I welcome the Mr. Fergus Murphy, CEO, and Ms Fidelma Clarke, chief risk officer, from the EBS. I draw their attention to the fact that members of the committee have absolute privilege, but the same privilege does not apply to witnesses appearing before it. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable. I on call Mr. Murphy to make his presentation, after which I will invite colleagues to ask questions or make contributions. The delegates may bank all of the questions and comments and respond before the end of the meeting.
Mortgage Arrears: Discussion with EBS.
Mr. Fergus Murphy
I thank the joint committee for the invitation to attend. It is a genuine privilege for us to be here today.
As a general statement, we are very cognisant of the difficulties of the Irish banks and building societies and the position they have got themselves into. We are very grateful for the response of the taxpayer and the Government to date in helping us all to fix the system. EBS has been considering solutions to the problem of mortgage indebtedness in recent times and trying to make predictions.
I joined EBS in January 2008. For three or four years theretofore I was working mainly in Asia as CEO for the Asian operations of the Dutch bank Rabobank. Ms Fidelma Clarke has been with EBS for more than 15 years. In January she was appointed as our chief risk officer. She has had a number of senior roles within the organisation in respect of credit and, in particular, home lending.
There are significant challenges. There are codes of conduct and practice in place that we probably need to strengthen to build a new mortgage industry in Ireland. There are various forbearance measures which probably need to be strengthened. We are considering the objectives of a future structure and the optimal solutions for those who cannot pay their mortgages or are likely not to be able to do so.
We commissioned Bloxham, which we know well and believe is strong on banking analysis, to work with us to determine how other jurisdictions, typically in First World economies such as Canada and Australia, have dealt with similar problems in the current environment or in the past. We commissioned it to determine how some of the better options could be used in Ireland, if at all.
The outlook for Ireland remains challenged. The economy is going through the worst of the recession and if the global economy continues to improve in the next year, we will genuinely see a change in trends in Ireland towards the end of 2010. However, certain citizens will remain under significant pressure with their home loans, mortgages, arrears, defaults, repossessions, etc. The problem will not go away, even with a strong uplift in the global economy, which is why this presentation is relevant.
Let me refer to the various codes of practice in place. The code of conduct for mortgage arrears is based on an industry code developed as long ago as 2000. The industry is adhering to the protocol of MABS, with which service EBS has had a very strong relationship for over 20 years. The code of conduct and the requirements under the Government's guarantee scheme in terms of initiating legal proceedings against a defaulted account must also be borne in mind.
Ms Clarke will refer to some items relevant to the work we have done and will focus on private sector, public sector, short-term and more long-term solutions. She will also consider past and present trends and outline what we need to do in the future. Much of what we are talking about, be it in respect of planning laws, the zoning of land, the question of whether one should build on flood plains or the running of the banking industry, suggests we have a chance to rebuild. This is still a young economy and there were more children born here last year than in any other year on record. Therefore, we can still have a positive future. It is in this context that we need to consider the future of the mortgage and banking industries and demonstrate foresight, in addition to fixing the problems of the past and present.
Ms Fidelma Clarke
To provide context, we believe it is useful to outline what institutions are doing to help people in difficulty. Those in difficulty can be split into two groups, namely, those with a temporary problem and those whose problems are more long term. To help those with short-term cash flow difficulties, we have a number of arrangements in place. We have monthly arrangements with approximately 3,500 mortgage holders. One is to allow them to clear any arrears by paying whatever they can towards them. If one has a temporary difficulty and is unable to repay one's mortgage for a number of months but then gets a job and is able to repay what one owes, we can capitalise the arrears. This removes the pressure on the household to try to pay back a small debt. Another arrangement it to give payment holidays. There are a number of circumstances in which it is advisable for an individual not to make a repayment. Clearly, there are hardship cases. If someone dies or is very ill, we naturally work with the households concerned, as would all institutions.
A number of our members now have longer term cash flow difficulties. These are the people who are feeling the most pressure in the current environment. Steps we are taking include changing their loans to interest-only loans for a period to reduce the monthly repayment. That stops the debt from growing. It is positive for them if they can meet the interest payments. Since most of our customers took out repayment-type mortgages, one in which they pay back capital and interest, there is quite a bit of flexibility in that area.
We can also extend the term of the mortgage. It does not have to be for ever, but if it is extended it reduces the mortgage repayments. We must ensure life insurance is in place for any term extension. We are mindful that, even if the extension is temporary in nature, the longer the loan, the more is paid in interest. In these cases we would recalculate the cost of the interest and ensure people are aware of what they are taking on. It is easy for people in straitened circumstances to sign up to anything to alleviate the pressure. They must understand, however, to what they are signing up.
A moratorium is a cessation of payments altogether. We would enter into a moratorium in the situations already mentioned such as hardship cases, where people are very ill or have passed away.
There is no legal action against any member or individual who engages with the institution and comes to some acceptable arrangement. We issue income and expenditure forms to help people to work out their own cash flow. We have a home-visit service, free of charge, for those who cannot visit our branches. Seeing what someone can afford and coming up with an arrangement they can meet has been the core of our credit management.
Mr. Fergus Murphy
In fairness to the industry in Ireland, for every one repossession in Ireland there are 35 in the UK. There is no track record of Irish financial institutions repossessing houses. It would be a last resort for EBS, and I would imagine every other institution, to go down that route. There is a strong record in that regard.
Ms Fidelma Clarke
EBS sees this challenging environment continuing for some time. In the US, an approach involving pre-emptive analysis and contact of households at risk is used much. Someone can be contacted before he or she goes into arrears and other arrangements made. This takes pressure off the family and household, easing the burden across the system.
Another approach is that the statement of intent is extended for a time to buy some breathing space for us all to identify the right medium-term solutions. There are, unfortunately, consequences for the banking industry in doing that. The way the system works is that institutions use loans as collateral for lines of credit for wholesale funding purposes and liquidity. Any damage to any contract as would be seen by an international investor, could have unattended negative consequences for the Irish banking system. If all covered bonds, securitisations or liquidity facilities with the ECB were no longer deemed to be of the quality people thought they were signing up for, they could be downgraded.
There are approaches which would help the Irish banking system as a whole, such as a fund, Government or industry-sponsored, that would provide assurance to the wholesale banking market that it will not be disadvantaged by the decision to extend forbearance. On one level, we are only doing what we would do anyway. Institutions which have arrangements with customers would not necessarily go down the legal route. However, we are mindful of the international capital markets' view of Ireland. The markets have re-opened for this system which is great. We are just mindful that there could be negative implications if the statement of intent is extended. It could have very large consequences for the Irish banking system that people would not have intended.
Mr. Fergus Murphy
Much of the banks' funding, approximately 50%, comes from the international markets. Unfortunately, that is one of the mistakes the banks and building societies made. Much of the good work done in the past year by all banks has been to ensure the international investment community keeps Ireland on its radar screen. Changing conditions and the procedural manner in which mortgages and the housing industry are run will be watched by international investors. As Ms Clarke said, we do not want to scare them. It may be possible to extend forbearance for a much longer period than is currently envisaged, if the right kind of mitigants are put in place.
Ms Fidelma Clarke
The practice of charging penalty interest should be discontinued over time. I know that would have implications for institutions and would need to be thought through. There is the moral hazard issue that people who are under most pressure pay more interest on their loan. EBS is not in favour of seeing penalty interest charges across the sector.
The Government could consider putting in place some supports to maintain a stable outlook on the current property system in Ireland. One third of all housing stock in Ireland has been built in the past 20 years. It is obvious there is backlog of the registration of titles. Now is the time that this is addressed. Another support would be a method for expediting the granting of orders for abandoned properties. Where properties are abandoned, title does not automatically pass to the lender. The lender must apply for an order for possession. It would be in the best interests of the system that properties that have been abandoned can be refurbished and made available for rent. The relevant legislation could be examined to allow all institutions to rent out such properties.
EBS's ultimate objective is to help people stay in their homes through difficult economic times and own their own homes. Our views are more skewed towards private market solutions rather than public social housing type solutions. Based on its experience over many years, EBS believes the overriding objective and desire of people is to own their own home. Various factors must be taken into consideration when considering mortgage supports. Institutions must balance the write-down in loan value vis-à-vis the cost in repossession. What is the cost to the Government of social housing versus mortgage support?
More than 54 options have been identified. We looked at what was going on in other jurisdictions to see whether there were things we could borrow, rather than trying to re-invent the wheel. We cherrypicked a few, one of which was a refinance plan where potentially a loan is split into two pieces. The customer pays for the piece he or she can afford and the piece that cannot be afforded is warehoused for a period of time. At the end of that period an assessment is carried out to determine whether it is viable for someone to be able to make the mortgage payments in respect of that other piece or whether house price appreciation has occurred. We hope that house prices will go up again, and this would help the situation. On the other hand, it might be decided that the time has come for a write-down in that part of the loan by the institution or, depending on the size, by Government.
Another type of arrangement is termed "Hope for home owners". This is a US proposal geared towards the elimination of negative equity, which had been built up particularly with new lending between 2005-07. The proposal was for $300 billion worth of mortgage insurance to be provided by the state. Effectively they wrote down loans to the value that people could afford to repay and the state, in essence, made up the difference. Clearly, again there is a moral hazard issue, since people should not be encouraged to default and avail of these methods. Otherwise, there might be unintended consequences.
Another option is the shared appreciation mortgage in the UK, where the lender takes an equity stake in the mortgage. This is being widely talked about at the moment. Again, our preference is for people to own their home, eventually, so this is to help individuals who suffer temporary drops in income, and the method is to defer the loan payment for a period, although interest is charged in the interim.
There is a scheme in Australia, which is probably the least attractive, namely, the state providing loans to lenders, effectively, to pay for the fact that individuals cannot make their mortgage repayments. Over time as people's potential situations hopefully improve, they are able to take on the repayments again. In the event they cannot, however, there could be a write-down of the loan.
In the UK, as well, there is a government-sponsored mortgage-to-rent scheme. This is moving more towards the transfer of the ultimate ownership from an individual to the state. This is to assist vulnerable home owners who cannot make their repayments at all. In effect, the government purchases the property from the lender at a discount and rents it back to the individual concerned. Again, our view is that if a person can afford to pay some rent, perhaps that could be used towards the purchase of his or her own home rather than rent being paid for social housing purposes. However, there will be people in extreme circumstances who will require this type of support.
Another option is the inter-generational mortgage. This works well in Japan, and I am not sure how it might work in Ireland, but it is worthy of consideration. Then there is the option of a shared or deferred equity stake, taken by the lender. It is a US-type of scheme not dissimilar to the UK approach, where the lender takes an equity stake in the property. At such time in the future when the property is sold, or wherever, the lender is repaid.
Those are potential solutions, immediate measures we might take to help people under pressure in making their mortgage repayments. Then there are measures we could look at in terms of the bulk of mortgage debt in existence and how that might be addressed. Most importantly from our perspective, and with the committee's indulgence, is the question of looking ahead to see how we might prevent something like this from recurring, because a doomsday scenario always entails not just rising unemployment, but negative equity. What can we do now, because to postpone action probably is not the right answer.
We have two key recommendations in this regard, one being income protection and the other involving protection against negative equity. In terms of income protection we have a scheme we could borrow from, SHOP, sustainable home ownership partnership, in the UK. This entails a counter-cyclical fund built up over time, which means it would start today, when conditions are bad and the person taking out a mortgage pays some contribution towards the fund, say, an extra one hundredth percentage point on his or her mortgage rate, for example. The mortgage holder passes that over to the fund. The institution pays a contribution to the fund for every loan that is issued, and perhaps the government pays a small amount into the fund. That fund is administered on a not-for-profit basis and in the event that over time people find themselves at the end of the next cycle under pressure in terms of making their mortgage repayments, there is an automatic payout — similar to payment protection — of the mortgage for up to ten or 12 months, or perhaps longer, on a means-tested basis. It is really a payment protection option for the market.
The second one potentially looks at compulsory mortgage indemnity insurance. Canada has had compulsory mortgage indemnity insurance for a long period of time. In Ireland, up to the late 1990s, indemnity insurance was widespread. It meant that people who borrowed on a high LTV purchased an amount of insurance, so that in the event of negative equity there was insurance to call on.
Since the 1970s the EBS has purchased indemnity insurance. Individuals used to pay for it, but the market changed and the EBS has been paying for it since 2000. In terms of system risk, however, across the financial services industry and particularly in relation to home ownership, pricing for risk is probably one of the options we should look at, ensuring that everyone with a high LTV is protected. This is potentially something we should be looking at now, as a society.
There is a national mortgage guarantee arrangement in the Netherlands. Again, this is more a government funded rather than a private market funded initiative. Finally, perhaps protecting against systemic risk should involve mandatory maximum home borrowing limits based on LTV. Again, we can look at jurisdictions across the globe that have been more risk averse than Ireland. They are able to protect the system by stipulating that there will be a maximum LTV for every lender, notwithstanding whether they are regulated domestically or in other jurisdictions.
Mr. Fergus Murphy
Clearly, we are looking at the present and to the future. Steps need to be taken now for the current stock of housing and existing mortgage holders and there are measures that need to be put in place for the future, so that the present state of affairs is never replicated. If we look at the economies and the housing and banking markets that have come through this crisis best, these were always the most conservative. Take Canada, for example, in terms of LTVs and insurance and pricing for the risk. In Ireland the banks and the building societies did not price for the risk. There are people — fair play to them — who have mortgages at prices that are uneconomic for the banks and the building societies. The banks and building societies were not pricing their products properly because there was a tremendous drive for market share with an enormous amount of liquidity globally. Ireland, as a small open economy, is almost a case study for what happened in the global economy, in terms of the savings of the east and the deficits of the west. The recycling of those savings from the east back into the west created all this liquidity. Frankly, money was too cheap and banks and building societies all over the western world were lending this money too quickly and too cheaply. We need in future to price for risk and we need to be more conservative in the way we lend money, as banks and building societies.
That covers where we are on this. We need to look at the present and we need to look at the future.
I thank both witnesses for their presentation. I now propose to take questions and contributions from colleagues. I call Deputy Catherine Byrne.
I thank the delegates for their presentation and for coming before the committee this morning.
There is a good deal to take on board and they have done a good job as regards spreading the news. There is much food for thought in the presentation. These are challenging times for the banks, but they are even more challenging for the many people out there who are caught up in this hell hole. I meet many couples and listen to their stories. Some of them have worked practically all their lives and now find themselves unemployed and their mortgage has gone beyond them. It is time to turn back the clock and look at how these people can be given breathing space, which I see on the last page of this presentation.
Home visits are very positive. Walking into a bank or a financial institution creates fear for many people. It is good to see banks reaching out into people's homes and experiencing how people have been affected in their own living room. That is very important.
I have met people who find that what they bought four years ago is worth less than half the amount now. Some of these people have told me that they have gone to different banks. When somebody pays interest only for six months and then goes back to paying the principle, what happens to the missing mortgage in between? Is that just lumped on? A couple were on "The Late Late Show" a few months ago and they said that when they went back to paying the full rate, they discovered they were paying money they had skipped the previous few months. They were given breathing space, but when the time came to pay the full mortgage, they were lumped with the money that they had not paid.
As many people out there have to change their lifestyles and come to terms with trying to keep their homes, the solution on page 9 referring to the 80-20 plan might be worth examining. The city council entered into schemes whereby they own 50% of the property while the owner controls the other 50%. That would give people breathing space. We are in changed times. When we see people losing their homes and having to go into rented accommodation, they come back to the relieving officer in the community looking for rent supplement and allowance. A total of €490 million was given out last year on rent supplement in this country, which is a huge amount of money. About 97,000 people are now on rent supplement. That is a great burden on the Department of Social and Family Affairs, as that money could go into more important projects if people did not lose their properties.
We are facing very challenging times, but I do not think anybody out there deserves to lose their home. There are enough solutions in this document to help young couples to remain in the place that they call home. Anything the institutions can do to allow people hold on to that key and hold on to hope is very important. This problem will not go away overnight, but we have to give these people hope, which is what they are looking for.
Tá áthas orm bheith páirteach sa díospóireacht seo inniu. Deputy Catherine Byrne spoke about hope, and that is the message that must go from this committee. Like most of the lenders, EBS have adopted very flexible attitudes to borrowers who are in trouble and are taking very understanding positions to those who are in trouble. I have seen that in practice. I thank the EBS delegation for helping me to draft my part of the report, because it will be ready today after the presentation and the committee will have to sign off on it. The delegation has gone to extraordinary trouble to assist the committee. The contact came through Senator Butler originally, and I thank him for that. The fact that the EBS has gone to the trouble to get research done is very reassuring to us. I hope and expect that the other banks are doing something similar.
The witnesses have listed out things that the institution can do, but also areas where it needs support from the Government. While we would often be accused of standing up for the banks when we talk about the banks' funding position as part of this, in fairness to the delegates, they have explained the situation very well. They pointed out that they can give a moratorium for a further 24 months, which is really crucial, but that it will need some assistance from the Government to reassure bondholders and those who lend the banks money. We are just being practical about this. The institution wants to extend the moratorium, which is what everybody wants, and they are showing a way that the Government can support it in doing that. This point is important if we are to have a serious debate on the issue.
The message must go out to homeowners that there is hope for them. This bank and other banks are doing things to help the situation. We have looked at similar schemes abroad to that offered by the EBS, and this shows that we have done our research.
One issue that should be taken up immediately, even though it is not directly relevant, is the issue of mortgage indemnity insurance. My dad is an auctioneer and I worked for him when I was in college, and there was an indemnity for every mortgage which covered the bank for the negative equity. This stopped about eight or nine years ago due to competition in the banks. This should be brought back immediately. Banks should be forced to pay an indemnity, even if the borrowers have to pay a portion of it. I am glad to hear that this institution has carried on paying it, because it presumably gives it some protection from negative equity and arrears. Presumably, it will not have to go to the Government to make up for that because it has an insurance policy. It is a pity that banks dropped out of this. It was due to competition in the market, but I call on the Government and the Financial Regulator to insist that indemnities are brought back. It seems to be an immediate step that can be taken to prevent banks running into trouble over this in future.
I thank the delegates for their connected presentation. For the first time in a long time, I am hearing that banks are magnanimous about the situation in which we find ourselves, and I appreciate that very much.
The delegates spoke about payment holidays. I come from a disaster area in the midlands, where people are suffering from the floods. People are leaving their homes, some of which are already in negative equity, and they now have to wait for insurance claims to come through while having to pay rent for somewhere to live. Can the witnesses comment on the people in those situations?
The delegates said there has only been one repossession in Ireland, as opposed to 35 in the UK. The president of the High Court said last December that there would be an avalanche of repossession orders before the courts. There are 100 such orders now before the courts, while 77,000 people are in debt either for rent or mortgage. That figure will climb higher and I am sorry to say that. The delegates mentioned that renting property back was a solution. We in Fine Gael have said that the homeowner's support scheme was the way to go. Unfortunately, it was rejected by the Government. We believe there is a solution whereby NAMA would take an equity share of the mortgage and the person would then be able to pay back rent. If the situation improved and the person got a job, perhaps as a result of an employment stimulus by this inactive Government, we would then be able to get people back working again, and they would then take back their mortgage and continue to pay it.
The witnesses outlined a number of solutions in their worthwhile presentation but they did not say which solution their prefer. I would like them to comment on the Fine Gael proposal for a homeowner's support scheme.
The witnesses stated that the EBS reviews the practice in place in regard to charging penalties or interest on arrears. Has this been stopped?
Ms Fidelma Clarke
EBS has never charged penalties.
I respect that and welcome it entirely. It was also stated that EBS hopes the price of houses increases at some stage. While I do so also, please God they will never increase to the level they were at during the seriously overinflated situation of recent years. Many people are now in negative equity and, in flood-torn Ireland, they will never be able to get insurance again, so their houses are virtually worthless. This is another factor we must take into account.
I thank the EBS for its friendly approach. Far too often, banks are seen as austere and not approachable.
I thank Mr. Murphy and Ms Clarke for attending and for being so honest and frank with us about the history of the situation and about trying to find solutions to it. The big question is whether we will be able to get genuine Government support for the issues that are necessary. We tried to get it into the NAMA structures but it did not work. Mortgage holders cannot be left out to dry.
I met a young woman some months ago who was happy that her job was still in place although her partner's was not. I met the couple again on Sunday and, unfortunately, neither of them is in work, although they have a joint mortgage. They were focused on getting work and did not realise they could go to the community welfare officer for help. Unfortunately, that is the reality of life at present and we cannot ignore it. That couple entered into a mortgage as they wanted to have their own home and make a future for themselves, but they are now in a difficult situation. It is heartening to hear the thought the EBS is putting into trying to deal with this issue, and we appreciate it.
The witnesses mentioned the need to keep international investors in good form and also referred to the problem with cheap money. The problem was not so much cheap money as the fact it was just thrown at people without proper scrutiny of their long-term ability to pay. There are many people with mortgages far above the value of their property, leaving them in negative equity, which is very serious.
Twice in the past 24 hours, I have heard of the issue of banks insisting on a full inquiry into whether there is planning permission available on properties, which is obviously more of a problem in rural areas, particularly where there is any chance of a change in road structures. The problem that has arisen is that county councils suggest they do not have sufficient personnel to give answers to this question, which is causing another hold-up for people who want to draw down bank loans. It is crazy that planning officers cannot give this information instantly at a time when so much less work is being done in planning authorities. One can press a button on a computer nowadays and see whether there is planning permission on any given portion of land.
This morning a young man contacted me who had been told by one of his consultants to contact a politician to see if this issue could be moved forward. There is no doubt that if the Government does not do something in regard to support for mortgage holders, many more people will be in social housing, whether it be in a buyback situation involving the building societies or otherwise. In this context, the Government will have to seriously consider how it can support people in the situation to which I referred. We do not want to build a structure that will allow people to buck the system just because they do not want to pay. However, the situation of the young couple to whom I referred is not of their own making. If people can prove that this is the case, they will have to get some support because, otherwise, the whole situation will be a mess.
I welcome Deputy Thomas Byrne's comment regarding the insurance situation. It was a good scheme and it is unfortunate that so many companies dropped it. I congratulate the EBS on reintroducing it because it is vital. Some of us, as individuals, were caught in other insurance scams where we were promised that we would have all the money to pay back the loan and that we would only pay the interest in the short term. It was a long way off that in the end, although that is a different issue.
Deputy Catherine Byrne referred to partnership, which is important to consider. I would like to hear the witnesses' best idea for the future, given their experience in lending.
The witnesses stated that the EBS is now working with the Financial Regulator based on the industry code developed in 2000. When I see all that has happened in some of the lending institutions since 2000, I wonder what code was in place. Can we be assured there is either an updated code or that the code is actually being put into practice? I can only think of what has happened in recent years in some lending institutions, including Irish Nationwide, which must be bailed out by the State for so many billion, not million, euro. I dealt with some of the personnel at the most senior level in the institutions in trying to deal with hardship cases in the past, and they just laughed at us to the extent that serious things happened that should not have happened. The EBS and others have been reputable compared with some others, and I thank the witnesses sincerely for the attitude they have taken here today.
I thank the witnesses for attending. They have taken a very proactive stance in trying to take on the issue and putting forward real, tangible solutions. What strikes me is that in other countries, governments have stepped in to promote and put forward solutions. Here, we have done nothing and have ignored the problem. The Government had an opportunity in the NAMA legislation to take on board Fine Gael's proposal for a homeowner's support scheme but it chose to do nothing.
A crisis is emerging before our very eyes. Unemployment is soaring and stands at 430,000. There are widespread fears that people will lose their homes. Support for holding onto homes should be a key objective for this Government and not only for the financial institutions. The crisis will get worse if the Government does not act swiftly. We should send this document to the Minister for Finance for his views. The young people of Ireland will pay with their homes for money handed out without proper regulation if the Government does not act in conjunction with banking groups.
I thank the witnesses for a positive and proactive presentation. I ask them to select the best option among the solutions they have proposed.
Is it agreed that we send the document to the Minister for Finance? Agreed. The report by Deputies Thomas Byrne and Enright will reflect that.
I commend Mr. Murphy and Ms Clarke on their forthright approach to these proposals. I believe one should take action before the flood occurs. Inaction will not help the Government or lending agencies. Deputy Byrne raised the issue of insurance, which perhaps should involve a three way solution. The Government could pay a small proportion to lenders and borrowers.
It is not true say that the Government has done nothing. The supports it has put in place for mortgage holders who are in difficulty cost more than €60 million at present. However, we must go a further step. The proposed 24 month moratorium is key to the problem in terms of allowing people back onto the ladder. Nobody wants to fall behind in mortgage payments because it is in many ways a matter of honour but those who cannot pay must be able to seek help.
Deputies Thomas Byrne and Enright should be given credit for the report they have drawn up on behalf of the committee. The Minister for Finance is aware of our proposals and I hope he will consider them favourably. However, any legislation introduced should cover the entire banking system because it would be unfair if it only affected the main banks. The heaviest pressure on homeowners is coming from other institutions. Evictions are not necessarily being pursued by the banks which are receiving Government support. Legislation should ensure a fair playing pitch by including all lenders.
I thank Mr. Murphy and Ms Clarke for their efforts in researching these issues for the committee. Their diligence is a welcome change from the outrageous arrogance of the bankers who appeared before another Oireachtas committee. I look forward to receiving the final report, which I understand will be forwarded to the Minister for Finance under Standing Orders. I hope the outcome will be actions rather than words.
The report should also be sent to the Minister for Social and Family Affairs, Deputy Hanafin, and the Minister for the Communications, Energy and Natural Resources, Deputy Ryan, both of whom are taking a particular interest in these matters. Perhaps we could discuss in private session how we want to finalise the report for publication.
In the interest of ensuring Opposition input, it would be worthwhile to send a copy of the report to Deputy Bruton.
I do not have a problem with that. Deputy Bruton is a nice man. He was in Tallaght on Friday and I was very impressed by the comments he made about me.
My colleagues have expressed their satisfaction with the witnesses' work. Our challenge is to give people hope on this serious issue by persuading all lenders to see repossessions as a resort. We have had a useful discussion and the witnesses gave an excellent presentation. Slight variations will always exist in our political views but I have no difficulty with that.
Mr. Fergus Murphy
Deputy Catherine Byrne, who unfortunately is no longer here, asked what happens after people get a breathing space by going onto an interest only mortgage for several months. The objective is to find a sustainable way for people to continue paying their mortgages. Interest only terms, reducing principle payments or a full moratorium can be considered. However, just as there is no point in carrying out a successful operation on a dead patient, these alternatives will be ineffective if the person concerned still cannot repay his or her mortgage. A sustainable path must be found which may include exceptional measures over the short term while allowing capital repayments to be reduced over the longer term. As that has to customised to the individual borrower, it is difficult to make a general comment. We are seeking a solution whereby the mortgage is repaid over time and not just for a period of three or six months.
For the record, Deputy Catherine Byrne stated at the outset of the meeting that she would have to leave at 1 p.m. She certainly appreciates the work of the delegation. However, she seems to have a constituent who has had the money due piled on as an extra charge immediately rather than having it added over a longer period. That is what worries her.
Mr. Fergus Murphy
To use the analogy again, it is a case where the operation is successful but the patient is dead. There is not much point in doing that and it seems like a practice that should not be allowed or enabled.
Mortgage indemnity insurance was mentioned by a number of Deputies and Senators and we believe, as EBS has done over the last decade, that it is an asset in this regard and it is a prudential tool that can be used to ensure that banks' balance sheets, in the event of a significant downturn, are in some way protected against the kind of meltdown we have had. We have seen that in particular in Canada, which has journeyed well through this crisis.
Senator McFadden asked about flood victims, of which there are many, particularly in the midlands and the western shores, and more recently in the east. It is more of an insurance issue with regard to the number of claims coming through. There will be an increase in claims for flood insurance. We will make every effort to ensure the claims are processed as early and efficiently as possible with our insurance provider. We will try to help our members in that process in any way we can in terms of filling out forms, etc.
Various insurance policies can have a devil in the detail of small print and people must be very careful in their processing of claims. We will make every effort to help our members in that regard. We do not provide the insurance ourselves as it is provided through a third party, with which we work. We will try to work with both parties and make the process as efficient as possible. There will be a massive escalation in claims in the coming period.
I am sorry but I may not have made my question clear. Could a mortgage be frozen while a claim is being processed? If it could, people would not be trying to pay a mortgage and rent at the same time. People would not be able to afford that while waiting for the claim to be processed.
Mr. Fergus Murphy
Absolutely. I was going to come to that. In individual circumstances we will look to work with the customers or members so that we could ensure they are not being financially crippled and there is a sustainable path in terms of borrowings and repayments. We will look at working with customers in that way.
Ms Fidelma Clarke
We had a credit meeting this morning and it was the first item on the agenda. Many people are under pressure in this regard.
Mr. Fergus Murphy
Senator McFadden also mentioned the homeowner support scheme and the utilisation of some formal approach — NAMA, for example — to assist people in negative equity and in righting the boat in terms of what people can repay on a sustainable basis. There are a number of international examples of this within the 54 different scenarios we looked at. There is something in the issue with regard to breaking out equity and sharing the equity of the house, either from the perspective of a public entity such as NAMA or the bank or building society itself.
This is a very complex area as it must be ensured that debt capital markets and global investors will approach it in the right way. They must not close lines of credit to Irish banks in doing this. There is certainly merit in that scenario which we have seen internationally. It is possibly a very good idea for more work to be done in that regard.
We spoke about penalty interest. EBS has never charged this and never will. It probably should not be allowed. There were a number of comments about loan-to-value, negative equity and affordability, and they all fall into the space of the banks being more prudent and conservative in lending money. In hindsight, it would have been better if there had never been 100% mortgages. That kind of product was never allowed in Canada. We must take a longer-term approach to owning and financing property.
There was a culture in Ireland that buying property meant a person would make money. That was the mindset and the reality for 15 years or more. It became entwined in our DNA. We must consider property in future as being much more like a utility, and we must have rigour around the way we lend for property. People should utilise property much more conservatively. Canada is a good example of this.
The question on the best proposal is interesting and Ms Clarke will talk us through what we fundamentally believe to be the best ways of dealing with the current issue. The removal of all penalty interest would be a good idea and the Senator's proposal for shared equity could be considered. The warehousing opportunity for a loan could be the simplest approach and have the best medium-term success.
Ms Fidelma Clarke
There are three legs to the stool we spoke about. With regard to what could be done immediately, there could be pre-emptive analysis and contact with people to tell them they should not worry if they lose their job next year, for example. The bank or building society should support such people and we will definitely do so.
With regard to the solutions for people who are covering a high level of debt and are under pressure in terms of income, a refinancing plan could involve people paying what they can for a period such as five years. They can be given space and the position can be reviewed. Much of the time the devil is in the detail of how to get such things done. There are implications for markets but with the right support system in place, that is probably the most attractive workable proposal. It would also support the medium-term objective of people owning their own home and would buy time for them in that objective. That is our preference.
Looking to what has been said earlier and Mr. Murphy's point, we are very strongly supportive of compulsory mortgage insurance in Ireland, whether it is on a private or Government-led basis. We are in favour of an alliance approach between industry, the Government and individuals to ensure this never happens again. We are very supportive of an Irish mortgage insurance fund, with payment protection for people who in future might lose their jobs. We strongly encourage all parties and everyone within the system to look at this now so we can start to build up that fund. It will take time to build it.
Mr. Fergus Murphy
Another issue we have looked at but which we have not yet ground out is the provision of support for people who lose their jobs by helping them find new jobs and subsidising their efforts in that regard. If a borrower with a mortgage has lost his or her job we will consider how to help him or her find a new job by working with such people on their CV and training and giving them advice which we pay for. This is to try to get them on the job ladder again. I do not have the specifications on the idea as we are still working on it. It may be valuable to people and similar action is being carried out in the United States. That has covered most of the items.
This has been a very good and important meeting. I thank the delegation for responding in such a positive way to my colleagues' questions. We look forward to continued contact and wish the witnesses well. If it is not too facetious, I wish them a happy Christmas.
Mr. Fergus Murphy
And to you all.
The committee will now go into private session to deal with some housekeeping matters.
The joint committee went into private session at 1.20 p.m. and adjourned at 1.30 p.m. until 11 a.m. on Wednesday, 20 January 2010.