make statements. We all understand the situation.

In regard to a point raised by Deputy Burton, does the Financial Regulator have any legal requirement to compel the banks to provide details of mortgage arrears? Is there any legal compulsion on the banks?

Mr. John Hannigan

The Financial Regulator can ask but the banks do not necessarily have to provide the information. Legislation would have to be put in place to compel them to give it.

Currently, there is no requirement on the banks to provide that information.

Ms Aoife Walsh

Certainly since June 2008 the only bank that has released figures on arrears is Permanent TSB, which stated that it is dealing with 6,122 cases. Much of the figures on arrears and repossessions being put forward by other organisations is based on those figures, based on an estimated minimum mortgage market share of 25%. That may be an over estimation of its share, thereby under estimating the number of people in arrears currently or dealing with repossession.

We have given a Government guarantee, yet we do not know the details.

Ms Aoife Walsh

No.

I wish to ask a few questions to get a better grasp of the situation. The delegation came up with an estimate that this scheme would cost the Government €109 million per annum. Is that based on 40,000 participating? As I understand it, the family pays 30%, the Government pays 30% and the bank absorbs the 40% and then there are other criteria. What is the incentive for people to continue paying at the full rate? Is this a scheme to mitigate hardship or does it aim on a more general level to try to remove part of the burden from people who might be still paying? There are some categories that are paying even though they are put to the pin of their collar. They are not in arrears. I refer to the 200,000 people that the delegation says are in negative equity — there may be more who are finding difficulty paying.

Is this a targeted scheme or is its intention to unwind the whole bubble between 2000 and 2008? The scale of take-up would be far greater if it is trying to unwind that whole period. In the Respond! model does the State take equity in return for meeting the interest payments over the period? Is there an in-built system of checks and balances? We would all like our mortgages to be paid off by others, even if we could afford to do so ourselves, in the belief that the State would pay 30% and the banks 40%. It is a question of the extent to which this is broadly a winding back of the bubble. I just do not believe it can be done. The banks have a certain amount of equity left. They would be close to being wiped out if they marked down to that extent. That, I presume, is why the Government is saying it wants to pay more than the value of the loans. One could argue we are not far from seeing the banks being run by the taxpayer also. Perhaps that is a long way off. One must consider this as a contained object. If the Government were in the place of the banks, it would then be paying 70% under the model. What is the implication for the taxpayer? Is it fair that we would ask the taxpayer to pay all that is proposed if it is not very tightly targeted, bearing in mind the criterion of having suffered a significant loss of income, which phenomenon is fairly widespread among every category of worker? I suspect a 92% loan-to-value ratio at the time of issue is fairly characteristic of that for loans throughout the period in question.

At a time when the Exchequer, or at least the Government, is saying to us that we have no choice but to increase class sizes and impose cuts amounting to €5 billion, etc., I need to see how the system is targeted and what checks and balances are in place. Consider the model according to which the banks are required to write down a certain amount and the State steps in but takes equity, for example. It is a solution but does not represent a solution in which all one's Christmases come together. According to such a solution, one just opts out of making payments for a period and kick starts the process three years later.

From what Mr. Hannigan is saying, it seems too good to be true to be able to operate with small sums of money. Will he explain more fully how the taxpayer can afford to run this scheme? How does he envisage the scheme dovetailing with the current mortgage interest supplement? In this regard, I understand only one person in a family can be working fewer than 30 hours. One pays the first block of interest and the rest is picked up. That model is very targeted. Did Mr. Hannigan consider ways of evolving it as an alternative? It has the merit of being extremely targeted although most would regard it as not sufficiently robust to deal with the present crisis. This is because many people will continue to work over 30 hours and one cannot expect them to drop below this.

Perhaps the spokesperson on finance is coming out in me because all my colleagues give out whenever we criticise their proposals. It is the same procedure that I would like to apply to Mr. Hannigan's proposal. It is a question of value for money. Who is the gatekeeper, how do we do the screening, and how do we prevent people from not making an effort? Everything is being slashed left, right and centre and there is no soft money to be got for any scheme at present.

Mr. John Hannigan

I thank the Deputy for the detailed questions. The target number we have at present is 25,000 as opposed to 40,000. Therefore, we are focusing on the lower end of the scale that is being suggested in respect of those in danger of facing repossession.

Let me clear up one point. We are not suggesting that the model apply to every house in negative equity. We need to differentiate between these cases and cases involving those who are at risk of having their homes repossessed. Negative equity does not necessarily imply repossession. A large proportion of people in negative equity will still continue to pay. Negative equity is only a factor if one tries to sell or where the house is up for repossession. For the vast majority of people in negative equity, no issue arises with regard to arrears or repaying the mortgage. We can exclude the vast number of people in this category, which, it has been quoted, amounts to up to 390,000.

The scheme is targeted. We have stated specifically in the paper that we are considering primarily first-time buyers who bought in a particular period and who have earning criteria and do not have certain saving or debt criteria. There is considerable targeting. The scheme is not a panacea for the rolling back of the bubble, nor should it ever be regarded as such.

We have thought about checks and balances. The social welfare system currently administers the majority of the mortgage interest relief elements. This could be part of the remit that would be undertaken in that area. With regard to the cost to the State, the scheme is expensive, amounting to €109 million per year. However, the alternative to the State is €180 million per year at a minimum. If the houses are repossessed, there will be 25,000 families on the waiting list for housing from the State predominantly. They will have no equity or means of obtaining a loan because their credit rating will have been zeroised, potentially for the following six years. How are they to be housed? At present, the State takes on the responsibility, through the local authorities, to house a number of them. The cost to the State of simply providing the houses, with no further supports, would amount to €180 million. Providing a house under the long lease method, which is considered to be the new means of providing social housing, would result in a higher cost to the State than has obtained heretofore.

What is it based on?

Mr. John Hannigan

It is based on the current suggested cost per month that the State would be willing to pay to providers of social housing.

What is the position on the RAS in that regard?

Mr. John Hannigan

It is effectively similar to the RAS scheme. It is the long lease scheme which is being issued at present.

It is being capitalised.

Mr. John Hannigan

That is a revenue cost.

Is that per year?

Mr. John Hannigan

Per year. If people become homeless, they may have to be housed for 25 years. Therefore, the cost to the State is not just a two-year or three-year cost.

Perhaps Mr. Hannigan will submit a paper on that showing his calculations.

Mr. John Hannigan

I would be happy to do that.

Mr. Pat Cogan

It is equivalent of 80% of the current rental market. That is how the Department is considering it at present.

Mr. John Hannigan

With regard to the position of the banks, we suggest there be a deferment or writing down of the debt so the banks would take a haircut on the amount they are owed by the individual. The reality is that the banks will probably already have impaired what they regard as an asset. The value of the loans, once entered into the repossession cycle, will already be impaired by them. Therefore, there is no additional cost incurred by the bank by writing down the asset in terms of what is due to it. However, if the market were to improve over time, as we suggest in the paper, there would be an option for the benefit to be shared between the bank and the individual. The individual would not take a complete loss, nor would the banks, assuming some future market return.

Will Mr. Hannigan explain the write-down? The family pays 30% in interest, the Government pays 30% and 40% remains, which the banks absorb. Is Mr. Hannigan suggesting they write down the capital at the same time?

Mr. John Hannigan

They write it down or defer it for a period. We have suggested two years where there is no debt accumulating——

Mr. Hannigan is saying the banks pay the 40% interest for three years.

Mr. John Hannigan

That is correct.

At the end of that period, do they write down the loan?

Mr. John Hannigan

No, they do so at the beginning, effectively to arrive at the new amount that would be payable by the individual, as recommended by both the ESRI and ourselves.

It is an upfront write down.

Mr. John Hannigan

Exactly. The reality is that, from the banks' accounting perspective, it is likely they will already have taken the impairment into account.

Does Mr. Hannigan envisage the State taking equity in houses in return for its payments?

Mr. John Hannigan

No. We are effectively saying it would be a reduction in the cost incurred by the State were it not to participate.

Other countries — I have only considered the United Kingdom, including Scotland — seem to have taken equity in some cases. In other cases the state does a deal with the bank and it becomes the landlord, like in a standard tenancy, which is the deal in Scotland.

Mr. Pat Cogan

There are other options. The cards are in the banks' hands at the moment. If they play them as they would normally, 25,000 families will be on the street. A moratorium is insufficient as it just puts off the evil day for six months or two years. The problem needs more than that. What needs to be tackled is the fundamental substantive——

If the banks can pile up the debt, then they will not be rushing to put families out on the street because then their repayments will be zero.

Mr. Cormac Ó Dúlacháin

One can get lost in the detail of any potential scheme. Coming back to the simple concept, one needs to intervene for certain people for a short period. It is not about tearing up the entire mortgage agreement. The mortgage, the terms, the penalties and the costs should be put to one side and frozen for a time. Whether it is for a year or three years, the question is what compensation does the bank get for freezing the agreement. What would be the wholesale market value of what the bank is owed? How will the home owner pay for this? The 30% is a minimum figure as there may be households that could afford 70% to 90%. One simply imposes a solution for a social reason for a limited period. This will deal with the imminent crisis of large-scale repossessions and block the banks from maxing the loan for the long term.

The second issue is the question of negative equity. The only way I see of tackling it is to introduce a legal provision whereby after several years it becomes a recourse-to-asset-only mortgage. If one has paid eight years of one's mortgage, the loan can only be recovered against the asset. That is midway between the American system, where mortgages have only recourse to the asset and there is no loan or debt after foreclosure, and our position where the debt exists independently. An eight-year rule will stagger our way out of negative equity by abolishing it in a phased way over time.

I must inform Deputy Burton, as gracious as ever, that it was Senator Marc MacSharry from Sligo who wrote the particular proposal to which she referred.

The Senator's name was concealed. One had to read to the very end to realise.

I suppose Deputy Bruton was not looking for my name on a good proposal such as that.

As soon as I read to the last page.

I agree with the delegation's argument that some action must be taken in this area. The figure of 35,000 families facing repossession is a conservative estimate and I believe it will be much more. I am impressed with the detail the delegation went into in drawing up its scheme. It is a solution that assists everyone involved.

I am concerned, however, about being able to differentiate between those genuine cases of not being able to pay owing to changed circumstances and those who, through wilful neglect, will use a scheme where one can get 30% of interest paid by the Government. Robust criteria would have to be established to ensure genuine cases were addressed. If we keep it simple and agree on the principles, the detail will work itself out.

One area the Oireachtas examined in tackling this problem was through a legislative adjustment in the enforcement of court orders. In July the Seanad debated the Enforcement of Court Orders (Amendment) Act which related to personal debt and the basis of what we are seeking is in that area. Various criteria would have to be met to allow an enforcement of a court order. The likes of the delegation's proposal could be considered. An appropriate assessment would have to be made to ensure the loan was properly granted in the first place.

If the eurozone recovers more quickly than our employment rate, interest rates will inevitably rise, even by four times in the next 18 months. This will have a knock-on effect on the number of people running into mortgage repayment problems. Would a refocused service such as MABS be the appropriate body to assess ability to repay and determine genuine cases before a court order is enforced?

Mr. Pat Cogan

Concerning wilful neglect, as this is Ireland, we all know that if there is a soft buck to be made, someone will be looking for it. No matter what legislative or financial response is made, it will have to be written very carefully. It will have to be written with those who made legitimate efforts to pay their mortgages in mind. Many people got involved in these high mortgages because there were no other house purchases available. In some cases, people's earnings were too high and they could not get on the affordable housing list. They were in turn forced to get involved in high mortgages to buy a house in the first place. It will be up to those who draft the laws to rule out those who see a chance to make a soft buck through wilful neglect. However, the State has the capacity to introduce such a scheme.

We do not have a problem with MABS when it comes to an arbitration body. We just named an organisation as an arbitration body because we were not aware of any other body doing such financial work.

Mr. Cormac Ó Dúlacháin

The basic question is not one about adjudication or arbitration but of assessment of people's ability to pay. The best experience of that process is in Minnesota, where for 22 years they have administered what was a farmer-lender mediation process arising from the collapse of the angry economy there in the mid-1980s. There is a long history of this in the United States. Effectively, they have introduced mediation programmes associated with courts but in essence operating independently. In some cases they have entrusted universities to run them and in others they have effectively trained volunteers. They have drawn from the community, so it has not been built on the basis of professional lawyer-based assessment. It really is a question of where this is imposed, whether before foreclosure or as an obligation after the event before a sheriff goes in. A whole range of different options applies. I can leave some printouts with the secretariat which illustrate exactly what is happening elsewhere, that might flesh out matters in greater detail.

To repossess a home the order for repossession is obviously needed. It would be impossible through an amendment to the Enforcement of Court Orders Bill to get an order for repossession unless, say, MABS or an arbitrator would certify that the person was not eligible for Mr. Ó Dúlacháin's scheme, our scheme or whatever.

Mr. Cormac Ó Dúlacháin

That could be inserted in an amendment to the conveyancing Act or a courts Act. Such a provision could effectively be inserted anywhere to the effect that before an order for repossession is made there must be a financial certification or an adjudication of X, Y and Z.

I thank the visitors for coming before the committee this afternoon. They have certainly come up with a very interesting proposal. Perhaps we might have some more information on the costings of the €109 million scheme and an analysis as regards how the cash flow pans out in terms of the figures supporting it.

As regards NAMA, there certainly has to be some type of social dividend and it has been mentioned that there are 60,000 on social housing lists. When the State and NAMA take control of all these houses, there is a golden opportunity to house a great many of these people who have been on housing lists for a good number of years. Some 25,000 people's homes are at risk of being repossessed. That is an enormous number. The moratorium needs to be extended, and Fine Gael will immediately look for this from the Government. The code should be put on a statutory footing.

In conclusion, if we can get somewhat more on the workings, that would make more sense, but it is an excellent scheme and well done.

Mr. Pat Cogan

I should like to respond in general by saying there is an opportunity for the State to review how it plans housing. I do not mean in terms of the planning laws, as distinct from putting units on the ground but rather how the State plans the provision of housing for the taxpayer and citizen generally. We are spending more than €400 million per annum on SWA rental allowances, with these 25,000 people coming back on the list as well, to add to the 58,000 currently on it. We need to find other ways of providing housing for our people that are not all over the shop as at present. We have various types of safety nets. SWA rental is one, social housing is another, which effectively has not been properly planned over the years and is certainly not socially integrated — leading to immense problems. The pockets of money available for that type of housing really need to be examined as a whole rather than as distinct categories.

This is very interesting but, perhaps, I can be slightly provocative. I am sorry that I have not read the proposal in advance. The presentation was all about the Respond! housing association's background and its dislike of home ownership and everything like that. It is only from the questioning that I am getting some feel as regards how the scheme might operate. What would be the association's role and why Respond!, coming from where it is coming? I admire a good deal of its core activity. What happens after the three years? Does it see itself grabbing these people and reversing the initiative into one of its voluntary schemes? The bones of the scheme are interesting, but I am not certain that Respond! would be able to confine it sufficiently. Is it envisaged that Respond! will run it, either on its own, or in tandem with the State? I just do not have a feel for much of what is being said. Nobody can deny that the association does much good work, but I am somewhat surprised at this proposal and suspicious as regards where it is coming from. I believe that while it is targeting a particular small group, people might be beating the gates down to get into the scheme. It might end up costing a great deal more than we are talking about. What happens after the three years and what are the long-term ambitions? I suppose we all have to walk before we run, so the association may not want to answer that question.

However, Mr. Cogan touched on it when he said that we were all over the shop, which I accept we are.

Mr. Pat Cogan

Can I allay the Deputy's suspicions, perhaps, by telling a short story? Two years ago, when we were in existence 25 years, I was asked by the board to do a review of the work of Respond! Although we are the biggest housing association in the country, my review to the board was to the effect that we had failed. The situation in Ireland had actually worsened. The people we had set out to help, back in 1982, were, by and large, no better off when we looked at the problem again, 25 years later. In fact, my assessment of the problem is that social housing was worse than when we had started.

We decided two years ago that we would have to become political advocates of advancement towards justice and anti-poverty legislation. It is under that heading we are taking up this matter. We have become more interested in recent times in saying, in effect, that it is pointless for us to be building houses. What do the 4,500 houses Respond! has provided matter? They are only a drop in the ocean relative to the problems that exist as regards the numbers that need houses. Apart from continuing to build our focus has to be, as well, to provide justice by way of the interpretation, understanding and change in laws and in political attitudes towards the poor.

I shall also give an undertaking that in no way will Respond! be involved in housing any of those people here as a group. If they come to us individually, and we have an opportunity to house them, we will. We have no ulterior motive, other than simply to draw to the attention of the Deputy and the committee to the need to have them properly looked after. On the three year issue, Mr. Hannigan has all the answers.

Mr. John Hannigan

I would also like to comment about the reference Deputy Noel Ahern made to Respond! disliking home ownership. Respond! per se does not like or dislike home ownership. It dislikes the fact that home ownership is the only policy and that is one of the critical issues of successive governments, not just the current Administration. Home ownership has been pushed as the way forward. All the policies we have are aimed at helping people to own their own homes. I own my home, and from that perspective I am very lucky, so I have no personal dislike of home ownership. The issue is more that there needs to be a balance in terms of policy. Part of what we are advocating is a more balanced approach to those areas.

Why are we talking about home ownership and keeping people in their homes? As Mr. Cogan says, it is about justice as well. We have indicated in the paper that over a long period of time the banks oversold, mis-sold or whatever — "wilful neglect" was one of the terms used earlier. Is that justice for the people now in those houses who are facing the potential not only of losing their homes but their credit worthiness and, perhaps, their self-esteem as a result? From that perspective we are seeking justice, as Mr. Cogan says, and we are advocating on behalf of others. If there is a role for us in the future, fine, but that is not what we are here for.

In terms of what happens after three years, many commentators are suggesting that at the end of that period the economy is likely to bottom out from where it is now, but not improve. The hope is that if people are made unemployed, in three years' time their potential for employment will improve significantly. There will be an opportunity for them to re-enter the market and re-pay their debt. The vast majority of people we deal with say they want to be able to pay their mortgages. They are not looking to duck out. From that perspective, we hope the situation will return to some form of stability, whereby they will be in a position to repay. If that is not the case, then unfortunately we must continue with the process of repossessions and legal process.

The banks may be holding off from repossessing until NAMA comes into place. If a property is repossessed, its value is immediately undermined, as is the value of the estate in which it is situated. By undertaking not to repossess, the value of properties has held up in areas where it otherwise might have significantly declined. Therefore, this might lead to the potential overvaluation of some of the assets that may be taken into NAMA. By bringing forward NAMA, we may see a flood of repossessions where the value no longer becomes an issue for the banks.

Going back to the scheme itself, the organisation has put a 92% value on the mortgage. The scheme obviously does not apply to somebody with less than that. Let us take the example of a couple under pressure to pay their mortgage but who are continuing to do so, and another example of a couple who are running into arrears on their mortgage. Both couples would qualify under the proposal as it stands, but one couple would continue to make their repayments, while another is unable to do so for whatever reason. Is the 30% figure for the mortgagee and the State related to the cost of wholesale funds? Is that the mechanism being used?

Mr. John Hannigan

The 30% figure is the potential for sharing the requirement. It has been estimated by the ESRI and others that 30% of income should be the benchmark we use to repay the debt. That means that when the banks assess somebody's ability to pay, they should not lend more than 30% of income.

That has always been the case.

Mr. John Hannigan

It has always been a factor, but——

It is the same model as the affordable housing scheme.

Mr. John Hannigan

Effectively, yes. We are tapping into the same kind of process.

The scheme is for loans greater than 92%. We are identifying the fact that people who borrowed up to 92% should have been in a position to afford what they were buying. The statistics from the ESRI show that nearly 50% of those who took a mortgage between 2005 and 2008 took up to 100%.

Is the 60% divided into 30% and 30%? What is the financial concept behind the 60% figure?

Mr. John Hannigan

The financial concept is of income, so the couple have to pay 30% of the interest, assuming that they can pay it. We are saying that the Government should match that contribution, so that it is still an incentive to stay in the house and to continue to pay. One of the issues that both the ESRI and ourselves have identified is that most people want to pay, and therefore the incentive to continue to pay is that it becomes affordable. We can make it affordable by setting it at 30%. That figure could be adjusted up or down, but at this stage, 30% seems to be the benchmark on which other researchers agree.

Are the arrears on the mortgage paid at the end of the mortgage, or are the arrears on the mortgage and the mortgage itself written down in value?

Mr. John Hannigan

We are looking at the mortgage being written down in value to its impaired level. In other words, it should be written down to the actual value of the property. However, we put in the caveat that if the property is sold at a later stage, then the bank shares in the profits above the figure to which it was written down. I must distinguish between "impairment" and "writing down", because they are two different financial concepts. Impairment allows the value to go back up as well as come back down in the accounts of the bank. A write down is a permanent diminution, and it cannot go back up.

I completely understand the scheme. However, I am talking about the marginal case in which somebody continues to pay his or her mortgage, and another case where the person avails of the scheme. The person who avails of the scheme could be potentially better off within a two or three year period than the person who keeps the mortgage. How can Mr. Hannigan reconcile that?

Mr. John Hannigan

Everybody needs to meet the criteria, and if they all meet those criteria, then in theory they would all come under scheme.

I am only talking about a hypothetical case.

Mr. John Hannigan

Absolutely. If a couple has a mortgage of €200,000 and they continue to pay, while another couple has a mortgage of €200,000 and they cannot pay or they can only pay a smaller contribution, then we calculate the continuation of the contribution and therefore, the State's contribution. The processes that apply to one would apply to another. Both may have the mortgage written down to, say €150,000, and deferred for a period of time. They would benefit from that. No additional cost or interest is accrued, because they can continue to pay or cannot continue to pay. Effectively, the system operates exactly the same way for both. The issue would be how quickly the debt gets paid off. For the couple who can continue to pay, the moratorium is reduced for a period of time, and then it continues beyond that to make it affordable. For the couple who cannot pay, then it may be that after three years if they still cannot continue to pay, they would revert into the system where repossession would be an option.

When the house is sold finally and there is a difference between that value and the impaired value, did the organisation look at any element of that which would come back to the taxpayer, as opposed to the bank?

Mr. John Hannigan

We had not considered that at this stage.

There is merit in it. There is an up side for the banks if the houses come back in value. For the taxpayer paying a contribution, there would appear to be no up side. We must deal with people who are running into arrears on mortgages because this is critical, and we must look at a system whereby if the taxpayers are paying into a scheme, they should benefit from an increase in value. It would appear to me that the banks will benefit from such an increase.

Mr. Pat Cogan

The taxpayer is putting his hand in his pocket, but he would need a bigger pocket if the scheme did not exist, because he would have to provide a house. It is effectively only a short-term expenditure for the taxpayer. Otherwise, the alternative is that a house would have to be provided for that family anyway.

The point I am making is a simple one. If the house is sold, the banks are gaining, so the taxpayer should also be considered.

Mr. Pat Cogan

That is worth examining.

I thank the Chairman for eventually allowing me the opportunity to speak. I know that Deputy Ahern did not read the report or the presentation and walked out the door after he finished speaking.

We have standing orders on this committee——

I am a member of other committees also. It is usually by a point of indication when people are brought in. I thank the Chairman for bringing me in eventually.

Any time.

One point made by Ms Walsh concerned what the true value of property actually is at this time and what determines the cost of a three-bedroom family home. That is at the root of all of this.

I welcome the Respond! presentation. Whether we were ever in a period of normalisation in the housing market, what we now should do is to create a period of normalisation. I would see this proposal as part of something that will assist in this regard.

With regard to a point made some time ago by Mr. Ó Dúlacháin dealing with concerns and suspicions in this regard, the fact is when a private debt arrives at such a significant sum, it becomes a matter of public debt and of public concern. There are systemic consequences to defaulting in the mortgage market as much as there are systemic consequences to defaulting in the banking sector. This issue is currently being discussed in the Dáil. If we are to commit perhaps €50 billion to €60 billion to the banking sector and developers, yet we have concerns about people trying to hang onto their homes, I question the logic that lies behind that position.

Fundamentally, the principle is whether we are going to examine the situation that allows people to avoid the significant loss of losing their home, a loss that is far greater than that of losing one's job. People can get over the difficulty of losing a job but the financial, emotional, community and societal consequences of someone losing the home they have bought is probably the most traumatic issue apart from a bereavement that a person will go through in their life. That should be the starting position of this debate.

I have a number of questions with regard to the proposal. As we go through the NAMA project, there will be systemic consequences as to how social housing and private housing policies will be determined into the future and what thoughts have——

I am not sure that is the issue here.

That is the issue.

The Deputy is making a speech.

One cannot look at one sector on its own. The mortgage market is tied up with——

I am well aware of it. The Deputy should ask some questions with regard to the presentation.

——people who own houses and who are in danger of defaulting on their mortgages and people who are already in default. If the State is to acquire many vacant properties, how will that impact upon what is being proposed here? I would be interested to hear the witnesses' views.

Second, I would be interested to hear the more minute details of the project given that, if somebody defaults on a mortgage at present, there are immediate penalties; for example, if they do not meet the standing order, compound interest difficulties arise. Do the Respond! proposals address the situation where a red flag is lifted immediately and those additional costs are not arrived at? It is critical to any sort of leverage package that is put together for two or three years to assist people from falling out of the ownership of their homes that any additional costs should be kept to a minimum.

I would also be interested in hearing the witnesses' views on what may be required with regard to how existing mortgage contracts will have to be changed in light of this proposal. The Land and Conveyancing Law Reform Act, which went through the Dáil in July, has not made any significant change and the Respond! presentation refers to this. Basically, it has moved the whole process from the High Court to the Circuit Court, which is a bit like moving it from Croke Park to Christy Ring Park in Cork — the game is still the same, the stadium just gets smaller and perhaps cheaper. There is a concern that because the game is cheaper to play, it is also to the benefit of the banks because the costs of going through a pursuance is much cheaper and more accessible given that the Circuit Court sits in many more locations than the High Court. I would be interested to hear the witnesses' thoughts on this issue.

The critical point, given the way the dealing policies of the banks have changed, is the duty of care argument. In more normal times, the price of buying a home was some three to four times the annual income of a household. As we know, the housing market is dependent on first-time buyers being able to come to the market and the price of a first-time buyer's home. If a first-time buyer cannot come into the market, everyone else in the market cannot sell or buy because it all goes back in a chain to that person. From 2002 onwards, first-time buyers were finding it harder and harder to come into the market. As Mr. Cogan said in his commentary, people could not even qualify for affordable housing because they were over the income threshold.

If first-time buyers were not able to come into the market, that created a difficulty in itself. However, the key point is that we saw first-time buyers unable to come into the market and those buyers that were coming in were moving from 20-year schedules to 35-year schedules, and the ratio of the loans moved from being three to four times their income up to ten to 12 times their income. There is a duty of care argument here and the question is whose responsibility it is to act upon this.

Is Respond! proposing a code of conduct given that there is already a code of conduct in existence? Alternatively, is it suggesting that a legislative framework is required? In that legislative framework, what is required most critically in this House for the legislation to be passed? With regard to the current code of conduct, I tabled a question to the Minister for the Environment, Heritage and Local Government this week asking him to explain how many repossessions are actually taking place but he cannot say. The Minister cannot tell what the price of a house is because the Data Protection Act will not even facilitate that. He can tell me how many houses were bought last month——

A question, please.

This is my question. He cannot tell me how much those houses are being bought for. What legislative framework does Respond! suggest is needed for this to be implemented?

Mr. Pat Cogan

I will answer the first question in regard to the current value of a house, and the example we show is taken from the Department's graph. The graph shows new house prices, including the house building cost and average earnings. Those two figures went together for 20 years. For 20 years, a couple buying a house could assume that the price would be four times the average industrial wage. That has gone off the spectrum altogether. If we were going out to tender today, I would not accept a tender that did not stick with that figure relating to the average construction price, because that is the tender. If the Deputy wants to know the cost of a house, we know it. The cost of a house currently should be €140,000 for a three-bedroom 1,000 sq. ft. house. We know the cost of construction, cement, labour and all the associated costs. The cost of land, which was in the remit of the Government to control under its Planning and Development Act and which it did not control, skews that figure. The cost of profit and the cost of land skewed that figure — that is the only reason for the discrepancy.

There is one point Mr. Cogan should be aware of which might strengthen the Respond! presentation. The purchase cost of the house and the cost of the house are two entirely separate matters. At the height of the property bubble, the purchase cost of the house might be €300,000 when walking into an estate agent.

Mr. Pat Cogan

Yes.

The repayment cost of that could be close to €500,000 over a 35-year schedule. There are two distinct costs.

Mr. Pat Cogan

That is the point we are making in the graph. This is where we feel control must be exercised by the Government. For the first time in the history of the State, it has a control through the Planning and Development Act, which would be a fantastic piece of legislation if it was properly regulated and enacted. That allowed for the State, as it did initially in August 1999, to actually determine what the value of land was for residential development.

We feel it is possible to get back to those core values in terms of the current situation in Ireland and in terms of how the banks might, as it were, honour their commitment to the core value of a house rather than to the incremental value of profit on top of that.

I will leave the issues of the duty of care and the red flagging of extra costs to Mr. Hannigan.

Mr. John Hannigan

In terms of the flagging of costs, as Mr. Ó Dúlacháin outlined, we are proposing a complete set-aside of the agreement, with no penalties, additional interest or arrears added to the debt. In other words, we are suggesting freezing what is there at this point in time and entering into a new agreement for a period of three years in the course of which we will work through the mechanisms we have outlined.

I assume the Deputy's question regarding the duty of care relates to how the system will be administered in the future. There is a duty of care for the banks, the Government and perhaps for the independent body we have proposed. As we suggested, social welfare staff may look at this through local authorities or through MABS.

Mr. Pat Cogan

It is important to note that there is no right to be housed. An amendment to existing housing legislation would be helpful in this regard. One can be put on a housing list and one can ask the local authority why one is not on that list, but there is no right to be housed under the current system.

Mr. John Hannigan

I will refer the Deputy's question about the legislative framework to Mr. Ó Dúlacháin.

Before Mr. Ó Dúlacháin responds, will the delegates indicate whether there will be a change under their proposal in terms of who has charge on a property? In other words, will the bank still have first charge or will that now rest with the State?

Mr. Pat Cogan

The bank will continue to have first charge.

Mr. Cormac Ó Dúlacháin

In terms of legislation, a certain amount of modernisation has been achieved in respect of the building societies in regard to penalties and various matters. It is a question of auditing that and seeing whether there are further provisions of a consumer nature that can be imposed on loan contracts. The basic issue is shifting the balance of negotiating power. As it stands, the lender essentially has the appearance of all power but the level of potential default is so great that there is an element of bluff in that. For example, a bank cannot feasibly repossess 500 houses in Ongar village because to do so would destroy the value of all its assets in that area. It is a question of how to break that bluff. However, for the individual borrower, who is not part of a union of 500 or 600 people, it is difficult to see the bluff. Whoever shouts loudest gets paid and it is a question of redressing the balance so that the negotiating position of the borrower is strengthened.

Ultimately, the economic reality for the bank and everybody else depends on the answer to the question of whether house prices are overvalued in the long term and whether they will adjust within five or ten years. If the market price does not return to match the purchase price in the long term, then we must bite the bullet and the bank must mark down the loan. It is merely a question of how long the banks can keep up the bluff when they are challenged and how they can be persuaded to mark down loans. On a psychological level we cannot rebuild our society if there are 200,000 households living in a depression of debt. It is only by lifting that burden from them that we can revitalise the economy. There are critical issues here of both an economic and social nature.

I congratulate the delegates for devising what is a genuine attempt to deal with a difficult problem. My only concern is that in common with all such proposals, it will entail letting the banks off the hook for the improper behaviour in which they engaged in allowing young people to get themselves into a situation of horrific debt. It is the financial institutions which should take the hit for their conduct, not the taxpayer. My difficulty is that in every solution, whether NAMA or otherwise, the risk is transferred to the taxpayer. If I or any other individual makes a poor business decision we must live by it. The banks made very poor business decisions and they should be obliged to deal with the consequences.

Mr. Dúlacháin is correct that the banks cannot repossess all the houses in the State. What would they do with them if they did? Financial institutions should be obliged to offer people options, whether to extend their mortgage over a longer period, rent out their property and so on. Banks should be forced into devising such solutions, but that is not happening. The banks are not currently lending for the simple reason that they are waiting for the NAMA legislation to be enacted. They will only consider lending money when they can do so on the back of the taxpayer.

I do not wish to denigrate the delegates' efforts in any way but we must be careful to ensure that any such scheme imposes an obligation on the banks to bear the burden of the problem they created. If taxpayers are obliged to invest in bailing out these institutions, then the former must be refunded with interest, that cost of which will be borne by the party which acted irresponsibly in the first place, namely, the banks. Can the delegates tweak their scheme to allow for refund of money to the taxpayer through whatever method? I support the concept of what they are trying to achieve, which is that ordinary people be given a break.

We cannot under estimate the psychological impact on people of labouring under a massive debt. There is a significant knock-on effect in terms of marriage break-ups and other social problems, all stemming from the worry of bearing a large burden of debt. The delegates referred to the example of a couple in a one-bedroom apartment who have already had one baby and have another on the way. Some might say this couple's difficult situation is of their own making and that they should have behaved more responsibly, but that is to ignore human nature. Such people effectively have no choice because they are unable to sell their home and are left to raise their families in inadequate accommodation. This may lead to social problems in the future. I hope the delegates can fine-tune their proposal to make absolutely certain that any money the taxpayer invests will come back via the institutions that gave out irresponsible loans in the first place.

Mr. John Hannigan

We do not disagree with the principle suggested by the Deputy. In terms of how it might work, we have proposed that the banks take the haircut, that is, that they write down the loans. We have also suggested that there may be a benefit for them at a later time if they do so. It has been suggested that we might look at that as being a return to the taxpayer as opposed to a return to the banks. That is an issue we can take on board. However, there is a fine balance to be struck in terms of the resources available. While I am not a massive supporter of facilitating the banks in maintaining the profits they enjoyed in the past, a functioning banking sector is vital for the economy. It is a question of finding the right balance. As Deputy Barrett argued, taxpayers should not have to foot the bill while banks continue to enjoy large profits. We will look at the Deputy's suggestions in due course.

I thank Mr. Cogan, Ms Walsh, Mr. Hannigan and Mr. Ó Dúlacháin for their presentation and for answering members' questions. Having been familiar with the work of Respond! for some 30 years, I would like to see Midleton on the first page of the presentation. We will submit the document the delegates sent to us and the transcript of today's meeting to the Minister for Finance, together with a letter urging that this submission be given serious and urgent consideration in the context of the current economic situation.

Mr. Pat Cogan

I thank the Chairman. We appreciate the courtesy of the invitation extended by the committee and the manner in which the meeting was handled. We are grateful for the hard questions and the soft questions and the openness with which we were received.

I thank the witnesses. As there is no other business——

I wish to make a point concerning the minutes from the last meeting, when Mr. Eamon Timmins appeared before the joint committee to discuss the selling of financial products to older customers. I proposed that the joint committee should get in touch with the Department to ascertain whether legislation could be changed to deal with this issue. However, this has not been recorded in the minutes.

It is in process. The Deputy will be contacted in respect of some issue there.

I raised this point because it is not in the minutes.

The joint committee adjourned at 4.40 p.m. sine die.
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