Mortgage Arrears Resolution (Family Home) Bill 2017: Discussion

The joint committee met in private session until 10.50 a.m.

I invite members to turn off their mobile phones as they interfere with the sound recording system.

The purpose of the meeting is to conduct a detailed scrutiny of the Mortgage Arrears Resolution (Family Home) Bill 2017 which is sponsored by Deputy Michael McGrath. The committee will be joined by Deputy Michael McGrath, as well as by representatives of the Irish Mortgage Holders Organisation and the Insolvency Service of Ireland.

The format of the meeting is that I will invite Deputy Michael McGrath to make an opening statement which will be followed by a question and answer session.

I am delighted to bring the Mortgage Arrears Resolution (Family Home) Bill 2017 before the committee for legislative scrutiny. The overarching purpose of the Bill is to protect the family home where the borrower is making a genuine attempt to meet his or her obligations. The mortgage arrears crisis is not going away. To the end of the second quarter of 2017, there still remained 73,706 private dwelling home, PDH, or family home mortgages in arrears, with an outstanding balance of €13.6 billion and an amount in arrears of over €2.7 billion. Of these, close to 52,000 family home mortgages are in arrears by over 90 days, while 32,000 are in arrears by over two years. Up to 13% of the 120,000 restructured PDH mortgages have fallen back into arrears. This gives a flavour of the scale of the problem.

While restructures are occurring and, in some cases, write-down deals are being done, to date it is inconsistent and unsatisfactory. Some lenders are reasonable, while others act without regard to the stress and suffering they are inflicting on families and individuals. Many have cited the fact that the number of repossessions taking place is low. This, of course, can serve to hide a much greater problem. According to the Central Bank's statistics for the first half of the year, legal proceedings were initiated in nearly 3,000 arrears cases. While not all of these will end in repossession on foot of a court order, many will end in the voluntary surrender or sale of the home. In the first half of 2017, 1,363 family PDHs were lost either through sale, voluntary surrender or repossession.

Ideally, mortgage arrears cases should be resolved through agreement between the lender and the borrower using both the code of conduct on mortgage arrears and the mortgage arrears resolution process. While agreements are being reached in some cases, for too many, they are not. At all points of the process the lender has the final say. In cases in which the borrower and the lender fail to reach agreement borrowers may have recourse to various options under the Insolvency Service of Ireland, ISI, which was established under the 2012 legislation and cited at the time as a game changer for personal insolvency and mortgage arrears cases. It must be acknowledged that it has done a lot of good work and many positive outcomes have been achieved for borrowers in difficult situations. However, as highlighted by Fianna Fáil and others at the time, giving the banks the power to veto any solution put forward ultimately led to the process not working as well as it should. Once again, the balance of power lay with the lender. We were told that removing the veto would be unconstitutional. However, following a lot of political pressure over time, amending legislation was enacted in 2015 which provided for an appeals mechanism.

That was a step forward.

It is clear that the current system is not working. From speaking to many personal insolvency practitioners, PIPs, who I would like to make it clear are fully independent, it is clear that the process is long and cumbersome, with many cases taking over a year to resolve. A personal insolvency arrangement, PIA, involves secured debt and, typically, mortgage debt. According to the latest data from the ISI, the number of new applications for personal insolvency arrangements remains high. In the first half of the year there were 2,226 new applications. Approximately 44% of PIA applications have been rejected or the protective certificate in respect of them has expired. In that regard, it may be the case that in some instances a deal might have been done in the interim. However, we do not know for sure, but we can confirm that 56% resulted in a yes vote, with 44% being rejected or in respect of which the certificate has expired. If we are to apply this ratio to new applications, nearly 1,000 will potentially end unsuccessfully. They will be unsuccessful because the lender has exercised its power of veto or because a deal is not possible. From talking to PIPs more recently, it certainly seems to be the case that the rejection figure is likely to increase in view of the current situation where the appeals system is not working. Whichever way one looks a it, many unresolved cases will ultimately lead to the home being lost. I do not believe we can stand back and leave this situation to develop as it is playing out. Something needs to change. PIPs are working tirelessly and diligently in a broken system. We must grateful for the many PIPs and acknowledge the frustration they must feel when a bank simply just says no to a proposal. We must listen to what PIPs are saying and they must be part of the solution. Many to whom I have spoken have indicated that the bank veto is the biggest challenge they face when it comes to personal insolvency and mortgage debt. I again say the balance of power well and truly remains in the lender’s corner, leaving the borrower in a weak and perilous position.

The situation is made worse by the decision in the recent case in the Dublin Circuit Court which was upheld in the High Court. Under section 115(a) of the Personal Insolvency Act, an appeal can be brought to the court when a bank has used its power to veto a PIA. In this case the court decided that only a PIP had the legal authority to make such an appeal. A PIP can now be made personally liable for the cost of such an appeal. While this is unlikely, it is a risk that many are simply not prepared to take. Many, of course, will be reluctant to go down that route as a result of this ruling and because of the potential consequences for them and their families.

It is clear that reform is needed. The Bill will ultimately tackle the bank veto when it comes to the family home. It is important to remember as we proceed through the process of legislative scrutiny and Committee stage that the Bill focuses solely on mortgage debt on the family home or primary residence. It has been designed to bring the balance of power back to an even keel. It is important to note that the Bill does not represent a free-for-all for borrowers. For some, it creates a moral hazard whereby a borrower will be encouraged to default. However, under the Bill, the borrower must still engage and co-operate. An individual who refuses to pay back any money whatsoever, even if he or she has the ability to do so, will not be rewarded when the Bill is enacted. There are many checks and balances set out within the Bill. Even if it is enacted, the personal insolvency process will still be stressful for the borrower. It will still pay for a borrower to stay out of arrears if he or she can do so and when in arrears to move out of that situation as quickly as possible.

The Bill will only apply to existing arrears cases that were in arrears on or before 1 January 2017. There is no incentive for a borrower to default. For the reasons outlined, I do not believe moral hazard will be a pervasive issue if the Bill is enacted.

I would like to spend a moment going through how the Bill will work in practice. In the first instance, it will establish a new office within the remit of the ISI which will be called the mortgage resolution office. The Bill will enable any mortgagor or borrower, a person who is residing in and is a registered owner of a family home, to apply for a mortgage resolution order. Such a mortgagor must be deemed to be financially restricted where his or her disposable income, non-essential assets and total personal debts are below a prescribed level. The Minister for Justice and Equality will be empowered to make regulations that will set out the prescribed level. A mortgage resolution order will only be obtained through an application to the mortgage resolution office. A financially restricted mortgagor will still be able to engage a PIP and utilise the MABS and the Abhaile scheme. I envisage PIPs having a key role, just as they do in the insolvency process. Crucially, the mortgage resolution office will be able to refuse the granting of a mortgage resolution order if it is found that the mortgagor is not, in fact, financially restricted or has made false representations. The financially restricted mortgagor will be required to fully disclose to the mortgage resolution office all accounts held. Again, if not enough information is provided, the office will be able to refuse to grant an order. All of the provisions make it certain that the borrower must engage and co-operate. The financial institution will be required to respond to the application. If, in its view, the mortgagor is not financially restricted, it will be entitled to make such a submission to the Mortgage Resolution Office which will ultimately decide whether a mortgage resolution order is necessary. Once an order is in place, a lender will be prevented from initiating legal proceedings against the borrower. Where legal proceedings are already under way, the court may choose to suspend proceedings pending the outcome of the order.

The purpose of a mortgage resolution order is to find a sustainable solution for those in mortgage arrears and bring some consistency to the overall resolution of the issue. The mortgage resolution office will arrive at such a solution. Importantly, it will receive submissions from both the borrower and the lender in each specific case. The Bill provides it with a suite of options to be used in individual cases. These options are outlined in section 9 and include all of the normal restructuring options such as a split mortgage; extension of the life of the mortgage; interest-only payments; and, of course, the mortgage to rent scheme. Further options can, of course, be added.

There are a number of appeal mechanisms outlined in the Bill, as is normal. If a financial institution believes the borrower is not financially restricted, it can appeal to the mortgage resolution office to investigate. Part 3 of the Bill enables both parties to bring an appeal to an appeals office that will be appointed by the Minister for Justice and Equality and which will be fully independent. Where there is a dispute on a point of law, an appeal can be brought to the High Court for guidance.

The Bill is not perfect, as I will be the first to admit. There are issues that will have to be addressed on Committee and Report Stages. I will bring forward amendments, where necessary, and will, of course, be open to amendments brought forward by other members. One issue that I foresee that will have to be addressed is where an individual has other debt that is following the existing personal insolvency process. We need to define more clearly how the provisions in the Bill will interact and dovetail with the insolvency process where debts other than the family home are involved. I look forward to working constructively with members of the committee in order that we can make this a better Bill, one which will serve those stuck in the mortgage arrears trap. I believe the Bill is required to rectify some of the major problems in the current personal insolvency process. It is required to shift the balance of power back to the middle ground and to protect the family home. If enacted, not only will it provide a practical solution for many of those in mortgage arrears, it will also provide a strong incentive for a bank to find a sustainable solution before a case reaches the mortgage resolution office. I know that the banks are very concerned about the Bill and hope it will help to change their practices. They will no longer be able to just say no because there will be an overarching provision under which an independent office will ultimately be able to impose a solution in each case.

I thank the joint committee for giving me the opportunity to introduce the Bill and look forward to our discussion on it.

I thank the Deputy. I now invite colleagues to make contributions or ask questions.

I thank Deputy Michael McGrath and acknowledge the considerable work he has put into this legislation on which I know he has been working for a long time. As I said to the Chairman beforehand, following pre-legislative scrutiny, the Bill will proceed to Committee Stage. Before Deputy Michael McGrath and committee members start to do a huge amount of work on amendments, we need certainty as to whether there will be a money message. Having done a huge amount of work on the Bill, we do not want to find ourselves in a situation where on Committee Stage in the hearing of amendments we will be told that there is no money message.

Deputy Michael McGrath has identified something that has been a major social problem for the past ten years. What will happen if we do not do anything to intervene? What will happen to the 70,000 homeowners in mortgage distress if we just maintain the status quo? What will happen if we do not do anything through statutory intervention? I would like to hear the Deputy's views on these issues.

Money messages are outside our direct control, but we certainly need an answer on the matter.

As the Deputy knows, this is not the only Bill that will require a money message to proceed. A feature of the current Oireachtas is that some good Bills are being held up due to the lack of a money message and this needs to be addressed. If we do not do anything, as I gather it the situation on the ground is getting worse. For example, Deputy O'Callaghan will be familiar with the court case on the locus standi of the debtor.

Let us consider the existing appeal provisions, as set out in section 115A. This applies where the family home is involved and someone goes through the Insolvency Service of Ireland, the proposal put forward by the PIP is rejected and there is a "No" vote in accordance with the 65% threshold and so on, and the borrower wishes to take the matter further. As the committee knows, the borrower also has to have been in arrears prior to January 2015. Last night I received a reply to a parliamentary question with up-to-date data on this. Up to 20 October, there have been 632 applications for appeal under section 115A and the majority of these cases have yet to receive conclusion. I was provided with a table that sets out a summary of those that have reached conclusion. The table breaks down the first 180. Presumably, therefore, 180 of the 632 appeals have reached a conclusion. Of the 180 that have reached a conclusion, the appeal was approved in 57 of them and, in effect, the veto was removed as a result of the court decision. That is welcome, but it is only 32% of those that have been concluded. In 97 cases, the reviews were dismissed by the court, which includes 51 objections that were upheld on consent, and 26 reviews were withdrawn by the debtor. That is a breakdown of the first 180. In a small number of cases, an appeal was taken to the High Court and I have a breakdown of the outcomes of appeals to the High Court of Circuit Court decisions. A total of 18 appeals have been concluded. In four cases, the reviews were approved, in nine cases they were dismissed and five cases were struck out or withdrawn.

The ISI may point out that a deal may have been done in the interim in cases where the reviews were withdrawn by the debtor. We do not know that, however, and cannot be certain of it. It is also possible that the borrowers were simply weary and ultimately conceded that they were not going to win. The reply shows, however, that only 180 of 632 appeals since 2015 have been concluded and that, of those, only 57 have been successful. That is before the recent court case, which has really put a freeze on the entire process. PIPs are not going to be prepared to take the risk of potentially being held personally liable for costs. Therefore, there is a need for amending legislation to clarify the situation and to ensure that debtors have proper locus standi and can take the appeals in their own names. More family homes will be lost unnecessarily if we do not intervene and try to re-balance the existing system.

Is there any suggestion that financial institutions will try to sell on mortgages that are in distress to other entities such as vulture funds or is that just a fear that may happen but for which there is no basis?

There is absolutely a basis for it. It has happened already and we will see more of it. We are all aware of the pressure the commercial banks are under to address what they call non-performing loans, NPLs. That pressure is coming from the ECB. A considerable number of loan portfolios have been sold, particularly buy-to-let loans. There is certainly a risk that we will see more of them, including family home mortgages. It is important that we reform the system and get it right and that we give people the opportunity to have the family home protected. This is not a blank cheque by any means. If one considers the Bill, it is quite detailed. It is not a one-page Bill. We have put quite an amount of thought into it and there are many controls in place. The provisions are designed for those who are making a genuine effort and have made full disclosure of their assets, income and outgoings and to see if an independent pair of eyes will be able to find a way of saving the family home and putting the mortgage on a sustainable footing. That is the essential objective of the Bill.

I thank my colleague, Deputy Michael McGrath, for the work he has put into the Bill. In recent days we have seen how the banks have conducted themselves and Deputy McGrath has been to the forefront of examining that. We need to re-balance the power across a number of core policy areas for the banks and removing the veto is the most appropriate mechanism to ease the situation of the borrower and to try to avoid borrowers having to go through the court process. I have a couple of questions which relate to some of the submissions we received from the other groups. The Irish Mortgage Holders Organisation, IMHO, has said that, while it welcomes the Bill, it thinks going back to the Personal Insolvency Act could bring up more constitutional difficulties, which seems to mirror what the Minister has said. The IMHO has suggested that the outcomes desired by the Bill could be achieved in an easier fashion by a not-for-profit regulated third party. What is Deputy McGrath's view on that position?

What was the last point?

The IMHO believes that the outcomes desired by the Bill could be achieved in an easier fashion by a not-for-profit regulated third party purchasing these loans and radically restructuring them.

That option can play a role, but we have been hearing for a long time about reforming mortgage-to-rent and having it introduced on a grand scale. David Hall's organisation has done good work on the issue and has made a lot of progress but many people will end up in the formal insolvency process. During the debate in 2012 when the insolvency legislation was being introduced initially, there was a debate about the bank veto and the constitutional issue was raised. We were all told categorically at the time that the advice was it would be unconstitutional not to give the banks a veto. In 2015, there was a change and an appeal mechanism was introduced where, in certain limited circumstances, a court could ultimately intervene, impose a solution and cut through the veto as such. That is all fine, but that system is not working.

What we have proposed is proportionate and measured and it has the public interest at its heart. It provides that the independent office can have the final say where the family home is involved. It is subject to a number of safeguards and there is also an appeals mechanism within the legislation. We drew on external legal support in drawing up the Bill and the view conveyed to us was that, given the safeguards in place, the appeals mechanism and the criteria for going down this road, which are quite limited and narrow, it stands a very good chance of passing the constitutional test. For me, that is sufficient to bring forward the Bill. If the Attorney General has advice on the matter, let us see it in order that we can, if necessary, amend the Bill, put additional safeguards in place and protect the Bill from constitutional challenge, which I think can be done.

Has the Minister provided any of the advice received from the Attorney General?

Has Deputy McGrath seen the amendments proposed by the Insolvency Service of Ireland? In its submission, it has recommended a number of proposed amendments. For instance, it refers to mandatory creditor engagement. Has Deputy McGrath seen those amendments? Does he have any thoughts on them?

I have not yet seen them.

That is fair enough. I thank my colleague again for the work he has done. Hopefully, we will see the Office of the Taoiseach progress some of the money messages. As Deputy O'Callaghan said, we are repeatedly seeing a lot of work being put into Bills on First Stage and Second Stage, as well as pre-legislative scrutiny, but then we hit a cul-de-sac. I hope the Deputy's work is vindicated and that progress is seen.

It is important to note at this point that the money message issue is a vexed one, and this committee knows it better than most. Given the degree of annoyance that it has created and the queuing up of Private Members' Bills, for which this committee and others are having to watch and wait, I had a meeting last evening with the Ceann Comhairle and the Clerk of the Dáil on the matter as a further step to try to see an early resolution. Even the courtesy of advice that a money message will not issue would mean we are not left in a total absence of what is intended. That will be followed up again today and I welcome any input members might have on the matter.

I call Deputy Donnchadh Ó Laoghaire.

I welcome Deputy Michael McGrath and thank him for his work on this legislation.

It is obviously an enormous social issue. There are in excess of 70,000 cases affected by it, more than 30,000 of which for more than two years. Deputy Michael McGrath has identified well that, as well as repossessions, there is a significant issue of borrowers voluntarily surrendering their home with all the heartbreak, stress and hardship that causes. There have been examples in the constituency we share and I am sure the Deputy will be as aware of them as am I.

It is clear from all three submissions, not only from the Deputy but from the Irish Mortgage Holders Association and the ISI, that the key issue here is the bank veto. Indeed, the ISI clearly states, significantly, for a statutory organisation, that it is very dissatisfied with the co-operation of creditors as well. That is the key issue. It is something that Sinn Féin has been saying for some time. We introduced legislation on it in 2013 and it is positive to see it dealt with here as well. My questions come not only from an area of broad support for the Bill but perhaps a desire to strengthen it as well. I have a number of quick questions and observations.

The first is in on section 4, which provides that the Minister would have the ability to make regulations on the prescribed level of disposable income etc. The ISI has already prescribed levels on such matters as disposable income. In allowing proposed new different ones to be set by the Minister, is it possible that the Minister of the day could use that power to reduce the scope of this legislation to offer flexibility and assistance to borrowers? Is there something Deputy McGrath might see wrong with the ISI's income levels that needs to be addressed? Is that an area that perhaps could be strengthened?

Deputy Jack Chambers raised the issue of ideas put forward by the ISI. As far as I can gather, that comes from the service's belief that establishing a new office would take some time and perhaps it might be better to look at two particular areas to try to resolve this. The first is that it would become compulsory for the creditor to provide clarity on the manner in which it wishes its debts to be dealt with. The second is that, in terms of the court review process, creditors would be restricted to only those arguments they raised during the protective certificate period. If it is possible, Deputy Michael McGrath might comment on that.

Section 12 is all about the process that allows the bank to object to the continuing participation of a family in an order but it seems potentially open-ended. It seems as though a bank could use this process to draw it out if it did not want to co-operate with the mortgage resolution order. Is that something on which a deadline should be put? Should that be tightened up to ensure that banks could not use it vexatiously?

Finally, a category of borrower that has not diminished much in recent years is that of those who are in arrears over 720 days. Does this Bill deal adequately with them? Is there enough scope in it to assist those who perhaps are in the greatest need of assistance?

As I stated, my party supported the Bill through Second Stage and looks forward to supporting it through Committee Stage, but if it is possible, I ask Deputy Michael McGrath to comment on those issues with the Bill.

I thank Deputy Ó Laoghaire. Those are important questions.

First, in respect of section 4 and the power of the Minister to set out the prescribed levels of income and assets and so on, the intention is that it would mirror the reasonable living guidelines of the ISI. That can be made explicitly clear in the section. There is certainly no intention to have a different entry point as such, in terms of the asset or income situation of the borrower concerned.

I have not seen the ISI submission but I would welcome the suggestion that creditors be required to provide greater clarity during the process as to how they wish to see their debts resolved - that does not go far enough - and the suggestion that they would be restricted in the appeals process to arguments that they made during the protective certificate stage. What I am hearing back is that they are frustrating the appeal system. There are affidavits flying backwards and forwards. They are requiring extra submissions. They are coming back at the last minute. Cases are now taking more than a year to go through that whole system. Deputy Ó Laoghaire mentioned correctly that 32,000 family home mortgages are in arrears of two years or more. When one considers that 57 have come through the appeal system successfully so far, although not all of them went into it, that system is certainly not working.

As for section 12, the intention certainly is not that it would be open-ended in terms of the bank appeal. I am open to inserting an amendment there that places some restriction on the overall length of time that it takes.

Finally, in respect of the long-term arrears cases, this is a real problem. Mr. David Hall's organisation has done a lot of work on this but it is important to give statutory recognition to mortgage-to-rent as an option. It should be in there as an option for the Insolvency Service or the mortgage resolution office so that, in cases where borrowers want to remain in the home, mortgage-to-rent would be an option within the service. It is important to give expression and statutory recognition to it.

Apologies for being late but I read Deputy Michael McGrath's statement last night. It is time for this legislation and I commend the Deputy on the work that he is doing.

I wholeheartedly support the Bill. Any measure that prevents borrowers from losing their homes has to be welcomed. As we all will be aware, Fr. Peter McVerry, who is a wonderful man, said this country is returning to Famine times by evicting families and the Government is not willing to take on vested interests. Worried family members are coming to us daily because the next step for them is to go into hotels. I really do commend the Deputy.

I just have one comment or question to see the Deputy's thinking on this. Can we strengthen the legislation by compelling the banks to offer repossessed homes to their original owners at the same price as vulture funds are paying? I do not know whether that is feasible but I wanted to throw that out there because that is a huge issue. The vulture funds are able to pick up homes from which borrowers are being evicted. They are buying them at cheap rates. Would it not be a better idea to be able to offer the family the home back at that cheap rate? I merely wanted throw that out there and see what the Deputy's thoughts are on that.

Is Senator Black talking about cases where the home has been repossessed?

Yes. Instead of selling it to the vulture funds at a very low price, would it not be better to sell it back to the family or try to work out some kind of deal in that way?

I understand the Senator's point. The core objective of this Bill is to prevent a case getting to that point. It is to have a system in place that gives the borrower a fighting chance of holding onto his or her home. It gives the independent office the power to make the final decision. Outside of the Insolvency Service, there is the code of conduct on mortgage arrears and the banks are required to implement the mortgage arrears resolution process, MARP, programme, but it is the lender who makes the final decision as to whether the mortgage is or can be made sustainable. The lender makes the final decision as to what restructuring option, if any, will be offered to the borrower. There is a lack of consistency. We all have been involved in individual cases, most of which ended fairly well, where the borrower has got some restructuring arrangement put in place but others have been inexplicable cases that looked to be strikingly similar where I have had full oversight of all the facts. There seems to be an inherent inconsistency, not only between different lenders but sometimes even within individual lenders, as to how cases are being dealt with. That is not good enough. What the Insolvency Service has succeeded in doing is bringing a degree of consistency in the treatment of cases that have come before it.

The frustration is that ultimately the lenders can just say "No". While we have an appeals mechanism, many people are just worn down and they do not take their case that far. They give up and in many of the cases where we see voluntary surrender or voluntary sale, they have not even gone through the appeals system. They have just had enough. It is dragging on for far too long and people react and deal differently with stress and anxiety.

Undoubtedly, the system needs to be accelerated and we need to give an independent office the final say. The Government's position currently is to let the court have the final say on it. That is a very adversarial system. It is very lengthy, very drawn out and very cumbersome. It is currently completely broken because of the High Court decision in regard to locus standi. That is the core objective. The whole issue of the sale of loans, vulture funds and so on are all related but it is not directly related to what we are doing.

Is Senator Black happy with the response?

The last member to speak is Deputy Mick Wallace. We have two further tranches to our address of this Bill this morning, so further opportunities will present as witnesses appear before us.

I thank Deputy Michael McGrath for bringing this Bill forward. He deserves credit for the work he has put into it. It is what we are supposed to be doing in here. Politicians tend to put a lot of their energies into other areas that are not necessarily fruitful in terms of how we legislate for the country and organise things. I would like to touch on some of the points the Deputy has raised.

With regard to the money message, has the Deputy's party challenged the Taoiseach? The media are fond of calling it the "do-nothing Dáil". We could make it the do-something Dáil. I am surprised that the Taoiseach has not been more proactive. Is this going to go on forever? It is like a charade. There will be a queue of Bills. I heard a statistic to the effect that the amount of legislation going through the House in the last 12 months is at a record low. Has the Deputy's party challenged this situation? It has an arrangement with the Government. Is any progress being made in this area?

I have not read Deputy McGrath's Bill but I have every intention of reading every word of it. I will not go into my personal experiences. However, I have had experience of much of what is going to be in this Bill. While I am not going to personalise it, I am certainly going to use my experience to scrutinise the Deputy's Bill. I am looking forward to working through it.

The Deputy pointed out that in the first half of this year, 1,363 family homes were lost through sale, voluntary surrender or repossession. The Deputy has given the figures for the appeals system. Although 632 appeals were made since 2015, only 180 have been dealt with and 32% of them were successful in removing the veto. Can the Deputy identify why it is taking so long? Obviously, it is not rocket science in that we realise that the financial institutions, sadly, have played a game of breaking the individuals involved much of the time. I know many people who have committed suicide because of their problems with debt and the banks and how they were treated.

The Deputy made the point that while restructures are recurring and, in some cases, write-down deals have been done, it is inconsistent and unsatisfactory. The Deputy has never said a truer word. It has been like a beauty contest. I know of many deals that were done and of many that were not done, whether it was by NAMA or the pillar banks. It is so inconsistent. Does the Deputy agree that the lack of proper regulation of the area allows them to behave as they see fit and run it as a beauty contest? Sadly, from all that I have learned over the last few years around this whole area, especially with thousands of people from all over Ireland contacting us about the National Asset Management Agency, NAMA, and the banks, I cannot help feeling that this is a banana republic when it comes to how we do business at this stage.

We in the Oireachtas have been definitely negligent in that we have not dealt more cleanly with this. The history books will be unkind to this period of Irish life when they look back on it and on how the failure in banking led to the biggest financial crash and the biggest crash of all types in the history of our State. We made the least well-off suffer the most as a result of it. Does the Deputy have any clear ideas as to how we deal with this overriding problem whereby, truth be told, we cannot tell the banks what to do despite the fact they would have been out of business only for the fact they were bailed out by the people?

The Deputy's Bill is certainly welcome even though I have not read it. The principle of it is definitely a progressive move. This will address some of our problems in this area. However, we hear about the constitutional challenge and we have heard so many pronouncements since we came in here in 2011 about what the Attorney General thinks about this, that or the other and never having to give us proof of how he or she has come up with the opinion. Given the Deputy's role as finance spokesperson within his party, does he have any plans as to how we deal with the overriding problems around all this?

I thank Deputy Wallace and call Deputy McGrath.

In regard to the money message gridlock, I understand that there is contact. It would not be at my level but there is contact with the Government in an effort to unlock that. Hopefully, there will be some update on that.

I refer to the other points the Deputy made. Dealing with the hard facts, of those who go into the insolvency process where a PIA is applied for, we have a 56% "Yes" vote and 44% is either a "No" vote or the protective certificate expires. Some 24% of that 44% is where the certificate has expired. We do not know what has happened in those cases. It could be that a deal has been done in some cases but in others it has not been. What we know for sure is that 56% is a "Yes" vote. That is at the first stage within the insolvency service. In regard to the appeals process, there were 632 appeals but only 180 were concluded and, of those, as the Deputy has said, only 57 have been approved. Everyone will acknowledge that there is a serious problem there. The issue is how do we deal with it.

The approach of lenders is forcing people to seriously examine the bankruptcy option. That is what some people are doing and it may be the right decision for them but I do not know as I am not an expert on it. I do not believe that when it comes to resolving a mortgage arrears situation on a family home that a person should have to go bankrupt. That is not what bankruptcy was designed for. It should not be necessary. What is happening in practice in the appeals system is that the lenders are frustrating the process. That is what I hear directly from people who are involved in it. There are affidavits flying all over the place and coming in at the last minute, looking for more discovery and more documents. This relates to cases that have gone through the full insolvency process. They are just wearing people down and some people are just giving up. That is why figures for voluntary sales and voluntary surrenders are so high.

It is often noted that there are very few repossessions in Ireland. That is because people simply give up and either sell their house or hand the keys back to the bank. That is what is happening in practice.

The changes to the code of conduct on mortgage arrears in recent years have had a negative impact, tilting the balance in favour of the lender and leading to a dilution of borrowers' rights. The changes must be reviewed. What the banks fear most in any new legislation is that it might cause them to lose control of the situation. The feedback I have had is that they are very fearful of the Bill I have brought forward because it will mean that they can no longer frustrate the process indefinitely. An independent office making the final decisions and an appeals mechanism functioning within the process, as I am proposing, will mean that debtors can no longer be dragged through a cumbersome and lengthy court process. That will transform the landscape for those who are in arrears and genuinely making an effort to address the problem. The Bill is not a charter for people who refuse to engage and have no interest in servicing their mortgage. We all know of people who, in some cases, have paid nothing for years and have no intention of paying. These proposals are for the benefit of debtors who have made full disclosure, are paying what they can and making great sacrifices to keep their home. We should be on their side. The Bill is an effort to move in that direction.

I thank Deputy Michael McGrath for his opening statement and responses to members' contributions. I commend him for bringing forward the legislation and wish him a fair wind in progressing his proposals.

Sitting suspended at 9.52 a.m. and resumed at 9.53 a.m.

I welcome the delegates from the Irish Mortgage Holders Organisation, Mr. David Hall and Mr. Stephen Curtis. The format of the meeting is that they will be invited to make an opening statement, after which there will be a question and answer session.

By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or an entity by name or in such a way as to make him, her or it identifiable.

I invite Mr. Hall to make his opening statement.

Mr. David Hall

I thank the Chairman for the invitation to attend the meeting. As most committee members will be well aware of the ongoing mortgage arrears crisis from their daily dealings with constituents, I will go through the information as quickly as possible.

The IMHO is a registered charity which has completed 8,000 deals on behalf of clients, 90% of whom have managed to retain their family home. Some 20% of all bankruptcies in the State are arranged and managed by us free of charge to our customers. The mortgage crisis in Ireland has been ongoing for a long time and there have been 120,000 mortgage restructures. In fact, that figure represents a spin on the data, given that it counts every restructure of every loan, including multiple restructures of each mortgage account. The reality is that nearly a decade on from the beginning of the financial crisis, the latest figures from the Central Bank show that 73,000 families remain in arrears on their mortgage repayments. As Deputy Donnchadh Ó Laoghaire noted earlier, we are talking about real people and families. The banks, including the Central Bank of Ireland, talk about loans, but the reality is that the figure of 73,000 loans encompasses in excess of 250,000 people. Some 32,000 of these families are in arrears for more than two years, but we do not know whether it is three years, seven years or more.

Since 2009, there have been many attempts to resolve the mortgage arrears crisis. Some cases self-resolved with the improvement in the economy, as mortgage holders returned to work and found themselves in a position to restructure their loans. Others remain trapped in a mortgage arrears spiral where they may be able to make some contribution towards their mortgage repayments but not enough to meet a restructuring amount, as required not only by their bank but also in accordance with the rules mandated by the Central Bank which is, in effect, a silent partner in the failure to find solutions to the crisis. The remainder of the persons in arrears comprise those who have no ability to pay and are eligible for social housing. They will end up homeless if their bank seeks a repossession order or proceeds to execute existing proceedings. In addition, we have the vulture funds which are buying distressed loans and evicting mortgage holders. Against this background, we set up iCare Housing to ensure, via a mortgage-to-rent arrangement, that as many people as possible could remain in their homes. The facility to offer mortgage-to-rent arrangements is included in the programme for Government as being a statutory option. It is imperative, at the very least, that it be a requirement to offer it to eligible mortgage holders prior to any repossession order being granted.

It is important to highlight the numbers of those in mortgage arrears and the low levels of resolutions that have been achieved by the ISI. It is not because Mr. Lorcan O'Connor and his team are here that I wish to emphasise the unfairness of blaming the Insolvency Service of Ireland for the lack of progress. I have been a critic not of the service but the relevant legislation. The Minister must address the problems with the legislation without delay and I urge the committee to convey to the Department the need for action in that regard. The ruling on the locus standi issue requires personal insolvency practitioners rather than the debtor to make appeals. This issue did not come from thin air. The Oireachtas introduced an amendment to the Personal Insolvency Act to allow the banks to have the veto removed. The banks went to the courts to upend the veto, such is the contempt with which they treat the legislation and individual debtors. At the core of all this is the determination to retain power. As we saw in recent weeks on the tracker mortgage issue, there is a consistency in the resolve of the banks and vulture funds to keep the power they possess. Deputy Michael McGrath's Bill represents a serious attempt to change that dynamic. He is right that the banks do not like the legislation. They do not like any of the legislation before the Houses. Deputy Mick Wallace spoke earlier about a "do-nothing Dáil", but, in fact, the banks are petrified of this Dáil because it includes parties and Members who traditionally have not got on with each other but who are showing, for the first time ever, a consistency of approach in protecting debtors. The banks do not like this.

As I said, it is unfair to criticise the ISI for the failure to protect mortgage holders in arrears. If any criticism is to be levied, it should be directed at the Department of Justice and Equality and the political structure that allows the existing legislative framework to continue in being. It must be radically overhauled. We deal with the Insolvency Service of Ireland every day and know that the banks do not engage with it. They will not engage with customers and will not engage with us. They will not engage with the State organisation charged with debt management. That is another consistency in their behaviour. Radical legislation and action are required to tackle them. It is the only language they understand.

The ISI is processing 300 personal insolvency agreements, PIAs, per quarter. At that pace of progress, it will take 25 years to resolve the 32,000 cases involving loans in arrears for more than two years, never mind the full complement of 73,000 cases.

I mentioned personal insolvency arrangements and locus standi. It is imperative this committee, as the justice committee, seeks to amend the legislation urgently because, as Deputy McGrath mentioned and Deputy Wallace asked about, 500 personal insolvency appeals have stalled. They have come to a complete standstill. Personal insolvency practitioners are required to seek independent legal advice before they can appeal, which is just outrageous.

We support the Bill in its entirety and we hope the committee and the Dáil take it on. Constitutional issues have been mentioned, and I heard Deputy Chambers ask Deputy McGrath about this. The Attorney General seems to work for one person only. We do not seem to have advice from the Attorney General as to what can and cannot be done, which would make this entire process a lot easier. It is the same with regard to the tracker issue.

There is a minor alternative to what Deputy McGrath proposes. My job here is to be honest with the committee on behalf of the people we represent. One of the concerns we have about the Bill is the fear the banks have about it. We hope they do not sell loans to vulture funds sooner than expected. This is a genuine concern we have. At present, there are three pieces of such legislation before the House. We have grave concerns this would accelerate in some way. This is why Deputy McGrath's Bill needs to be dealt with speedily and without any hesitation, so it is in being before any vulture sets its hands or claws on any of the family home loans.

We believe there should be a vulture tax, and not just a makey-uppy vulture tax but one which reflects sales of family homes to vultures. We had a nice increase in stamp duty in the budget. There should be a 50% increase in stamp duty for properties sold to vulture funds by banks. That would soften their cough very quickly. We have a housing crisis. We have had clients who lost their lives and we have clients who struggle daily in battling this. I am speaking to the converted because all of the committee members deal with people in their constituencies throughout the country. We have neglected these people for ten years. Collectively as a society we have caused harm to them and caused them to die or to be injured.

We need legislation to tackle these people. They parade around the place. Bankers and vultures are running rings around the Department of Finance, the Central Bank and, respectfully, the Government at this moment in time. This is epitomised by the tracker issue, but it has been going on for ten years with inconsistency upon inconsistency. We need action and we need the banks to be compelled to engage. They do not understand the conversations of normality and of engaging and asking. They need to be told and dragged to the water and not led to it.

Those in arrears for more than two years amount to 33,000. This is the most vulnerable cohort of people. Many of them have no contribution to pay. Mortgage-to-rent is required to be a compulsory component of this to protect people and keep them in the homes. As Deputy McGrath said, some people here simply will not pay. Let them knock themselves out. This is not a charter. I am not parading around trying to protect a couple of people who want to try to game the system. Nuke them and good luck. I will not defend anyone who decides to engage in that behaviour and it is proven. There are two cohorts of people who cannot pay, one that Deputy McGrath's Bill deals with and one that it does not deal with directly but does so indirectly with regard to mortgage to rent. There is no issue for those who are eligible for social housing and who cannot pay. Those who can pay something need radical restructure.

We are looking, as are others, from a not-for-profit and charity perspective to see whether there is a mechanism for us to buy these loans. If, say, daddy vulture, for want of a better term, will buy a €300,000 loan from a bank for €100,000 why not let us buy it? Why not let us radically restructure that loan? Some will say vulture funds are a great way to deal with debt and absolutely great to write off debt, but they will make people homeless because they have no interest in Ireland or the housing issue here. Why do we not buy that loan for €100,000 and allow the couple or family who can pay €650 a month do so with a radically restructured loan? If they are not sold to a charitable organisation then put on a 50% stamp duty and see how that softens their cough.

I thank the witnesses for coming in and making a presentation to us this morning. The assessment of the Bill I get from the witnesses is that they are supportive of it and think it is a good idea but they have two concerns. One is that if it looks like it will get through the banks may sell on to vulture funds to avoid its consequences, and the second is there may be constitutional issues, which were raised previously, and the witnesses assume they will be raised again. Although they are supportive of the Bill they think another way to resolve the issue may be to sell these loans to a not-for-profit regulated third party. Will the witnesses elaborate on this? I presume it would require legislation from the Oireachtas to mandate the financial institutions to sell on certain loans and mortgages in distress to specified third parties.

Mr. David Hall

Yes, the other alternative is a heavy stamp duty on such properties, which would be a much faster way of doing it. Yes, there would be a requirement on the State. The State has an interest in two of the larger lenders. It is unclear as to how the Department understands its ownership of those shares, because in most other companies an owner of 70% or more has a level of influence. I do not think the Department has read the textbook yet. There are ways by which this could be done. There are simple ways and complicated ways. A tax of that magnitude on those distressed properties in the current housing crisis and emergency would be wholly reasonable and would force the issue. We are talking about buying the loan for €100,000.

One of the biggest crimes in all of this is the lack of offering back to customers their own homes at a price at which the vulture fund would purchase. This would allow that mechanism to happen. The bank would get the same money. There is no disadvantage to the bank. It is the vulture fund that would be disadvantaged and we do not have pity for any vulture fund. The vulture fund would lose. Our job is to run interference on vulture funds. iCare Housing was established to ensure the most vulnerable were protected in this regard. We will look to phase 2, which will run direct interference on vulture funds as fast and aggressively as we humanly can. This legislation is essential because it is radical and would put on immense pressure. Something I did not mention is even if the vulture funds buy the loans I hope this legislation would capture it, so it would be a safety net. There is a mechanism to radically restructure those loans by buying them out. The ECB is not our friend. It may very well wake up one morning and decide to instruct banks to move much faster than any of us will ever know, and that is a clear and present danger.

To achieve one of the objectives set out, I presume the witnesses would need a decision by the Government and legislation introduced by the Oireachtas. Do they envisage NAMA-type legislation, whereby a statutory entity would be set up or perhaps use the insolvency service, and mortgage distressed loans in the financial institutions would be examined and transferred to this statutory body?

Mr. David Hall

It could be done in two ways. It could be done in a long tedious way, which is loan by loan whereby mortgage-to-rent would be replicated with loans and not houses, or we could look at loan portfolios. We have an emergency plan, which means we will bid against vulture funds in the event of family home loans coming up for sale. Ulster Bank has sold 900 family homes and many others have sold buy-to-let properties. Permanent TSB has a huge issue with non-performing family homes and has flown seven kites regarding selling to vulture funds. We know the ECB is in with the banks at present and that hammer could drop any day. It could be done loan by loan, similar to house by house for mortgage-to-rent, or as a collective portfolio. If collective portfolios are used some people would lose out because in restructuring those loans some people on the coveted trackers may have to come off them and some on preferable interest rates may have to change. There are risks with it, but it is the way that will help the most people in an emergency.

Is it possible for a not-for-profit regulated entity to go to the financial institutions, in the same way as a vulture fund would, to try to purchase them without any legislative intervention?

Mr. David Hall

We have already met them and offered. Mr. Curtis and I have met them on a number of occasions and we were received very well.

Surely from their point of view it is just a question of money. If the witnesses pay more than the vulture fund then-----

Mr. David Hall

If daddy vulture gives them €100,000 and iCare Housing, the IMHO or I give them €100,000, it is the same €100,000 but the intent is different. The intent is to keep people in their homes. There is a different intent and that is where politicians have played a phenomenal role in putting massive pressure regarding vultures and vulture-lovers and trying to curtail that culture. Ultimately it is not about vultures, it is about people in homes and banks willing to do the right thing, which they failed to do for a long time.

I thank Mr. Hall.

I pay tribute to the IMHO for the work it has been doing on this issue in recent years. On the proposal the IMHO has brought forward, which Mr. Hall was just discussing with Deputy O'Callaghan, would he see it as being a complete alternative or as being complementary to legislation removing the bank veto? It is a model that clearly recommends itself to me, but it occurs to me that inevitably a not-for-profit organisation will not have the same reach as the State. While it would be an option for many people, it would not necessarily have the same reach as the State or a statutory body. Does Mr. Hall see it as complementary?

Just to clarify, Mr. Hall believes that some parts of his proposal might require legislation but that some of it could happen here and now without a legislative basis.

Mr. David Hall

I will hand over to Mr. Curtis in a second but I would like to say that this is eminently possible. This is a simple transaction. It is a sale such as those that happen with unregulated entities. The State has sold to, facilitated, and given tax incentives to unregulated vulture funds in order that they could buy distressed properties over the past ten years and then benefit from the uplift. The precedent is there. The difference is that the entity making the purchases would be a real charity as opposed to a shelf charity.

Mr. Stephen Curtis

In respect of legislation which may be required for a not-for-profit to buy loans, no changes are needed. It could happen tomorrow. An entity with the right ethos would simply need to be set up. The difference between a vulture fund and a not-for-profit is that a vulture fund purchases loans with the intention of realising the value of the security, that is, the houses, whereas a not-for-profit would purchase with a longer-term view. As we all know, vulture funds look to a time horizon of two to five years. A not-for-profit would probably be looking at 30 years, similar to an approved housing body. It would be interested in keeping people in their homes for a very long period and, over that time, giving those people a route back to ownership. That is something vulture funds do not do and that does not require any legislative change.

In respect of the proposals we are making here today and the Bill that is before the committee, they are very much complementary. The size, quantum and scale of this problem means that there will not be a one-shoe-fits-everybody solution. It requires multiple solutions for the different types of people involved. One of the challenges is that this whole crisis is now seven, eight or nine years old and the problems which have arisen have been left to fester for that long. It is very much a complementary proposal and suggestion. We are very supportive of the Bill before the committee at the moment. It is certainly needed. There is a group of people out there who have mortgages and who can pay some money back, although not enough. The likes of a mortgage resolution office and a mortgage resolution order would be of great help for such people.

I just have an observation and a final question. I am sure it is something the witnesses are aware of and are coming up against. In my experience, eligibility for social housing is referenced for nearly all of the people that I am aware of who are in these situations. That means nearly nothing for the first few years. The social housing situation being such as it is and time being such a consideration, it is my experience that it is of very little assistance to people in the short run, even if they do qualify for it.

Some 1,300 family homes have been lost through sale, voluntary surrender or repossession in the first half of this year. If none of the measures outlined in the Bill is implemented, are we looking at an escalation over the next 12 months? How many homes can we expect to be lost through repossession, sale or voluntary surrender? Is it possible to anticipate it?

Mr. David Hall

Some commentators who are friendlier to the banks than I might be will reference my commentary in respect of a tsunami of repossessions. There has not been a tsunami of repossessions because of the courts system. Deputy O'Callaghan would know more about this than me. The courts system has been friendly towards debtors. It is not because of the banks' intent. The banks currently have 17,000 family home repossession proceedings before the courts. That is not a platform of social justice. There is a clear intent to throw people out of their homes. It is only because of varying degrees of interventions from this Parliament and from others that these proceedings have been delayed. The Insolvency Service of Ireland was established; the code of conduct to which Deputy McGrath referred was amended; the bankruptcy period fell from 12 years, to three and then to one; and the veto in the insolvency legislation was removed. A variety of solutions came along over the past six years which have delayed this inevitability. This delay gave some people hope. In some circumstances it was false hope. The cleanest and simplest way of dealing with this issue from the banking perspective is to sell the loans to vulture funds. There are currently 32,000 families in arrears of more than two years. The banks will say that half are not paying. If one looks at the natural evolution of that situation, there is a risk to 20,000 families. That number of people would fill Croke Park. We think we have a housing crisis at the moment, but it is nothing compared with what we will have if these repossessions begin.

Mr. Stephen Curtis

It is also important to say that while 32,000 family home loans are in arrears of more than two years, many of them are actually in arrears of three, four, five and six years. No resolution has come to that cohort of people and families. No resolution has presented itself. It is possible that no resolution is available. These are the cases which are mostly in the courts and in which the banks are very clearly attempting to undertake repossession. Thankfully, it has not happened in large numbers, largely because the resources of the courts do not allow these things to be progressed very quickly and because the courts have generally been friendly towards debtors and have given them chances to deal with these issues, albeit sometimes in situations to which there is not necessarily a resolution. If large-scale repossession does happen, it will happen to that group.

Mr. David Hall

The Deputy should not underestimate the damage which is caused to families and their mental health by even what they believe to be a successful delay. It is not actually good news. Many celebrate a delay. Many people we deal with do not deal with the annual calendar. The school calendar is their Holy Grail. They seek to get from term to term and have kids in school or college. That is their cycle. They believe in this delaying tactic. In the long term, I am not convinced that it will not have a catastrophic effect on mental health in addition to the normal mental health issues affecting those with debt.

I will echo other members in thanking Mr. Hall and Mr. Curtis for the great work they are doing on this issue and across the board. I have a couple of questions. What the witnesses have proposed is logical, rational and makes sense. Obviously they are trying to bring back the incentive in order that banks will sell to regulated bodies or charities, such as the one which the witnesses are proposing. To play devil's advocate, is there a mechanism within our taxation system which would allow for a split rate or a transactional levy which would allow us to identify vulture funds and apply an increased rate of tax or levy to them which would not apply to a charity? Have the witnesses checked the legal basis for that? I believe it is a very good idea. As Mr. Hall has said, it would keep people in their homes and stop the flow of mortgage books being sold off to vulture funds. Have the witnesses checked the legality of that?

Mr. David Hall

If one looks at the existing structure in place for approved housing bodies, such bodies are regulated entities under the Housing Agency and only receive funding from the State. We have a bizarre situation where mortgage-to-rent arrangements are made through iCare Housing, which is a regulated approved housing body but where the Department is about to call for expressions of interest from vulture funds to do the same. These funds call themselves commercial funds or some sexy name.

There are approved, regulated-----

Mr. David Hall

Approved regulated housing bodies, yes.

The rate could be split on that basis.

Mr. David Hall

An eligible sale would be defined as one going to one of the 500 approved housing bodies. Between them, they have a stock of approximately 50,000 social houses. The bodies range from women's refuges to large bodies such as Clúid Housing and Respond!, which have 6,000 units and 4,000 units respectively. These are large organisations but they are heavily regulated from a governance perspective. They are registered charities and they are regulated by a housing regulator under the Housing Agency. The differential is there, so we can make a clear distinction between a vulture fund and an approved housing body.

It is an excellent idea. In terms of the politics of the proposal, the IMHO would obviously have presented this to the Government or to officials before the budget. What was their response or feedback?

Mr. David Hall

The key incentive for us and part of our remit from a credibility perspective is that we had a 15-month engagement on the iCare housing model and we were trying to ensure that it was up and running as a significant entity. Phase two for us is to run interference on loan sales with vulture funds. I think it has been positively received. The Minister, Deputy Eoghan Murphy, was exceptionally helpful to us, as was the previous Minister, Deputy Coveney, in the setting up of iCare. To be fair, I could not complain about the Housing Agency or the Department. They were all very helpful in the setting up of iCare. We intend to open up that conversation very quickly now that we are up and running with iCare and the structure is in place. We are also speaking to external funders and internal funders. We met the CEO of one of the banks recently. We will be bidding against vultures for loans.

How will iCare build its bidding capacity to take on the vultures without the levy being there?

Mr. David Hall

Again, there is moral persuasion. Deputy Chambers and his colleagues have the biggest stick of all. They should make no mistake about it. A phenomenal role has been played by Members of the House, collectively. Bizarrely, no party animosity has arisen. Vultures do not like this place. This is not a safe haven for vultures. Ireland has become a safe haven for vultures. The Oireachtas now needs to pack their bags and send them home on an uncancelled Ryanair flight as quickly as humanly possible.

I fully agree with that. I thank Mr. Hall for his work. I fully support what he is trying to do.

I thank Mr. Hall and Mr. Curtis for coming before the committee today and for the fantastic work they do. I have referred a few families who were in crisis to Mr. Hall. I am sure we have all met such families. When they come in they are terrified and frightened. They do not know what to do. They do not know who to ask for help. They are terrified of the banks. It is very intimidating for a family member to go into a bank and have a discussion about such an issue, in particular when they do not get treated with the respect and dignity they deserve. That alone could put people off. People just do not know how to handle it. Organisations such as those with which the witnesses are involved are important because people listen, understand and show a little bit of care and that can be life-changing for family members and can help them with the state of their mental health.

It was said the banks have the power and they are running rings around the Department and the Government. Could Mr. Hall elaborate on that? When the banks offer a house to vulture funds and iCare gets involved and makes an offer, how is that received? Do they not really care or are they not bothered and more inclined to go with the vulture funds?

Mr. David Hall

I will answer Senator Black's last question first. Due to the combined pressure of advocacy organisations such as mine and others and Members of the Seanad and the Dáil we have seen a monumental change in the attitude of the banks to receiving us versus vulture funds. Heretofore, we would not have stood a chance. That is why this proposal is more relevant now than it ever was before. In dealing with some of the banks we can see they have not ruled out that option. Having been successful in launching iCare with significant funding to do what we want to do, that has given us the credibility required. We have put in place the governance issues that were required to achieve the regulatory standing to receive the funding and the deal we did with AIB, EBS and Haven has now given them some further comfort that this is not just an idea, that there is a regulated entity behind it that has been successful in achieving the required standing to get up and running.

To be fair, some members of the banks are humans. I know we vilify them. I am one who does so as well but there is a clear differential between bank staff. We have senior bank staff that have been around for many years who caused great damage in the past. The situation has evolved and changed and probably one of the most disappointing aspects of the tracker scandal is that we all thought they had changed and we still like to hope they have changed. I have met people within banks who would prefer to sell homes to us than to vultures. That is why we are very driven by it because we have a bit of confidence and a little bit of wind behind us in that regard. Given the option of having people thrown to vultures versus us where they have some chance I know where most people would want to go.

Power is absolute when it comes to banks. We say we own certain banks but as Deputy Wallace said, the entire sector is up and running because we have pumped our money into the banks. That power has never been relinquished in terms of dealing with the code of conduct; the informality; and the arrears support units not having dedicated phone numbers for dedicated case managers; making phone calls into a team of between 200 and 600 in certain circumstances and; having one's third-party information, notes, potentially one's medical notes and times of crisis relayed to one from a client management system on a screen up to and including writing off debt. Many of the people referred to by Deputy Ó Laoghaire in terms of social housing provisions are still in their homes even though they are eligible for social housing but they will not leave because they would be homeless. They have to fight for the housing assistance payment, HAP, and emergency accommodation. One of the key considerations is that despite knowing they are eligible for the mortgage-to-rent scheme and social housing the bank will not write off their debt but expect them to surrender their property.

The power imbalance is monumental and it will have a critical effect on resolving this issue. It will take a long time to resolve. As Mr. Curtis mentioned, there are multiple parts required. Effectively, an emergency response is required where the Insolvency Service of Ireland is beefed up with Deputy Michael McGrath's legislation. We need to have the mortgage-to-rent scheme on a statutory basis. Clear directions must be given from the presidents of the various courts. In circumstances where somebody is eligible for a restructure of the loan or a mortgage-to-rent arrangement no repossession order should be given to any institution in the State. Then we could try to move on and resolve this crisis. We are not resolving it. We are messing around and spinning numbers. The Department of Finance stated there were 120,000 restructures. There were never 120,000 people in arrears in the country. Every single loan that got six months' extension was classed as a restructure. They were celebrating restructures. When one has got that dishonesty the banks feel protected and they always will feel protected. All one has to do is look at the last ten days to see the running around that has happened and the power the banks have. It is deeply concerning that they still retain that power. They now need to have that power removed. The only place that can happen is in the courts or in these Houses.

Mr. Stephen Curtis

We were asked what kind of response we get in relation to the vulture funds. It is fair to say they are not geniuses. They do not come in with some phenomenal offering that the banks consider to be far better than anyone else can offer. One of the successes of iCare is that we were able to put together a package and a proposition that made sense commercially. There is a template and a roadmap in place and we can go to every bank in the country and say we can do what it wants from the vulture funds, which is simply to move this on and to get some money for it but we can do it in a way that leaves people in their homes, that gives them security about where they are going to go and gives them certainty for the decades to come. Apart from the practical success of iCare, its success has been to show that vulture funds are not the only show in town and they are not. The welcome they got previously was possibly because they were seen as the only show in town and it is important that that has changed.

I have just one follow-up point to make. Could Mr. Hall give us an example to support his comment about the banks running rings around the Department? Staff in the Department are probably up to their eyes in the crisis and they are listening to people coming in and talking to them all the time.

Mr. David Hall

When we launched the mortgage-to-rent programme through iCare many of the backbench Government Deputies were infuriated at the fact that we were successful in launching it. It was something many politicians asked banks, the Department of Housing, Planning and Local Government and the Department of Finance to do. There was no brain surgery involved. This was just pure common sense. There was already a mortgage-to-rent infrastructure in existence but it could not happen because the banks said it could not happen. Advice has been sought from the banks and their views have been taken as read. Banks have lied repeatedly for decades and it beyond me why we still take their word but they have shaped policy and shaped legislation and this is the legislation they now need to be delivered upon them without even asking their views.

I thank the witnesses for being here today. They have played an important role in articulating precisely the common sense approach that is sadly lacking. The Waterford Whispers News article in which the Minister for Finance, Deputy Donohoe, points his finger at the banks, saying "bad bank", "very bad bank", "bold, bold bank", while at the same time they carry on regardless probably best sums up the situation we are in. While I accept the point that people across the House have grappled with these issues, the reality is that they have not succeeded precisely because they paid homage to the banks. The same applies to the vulture funds. Many people will welcome that there is now an organisation bidding against them. Yesterday, I received a message from a friend who had received a letter that morning stating that his loan, presumably along with a batch of others, was being sold by Dankse Bank. Upon inquiry, he learned that the loans were being transferred to Cerberus. His attitude is if Dankse Bank is getting a write-down on his loan because of his tracker rate, why can he not avail of that and get a new loan, thereby freeing up money that he is dumping into a bank to be spent in the local economy, which would be a win-win for everybody?

I have two questions for the witnesses. Mr. Hall referenced a quicker move to have property sold because of this legislation. The legislative process is incredibly slow. It takes approximately two years to have priority legislation enacted, which is a joke. Perhaps the witnesses would elaborate on the size of the bundles of loans, the mechanics behind a speedier process and the proposed timeframe in that regard. I agree that a speedier process is possible. My second question relates to bidding against the vulture funds. I think that would be hugely welcomed. If the witnesses know of anything we can practically do in that regard, I think everybody would be happy to do it.

Mr. David Hall

On the Deputy's last point, what members have been doing collectively and individually throughout this crisis has put the focus on the vulture funds and their behaviour. Some will say vulture funds write off debt. They do, but they also make people homeless. If a person wants to rid himself or herself of assets and have his or her debt written off, vulture funds is the place to go. We are not in that business. We are in the business of housing people, keeping people in their homes and allowing them time to recover. In regard to the Deputy's point about a win-win, one of the biggest win-wins is that there is no cost from this to the State. Mortgage-to-rent costs the State, but it was always going to cost the State anyway.

In regard to radically restructuring loans, Mary and Joe pay the €650 on their €300,000 loan that they cannot service. There is no State intervention. What is proposed would be a phenomenal win for the State not only in terms of mental health costs, but in terms of people being able to remain in their homes and dealing with issues. One of the most important features of this is that there is no State subsidy required. In regard to the size of the batches, they are frightfully high. There are a number of rule changes coming into effect in the first quarter of next year under which the European Central Bank, ECB, is requiring the banks to make provision for greater amounts of money against non-performing loans. Non-performing loans are the issue. Many of the large firms in Dublin are now changing their entire structure to advising banks on how to deal with non-performing loans, such is the risk to them.

In regard to products like split-mortgages, serious questions are now being raised around the parked amount of money, where it falls in a non-performing loan and the capital allocation component of it. The landscape is changing. It is becoming more aggressive. I am concerned about the synchronisation that is going on. Banks synchronise things. They will synchronise the press statements today after the sheriff gives them the go ahead. Another issue is the banks' synchronisation of the sale of loans. They are powerful if they sell loans together. If all of the banks in quick succession release loans to the vulture funds collectively, they give themselves phenomenal political cover. This is a campaign. It is hand combat-to-hand with vulture funds. There is no polite way of saying it: this is war on vulture funds to protect a significant number of family homes. This is not pie in the sky stuff, and it is doable, but it requires an orchestrated campaign on the negatives of vulture funds, which is continuing, and actual solutions. What we need is a body to take on these loans and manage them sympathetically. We are not asking anybody to roll over. Anybody who thinks they can game the system will find themselves at the end of repossession proceedings. This is about helping the majority of people who are in trouble.

As I said, this is possible. The number of loans involved is enormous. We are speaking not only about loan sales, but tens of thousands of people, men, women, children and grandparents. Many qualified and educated people, and others, assume that these people are well able to deal with debt. Debt cripples and crushes them and so there needs to be a direct radical intervention to assist them. This legislation in conjunction with other legislation will send out a clear message and, hopefully, move loans and families away from vulture funds into arms that might provide them with some chance of remaining in their homes.

As there are no other members indicating at this point in our engagement on Deputy Michael McGrath's Bill, I thank Mr. Hall and Mr. Curtis for their respective contributions. I join colleagues in congratulating them on their work thus far and I wish them fair wind into the future. I propose that we suspend for a minute or two to allow our next guests to take their seats.

Sitting suspended at 10.37 a.m. and resumed at 10.38 a.m.

I welcome Mr. Lorcan O'Connor, director of the Insolvency Service of Ireland, who is joined by Mr. John Farrell, head of regulation and policy division, and Mr. Alex Matthews, bankruptcy division, who is in the Visitors Gallery. In terms of the format of this meeting, Mr. O'Connor will be invited to make an opening statement following which there will be a questions and answers session. This is the third and final session of our address of the Mortgage Arrears Resolution (Family Home) Bill 2016.

Before we commence, I must draw the attention of the witnesses to the situation regarding privilege. By virtue of section 17(2)(l) of the Defamation Act 2009, they are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by it to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or an entity by name or in such a way as to make him, her or it identifiable.

I now invite Mr. O'Connor to make his opening statement.

Mr. Lorcan O'Connor

I thank the committee for the invitation to appear before it. Following on from this morning's session, it is clear that the committee is fully aware of the mortgage arrears problem in this country. While the overall number of mortgage accounts in arrears has been falling every quarter since 2013, there are still more than 70,000 mortgage accounts in arrears.

These accounts represent more than €13.5 billion of debt and roughly 10% of all mortgage accounts held in this country. More than 30,000 of those accounts are in arrears of more than 720 days which, by their nature, means that they are the most complex to solve. The Central Bank reported that at the end of June of this year, 120,000 family home mortgage accounts were restructured on an informal basis. Where these restructurings have been done on a sustainable basis, they are to be welcomed. It is important to remember that there are people and very distressed families behind these statistics. In working closely with debtors and debtor advocacy groups the ISI is all too aware of the impact mortgage arrears can have on debtors. It affects their physical and mental health but it goes further. It can also have a significant detrimental effect on the well-being of the wider family. The challenge for us all is clear: to find permanent sustainable solutions for as many as possible of the remaining mortgage accounts that are in arrears. It is apparent to me that the Bill has this objective at its core. I will be happy to address any specific questions that the committee might have concerning the Bill, but before that I wish to address briefly two areas at this stage, namely, an appraisal of the existing personal insolvency legislation and some high-level observations around the proposed Bill.

Prior to 2013, personal insolvency legislation in Ireland was outdated. The Personal Insolvency Act 2012 established the ISI as the independent statutory body responsible for all personal insolvency matters. It brought Ireland in line with international best practice and went one important step further with the introduction of the PIA. This solution seeks to restructure or settle secured debt within voluntary arrangements, something that had not been attempted elsewhere. Members will note that included in appendix 1 to this submission are examples of where PIAs have returned people to solvency while keeping them in their home. These personal stories represent debtors and families who were in real fear of losing their homes. PIPs, who are the professional advisers we regulate across the country, were able to find a sustainable solution to their problem debt, including their mortgage, that saw them stay in their home. Further testimonials are available on our website. Members will note one strong theme across the testimonials above all others, which is the huge sense of relief experienced by debtors when they secure a permanent solution that returns them to solvency.

Since opening, the ISI has returned almost 6,000 debtors to solvency. Approximately 2,000 of those cases were PIAs dealing with mortgage debt. In more than 90% of these PIA cases, debtors have been able to stay in their home. That, in my view, is a very significant achievement. International experience shows that it takes several years for a new insolvency regime to really gain traction. The ISI has, however, never worked towards the steady growth that international comparisons would suggest we aspire to. Rather, since our establishment, we have done everything within our power to ensure that all those that could benefit from the statutory solutions available, in particular the PIA, do so.

Earlier this year, the ISI undertook a critical appraisal of its work so far. This culminated in the publication of a submission to the Department of Justice and Equality in June, a copy of which we have provided to all members of this committee. Our analysis identified three key factors that influence activity levels. They were the efficiency of the process, debtor engagement and creditor engagement. In terms of the efficiency of the process, the core recommendation contained within our submission is that the insolvency arrangements provided for under the Act should be approved by the ISI rather than requiring a court to make an order for their approval. Importantly, this recommendation has the support of all members of a consultative forum chaired by the ISI which is made up of debtor advocates, creditors, PIPs and the Courts Service. The ISI is of the view that such a change would result in a number of benefits, including an increase in the accessibility to the personal insolvency system, savings in terms of the overall time taken to deal with a particular case, cost savings and consistency of approach. In addition, the ISI recommends a number of other enhancements to the existing legislative framework to drive efficiencies, reduce barriers to entry and otherwise improve the overall process. I would be happy to speak around any of these proposed changes should members of the committee wish me to do so.

Our submission also sets out steps we have undertaken to date to ensure debtors are aware of the solutions that are available to them. These range from national and local campaigns on radio, television and print as well as free debtor advice clinics we have held around the country and attendance at similar events. We also have a debtor-focused website called backontrack.ie and related materials. Through the new Abhaile service, there are now free consultations available for debtors with PIPs as well as a number of other supports to ensure the insolvent debtor is supported at every stage of the process of addressing their unsustainable mortgage. Once again, I would be happy to give the committee more details about what we have done to date in this area or to speak around our communications plans for the coming months should members of the committee wish me to do so.

In terms of creditor engagement, the ISI has consistently encouraged each main creditor to avail in a timely manner of the provision within sections 64 and 98 of the Act to make clear to PIPs the manner in which the creditor wishes the debts of a specific debtor to be dealt with as part of an arrangement and provide all PIPs with details of the range of options the creditor will broadly support within an insolvency proposal. An example would be a so-called waterfall statement setting out their preferences as to when and how they would accept term extensions, adjustments to interest rates or the write-off of capital. This would be of assistance in helping the overall process run more efficiently.

It is disappointing to say that I am unaware of any significant progress on either of these fronts. The simple reality is that the PIA is an extremely efficient solution for creditors as well as debtors. There are several checks and balances contained in the legislation which is overseen by the courts to ensure that no party is unfairly prejudiced, but it does require the goodwill and support of both parties for the system to work efficiently and effectively. Despite best efforts, I do not believe that creditors have constructively engaged with the personal insolvency legislation. I can point to statements made by various banks as evidence of this. I can point to dozens upon dozens of cases where banks have rejected proposals that produced a better return than repossession while also having due regard for the underlying security linked to any mortgage. I can point to legal challenges mounted by creditors to various PIAs on technical rather than commercial grounds. While it is perfectly within the rights of creditors to take such challenges, these challenges, where successful, amount to a pyrrhic victory. The creditor still has a bad loan that they need to deal with. They have turned down what should have been a sustainable solution that did not unfairly prejudice them for the case to have met the minimum statutory requirements set out in the Act. Some creditors appear to be mounting objections which are designed to preserve their own credit guidelines, which have wide customer application, rather than dealing with the merits of individual cases which in many instances would provide a commercial return for the creditor which is far better than that which could be achieved through repossession or bankruptcy.

The committee should be aware of the section 115A review process introduced in late 2015 which was designed to remove the so-called bank veto whereby there is a requirement to attain certain levels of support from creditors before an arrangement can be put in place. The legislation was designed to operate in a relatively quick manner whereby courts would be asked to review and assess the reasonableness of a rejected arrangement and, where satisfied and having regard to specific criteria set out in the Act that the arrangement was reasonable, the court would impose the arrangement over the will of the creditor. These review cases have proven to be long and drawn out. While I can point to a number of cases that have made significant strides forward, for example, with regard to warehousing and separated spouses, we still see large numbers of court reviews where the arguments before the court are technical legal points which inhibit consideration by the court of the commercial aspects of a proposal.

I see no evidence that creditors are using sections 64 or 98 of our Act, whereby they have an opportunity in the first instance to engage with practitioners and identify how they would wish their loans to be dealt with. Instead, the practice appears to be to wait for the personal insolvency practitioner to produce a proposal, which is then challenged on as many fronts as possible. Creditors must recognise what it is that this Act is designed to achieve - a fair outcome for all sides. Such positive engagement could ensure that we keep as many people in their homes as possible, while also ensuring that the rights of creditors and secured lenders are respected to the greatest extent possible, and that creditors finally deal with their remaining non-performing loans. In order to ensure positive engagement, the Act needs to be amended to oblige creditor engagement at that early stage in the process.

I now wish to turn to the main focus of today, which is the Mortgage Arrears Resolution (Family Home) Bill 2017. I should say at the outset that the ISI welcomes any initiative designed to help deal with mortgage accounts that are in arrears. The ISI notes the role envisaged for the service within the proposed Bill. However, I should say that I am of the view that the Personal Insolvency Act incorporating our proposed amendments as set out in our submission this summer, coupled with the mandatory creditor engagement that I have just referred to, is the most appropriate way of achieving the objectives and the purpose behind the Bill. Such an approach would, in my view, minimise the risk of legal challenge; minimise potential delays, expense and uncertainty that might be experienced from setting up a new office; and offer a holistic solution for debtors, returning a debtor to solvency by addressing all of their debts, not just the family home.

On the legal challenge, I am aware from Dáil debates during the summer that the Minister for Justice and Equality has indicated that the Government has a number of constitutional concerns regarding the Bill. It is not for the ISI to comment on such constitutional issues. However, I would point out that the Personal Insolvency Act 2012 has operated for almost four years now without challenge. The ISI set out in its summer submission why it believes its suggested proposal of removing the courts from the various processes, with regard to its existing arrangements, is sound from a constitutional perspective.

On minimising potential delays in setting up the office, the Bill does propose that a new office, the mortgage resolution office, be established within the ISI and that a new instrument, a mortgage resolution order, be introduced. I would point out that there is a tendency among citizens to delay taking action until there is clarity around any new policy initiative. Any initiative that causes insolvent debtors to delay engaging with their financial institution could have consequences in terms of increased arrears and increased risk of repossession. For these reasons, I suggest that changes to the insolvency legislation that build on and enhance the current provisions will cause the least uncertainty for insolvent debtors. It can also be delivered quickly. Should the Bill become law, the ISI would be tasked with setting up the mortgage resolution office. The committee has my commitment that we will leave no stone unturned in opening the service as quickly as possible, having regard to our duties and responsibilities under any establishing legislation. However, it needs to be recognised that it will take time to set up an office of the type envisaged.

Understandably, the Bill is focused on mortgage arrears. The Bill fails to address the other debts of the debtor, however. Our existing Act takes a holistic approach, dealing with all the debts of a debtor, both secured and unsecured. Our analysis shows that people with mortgage debts who seek help from the ISI have on average five other creditors. Our experience in reviewing cases that have previously been dealt with on a bilateral basis between the debtor and their mortgage provider is that they often fall down due to the other debts that are owing. It is essential that a holistic solution for debtors is provided that returns them to solvency as part of the process. As a consequence of this, the family home is far more secure in the short term and longer term.

To conclude, my assessment is that creditors have yet to fully engage in a constructive manner with the Personal Insolvency Act 2012. This is notwithstanding the fact that it is carefully balanced to ensure the rights and obligations of all parties are protected and to ensure that no party is unfairly prejudiced. I have already explained that creditors are not working within the spirit of the legislation. PIPs are not getting clarity around the manner in which the creditor wishes for his or her debts to be dealt with, and this is despite numerous efforts on my part in every single engagement with banks. While acknowledging that there is no legislative obligation on the creditor to provide this clarity, I am disappointed that the banks are not doing so voluntarily. I believe, therefore, that it should become compulsory. I also believe that some measures are needed to curtail the number of court review cases that are being contested on procedural rather than commercial grounds. I believe that creditors should be restricted to only those arguments that they raise during the protective certificate period. This would be fair to all sides and it would bring a much greater efficiency to the process. I believe that these two creditor-focused changes, combined with the overall efficiency measures identified in our summer submission to the Department, would get us to the point we should have been at some years ago, whereby the Act, and the personal insolvency arrangement, PIA, in particular, can be used to deal with all of the difficult mortgages and maximise the number of cases that see debtors remain in their homes. This, I respectfully submit, would achieve the objectives that lie behind the proposed Bill the committee is considering this morning, with minimum risk. I thank the committee for taking the time to listen to my opening statement. I would be happy to take any questions.

I thank Mr. O'Connor and call Deputy Mick Wallace.

I thank Mr. O'Connor very much for his presentation. He talks a lot of sense. He started off by saying that since opening, the ISI has returned almost 6,000 debtors to solvency, and approximately 2,000 of those cases were PIAs dealing with mortgage debt. In over 90% of these PIA cases, debtors have been able to stay in their homes. Does Mr. O'Connor have a figure for the number of people who have failed to get into the system because of the bank's veto?

Mr. Lorcan O'Connor

I cannot say how many failed to get into the system, but I can say that of those who got into the system, the rejection rate for personal insolvency arrangement proposals is in the region of 43%. We are due to publish our next tranche of statistics in two weeks' time and that is likely to show a further deterioration of about 2% in acceptance rates, so we are looking at a rejection or failure rate just short of 45%.

I should add that I tried to get into it and I found the organisation and the people with whom I dealt in the ISI were excellent. Unfortunately, the banks did not allow it to work. Mr. O'Connor mentioned a holistic solution, and obviously that is a very strong point. I would imagine that people who are in trouble and who are having difficulty trying to stay in their homes will, more often than not, have other debts. Does the witness think the Bill should address that, and how should it do so?

Mr. Lorcan O'Connor

In fairness, Deputy Michael McGrath acknowledged that is an enhancement that perhaps could be made to the Bill, that is, to offer that holistic solution. Taking it in the context of how it would currently be dealt with within a personal insolvency arrangement, what the personal insolvency practitioner does when a debtor comes in his or her door and says he or she has difficulty paying his or her debts is to try to maximise as much as possible to go towards the mortgage, because clearly the number one priority is to try to keep people in their homes. If one tries to divert as much as possible of the income that a person has that way, then there is a better chance of him or her staying in his or her home.

The remaining debts tend to be unsecured such as credit cards, personal loans and so on. In effect, there would be a token payment or a relatively small payment to unsecured creditors in that scenario. One can see from the examples at the back of our submission that the kind of return those creditors could expect to receive within a PIA is a percentage return in single digits. A return of 4%, 5%, or 6% is likely. It is a relatively small amount, but they are then dealt with. Any balance remaining is written off. The debtor is left with only one debt, the mortgage, and therefore there is a much greater chance of finding a sustainable solution in that scenario.

In the cases appearing before us that others had previously attempted to fix, they had ignored the fact that, for example, the debtor had a credit union or credit card loan. They only examined how much money the debtor had to pay off the mortgage. They believed that it should work, but they forgot that, two or three months later, the credit union would be knocking on the door or the credit card company would be making a phone call. It is difficult on that basis.

The typical PIA candidate whom we deal with is a married person who is in employment, in his or her 40s, has children and has an average debt of €450,000 but, on average, has five debts in addition to a mortgage.

Mr. O'Connor stated that creditors were not working within the spirit of the legislation. He also stated:

While acknowledging that there is no legislative obligation on the creditor to provide this clarity [on their engagements], I am disappointed that the banks have not given this clarity. I believe therefore it should become compulsory.

Mr. O'Connor will find plenty of agreement at this committee that the banks are behaving abysmally.

Deputy Daly raised a point about it taking the best part of two years to get anything done in the Oireachtas. Is there a faster way of making the provision of clarity compulsory than through publishing a Bill, tabling amendments to it, taking it through the system and putting it in place in two years' time? Has the ISI discussed this matter with the Department of Justice and Equality?

Mr. Lorcan O'Connor

We have made it aware of our suggestions. I understand that other parties have done so as well. The legislative amendment is basically to change "may" to "shall". I accept that passing legislation has its challenges. I would implore the banks to work within the spirit of the legislation. If they were availing of that opportunity, they would not need to be compelled.

When a protective certificate is issued, which is the beginning of the process, it is a bit like examinership, in that it offers 70 days for the practitioner to work out the best deal for both sides. The practitioner is independent of the debtor and creditor and is there to find some common ground. Currently, practitioners must do that in the dark because creditors are not telling practitioners what is likely to work for them and with what they are willing to live. Instead, creditors sit back, wait for a proposal to be developed in the dark and then seek ways to challenge it. The point I am trying to make is that it would be far better for all sides to sit down in week 1 of the three-month period, with the creditor examining the summary of the debtor's financial situation that has been presented and, understanding that the debtor wants to stay in the home, saying how far it can go and asking whether the other side can make that work. Alternatively, it might suggest that we focus on this type of solution rather than that type. Hopefully, agreement can then be reached instead of waiting for a proposal and finding ways to reject it.

That makes sense. If the banks are not going to behave in a rational fashion, we must consider inserting "shall" rather than "may". Mr. O'Connor will probably be aware that the Department of Justice and Equality is allergic to the word "shall" in many respects, so that will be a challenge. I thank him for his presentation. It was good.

I thank Mr. O'Connor and Mr. Farrell for attending. Although we are here to discuss Deputy McGrath's Bill, I found Mr. O'Connor's comments on how the existing personal insolvency legislation was operating informative. However, his assessment of creditor engagement was disturbing. Can I take it that he believes the banks are not constructively engaging with the legislation that was passed by the Houses in 2012?

Mr. Lorcan O'Connor

Not in terms of sections 64 and 98. There has been constructive engagement with the banks and all stakeholders on a number of fronts. For example, I could point to the development of protocols dealing with the small print that one would append to any arrangement. It took a great deal of effort to get that over the line, but it was done in record time and with the support of banks and other parties. I could point to other areas of co-operation. However, it is disappointing that the central element that is required for the overall process to work efficiently is not being availed of.

In the area of personal insolvency arrangements, the ISI is not seeing constructive engagement by the banks with the Act, in particular sections 64 and 98.

Mr. Lorcan O'Connor

As regards those two provisions, yes.

Mr. O'Connor is saying that the banks are not communicating with PIPs to let them know what type of deal would be acceptable to the banks and instead seem to be sitting quietly and waiting for PIPs to devise proposals that they then reject. Is that Mr. O'Connor's assessment?

Mr. Lorcan O'Connor

That is the feedback that I have received. It is the point that is being made in the arguments that are raised in court review cases. However, I would point to the approach that has been adopted by the Revenue Commissioners. They have produced a document and circulated it to all PIPs. It sets out the way that Revenue will approach cases and states clearly what Revenue will and will not support. At least the rules of the game where dealings with the Revenue Commissioners are concerned are known to the PIP. Since the beginning, I have been calling on each bank to produce a similar document for PIPs so that they can have a guidebook. That has not been forthcoming. In the absence of guidebooks, I have called on banks to at least engage with PIPs as envisaged in the Act, that is, to liaise at the beginning of the protective certificate period and explain how they would like their debts handled. Unfortunately, that is not occurring.

What is Mr. O'Connor's opinion on why that guidance from banks has not been provided?

Mr. Lorcan O'Connor

Given some of the statements made in affidavits during court reviews, banks are simply saying that they are under no obligation to engage at that stage and that it is for the PIP to jump over every hurdle to produce a proposal that is acceptable and not unfairly prejudicial. How can PIPs be expected to do that if banks do not give them some level of guidance at the beginning?

Does it disturb Mr. O'Connor that the banks are not constructively engaging with the issues around PIAs and is it having a detrimental effect on the operation of the Act?

Mr. Lorcan O'Connor

It is having a detrimental effect. Many more people could be passing through the service if the process was working as designed. Keep in mind the level of protection that exists within our legislation to ensure that no party is unfairly prejudiced. The Deputy will be aware that several provisions and mechanisms are contained within the Act to ensure that the process is fair. Bearing in mind that these exist, it is disappointing that people are not working with the legislation to deal with these non-performing loans and keep people in their homes as much as possible.

In many instances, legislation is introduced to deal with a social problem. That was the purpose behind the introduction of the Personal Insolvency Act 2012. In Mr. O'Connor's opinion, do the banks seem to regard that legislation as an inconvenience that they should try to circumvent or do they not recognise the social problem that the Houses are trying to resolve?

Mr. Lorcan O'Connor

It is not for me to comment on that. However, I can say that the voluntary mechanism, whereby the Act envisages banks liaising with PIPs to give the best chance of a deal being done, is not being availed of. There is no reason for it not to be availed of.

We need to change the law to compel banks to engage with this process.

Mr. Lorcan O'Connor

In effect, that would reflect what is already proposed in the Bill. The steps envisage that, once a mortgage resolution order has been granted, the bank is asked to make a proposal. It would then be for the debtor or mortgage resolution office to assess whether that is reasonable. In effect, it would replicate what is in-----

Deputy McGrath's Bill.

Mr. Lorcan O'Connor

Yes.

I thank Mr. O'Connor.

I thank Mr. Lorcan O'Connor and Mr. John Farrell for attending the committee. In the previous session, Mr. David Hall was eloquent and critical of the banks and creditors in a robust way. However, given the fact the ISI is a statutory organisation and is constrained in the language it can use, I felt what its representatives said today about the non-co-operation of creditors was equally significant and damning, albeit worded in a more restrained manner. It is clear creditors are behaving in a way that is utterly unacceptable and are clearly trying to frustrate the personal insolvency legislation. That is simply not good enough. The Insolvency Service of Ireland indicated creditors have not conformed to the spirit of the legislation, making it clear the letter of the legislation is not strong enough. There is a responsibility on the Oireachtas to resolve that and ensure the legislation is strong enough.

Is a legislative change required to allow the ISI to approve insolvency arrangements? Is change required to give clarity on the manner with which a creditor wishes a debt to be dealt? Is a legislative change required to ensure that only arguments raised during the protective certificate period can be raised in a court review? Would such a restriction be difficult? Would that encourage creditors to make the discussions during the protective certificate period more protracted to take into account more factors, which might potentially make that process more difficult?

Mr. Lorcan O'Connor

I do not believe it can become more difficult than it is because the personally insolvency practitioner is shooting in the dark. I also do not believe it would make it particularly protracted because it has a stop line after 70 days at which point the negotiations must take place.

I am guilty of often using the terms "court review" and "appeal to court" when discussing the same thing. However, it is not a traditional appeal to the next court when a court finds in favour of A but B is not happy. It is a court review of a creditor's decision to vote "No". Accordingly, it is very much focused solely on what led up to that decision at the end of the protective certificate period. I would contend the only reason there was a "No" vote was that there was something within the protective certificate period that did not go the way the bank wanted. Creditors should not be able to bring up fresh arguments which they did not raise in the protective certificate period. Had they raised them, the practitioner could have taken on board and addressed them.

Is the ISI's primary reservation with this Bill the need for a new office which might take some time? Does it believe it could be done in a more internal sort of way with existing resources? If that was the case, how long would it take to set up such an office?

Mr. Lorcan O'Connor

It is difficult to say for sure how long it might take at this early stage. However, one must bear in mind that when one looks at the scale of mortgage arrears, one is looking at thousands upon thousands of cases. There would need to be a level of automation in place. Resources would also need to be put in place. The Bill proposes that every individual case is assessed on its financial circumstances and then the most likely or appropriate solution is identified. That would not only require resources, but also skilled resources in that area. All of that would take time.

We have experience of setting up from scratch and we did it in a relatively quick time. By amending the existing personal insolvency legislation, one could achieve the Bill's primary purposes in a quicker time while also offering potentially less risk in terms of challenge and a holistic solution which will deal with all of a person's debts.

For many people, the process so far has merely delayed repossession, surrender or sale and they cannot be certain their debt has been resolved in the long term. The ISI outlined up to 20,000 mortgage arrears cases could be at particular risk of repossession, surrender or sale. If the status quo is maintained and there is no change to existing legislation, does the Insolvency Service of Ireland believe there could be increased numbers of repossessions and surrender?

Mr. Lorcan O'Connor

All mortgages in arrears broadly fall into one of three categories. The first category is where the PIA can help. Basically, if the debtor diverted all of the money they had towards the mortgage to service its current market value, then a deal could be done. In other words, say one has a mortgage €300,000 but the property is only worth €100,000. The personal insolvency arrangement can deal with any scenario where the debtor can service €100,000 or more. The bulk of borrowers can be helped in this way.

Then there are those who cannot service the current market value of their mortgage but only some element of it. That is where mortgage-to-rent is the best solution to keep the roof over their heads. They will lose the ownership of the property but in terms of the neighbours or the children staying in their school, they do not move and they are still in that property.

There is a third category, which is the smallest by far. The persons in this category are, unfortunately, likely to lose their homes. That is where in effect they have no means whatsoever by which they can service a private mortgage. We have to recognise there will always be a cohort of people who, unfortunately, will lose their homes in that scenario.

For the first two categories, there is no reason that the legislation would not deal with the bulk of the issues involved. The Abhaile scheme, which has been operating for a year, is bringing debtors into the tent who are in a far more difficult place than they were in the past. We were probably dealing with the low-hanging fruit in the early years. Through the free consultation with practitioners, what one tends to see with the Abhaile cases is that they are either age-challenged, income-challenged or both. That makes the solution that bit more difficult. Even with those helped through Abhaile to date, we have saved the family home in 91% of cases. It is by far and away likely that the majority will be able stay in their homes. What we need to do is help those people. The sooner we do, the fewer arrears will have built up.

If possible, I would like a more direct answer. If there is no change to the legislation, is the ISI concerned that the scale of repossessions could reach 20,000?

Mr. Lorcan O'Connor

I would find it difficult to see how one would get to that figure based on the numbers in recent years and there having been a 50% drop in repossessions in the last couple of years. If one looks at the cases involving personal insolvency arrangements to which the banks are voting "No", they still have a problem loan that they must deal with. It may be that in some of those cases the ultimate solution that the bank is pressing for is repossession. We are saying that is unfortunate because it could have been solved short of that.

All the members who indicated have now spoken in this session of deliberations on Deputy Michael McGrath's Bill. I thank Mr. Lorcan O'Connor and his colleagues from the ISI for their attendance, their opening remarks and their response to the members' contributions.

We will suspend for a moment to allow the witnesses to leave and then resume in private session.

The joint committee went into private session at 11.22 a.m. and adjourned at 11.43 a.m. until 9 a.m. on Wednesday, 8 November 2017.