I thank the Chairman and members for their invitation to address the Oireachtas Joint Committee on Finance and the Public Service. Our group is composed of Ignatius Beglane, businessman, Cathal O'Donnell, chartered accountant, Dermot McDermot, solicitor, Senator Marc MacSharry and myself. I manage a credit union in Sligo. The views expressed in this report are personal to ourselves.
Our only objective when we met first in April was to find a way to assist the many thousands of families who face the very real threat of losing their homes through repossession by banks and building societies due to mortgage arrears. In August, we presented our document with recommendations to the Minister for Finance. A copy was also furnished to the leaders of all parties.
Nobody here needs reminding of the current position of the country. However, some headlines are worth repeating and support our position. More than 77,000 households are in arrears regarding an overdrawn bank account, credit card balance or mortgage, with mortgage arrears being the most prevalent. The live register shows an increase of almost 162,000 in the year to October 2009 and an unemployment rate of 12.5%. Another announcement is due today. Almost 14,100 households are dependent on mortgage income supplements. Approximately 1,000 new applicants a month come to that service. The ECB left its key interest rate unchanged last month and the indications are that this rate will remain unchanged well into 2010. I understand it will make an announcement again today. However, it seems absolutely certain that mortgage holders in Ireland will see an interest rate rise as banks and building societies seek to increase their margins to boost profits. An economic recovery is also likely to happen more quickly in Europe generally than in Ireland, which will also have the effect of increasing rates when we least need this to happen.
The High Court listing for Monday, 30 November listed 22 new applications from the following institutions: five from Start Mortgages; four from Stepstone Mortgages; three from KBC; three from GE Home Loans; two from Bank of Ireland; one from EBS; one from Leeds Building Society; one from Nua Mortgages; one from Springboard Mortgages; and one from Ulster Bank. Start Mortgages had a further 20 cases adjourned on the same day. This means in excess of 70% of the cases on Monday are by institutions not covered by the IBF protocol with MABS.
The protocol agreed by the Irish Bankers Federation and MABS and the recent announcement by ten mortgage lenders to give home owners more time to tackle arrears before taking legal action is welcome but not sufficient to address the problem. We strongly believe that it should not be left to the mortgage lenders solely to decide on protocols for this issue.
The repossession of family homes by financial institutions creates tremendous social, psychological and economic issues for borrowers and their families, and places further financial pressures on the State. Our objective is that the repossession of a family home due to mortgage arrears should not be allowed to happen without a detailed independent analysis of repayment capacity, an examination of the quality of the mortgage application and consideration of a range of alternative actions. If it comes before the court, an order should not be granted until the court is satisfied as to the following: the loan was properly granted and that responsible procedures, underwriting and analysis of the capacity of the borrower had been carried out; an independent analysis of the current position of the borrower to repay the debt has been carried out; and that this analysis suggested solutions to the court to allow the debt to be addressed by the borrower.
MABS is already in place throughout the country to assist those in financial difficulty. It is ideally placed to assess ability to pay versus refusal to pay and to identify and propose mutually acceptable solutions within the ability of the mortgage holder. We recognise that additional resources were allocated to MABS by the Minister during the year. It is likely that they are creaking at the moment and that MABS is under serious pressure.
There are some recent developments that are pertinent. The Enforcement of Court Orders (Amendment) Act 2009 passed into law in early July to remedy the constitutional deficiencies of imprisonment of a debtor outlined in a recent High Court judgment. The purpose is to enable the court to hear the debtor in order to ensure it is satisfied whether he or she has wilfully refused to pay and that all other steps possible, including variation of the instalment order, have been taken to recover the debt. The court will not imprison the debtor unless satisfied that he or she has the means to repay and his or her failure to do so is due to wilful refusal. The burden of proof is shifted to the creditor to establish that the failure to pay is not due to inability to pay.
The Irish Bankers Federation and MABS have established a protocol for dealing with debt arrears. In August, the Northern Ireland Courts Service introduced a pre-action protocol for possession proceedings based on mortgage arrears in respect of residential property. The Financial Services Authority in Northern Ireland found that "while most lenders largely complied with good practice, some lenders were regarded as too ready to commence proceedings quickly." The Office of the Lord Chief Justice stated: "It therefore seems that there is scope in Northern Ireland for the increased formality and clarity of a protocol to help raise all litigants to a common standard of best practice currently achieved by many but not all lenders in possession cases." Part of its dispute resolution is to discuss options such as extending the term, changing the type of mortgage, deferring payment of interest or capitalising. All of these initiatives seek to differentiate between those who refuse to pay and those who cannot pay.
We propose the following solutions to allow the borrower time to address the debt: interest-only payments; permanently extending the mortgage period; rent back property from lender; a moratorium on payments; and fixed rates. The banks' position is that there are substantial penalties for breaking fixed rates to avail of lower current rates. We believe it is much better to address the problem and break the interest rate by lowering it than to default at a higher rate. It is also clear that a substantial number of new mortgage holders should never have been approved for the amount of money that they have borrowed. No order for repossession should be granted to these lenders. The terms of these loans should be amended to what the borrower can afford.
There is an urgent need for action now. It is imperative that a principle for dealing with repossessions similar to that enacted in the Enforcement of Court Orders (Amendment) Act 2009 for dealing with personal debt be introduced without delay. To complement this, a number of proactive alternatives such as those I have outlined should be agreed and made binding with all the guarantee-covered lenders at a minimum and also to include all mortgage providers operating in the State. The introduction of these measures will take work and commitment, but the cost is insignificant compared with the socio-economic catastrophe that, in our view, they would help to prevent.