Mortgage Credit (Loans and Bonds) Bill 2012: Second Stage

I move: "That the Bill be now read a Second Time."

Cuirim fáilte roimh an Aire Stáit agus molaim an Bille don Seanad. Is as an Ghaeltacht é an tAire Stáit agus mar sin ba cheart dom an Ghaeilge a úsáid anseo.

I thank the Bills Office for its help, which was most valuable indeed, my assistants and, of course, this great House, its officers and Members, and the staff, for the opportunity to put before them today a radical measure needed to reform housing finance and banking in this country. It is the second Bill that we brought in. The fiscal responsibility Bill was brought in about this time last year, and I gather it has been to the Dáil and comes back to us fairly soon. It was important when all of us were elected in the spring of last year to take measures to assist in rectifying the public finances and to assist in the reform of banking, and that is what we seek to do.

This Bill is a piece of macro-prudential legislation and will be part of a suite of reforms to make the financial system more stable. We came across it in endorsements of what happens in Denmark. I had not heard about it until recently, although one of us might have raised it here in the House.

The IMF report on the Danish financial sector assessment programme dated March 2007 states:

The Danish mortgage system is among the most sophisticated housing finance markets in the world and presents some unique characteristics. The combination of a tight regulatory framework with developed specialized, "in-house" expertise in lending and credit assessment, and in wholesale funding and risk management has translated into a highly rated system (and institutions), able to deliver a variety of mortgage products at close to capital market conditions. ...

... Through the implementation of a strict balance principle, the system has proved very effective in providing borrowers with flexible, transparent and close-to-capital markets funding conditions. Simultaneously, as pass-through securities, mortgage bonds transfer market risk from the issuing mortgage bank to bond investors.

The key to it are these mortgage credit institutions of which the IMF speaks so highly in the Danish situation. The bonds that these institutions issue are preferred, particularly in our circumstances, either to the bank shares or to the sovereign. Of course, that is because the rescue of banks four years ago tied the Irish sovereign to the finances of the banks.

These finances here appear to be available in Denmark, at between 2% and 3%. That is a substantial advantage over what the Government would have to borrow on open markets and it is substantially better than the difficulties which Irish banks experience.

I am informed that there are low defaults because of the loan-to-value restrictions. On this kind of borrowing, the loan is maximised at 80% loan to value. At that loan-to-value rate, the default is 2% internationally and only 1% in Denmark.

This appears to be attractive to the borrowers. It appears to work well in Denmark. It is commended internationally, with warm endorsements by the IMF, the Bank for International Settlements and the European Union.

It would be a good time to start now because interest rates are low. Some of those who investigated this previously, with whom we caught up after we tabled the Bill, stated that people may have been caught in the past when interest rates were high and then declined but if we were going to start it, this would be an extremely good time to do so.

We need, as we state in our memorandum, to stimulate the economy. Senators, and, I am sure, Deputies in the other House, have spoken about the difficulties of the mortgage market. I note in The Irish Times today that Ms Fiona Muldoon, the Central Bank's head of banking regulation, stated the Central Bank has strongly criticised banks for their slow progress in tackling the mortgage crisis. The Secretary General of the Department of Finance, Mr. John Moran, expressed similar sentiments. Yesterday the The Irish Times also reported that Dr. Joachim Faber, chairman of the supervisory board of the Deutsche Börse, stated that it was almost untenable that five years into the financial crisis there was still no clarity on banking reform, and the industry itself was completely passive and this was unacceptable.

This House, however, is not completely passive and we have already worked on the Fiscal Responsibility Bill, which will return to the Seanad shortly. The House has addressed the crises in the public finances and in banking. The Central Bank and the Department of Finance indicated only yesterday that there is a need for a Bill such as the one we propose today. It is important that people cannot say the Seanad is standing idly by or, indeed, that both Houses are doing so. We are not; we are bringing an innovative system from another country and pointing to its success.

We are also pointing out the advantages the proposed measures would have in terms of reviving the housing market and divorcing house purchase from financial speculation. These became far too entangled in Ireland, which got us into the situation we are now trying to rectify. The Danish system, referred to as nykredit, dates back to 1797 and is very robust due to extensive regulation that spreads outside the mortgage credit market to the wider banking sector. Bubbles are not a feature of the mortgage market under this system and, indeed, that was the original purpose.

Strict loan-to-value ratios are an important feature of our Bill and it is a pity we did not have them here through most of the last decade. Such ratios ensure much lower rates of default. There are variations in the ratios used, with an 80% loan-to-value ratio for residences and a 70% ratio for agricultural holdings. Social housing and other types of property could also be included, which makes it possible to use the future flow of rents from local authority housing - or, indeed, any other public building that has an income flow - as security for loans. This has worked well in Denmark. Danish bonds are desirable and are rated typically either triple A or triple A plus. This low-risk profile is due to that country's strict loan-to-value requirements and the low default rate, to which I referred earlier.

We must find a way to separate the cycles of causation, with the Irish banking sector infecting the sovereign and vice versa. Under this proposed system, the market would be of the view that, pending a solution to our public finance problems, there is a better chance that an Irish person will repay his or her mortgage than there is of us fixing our public finances or of the banks sorting themselves out. Therefore, it would be to the advantage of the person seeking to become a home owner to have this system in place and to be divorced from what is happening in banking and the public finances.

This structure is not part of the opaque securitisation process that became infamous with the US sub-prime mortgage crisis. It is therefore not attached to a waterfall payment profile with various tranches of payment and risk profiles. These bonds are transparent and easy to rate and analyse for risk, which makes them very safe and of low yield. In fact, I suggested to a colleague earlier that if there was a fear that this could lead to a repeat of the US sub-prime situation, we might invite the Danes to do it first, given their experience going back over several centuries. In order for the system to work, we would have to improve the registration of title, deeds and valuations system, which is actually being done now as part of the process of introducing a property tax. We must also do away with letters of comfort, falsification of documents and so forth.

This system may have been studied in the past, according to some former officials, now in academia, whom I spoke to after this Bill was published. There are papers somewhere in the realms of Government that I did not know about in which this system was considered. Those papers would be well worth examining to determine whether we can make the breakthrough here. The bankruptcy procedures might be made slightly more complicated with these proposed mortgages but that can be handled.

The Central Bank would have a major role to play as the licensing authority. The system encompasses checks and balances that obviously were not in place in the past and would be part of a wider programme of reform of financial institutions, directed at transforming the Irish financial system and putting in place a macro-prudential system of finance, as advocated by the Central Bank. The Danish system has been endorsed by the IMF, the Bank for International Settlements and the Organisation for Economic Co-operation and Development, and is part of the Basel III banking reforms. Many economic commentators have argued that the system is desirable due to its stability. The legislation as written is also compliant with Directive 2006/48/EC of the European Parliament and Council of 14 June 2006, relating to the taking up and pursuit of the business of credit institutions, as published on page 1 of the Official Journal of the European Union, L177.

In the Financial Times of 16 October, Martin Wolf wrote:

It is no secret why growth is slowing in high-income countries; this is due to fiscal tightening, weak financial systems and powerful uncertainty. This toxic combination is particularly threatening inside the eurozone...

We are trying to deal with those problems here and I hope this Bill will assist the Government in that endeavour. I commend the Bill to the Minister and the House.

I welcome the Minister to the House. Since Senator Barrett came into this House, I have been educated so often-----

Yes; we have all been educated so often and no more so than today. I first learned about Denmark in the 1950s in the context of their folk schools. Their system of education and of involving people in traditional folk schools is wonderful. My father became involved in that and I found it very interesting, way back then. In the 1970s I went to Denmark because it was the first country with a supermarket that put barcodes on its products. Denmark has led the way in many areas but I was unaware of the nykredit system until Senator Barrett brought it to our attention.

The crisis has set off a search for the best possible mortgage financing system and many economists have praised the Danish model, which I had not heard about until now. It has been in operation since 1797 and since then, not a single Danish mortgage institution has defaulted, gone bust or had to be bailed out. As Senator Barrett explains in this Bill, the Danish system features specialised mortgage lenders that observe strict loan-to-value limits, along with a system of matched funding in which each mortgage is financed by a specific bond with the same maturity and cashflow characteristics. Unlike Ireland, losses in Danish mortgage banks have remained low during the crisis and there has been plenty of liquidity in those institutions. Indeed, it is a very secure system, and Danish mortgage bonds differ in essence from the widely distributed mortgage-backed securities, MBS. The regulations for Danish mortgage bonds are laid down by law, which means they continue to constitute on-balance financing and are therefore more similar to savings deposits with a general bank than to an MBS, which constitutes off-balance financing. The issuing body continues to carry the risk if a home owner is no longer able to fulfil his or her obligations. With an MBS, on the other hand, the risk rests solely with the investor.

We need to break the linkages between the State and the banks. As the Bill points out, Ireland is unattractive to foreigners but access to credit for mortgages is determined by the ability of our existing pillar banks to obtain credit on the international capital markets. The bank guarantee further undermined this situation.

Danish mortgage lenders compete on their ability to distribute and service loans. This specialised competition has helped to drive down costs for the consumer. The Danish system also protects borrowers from interest rate risks by offering long-term fixed rate mortgages. Such a system would greatly benefit consumers in Ireland, compared to the floating rate mortgages which expose borrowers to risks of payment shocks when interest rates rise. Regulations in Denmark limit the amount that can be loaned to homeowners to no more than 80% of the value of a home. We fell into that trap to a great extent in Ireland. Policymakers should be concentrating on this issue.

Several years ago I was invited by then Senator Maurice Hayes to have lunch with George Soros, the billionaire financier and philanthropist, who certainly educated me on these matters. He established a joint venture in Mexico based on this model and argued that a similar system should be adopted in the United States. He has stated in regard to the Danish model: “If you need systemic change ... you may as well go for something that is vastly superior."

We cannot speak about mortgages in a vacuum. There are lessons to be taken from the way Iceland dealt with the crisis and is now recovering strongly. I do not suggest, however, that we should have moved in that direction, given that we do not have our own currency. We must look at mortgages, but we must also push harder than ever for a debt write-off. The IMF is coming round to the idea that Iceland did the right thing by burning bondholders and that recession is made worse when there is no restructuring of household debt. It has stated: “Key to Iceland’s recovery was ... [a] program ... [which] sought to ensure that the restructuring of the banks would not require Icelandic taxpayers to shoulder excessive private sector losses”.

Overall, this is a positive proposal to tackle a fundamental part of the banking system. If people start to default on their mortgages on an even larger scale, they are also likely to have trouble paying off their credit cards and the resulting credit crunch is going to be even greater. The major lesson we must learn from the recent past is that leverage by banks in property is usually lethal. This system would help to prevent that happening. While there are some drawbacks, the system offers many benefits, including low and competitive prices of loans against mortgages on real property; transparency in prices and repayment terms for loans; market based pricing; availability for all owners of real property; and a system that supports overall financial stability. There is much to be said for these alternatives and we should look around to see who else can offer advice.

Notwithstanding the selective views of ratings agencies, there is strong market demand for Danish mortgage bonds. Nykredit, Europe’s biggest issuer of covered bonds backed by mortgages, has seen its international investor base grow to almost 20%, compared to 13% just one year ago. The bonds are seen as a safe haven which offers investors no credit risk and plenty of liquidity. We also want to be regarded as a safe haven. Perhaps the Danish model might help us in this respect. Realkredit Danmark, the mortgage lending unit of Danske Bank, terminated its contract with Moody’s after it had issued a credit warning because it argued that the agency did not understand Denmark’s mortgage market. Perhaps our own banks would do well to sever their links with some of the ratings agencies.

The economist, Professor Joseph Stiglitz, describes Danish mortgage bonds as a good innovation which helps to improve risk management and lower transaction costs. However, the financial system has resisted many beneficial financial innovations which improve the efficiency of economies. We should move to a model in which people lose their homes only as a last resort. Although Denmark is still in the middle of a slump in its real estate market, foreclosures account for just 0.2% of the total housing stock. The economic and financial crisis has only affected 1% of mortgage holders in Denmark. Any homeowner in Ireland would see the benefits of such a system. During the worst months of the financial crisis and the subsequent eurozone crisis, it was business as usual in the Danish mortgage bond market. This model would not solve all of our problems, nor is it the only solution, but it is worth considering. I urge the Minister not to reject the Bill before it receives the attention it deserves.

Senator Sean D. Barrett has done something with which I am not overly pleased as a public representative, that is, he has made us think about issues, which makes us dangerous animals. I missed his contribution, but I was most interested in the e-mail I had received from him on the matter. However, I am conflicted about his proposal because, while it is a great idea that has worked in a jurisdiction which is not alien to ours, I am concerned that the Irish psyche is different from that of people in Germany or Denmark. The housing sector in Ireland needs something to make it operational again.

I have repeatedly pointed out that the number unemployed in Ireland is not 440,000 but 300,000. These 300,000 people were working 36 months ago. The remaining 140,000 who were not working at the peak of the boom are still not working and I do not believe they want to work. Every single one of the 300,000 who were working three years ago want to work. An enormous proportion of these individuals worked in the construction sector. It was easy for young men to leave school early, get a shovel and earn large wages. Six weeks ago I noticed a full page newspaper advertisement for Savills which was selling 1,000 apartments in seven developments in Dublin city. I am almost certain these apartments are in the possession of NAMA. They were being advertised as being under different management and rented. The future of the housing sector lies in those apartments being put on the market to set a base price which would flow throughout the country.

I am not certain about the Government's opinion on Senator Sean D. Barrett's proposals, but I am prepared to give them a fair wind. I do not know if they would work, but I would like to explore them further. We require more than a two hour debate if we are to tease out the issues involved. I have to admit I do not know enough about the subject or sufficiently understand the intricate details set out in the explanatory memorandum to state whether the proposals would succeed in this country. However, I am grateful to the Senator for giving us an opportunity to learn more about them.

We would have hit the perfect storm financially were it not for the fact that interest rates remained historically low. Without such low rates, we would be in 1930s territory and speaking about recession rather than depression.

This legislation is prudential and I am satisfied that is the way Irish lending should be. However, there is a dichotomy currently. We are telling the banks they should lend, but at the same time we are telling them they should leave people in their homes, although many of these people will not stay in their homes because they have completely over-borrowed. The Personal Insolvency Bill will be available. If people have over-borrowed to the extent I am aware some people have, there is no prospect they can remain in their homes. I am dissatisfied by that, but it is the reality. The Personal Insolvency Bill is on the way and we are satisfied that is the start of the process. However, in truth we do not know how the legislation will work in practice. The theory of how it will work has been debated in the other Chamber and it will come to us in November. However, I am unsure it will work as well in practice as in theory, but we hope it will work.

I am also concerned that while the local value ratios at 80% are prudential, they are perhaps even more prudential than the banking sector's way of lending now. In my time with local authorities, I always observed that the local authorities were better at providing loans to certain sectors of society, people who could not get loans from the lending and financial institutions. Local authorities went beyond the standard prudential rate, because they knew the people who were borrowing and knew their families. They also knew which families repaid their loans. It was always the same families who repaid and always the same families who did not. That local knowledge existed within the local authorities and among most of the local councillors. My concern is that if this legislation prescribes an 80% loan to value ratio, we will exclude the input of that local knowledge. That would be a mistake.

I was heartened by what Fiona Muldoon said yesterday. It is about time somebody from the regulatory sector put the boot into the banks. Many of us here, from both sides of the House, have tried to do the same, but to no avail. The banks are still the same in my experience. I must tell Senator Barrett that the use of the term "microprudential legislation" is new to me, but I am open to learning and to listening.

I have a concern that while the bond system has operated as it has for centuries, this smacks of what happened in the United States. I understand however that the intention is that what happened in the US, where they bundled them up and started selling them to each other, will not happen here. That caused a huge problem in the US. I remember reading an article relating to the United States, where they have the three strike rule with regard to felonies. On the third strike, even if minor, culprits go down for 25 years. People in the United States who had two strikes against them were getting loans. These were being bundled together and sold within credit institutions in the United States and this created a huge problem further down the line.

Page 4 of the explanatory memorandum mentions the balance principle. I have a concern in this regard. Irish society went through much of the same as we are going through today in the late 1970s and early 1980s. I remember hearing people say we would never go back to that again and that there was no way we would ever make the same mistakes again. However, as capitalism goes unchecked over time - I speak as someone who supports capitalism - the problem is that it gets out of hand and greed takes over. We believed we would never get back to this position, but we have got back here with a vengeance. It is many times worse than what happened in the 1970s and 1980s, but I do not believe the Irish mindset is prepared to purchase at the loan to value ratios we should be at.

I would like to know what the situation with regard to home ownership is in Denmark. In Ireland and in the United Kingdom, a man's home is his castle. That is the mindset in these islands. However, that mindset is not so strong on the Continent and I suspect home ownership is much lower in Denmark than in Ireland or the United Kingdom. The Irish psyche is intent on home purchase. I was not as dead set against 100% mortgages as some people were. Quite a few people were caught in the trap where they were renting and did not have the opportunity to put together enough cash to pay off or purchase the 92% or 85%. In Ireland, people set their minds to purchasing their home and becoming a homeowner. The difficulty was that banks lost the run of themselves. They also lost the ability to decipher which people could and could not pay. This was compounded further by the fact they did not care. Their objective was to lend the money and then chase it, because their bonuses were linked to the money going out. Therein lay the problem. The regulators, the Central Bank, the European institutions and others lost control also. They too let the animal off the leash.

I would like more detail on this Bill. I am not satisfied that two hours of Private Members' debate is adequate to deal with a Bill intended to radically reform Irish lending institutions. However, I am open to its intention and to giving it fair wind, but would like to go through it in much more detail, whether here, in committee or elsewhere.

Cuirim fáilte roimh an Aire Stáit go dtí an Teach arís. I thank Senator Barrett for introducing this Bill. We are all agreed an immense amount of work has been put into this Bill. This is the first Bill I have seen where the explanatory memorandum probably needs an explanatory memorandum of its own. I have been reading through it and trying to make a good fist of it.

All potential solutions and all aspects of them need to be considered in the light of day. I support the thrust of the Bill, but the issues need to be teased out. This is not the first Bill we have had on the issue of mortgages. Senator Barrett already produced the Fiscal Responsibility Bill on which the Government is moving separately and Senator MacSharry mentioned the Family Home Protection Bill 2011. There has been significant concern, across parties and among Independent Members with regard to how we can grapple with the banking problem and mortgage debt. The figures given by Fiona Muldoon that we raise all the time with regard to the mortgage arrears crisis are probably another day's work, but they indicate the fact that the banks are kicking the can down the road and are not dealing with the real issue. They are not dealing with the €6 billion or €7 billion figure given with regard to potential future write-downs.

The banks have not even dealt with aspects such as zeroisation of interest. It is all very well giving people a moratorium for 12 months, but interest still piles up. The banks are not looking at the extension of mortgage terms for those who are in their 30s or 20s with 25 year mortgages who have the capacity to extend the mortgage term out further.

If one asks our pillar banks for such a mechanism - this is the crux of the issue of freeing money into the economy - one is asked to rewrite the mortgage and to underwrite the mortgage again at its original value. In other words, one will not get it. If we were to allow the terms of mortgages to be extended by five years, with full medical underwriting being done again, we would reduce people's current repayments by between 15% and 20%. People are struggling under mortgage debt. There is no question about that. Senator Barrett's Bill looks towards the future by trying to enable the banks to alter the way they do their jobs. The strict loan-to-value ratios that are provided for and set out clearly in this Bill are very important. That is the way it is. If someone wants to borrow through this mechanism, he or she will know what the situation is. I think that would help the people and the banks.

When the Minister for Finance replied to a question tabled by my colleague, Deputy Michael McGrath, we learned that one third of all mortgage applications made in the last 12 months - the ones that reached application stage - were refused. The market is simply not going to move if that pattern continues. We have seen an increase in rental yields because professionals and other people who can afford to do so are renting rather than stepping into the market to buy. To be frank, I would not step into the market if I had any money to do so, which I do not. I do not believe this is a good time for people to purchase. The NAMA scheme that was announced in this House, which aims to provide protection from future falls in property values, is under-subscribed. Approximately 35% of the houses in question have been sold. The take-up of the incentives offered by the Minister for Finance in the last budget, such as the increase in mortgage interest relief for first-time buyers, has been minimal. The reason for that is people's lack of cash.

The banks do not have money. Senator Michael D'Arcy covered it very well when he said we are asking the banks to show forbearance to people. I think that should happen because the banks shoulder much of the blame for where people are at. I know about it because I worked in the sector. I did not work in a bank, but in a role that was directly related to mortgages and pensions. Normal people went in to look for a 92% loan, but by the time they left they had been given a 110% loan. Those who did not understand what that meant were asked whether they wanted a new car, a holiday or an opportunity to throw all their other loans in with their mortgage and were told everything would be grand. People might not have had guns held to their heads, but they were pushed in a certain direction as I have outlined, particularly by banks that were led by sales bonuses.

The mechanism included in this legislation is part of the solution. It needs to be teased out. It would apply strict structures to what can and cannot be loaned in the case of a certain type of property or development, or in the case of agricultural land. It goes through all aspects of the matter. It really needs to be looked at. I assume and hope the Government will take this Bill seriously. I have referred to two other Bills that have been proposed. Senator MacSharry came into the Chamber about a minute after I mentioned his Bill, which would have established an independent debt settlement office. I put it to the Minister that such an office is still required. Perhaps an independent appeals mechanism can be provided for in the Personal Insolvency Bill 2012. We cannot give the banks the final say on how mortgage arrears are dealt with.

I wish to ask the Minister for Finance a question while he is here. Perhaps he or his officials might be able to answer it. The Minister, Deputy Noonan, and the Minister of State, Deputy Brian Hayes, both said that mortgage resolution schemes would be submitted by the banks to the Central Bank by 30 September 2012. I would love to know where they are. Have they actually done that? Are they being considered? The Personal Insolvency Bill 2012 is the nuclear button. It is not a solution for people. The mortgage-to-rent scheme is not being taken up by most local authorities, including my own local authority in Fingal. They are telling people they are not operating it. Lenders are also saying they are not operating it. People in my own area of Fingal do not want to know about it. Neither the Oireachtas nor the Government will solve this overnight. Some aspects of Senator Barrett's Bill should be part of the solution. We need to be serious about getting stuck into the banks and the local authorities, where possible. What is the point of the Minister of State with responsibility for housing coming to this House to announce a mortgage-to-rent scheme when most local authorities will not even participate in it?

I will conclude by thanking and congratulating Senator Barrett on the work he has done. If he can work on a new explanatory memorandum for me, I will be happy to circulate it. We know we are in the midst of a mortgage crisis that is getting worse. Mortgage arrears have increased by 50% year on year. I will not even talk about the buy-to-let market, which the banks have failed to deal with. Many of the loans in question are about to reach their capital repayment terms. The mortgage crisis will get worse if action is not taken. The Bill proposed by Senator Barrett would force the banks to engage in new lending and to look at things differently. That is needed as part of the solution. I ask the Government to allow this Bill to be passed on Second Stage.

That would allow us to kick it around a bit more. If the Minister for Finance or the officials in the Department of Finance wish to propose amendments to the Bill, that can be facilitated.

I thank the Minister of State, Deputy McGinley, for being with us. I welcome the Minister for Finance, Deputy Noonan, to the House. Does he wish to speak now?

I think I will hear another contribution or two.

I welcome the Minister to the House. Like a number of others, I would like to thank Senator Barrett for all the work he has put into this draft Bill. It is a superb piece of work. I am a lawyer. I also have a degree in economics. I have gone through this proposal on a number of occasions. If I sat down to go through it ten more times, I doubt that I would understand it completely. I can say honestly that I am pretty confident that I would not understand it.

Like other speakers, I would like the Government to give this Bill some serious consideration. I honestly believe we have reached a point in our history at which we need to examine new ways of doing things. I agree with those Senators who have said we need to deal with the difficulties in the housing market at present. I refer in particular to the manner in which the housing market relates to the current economy. Ms Fiona Muldoon has been mentioned in this House on a number of occasions in the last two days. Her comments at the Irish Banking Federation conference were particularly timely. When she described the dealings of the Central Bank and the regulator with the banking sector as being like dealing with a teenager, she said it all about the point we have reached in our interaction with the banking sector.

I would like to mention a couple of figures to demonstrate that the housing market is currently stuck. The CSO has indicated on a number of occasions that it believes the housing market has over-corrected. The most recent auction figures suggested that over 50% of properties being bought in the State at the moment are being bought for cash. That is not a healthy situation. It does not suggest that the mortgage market is functioning properly. We are all too well aware of the number of home owners who are in mortgage distress. Now that the Minister is in our midst, it is tempting to mention that Senators have asked for a fuller debate on the issue of mortgage arrears, with particular regard to what is happening under the mortgage arrears resolution process, which is meant to be presented to the Central Bank by the pillar banks.

I must admit I have a lot of time for Senator Barrett's proposal. However, there needs to be a note of caution with regard to a couple of points. History matters when it comes to a housing system. When one is talking about the Dutch housing system, for the sake of argument, it is important to bear in mind that one is looking at a process that is over 200 years old. Denmark belongs to the category of countries which come from a social democratic tradition. There is a much lower level of home ownership and a much higher level of social provision, particularly pension provision, in that country. That means people look to home ownership in a way that is completely different from the way people in Ireland look to it. Norway, to take another example, has deliberately encouraged very high levels of home ownership in order to establish a form of asset-based welfare. In other words, one's home is an asset on which one relies as one gets older. When we choose the models we will look at, we should be careful to select those that are most sympathetic to where we are coming from as a jurisdiction and that reflect our priorities and our past.

I would like to make a couple of points in response to Senator Barrett's analysis. He spoke about 80% loan-to-value ratios, for example. The Senator's Bill inspired me to study a couple of the treatises on the Irish housing market that have been published in recent years. I was struck by the 2004 report of the National Economic and Social Council, which basically said that the issue at that time was not one of affordability.

For most earners, the issue was access to a deposit. In other words, home ownership had never been less expensive than it was in 2004 but a significant number of people could not actually access the deposit.

It is easy to turn around and say what happened was a failure of banking regulation but that is not true. I would like to take the opportunity to refer Senator Barrett to one of his colleagues, Professor P. J. Drudy, and his work on the difficulty we had with not capturing betterment for the Irish people, for example, in terms of escalating land price values. It is very easy to look at what happened in the Irish housing system and look beyond the banking sector and the failure of regulation but let us not totally be myopic around the banking system. Let us look at the wider issues of why this system failed and collapsed. As an economist, Senator Barrett is particularly attached to the laws of supply and demand. The work of, for example, Mr. Peter Bacon and others shows that what happened in this housing market was not just about the failure of banking regulation but about the failure of supply and demand and, quite clearly, it was about the failure to provide an adequate amount of housing for people who needed it. I do not think we can ever get away from that when we move forward. If we think our problems are going to be solved by banking regulation and correcting banking misregulation without looking at the fundamental principles of supply and demand and the fact people need homes, we will never move on.

There is one issue we need to look to in the future. As I said, history matters. In the 1990s and leading into the market collapse in the 2000s, one of the fundamental matters in Ireland was the withdrawal of the Irish State from housing provision. The bottom line is that if one looks at Irish housing in the 1960s, 1970s and 1980s, we had a very similar banking sector over those three decades and, in fact, we did not really have financial liberalisation until the end of the 1970s and into the 1980s. The gap was filled by the role played by local authorities in lending to and providing homes for people on low incomes. My point is that if we are to look to the future, we must to some extent look to the past and what worked for this country in the past. Where we went wrong, if I may say so, and I am not sure if I have six or ten minutes remaining-----

My colleague had ten. I am wondering if there is some discrimination between Fine Gael and the Labour Party.

I have to accept there was an error on the part of the Chair.

I will try to rush through as quickly as I can. It is important to say it is more than a debate we can have here today to find what wrong with the housing market in this country. I believe history matters a lot. We need to look at a scenario where we go back to what worked for this country in the past.

I do not favour a situation where we go back to a scenario where we have such tight banking regulation that people would need to have their first communion money before they could get a loan from a bank. Ireland is and always has been a nation of homeowners. Some 25% of the people in this country became homeowners through the local authority sector. There is a significant body of evidence that shows that older people in this country are not poorer than they could be because they own their own homes.

What Senator Barrett has presented is part of what I would suggest is a rich tapestry of options and I thank him very much for producing it in the House. I commend it to the Minister and ask him to give it his serious consideration.

I welcome the Minister to the House. It is an indication of how serious the Government is taking this issue that the Minister for Finance would present himself to Seanad Éireann. I regret he was not able to be present, though I am sure it was for very good reasons, when Senators Barrett and Quinn spoke. What they said was so important, so precise, so clear and so brilliantly argued that it is very important the Minister should take the time to read the record of the Seanad, because what they said will be of infinitely greater value than anything I can say, as I am very much an amateur. Nonetheless, I am an amateur who has been concerned politically and socially for the welfare of the Irish people throughout my political career.

I remember a number of years ago, at the beginning of this financial crisis, predicting that mortgages would be a really serious problem, that we were only beginning to see the tip of the iceberg and that, as the situation worsened, more people would be dragged into this very difficult situation. I made a suggestion at that stage, which was probably a little naive, that we would create a department, not of homeland security, as it is in the United States, but a department of home security, so a group of officials could get together and study the kind of proposals Senator Barrett has used his academic training and encyclopaedic knowledge of the markets and regulations to present to us today.

It is a very important day for Seanad Éireann when such a constructive and immediate response to a very difficult situation should have been entered by Senator Barrett. I am glad the Minister is here but I hope Senator Barrett will send it also to Ms Fiona Muldoon and to the public interest directors of the banks. After all, we own them. I do not know what they are doing. I understand they got €2.5 billion and they have lent about €1 million of it. What is happening? It is very constipated banking, as far as I can see. Nothing very much seems to emerge. We hear day after day on the radio of situations where valid mortgages are turned down. The banks want to amass money in order to refloat their books. Very few people will disagree with this assessment.

The Bill gives certain things. It gives stability, which is very important. It is EU-complicit and has been validated by a number of very significant financial authorities. It provides a situation which could protect us against bubbles in the market. In addition, it has a strict loan to value ratio, which is very important and would allow a much lower possibility of default.

I wish to turn to some of the points made by other speakers. Senator D'Arcy is a very amiable and decent person and I hope he was not put in just to block this Bill. I hope Senator Barrett will do something that Seanad Éireann has done historically for the past few years, namely, when we feel there is something very valuable, the proposer, when he responds, sits down after three minutes instead of five, leaving two minutes remaining so that the Bill is still alive in some form on the Order Paper of Seanad Éireann. This is a terribly important and timely Bill.

Senator D'Arcy seemed to suggest one thing with which I profoundly disagree, namely, that the 100,000 or so people who were on the unemployment register before the bubble and the crisis were not really looking for work at all. One cannot say that about an entire group of people and I hope he did not mean it. God knows, I know it is easy to make a slip of the tongue but I hope that remark was an ill-considered one. I presume Senator D'Arcy's little excursion into the German psyche came from one of the words used by Senator Barrett, realkreditobligationer. It is actually a Danish model and I am not sure the Danes would be flattered by being accused of having a Germanic psyche.

I was very impressed indeed by the tribute paid to Senator Barrett by Senator Hayden, who is one of the best speakers and one of the most incisive intellects in this House. I do not always agree with her but, by God, you know what you are dealing with when you are dealing with her. She talked about the historical background we need to look at. However, that came out of the kind of historical background we are looking at, because the great fire in Denmark in the late 1790s created appalling chaos in the market and this was produced in response to it. Now, it is a valuable response in our situation.

The other point is that it was a mutual situation. It was not just the banks, it was also the building societies. I remember them in my day being mutual societies for the communal benefit and social welfare of people. Then, we got greedy. They decided to privatise themselves and everybody got €10,000, €15,000 or €20,000 - I think I got about €2,000 out of mine. I always felt this was a violation of what they were set up for, which takes us back to the principal of mutuality and social good. One need only look at the situation from which we have come.

I am not good at graphs but I refer to one which shows the composition of debt by country in 2010 as a percentage of GDP. We are the worst in every category. Senator Barrett has not given a percentage for household debt but it looks as though it is 120%.

Senator Norris has one minute remaining.

For non-financial corporations it is 222%, and it goes up to 259% for financial corporations. The overall percentage is 85%. That is terribly dangerous. The approach outlined in the Bill is one way out of it and it will free up money into the system.

One of the most important elements that is proposed is the notion of a sliding scale of loan-to-value ratios. The first type of property is those which require an 80% loan-to-value ratio. This refers to owner-occupied, all-year residences, namely, homes. Also in that category, there is private co-operative housing - the social element; private residential property for letting, including facilities for persons who require care - the decency of the Irish people is reflected there; non-profit rental housing; youth housing; housing for the elderly; and properties for social, cultural and educational purposes. This makes the scheme socially attractive. The next type of property is those which require a loan-to-value ratio of 70%. In that case we are looking at agricultural holdings, forestry property and market gardens. Again, they are immensely socially constructive and also good for the economy. The required loan-to-value ratio then declines to 60% for recreational dwellings, office properties, retail properties, industrial properties and collective energy supply plants. We are again looking at an incentive mechanism for restarting the economy, but we are putting it at a lower level than the socially important items. For the construction industry the required loan-to-value ratio is 40%.

I say well done to Senator Barrett. I congratulate him. He should not withdraw this explanatory memorandum. It is wonderful. It is brilliant and idiosyncratic. I have never seen one like it in my life but it is refreshing because it gives one the answers. It asks the principal question of why Ireland needs the balance-principle banking model. If one wants an answer, it is there. It is not given in the kind of way I have ever seen in an explanatory memorandum before. We need to translate it in case there are any journalists listening who may think that immorality is being proposed. My good colleague, the brilliant academic from Trinity, Senator Barrett, dares to use the classical languages. He uses a phrase from Latin.

I ask Senator Norris to conclude.

He says it would be useful to put in place a highly regulated tabula rasa approach to kick-start the mortgage market again. For anybody who is worried about the phrase from Latin, it just means a clean slate - a chance to restart things. All of us in this House feel that is what we need. I commend the Bill and I congratulate my two colleagues. I am sure the Minister, who I know will examine the Bill, will consider the proposal, and if it is useful he will even employ it.

I thank the Senator for his work in researching and bringing this Bill before the Seanad today. It is clear that there are many challenges currently facing the Irish banking system and I welcome all contributions to the debate, particularly from the Senator, given his expertise in the economic field. Mortgage credit is a key component of the banking system and we accept that the market is sub-optimal at the moment. I regret I cannot accept the Bill as proposed by the Senator in its totality but I have asked my officials to consider whether elements of the proposal could be feasibly rolled out as the financial system is returned to sustainable operation.

As the Senator has acknowledged, this Bill borrows heavily from the Danish model which has operated successfully in Denmark for generations. The balance principle of matching loans and bonds is the backbone of the Danish mortgage system. Within the system, the mortgage banks there operate differently from mortgage lenders in Ireland. They do not take deposits or raise funding for lending purposes. Instead, they act as an intermediary between the borrower and the investor who funds the loans by purchasing bonds.

It is far from clear that the Danish system could be transposed to the Irish situation. We must remember that, until the global banking crisis broke in 2007, mortgages in Ireland were funded through a variety of sources. These included customer deposits and unsecured funding from the money markets of both short and long duration, as well as secured funding structures such as mortgage-backed securities and covered bonds. However, as is widely understood today - albeit with the benefit of hindsight - as the last decade wore on and banks developed an insatiable appetite for funding to support their expanding loan books, more and more Irish mortgages were effectively being funded by the international markets.

As part of the restructuring of our banking system, we are downsizing our institutions to a more sustainable level and also restoring a more traditional funding model that largely comprises customer deposits, which do not tend to move frequently. Significant progress in aligning the quantum of bank lending with customer deposits has already been made. However, that is not to say there is no place for market or wholesale funding in the Irish banking system. We do recognise the benefits provided by this type of funding, particularly as banks seek to better align the long-term nature of their lending with that of their funding, which tends to be more short term. It is for that reason the Government is supportive of the covered bond structure we have in place in this country, which has been proven by international investors to be a robust and valued framework.

As Senators can appreciate, since the Government has taken office, much effort and focus and substantial taxpayer resources have been directed towards the stabilisation of a badly damaged banking system. Any proposal for the introduction of new initiatives needs to be viewed through the lens of the State support already committed and broader sectoral financial stability. The Danish covered bond model has been in place for more than 200 years and is specific to the Danish property market. It is a concept that has worked well in the Danish context and is well embedded in Denmark. There are many positives to the system but it must be remembered that the introduction of such a system in this country would necessitate a total shift in mortgage banking policy and regulation. Such a transformation would bring with it a number of risks and could conflict with other Government initiatives currently under way.

For example, the Central Bank's code of conduct on mortgage arrears applies to mortgage lending activities with borrowers in respect of their principal private residences in the State. Compliance with the code is mandatory for all mortgage lenders registered with the Central Bank. The code provides a number of protections to borrowers. These include the establishment of a formal mortgage arrears resolution process, MARP, to deal with mortgage customers who are in arrears or pre-arrears, the establishment of a dedicated appeals support unit and a separate internal appeals process by lenders to deal with individuals on a case-by-case basis. Provision 9 of the code restricts lenders from imposing charges or surcharge interest on arrears outstanding in MARP cases. With regard to repossessions, a lender may not apply to the courts to commence legal action for repossession of property until every reasonable effort has been made to agree an alternative arrangement. When a borrower is co-operating with a lender, the lender must wait at least 12 months from the date the borrower is classified by the lender as being under its mortgage arrears resolution process - that is, 31 days from when arrears first arose - before applying to the courts to start legal action for repossession. This contrasts greatly with the Danish system, where it typically takes no more than six months from the time when the borrower defaults until a forced sale can be carried through. The Government could not countenance a system that forced families out of their homes in such a short period of time. The Government's proposals for dealing with the mortgage arrears problems have been designed to assist people to stay in their homes for as long as they are proportionate to their needs.

In addition, the Bill, together with necessary and detailed Central Bank regulations, could conflict with the personal insolvency legislation which will deal with borrower indebtedness and with the deleveraging process that is under way in the banks. The Danish model and the Bill proposed by the Senator involve the standardisation of mortgage products, most notably with regard to loan-to-value, LTV, limits. Danish regulations and the proposed Bill limit the amount that can be lent to homeowners to 80% LTV. Although this helps in terms of credit risk for the bank and negative equity risk for the borrower, it would greatly limit the number of mortgages issued in Ireland. Most banks in this country currently offer mortgages of 92% LTV. This is important to many potential borrowers, especially the important first-time buyers, who would struggle to find the additional 12% for a deposit.

In addition, the capital requirements directive and regulation is currently in the trilogue phase of negotiations among the European Commission, the Council of the European Union and the European Parliament.

It would not be appropriate to introduce new lending and banking practices in advance of the conclusion of negotiations on this regulation and directive. Concerns have been expressed about how the directive may treat bonds such as those used in the Danish system. The outcome of the negotiations has the potential to require significant change to that system. Finally and crucially, for this system to work, it would need to generate a critical mass and would need legal certainty. It is not clear that there would be sufficient interest in the purchase of Irish mortgage bonds at this time.

The Government is playing its part in returning the property and mortgage market to normal levels although I wish to make it clear that the Government will not artificially stimulate demand. Last year's budget aimed to restore confidence, rebuild our economy and provide stability and certainty to investors to invest in Ireland. It provided that first-time buyers in 2012 will get mortgage interest relief at a rate of 25% and other buyers will benefit from relief at 15% This measure gives certainty to those considering purchasing a home. Again, I strongly emphasise that this mortgage interest relief measure will come to an end at the end of this year and there will be no extension to this measure given the current budgetary position. Furthermore, purchasers should ensure they factor in the time required between purchase and mortgage draw-down in order to qualify for mortgage interest relief. We are getting really close to the time when the curtain comes down on this relief.

The recently launched residential property prices register also gives certainty to the market in regard to prices paid for specific properties and it is already helping to guide commentators about the current state of the market. The budget also introduced a capital gains tax incentive for property purchased between 7 December 2011 and the end of 2013. If a property is bought during this period and held for at least seven years, the gain attributable to that seven year holding period will be relieved from capital gains tax. This applies to commercial property, including industrial and commercial buildings, farmland and residential property.

A number of further initiatives have been pushed forward. The Government is aware of the significant difficulties some homeowners are facing in meeting their mortgage obligations and is committed to advancing appropriate measures to assist those mortgage holders who are experiencing genuine difficulties. In this regard, the Government is actively implementing the main recommendations contained in the report of the interdepartmental working group on mortgage arrears,

A number of significant milestones have now been achieved. The Personal Insolvency Bill was approved by Government and published last June and Committee stage of the Bill was passed by the Dáil last month. The Minister of State with responsibility for housing and planning has formally launched the mortgage to rent scheme on a nationwide basis. Lenders have now provided details to the Central Bank on their proposed forbearance and loan modification options and some forbearance measures have been introduced on a pilot basis, with a further roll-out later in the year. In addition, an extensive independent mortgage advice framework has now been put in place by the Minister of Social Protection comprising: an enhanced website, keepingyourhome.ie: a mortgage arrears information helpline; and the provision of free, independent, one-to-one, professional financial advice to borrowers considering a long-term forbearance or resolution offer from their lender. The list of accountants providing this service is located on the keepingyourhome.ie website. The Government remains very committed to progressing these measures, which are in addition to existing supports such as the code of conduct on mortgage arrears which assists genuine mortgage holders in difficulty, and the Government sub-committee on mortgage arrears, chaired by An Taoiseach, which continues to meet to ensure this matter receives priority attention across relevant Departments and agencies.

I note that the comments of the Secretary General of the Department of Finance, Mr. John Moran, and the Central Bank's director of credit institutions and insurance supervision, Ms Fiona Muldoon, have generated significant coverage. These two public servants were doing exactly what public servants do - clearly articulating and implementing the Government's policy on the resolution of mortgage arrears.

It is important to remember there is no quick-fix solution to the Irish banking and mortgage issues. The Danish model is about a different financial and institutional system of mortgages and lending. Adopting such a system in Ireland would involve many risks and now is not the right time to include further risks into the Irish financial system. While accepting the many merits of the Bill proposed by Senator Barrett, I consider that the direction being taken by the Government is appropriate at this time and I am satisfied that the initiatives currently underway will resolve the situation. I fully accept many of the principles behind the Bill and the spirit in which it is put forward but regret that we cannot accept it at this time. However, I reiterate that I have asked my officials to see if proposals within the Bill can be advanced over time as the financial system moves to a more sustainable level.

I welcome the Minister to the House and thank him for taking time to attend, given his busy schedule. It is a shame we have to talk so often about this issue without any consequent penetrative action. I commend Senator Barrett on his work on this Bill. If we had had a model such as the Danish model some 20 or 25 years ago, before we had all our problems, I do not believe we would be in the difficulties we now face. There is a good body of work there to consider but although the Minister stated he would ask his officials to look at aspects of it and how they might be transposed into an Irish set up, which is welcome, I have no confidence that this is hitting home in the Department of Finance given the way that Department interacts with Government. I speak of the inherent difficulties which demand immediate action.

The Minister stated: "These two public servants were doing exactly what public servants do - clearly articulating and implementing the Government's policy on the resolution of mortgage arrears." Ms Fiona Muldoon stated that the banks should fix their balance sheets through "at least partial forgiveness of irrecoverable loans". In my view that means debt forgiveness. Mr. John Moran said something very similar, leading to the headline in one of the local newspapers: "New Hope for Write-Down on Mortgage Debt."

The Minister mentioned possible mortgage resolution solutions, referring in the first place to a code of conduct. In its analysis of compliance with the code of conduct, the Central Bank showed that the banks are not following that code of conduct. This can be verified in the releases published by the Central Bank on its website. It is true that a mortgage arrears resolution process has been put in place which offers a structure of contact with people who are in difficulty and it has been followed to an extent. However, all reasonable solutions are not being considered. The Minister referred specifically to an appeals process but that is an internal process. To what body does it appeal? If a bank's decision to offer very little is appealed, the appeal is heard by the bank itself, which also determines whether action is necessary.

Senator O'Brien observed that according to anecdotal evidence in his constituency action on the mortgage to rent scheme is not being followed through. In situations where I act formally on behalf of people who have asked me to be a point of contact with the lender, I have asked for action to be taken but no bank has the slightest intention of taking this on board. They are not interested in meaningful solutions. Senator Barrett referred to the back stairs for bankers in the Department of Finance. Unless a measure happens to be the banker's idea, it seems the Legislature must continue to be in denial and refuse to come forward with reasonable solutions. This will be the case until there is an independent statutory demand that banks take particular actions. That does not mean codes of conduct although if these were statutory and properly enforced we would find out that banks were not complying. Consider what would happen if there was a law enjoining banks to take a particular action.

For example, why not have aspects of the Personal Insolvency Bill tested before the courts by requiring that order for repossession of a family home cannot be granted unless specific steps are taken by the relevant bank, including extending the term of the loan, renegotiating its terms or offering a rent-to-mortgage facility? If the law required such steps to be taken in advance of any order for repossession being granted, the brains of the very same bankers who produced various complex methods of losing money, such as derivatives, would have to be engaged to put forward what is needed in this process. This is not just about having the "best boy in the class" T-shirt for European bankers to whom we had to repay enormous sums but about the people of this country. The number of residential mortgages in arrears has reached 129,000 and the figure is increasing by 1,000 each month. If we wait for the market to rise to allow people to recover, we will probably wait for 18 years, as a number of reports have shown. We are still in denial. We have had the Personal Insolvency and Debt Settlement and Mortgage Resolution Office Bills. Senator Sean Barrett, the sponsor of this Bill, is being given the pat on the head that is customary when Independent Senators introduce legislation.

Senator MacSharry is being unfair.

The Government is thanking him for doing a great job and while indicating it would be give him a first class grade if he was being adjudicated on his economics class, it is also telling him it has no interest in changing the law to do something for people.

The Minister stated that two senior civil servants, the Secretary General of the Department, Mr. John Moran, and Ms Muldoon of the Central Bank, were carrying out Government policy when they spoke of the need for debt forgiveness. Nothing is being done on this issue. As the evidence from every constituency office in the country shows and as everyone involved in business knows, the banks are only superficially engaging with people. I ask the Minister of State to cite one instance of individuals aged in their mid-40s who have paid off 15 years of a 35 year mortgage being offered the option to extend their mortgage term to 35 years. The reason no one can cite a single example of such a scenario is that there are no such cases. Can anyone cite an example of people being offered a mortgage-to-let facility? I cannot find a single example of this in the north west. I have requested that such an option be provided in two specific cases and both my requests have been declined.

I do not doubt that everyone wants the position to improve. However, until responsibility for this matter is removed from the banks, they will continue to act in a superficial manner and put the interests of people last, which I am sure is not the Government's intention.

I welcome the Minister of State, Deputy Ring, to the Chamber. It is great to see him again. I am pleased to have an opportunity to discuss this innovative legislation. It is always worthwhile spending time examining the approaches taken in other jurisdictions. I commend Senator Sean Barrett on affording us an opportunity to discuss this issue, even if I called down many maledictions on his head in recent days for presenting such complex legislation.

The Standing Orders of the Seanad work against us in respect of this legislation and it is regrettable we must discuss this highly technical Bill within the constraints of a Second Stage debate. I thank the Leader for taking time today to ascertain whether Standing Orders could be amended to allow us debate the Bill in an alternative format. We must deal with it in the prescribed manner, which means we are unable to interrogate the intentions of the proposer in as full a way as I would like. Notwithstanding this, we must do what we can within the constraints of Second Stage to examine this proposal, which has undoubted merit.

No one disagrees that restructuring of the mortgage market is necessary. The introduction of new mortgage products should be considered and welcomed if they are found to reduce the level of risk involved in all lending. Concerns have arisen about the drafting of certain sections of the Bill. These could be improved with further work as one or two sections appear to seek to achieve a little more than is legislatively possible. An example is the prescription for action following default or bankruptcy in relation to the ranking of creditors in section 24, which appears to be outside the scope and jurisdiction of the Bill. However, I will leave this matter aside until we are able to discuss it in a more appropriate manner, perhaps on Committee Stage.

One of the reasons I asked the Leader to ascertain if a different process was available for having this discussion in Private Members' time is that I believe the Government side could support the Bill if it were presented in another form. It is a great shame that we cannot allow the Bill to proceed in its current form as many aspects of it are worth exploring.

Some of the literature I have read on this issue suggests the financial culture in the jurisdiction in which the proposed bonds would be processed is very important for the successful operation of the bonds. The Danish model on which the proposal is based involves a conservative lending regime in a well-funded and mature financial market. As the Senator's note indicates, mortgage credit bonds have been operating successfully in Denmark for two centuries. A similar product in the United States, the mortgage backed security, is an instrument that represents a claim on cash flows from mortgage loans. We know now, however, that in the financial culture prevailing in the United States in the happy days before the collapse of Lehman Brothers, these instruments were bundled with more risky financial instruments and caused massive damage and contagion throughout the global market. Having seen how domestic lending institutions have operated over the years, people could be forgiven for lacking confidence in our lending leaders. I understand, however, that provision has been made within the operation of the mortgage credit bond to prevent over-the-counter resales and bundling with riskier products. I would liked to have had an opportunity to discuss this matter further with the Senator.

I have another concern about the operation of mortgage credit loans and associated bonds. It seems we are proposing that the lending institution - I will use the term "bank" for simplicity of argument - will act as a clearing house to match the loan given to the borrower to the bond of the lender. The bank charges an administrative charge, the borrower receives his or her money and the lender receives an income flow to the value of the bond. While I note that the balance principle works here, I would have also have liked an opportunity to tease out the implications of this with the Senator. My concern in this regard is that it breaks the traditional link between lender and borrower. It is customary for the bank to carry the lending risk and it is in its interest to act in a prudential manner with regard to due diligence because it is carrying the risk. Acting as a clearing house removes this responsibility from the bank or at least reduces the urgency of acting in such a manner. If the credit mortgage bond is available in the financial markets, over-the-counter resale would make this requirement or the urgency of this requirement less onerous on the banks.

Senator Barrett's proposal is exciting and stimulating and I would like to explore a number of other questions with him. For instance, would it be necessary to establish a new organisation as a specialised lender or would another, existing institution be retooled, so to speak, to assume this role in the Irish context? Is there a facility for early settlement of the bond and, if so, would this entail the bond carrying an increased risk premium?

I note section 6 sets out categories of property that would be eligible under the scheme. The non-profit or social housing element calls to mind our old friends, now deceased, in the United States, Fannie Mae and Freddie Mac. We saw where these two institutions ended up when they used a similar sounding financial instrument, despite enjoying the faith and confidence of the US Government.

Could we introduce this model in an oven-ready manner, as it were? Are there any distinctive Danish characteristics associated with this lending model or any unique or novel Irish characteristics which could preclude its smooth transfer into our system? I would have liked more time to discuss these issues.

The Minister indicated in his reply that a total shift in mortgage bank policy and regulation might be required to make it compatible with this Bill but contrary to what Senator MacSharry might say, the Minister's reply constitutes a result. He can take some satisfaction from the fact that it has not been dismissed like many of the proposals we may want to accept but are barred from doing so by the party Whip system. I say that because we must be honest in our dealings here.

I commend Senator Barrett. It is an interesting topic which I hope we will have an opportunity to discuss again in the House.

I commend Senator Barrett on this innovative Bill. This is the kind of proposal we need from Senators on different issues because it is worthwhile having a robust Seanad.

The Minister stated: "I note that the comments of the Secretary General of the Department of Finance, Mr. John Moran, and the Director of Credit Institutions and Insurance Supervision... have generated significant coverage." Those two public servants were doing exactly what public servants do, namely, articulating clearly and implementing the Government's policy on the resolution of the mortgage arrears problem. We have not heard yet from any Minister for Finance, including the Minister present, or any Government spokesperson on how bad the situation is in the Irish banks. Ms Muldoon was extremely critical of the behaviour of the banks in doing the job they are supposed to do. She stated:

Old-fashioned credit collection techniques were largely absent. We found that challenge to SFS was minor and peripheral. There was little understanding or agreement around affordability. We found that systems were clunky and difficult to operate. Management information was not in place - I am a big proponent of what gets measured gets done!

She further stated that she has not found any humility in the banks in contrast to the American way of doing business where if one makes a mistake, one gets on with it and resolves it.

I find a conflict in what the Minister said in his contribution which diminishes what Senator Barrett has proposed. People on the opposite side of the House support and admire what he has done. The Minister stated:

It is important to remember that there is no quick fix solution to the Irish banking and mortgage issues. The Danish model is about a different financial and institutional system of mortgages and lending. [We know that.] Adopting such a system in Ireland would involve many risks and now is not the right time to include further risks in the Irish financial system.

I doubt very much if a professor of economics from Trinity College who has vast experience would propose a Bill in Seanad Éireann that would be risk taking. That is an extraordinary comment from the Minister. I am a long time admirer of the Minister, Deputy Noonan, who has been a good commentator on budgets over the years. He always gave a brilliant response to Fianna Fáil budgets; I loved listening to his comments on the 6.30 p.m. news. Is there a conflict of interest between Mr. John Moran and Ms Fiona Muldoon? Are they working together? He says they are carrying out Government policy.

On a point of order, that statement cannot be allowed to stand.

They are saying these two public servants are carrying out what the Government wants to do-----

The Senator should refrain from putting people's names on the record of the House.

-----but I cannot see that because both Mr. John Moran and Ms Fiona Muldoon were very critical in their speeches yesterday. They were speaking to a banking audience and they criticised them. They could not have gone any further in what they said about how incompetent they are and how they are not dealing with the financial situation we are in that is dragging our country down not only in terms of mortgage arrears, but also in not getting money to small and medium businesses to allow them keep their businesses going. I am amazed at the Minister's speech. I think he came in to deliver it and get it out of the way, and that is showing disrespect to the Bill.

I had not intended to speak on the Bill but I have been moved to do so by Senator White's contribution. At the time of the Peter Bacon report, which was taken from the 2006 census, we had 215,000 unoccupied houses, 65,000 of which were second homes and holiday homes. There were 150,000 unoccupied houses in the country in 2006, yet Government policy was to build 90,000 units per annum. We do not have to look outside these Houses for people to blame for that. We do not have to apportion all the blame on the banks. Senator White quoted from the commentary during the week and said there was little humility on the part of the banks. I suggest there is little humility on the part of Fianna Fáil for what it did. In 2006, there were 150,000 unoccupied houses in the country and Government policy was to build 90,000 units. That is the reason we got to where we are now.

I welcome the Bill and commend the interest of Senator Barrett in this area. It grieves me that four years into probably the greatest financial disaster we have seen in our lifetime we are still trying to get to grips with some of the basic actions that need to be taken. That reflects badly on recent Administrations, and I am not excluding my party, and certainly includes the current Administration.

The idea behind the Bill, as Senator Barrett explained, is that the institution will be a bridge between investors on the one hand and borrowers on the other. Everybody in this House will recognise that we do not have a functioning banking system. Having recapitalised the banks, they are still not working, and I do not believe they will work. I recall somebody who was working within the banking architecture for many years saying to me at the time this crisis emerged that the banks, months before the issue arose, were sitting at high levels preparing their campaign and that they would dance rings around our Department of Finance and our Administration. Our Administration depends on people in the Department of Finance, the Central Bank and the regulator, all of whom failed, catastrophically in my opinion, to deal with the issues when they needed to be dealt with.

Many people have identified as a central failing during those good years that policies pursued were pro-cyclical, in other words, we had tax incentives and generated more investment into the property area. I was a critic of our tax regime at the time. I believe the commencement of this spiral began in the mid-1990s when the current Taoiseach, as Minister for Tourism and Trade, introduced the holiday home scheme. Over 1,000 houses were built in the Courtown area in my county and sold at a multiple of three times what houses in the rest of the county were selling for simply because of the tax breaks. Developers and investment structures made a killing, so to speak, because people were blinded by the tax deduction they got and, consequently, spent much more than they should have spent on the system.

I remember putting it to the Minister in 2001 that we needed to re-introduce a provision from the 1970s which required a certificate of reasonable value. If one was selling a house at that time one had to get from the Department a certificate of reasonable value. I argued strongly with the Minister. He tried with his officials but they convinced him that it would not work and that people would not go for it. He suggested that we introduce a provision whereby borrowing could not exceed the certificate but that was not done either.

The current Government is pursuing pro-cyclical policies which are depressing the market more than it should be depressed. The market needs to be stimulated. Some of the things we were doing in the good times should be brought back to try to get the market back to a realistic, sustainable level. It is not happening and I do not believe it will happen because I do not believe the advice or expertise is in place.

Everyone in the House knows that there are many young people who need to borrow to purchase their home. They are in a position to meet the repayments on the borrowings but the financial resources are not available in the banks. The banks are simply repairing their balance sheets. The Bill before the House would give an avenue of recourse to revenues for some of these people, although not all of them. It is a way for them to get access to moneys. It is a tried and trusted system in Denmark and elsewhere and it has worked well and successfully for many generations, as the Minister of State has acknowledged.

I note two points made by the Minister of State. He indicated he had no wish to introduce further risk in this area. I have tried to think about what risks there could be but I could only identify one. A securitised bond such as this one would attract the better or stronger borrowers and therefore remove them from the banks, which are dead banks and are not lending in any event. Many of the policies being pursued by this Government are trying to bolster a system that has failed and that is dead in the water. Something needs to be done.

I am a critic of the Personal Insolvency Bill which is still sitting in the Minister's office. Some four years into the crisis we have not addressed the antiquated bankruptcy laws in the country. As a consequence we have seen entrepreneurs and people who have lost everything they had having to emigrate to avail of more realistic bankruptcy provisions in other jurisdictions. In recent mornings on the Order of Business I have said that such people may resume their careers and business activities in those countries with a consequential loss of potential jobs in this country. We need to get expertise that will guide us in the right direction.

I commend Senator Barrett. He has taken a step in the right direction and this proposal should be supported. It is not a solution but it is part of the solution. I appeal to the other side to exercise their independence and leave this on the Order Paper by not voting it down. I imagine some of them realise that this needs to be done. If we vote it down we are going nowhere in respect of solving these issues.

This is a brief interjection. I call on the Minister of State to ask the Minister for Finance if he will consider some fundamental changes in the way we do our financial business with regard to the question of mortgage debt and bank sustainability. This is a time of national emergency. Let us reflect on when many people took the advice of bankers. They were a group the people in Ireland were brought up to believe could be trusted. They were a near priest class with whom people had a professional relationship. They were supposed to be counted on to give people advice which was in their interests with respect to what they could and could not afford in a mortgage.

As a result of systematic misleading, a large chunk of our population have found themselves with a level of debt that was never sustainable. However, these people had been advised by those who had a profound personal financial self-interest in telling them that such borrowing was sustainable. We should quickly move to the model of non-recourse mortgages. Anyone who wishes should be able to go to the bank, throw their keys down and tell them that the property belongs to the bank now and that they can keep it and keep the mortgage. This is the way in many countries and it would fundamentally change the outlook for many people here who find themselves trapped in debt or with the burden of negative equity.

These people cannot reinvest in any other part of our economy. Their entire future is in hock and it affects their social and geographic mobility. Their ability to change jobs is totally gone but this measure would restore it. In many cases it would still represent a financial catastrophe for people but at least it would be a liberating experience. It would not be for everyone. I do not imagine our banks would support the proposal but now we truly understood their essential culpability with regard to people making this mistake. It is often misrepresented in Germany and elsewhere that we went mad buying big houses. We did not. Most Irish people bought the same kind of house that their parents and grandparents bought. The only difference was that they bought it for five or ten times the price because they were led to believe that all the old rules of prudence which had applied were gone, rules such as that one should only take out a mortgage of two and a half times one's salary and that one should only take out a mortgage for 80% of the value of the property. These were no longer applicable and those days were gone. People were seriously advised that it was safe to take 100% interest-only mortgages to the value of three, four and five times their salaries. With respect, this was done with the complicity of several Governments, which were perfectly happy to take large sums of stamp duty from them as well. We should give consideration to simple legislation - perhaps it cannot be introduced in this House - to give anyone in a negative equity mortgage the opportunity of changing to a non-recourse mortgage.

I have put it to the Minister previously in the House that many people are in serious debt to banks and other lending institutions. At the same time some of these people have large amounts of personal savings tied up in pension funds, which they cannot access until retirement at 60 or 65 years of age. In many cases by the time those funds mature those involved will have lost their home or business because of the burden of unsustainable debt. I know of many people who would willingly get their hands on some part of their pension fund that is sequestered and untouchable until it is too late, pay the tax that would be due, and then use the money to pay down debt. The figure for Irish pension fund assets stored outside the country is approximately €100 billion. If only a small portion of that was redeployed not to satisfy the Government's payments to those who so unwisely invested in our banks as bondholders, but to deal with the other debt problem in the country, personal debt, I believe it would be a win win win situation. The Government would get more money in tax, the banks would get repayments on debts, which would otherwise simply go bad, and people would get some degree of liquidity which would help them to get their debt-ridden lives back on course. I thank the Minister of State for his attention. I will be supporting Senator Barrett and I hope the Minister of State will pass these message on to the Minister.

I thank my colleagues and especially the seconder. In future I will allow Senator Quinn to make the proposal because he seconded it so well and I thank him for it. I thank all the speakers. The current Seanad is such that a certain county colleague of the Minister of State might not have proposed its abolition had he known that we would hold such good debates. I hope the Minister of State will bring that message if there is a meeting of the Deputies from Mayo.

I imagine the Cathaoirleach would have more influence than I would.

I thank Senator Michael D'Arcy. Would the Irish psyche adjust to this? I would like to see the two systems going side by side. I gather the telephone has hardly stopped ringing since we printed the Bill. I understand there was an IDA proposal for a centre of this type of finance in the IFSC at one stage. Perhaps they could operate side by side. Would I like to see Irish banks running these operations? No, I would not like to see Irish banks running anything. Some €64 billion taken out of a country this size of a evening is enough damage done to this country as far as I am concerned. Perhaps they would actually become real banks if we had this measure. It might address their overwhelming reliance on mortgages at inflated prices and that reliance might be replaced by their getting to know some small and medium-sized enterprises. It might encourage them to do some other investment.

Would we have the associated problems that arose in the USA here? This question was raised by Senator Gilroy and other friends and colleagues. I am informed that it is plain vanilla that it will not be combined with anything else.

That would be something on which I would like assurance as well. I would not like to see that situation developed.

The IMF likes it, it is Basel II compliant and the EU likes it. In fact, when I spoke briefly with the Minister, Deputy Noonan, I got the impression he will be taking more interest in his Danish colleague the next time they get together. He is intrigued by what we could learn from that, which is extremely good to hear.

Pension funds would like it. This is triple A star and we need that kind of investment. It could be good for local authorities. As one can see in one of the sections, they could get involved in schemes with it as well.

I hope I have dealt with the problems that Senators raised. The Minister is taking a look at it but I will address some of the points in the Minister's speech. I welcome the fact that he will look at this. That is extremely good news.

The Minister stated: "There are many positives to the system [obviously, I agree] but it must be remembered that the introduction of such a system in this country would necessitate a total shift in mortgage banking policy and regulation." We are in a European Union with the Danes and it might not be so. I gather one other Minister, whom I better not name due to the rules of the House, was interested in this previously as well and the IDA was interested in it. It may not be that revolutionary.

He also stated "The Government could not countenance a system which forced families out of their homes ...". I am informed that in Denmark the number is minuscule, a fraction of 0.1%. These are much lower priced loans than anything that is in operation in the Irish system and that has not been a problem. I am glad to deal with that in response.

The Minister stated that it would not be appropriate to introduce new lending and banking practices in advance of the conclusion of negotiations on this regulation and directive in the European Union. I am certain what we suggest is EU compliant and it is not new - it has been there since 1756 or whatever Senator Quinn told us.

The Minister stated, "It is not clear that there would be sufficient interest in the purchase of Irish mortgage bonds at this time." If the Danes could come here in 1014, they can come back with their mortgage proposals and we will see what gives. In fact, we will invite them back for The Gathering next year, with their mortgage advisers and mortgage companies.

I thank Senator Hayden and all of the Senators. Senator Norris used the word "idiosyncratic" about me. I think I could return the compliment - he always is. Senator Hayden's views are always most interesting. She referred to the collapse of local authorities in the Irish housing market. This could reflate that, and co-operatives are a part of the Danish system.

That brings out the point of why I will be asking to adjourn this debate because there are so many issues. This has just been the start. This is, as I have said, a wonderful Seanad where ideas are discussed. The Seanad did not stand idly by in this crisis. Banks stood idly by and did serious damage and certain officials, who have been mentioned, were not the most active either, but it cannot be said in terms of what we have done on fiscal responsibility and today, that the Seanad ever neglected its duties, and it will assist the Minister and his colleagues in Cabinet in the work of reform. I hope that there will be many contacts between the Minister of State, Deputy Ring, as the tourism Minister of State, and many Danish people, and I hope they will bring their mortgage advisers along as well.

I propose that we adjourn at this stage, if that is acceptable to the House.

Debate adjourned.

When is it proposed to sit again?

Leathuair tar éis a deich maidin amárach.

Is that agreed? Agreed.