JOINT COMMITTEE ON FINANCE, PUBLIC EXPENDITURE AND REFORM díospóireacht

Report by Interdepartmental Working Group on Mortgage Arrears: Discussion

Chairman

The business to be transacted this afternoon, a review of the report of the interdepartmental working group on mortgage arrears, is very important. The committee has agreed to divide the session into three defined sections, in the first of which we will hear from and engage with the organisations present which are very welcome; in the second we will hear from the non-governmental organisations and invite members to ask questions, while in the third Mr. Declan Keane, chairman of the interdepartmental working group on mortgage arrears, will be with us.

I welcome from the Citizens Information Board, Mr. Tony McQuinn, chief executive officer; Ms Eileen Fitzgerald, senior manager - service delivery, and Mr. Gerry Hegarty, senior manager - service development. I welcome from the Money Advice and Budgeting Service, NEC, Mr. Paddy Lavery, chairman; Mr. Donal Yourell and Ms Yvonne Bogdanovic. I welcome from the Money Advice and Budgeting Service, National Development Limited, Ms Carol Dunne, business manager, and Ms Colette Bennett, national development officer.

The format of the meeting will be that we will hear some general opening remarks from the organisations represented for a duration of no more than three minutes each, which will be followed by a question and answer session. The delegates can anticipate that some of the issues with which they will not have an opportunity to touch on in their opening remarks are likely to come up in the course of the question and answer session. If for some reason they have a burning desire to say something they have not had an opportunity to say in their introductory remarks or in response to any of the questions posed, I am sure we will give them an opportunity to do so towards the end of the meeting, but we need to keep the session as tight as we possibly can.

I emphasise that this is not the last word from the point of view of the committee. We envisage future engagement on and discussion of this pressing and very important issue. However, it is important we have this session to open the discussion, given, in particular, the publication of the Keane report.

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

Members, delegates and persons in the Visitors' Gallery are requested to turn off their mobile phones. There is a real problem with mobile phone signals interfering with the broadcast signal and the sound in this room, even when they are in silent mode. I, therefore, ask people to switch off their mobile phones.

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 now invite Mr. McQuinn to make a presentation for three minutes.

Mr. Tony McQuinn

I thank the Chairman and committee members. I will do my best to work within the confines laid down.

I have been asked to address the joint committee on the issue of mortgage and personal debt in the context of the recommendations made in the Keane report. The Citizens Information Board is a statutory body under the auspices of the Department of Social Protection and was given statutory responsibility for the Money Advice and Budgeting Service in July 2009.

Addressing the effects of mortgage and personnel debt on the lives of many thousands of people is one of the major challenges facing society. Continuing high levels of unemployment and the enormous pressure on individuals and families trying to cope are evident on a daily basis in the citizens information services and MABS. Some 340,000 people with more than 500,000 queries used the citizens information services in the first six months of the year. Almost 50% of these have queries concerned social welfare and related topics. A total of 11,658 new clients were seen by MABS in the first six months of the year. There is a total active caseload of 26,249, an increase of 11% on the figure for the same six month period in the previous year.

Some 44% of MABS clients, or approximately 11,500 people, are living in mortgaged accommodation. We recently had the launch of the Lifting the Load report which was based on the views and responses of 56 or so clients of MABS from around the country with mortgage arrears and debt. I have noted that report in my comment.

We are discussing the Keane report on mortgage arrears today. The Citizens Information Board notes the report outlines a number of guiding principles and proposes a range of options that are not seen as exhaustive to address the mortgage arrears issue; the focus is on a case-by-case approach. We see the report states the reform of bankruptcy legislation is a central catalyst to the resolution of the mortgage arrears problem and that the early introduction of reformed bankruptcy law and the new non-judicial debt settlement arrangement is vital. I underline that from the point of the view of the Citizens Information Board and it is the substantial area of the report I will address.

I want to look at the recommendations on the mortgage advice function. The report recommends the establishment of a mortgage support and advice service and that over 100 independent mortgage advisors be employed to deliver this service. The advisors should operate in three to four regional clusters to ensure expertise and knowledge is captured and shared. The report recommends that the clusters link to the MABS offices and could be legally part of MABS but would not have to be. It also stresses the importance of a link with MABS, with strict operating protocols and the need to ensure mortgage holders know how to access the MABS service. This link will be important in enabling the holistic approach MABS provides and should be available to users of the new service when required.

The report states MABS is not structured or resourced to provide this support and service. Some of the people working for MABS have expressed concerns about this. This latter point is a statement of the situation as it stands so I do not see this as questioning the ability or experience of MABS staff as skilled money advisors. The mortgage arrears service will have a role in the provision of financial advice about assets, insurance and so on that is largely outside the current MABS experience. It will require expertise in a number of areas to be brought to bear, including financial, accounting, legal and possibly banking expertise, to lead and implement the service.

Structuring the new service as a single national entity closely aligned to the MABS network offers greater opportunity for a strong, coherent service for people in mortgage arrears. The new service must work closely with MABS, referring cases to it and receiving referrals from it. It will also be dealing with thousands of mortgage customers who have never been or seen themselves as MABS clients.

Finally, CIB would advise there is a continuing need for services for people on low incomes who are socially excluded. This is the core group for which MABS was established. As a group they have been permanently on low incomes and are likely to continue to be so and to require MABS support after the present mortgage crisis has passed, which we hope will happen soon.

Ms Carol Dunne

MABS NDL welcomes the opportunity to speak to the committee today and welcomes the initiative of Government in commissioning the Keane report. MABS has long highlighted the need for legislative reform to assist borrowers. Over 20 years, we have evolved with our target group, changing as their circumstances changed and continuing to provide guidance, advice and support in managing problem debt.

In 2006, 58% of MABS clients were welfare dependent, while 42% derived their income from work, either paid employment or self-employment. In 2011, 69% of our clients are welfare dependent and 31% are waged.

It has been only a week since the Keane report was released and in that time we have sought to analyse the recommendations and potential impact on distressed homeowners and on MABS. We are aware further consideration and analysis of the precise implications of these recommendations is required with particular regard to how the suggested solutions could be implemented in practice.

Committee members will be aware of the history and reputation of MABS. MABS National Development Limited was established in 2004 to provide development and support to MABS, thereby enhancing the quality of service provided to our client group. We are a lean organisation, with a core staff of 11 providing dedicated technical support in the areas of money advice, policy, education and training to MABS advice staff nationwide. Among our functions is negotiation at national level with the credit industry, both on a bilateral and a collective level, through representative fora, including work with the Central Bank.

Through this work we have brought our influence to bear to improve the processes used by the credit industry in their relationships with their customers. The report offers a number of possible options for distressed home owners. While we welcome the creative approach, we believe the modalities of each of these options need much deeper exploration. We are concerned the driving factor in any option could be based on recouping money for the credit industry rather than providing an holistic remedy to the over-indebted situation of the individual borrower.

Among the recommendations in the report is the establishment of an independent mortgage advice function. We submit that such a function is already performed by MABS as part of the holistic approach to managing over-indebtedness that we provide. Further, the report recommends the appointment of advisors to operate on a regional cluster basis with undetermined links to MABS. There is potential here for the development of overlapping systems that can work to the detriment of the client, particularly if one strand is to address mortgage debt in isolation while the other strand addresses the other problem of debt facing the borrower. We are of the firm view, based on our extensive experience, that any approach to addressing over-indebtedness must take both mortgage and borrowing into account. Only 8.5% of MABS clients with problem mortgages present with no other problem debt. The remaining 91.5% have an average of four debts each.

The report speaks of strict operating protocols between this new service and MABS. We would be hesitant about creating a system which forces the burdened borrower to engage with multiple advisors to address his or her total indebtedness, with the efficiency of such a system depending on the quality of relations between the two.

The terms of reference of the working group include the review of the resources and skills available to MABS to assist vulnerable mortgage customers with the key finding that MABS as currently structured and resourced lacks the capacity to deal with the volume of distressed mortgage holders and the range of complex issues that are likely to arise within the debt settlement process. We submit that MABS is currently dealing with distressed mortgage holders and a whole range of complex issues with which they present, successfully navigating the various processes and policies in the debt resolution arena. The limitations of MABS in this report stem not from a lack of expertise, experience or capability, but from resources and structures. It is, therefore, logical to address those deficits.

The report suggests a new, independent advice function and lists five aims, all of which are currently performed by MABS. We submit that MABS already provides such a function.

Mr. Paddy Lavery

The MABS service is delivered by 53 companies, of which Ms Dunne's MABS NDL is the main support company that has done pioneering work for us and helps us in technical areas as we seek to meet the challenges that the current environment has caused to arise. The bulk of the other companies are involved at the sharp edge of the economy, trying to help those in difficulty. Our presentation aims to give a flavour of our work so we can inform proceedings.

MABS clients are people like the rest of us. They might have lost their jobs, or their business might have failed. They may have experienced illness or relationship break up. They may have been caught in circumstances beyond their control. They might be on low incomes or social welfare, working class, middle class or formerly well to do. The staff have been involved with clients for 19 years. We decided to give an outline of our daily experience by going though some random sample cases.

Client A is a man with a daughter at college who is living at home and who has a child from a second relationship. He is a public sector employee with a subprime mortgage. The monthly income is approximately €2,500. A monthly mortgage payment of €900 is being made, but there are substantial arrears of €12,878. The sub-prime lender is seeking a repossession order on the basis of the arrears accrued, not on the basis of ability to pay. Nor has there been an effort to devise a sustainable payment plan for the client. A complicating factor is that the person in question has 26 years left on his mortgage, which would take him up to 80 years of age.

Client B is a female who has recently separated and has four children. She has no mortgage and owns the family home jointly with her husband. However, she and her husband had signed some personal guarantees in respect of a joint business which is now dissolved. This client is in receipt of social welfare and running a weekly income deficit of €62.65, which is not huge. However, the guaranteed debt amounts to €158,000. This person could quite easily, via the current legal process, lose her home by way of a judgment mortgage being lodged against the family home.

Client C is a married couple, one of whom is a former construction worker who was forced by his employer to purchase a lorry in order to maintain his livelihood. He borrowed a large sum of money and became self-employed, but it did not work out. He has ended up with a personal debt of €83,200, to be serviced by a monthly income after other expenditure of €21. The payback time on that meagre income is 325.5 years, without any interest being applied. If an interest rate in excess of 0.02% is applied on any of these debts, the client will never be in a position to repay his debt.

The last example is a married couple with four children who built a new home in a rural area. This was a typical Celtic tiger couple with the male partner formerly self-employed in the building industry. The value of their home at peak was €1.2 million, with a current value of €350,000, which is questionable. The outstanding mortgage is €625,000 and there is a secondary creditor listing of €372,500. The monthly mortgage payment is targeted at €3,500 and the clients are currently paying €680 with the help of mortgage interest supplement. Disposable income available to address the creditor listing of €372,500 is €183.60. The payback time is 124.5 years, but if an interest rate in excess of 0.06% is applied, the couple will never repay their debts.

Chairman

Although this is very important material, I remind Mr. Lavery that we are short on time.

Mr. Paddy Lavery

I appreciate that. MABS was set up almost 20 years ago to deal with those suffering the consequences of moneylending. People are being driven back to moneylenders today as a consequence of economic privation and the absence of other sources of funding. People in debt are being sent around in ever decreasing circles because of the lack of a pragmatic response to the debt crisis. Doing too little now may have huge social and financial costs in the future. As Ms Dunne said, there must be an holistic approach. The notion of isolating the mortgage problem and seeking to manage it separately from the broader issue of indebtedness is not a solution that will deliver what is needed for Irish society into the future.

Chairman

I thank Mr. Lavery and the other speakers for their contributions. I propose that we take questions from three members in the first instance, after which the delegates will have a chance to respond.

Deputy Michael McGrath

I will be brief. My Fianna Fáil colleagues and I took the opportunity last night in the Dáil to set out in some detail our response to the Keane report. We are using our Private Members' time to advance our legislative proposal to establish a non-judicial debt settlement system. The Government has allowed the Bill to proceed to Committee Stage.

The delegates' comments have been very helpful. However, they have, to some extent, focused on the impact of the Keane report recommendations on their organisations. Is it their view that the report provides the correct direction overall? We are now very late in the day in dealing with this issue. In wrapping up the debate on the report tomorrow, the Minister will set out an implementation strategy. What additional measures would the delegates like to see included in that strategy above and beyond what is included in the Keane report, or separate from that report?

Do the delegates agree that the distinction constantly drawn between those who cannot pay and those who will not pay is overstated? In the great majority of cases people want to honour their debts and keep the family home and are making an honest effort to do so. That distinction is being used as cover for not devising an adequate solution to the problem.

Mr. Lavery and Ms Dunne referred to the importance of a total debt solution. In their view, would the independent mortgage advice function which Mr. Keane is proposing be an unnecessary administrative layer? Is this a function MABS could fulfil, given the necessary resources and expertise? If these proposals are followed through without seeking to address individuals' total indebtedness, we will end up with an overlapping system. As the delegates pointed out, 92% of people who present to MABS have four or more debts. Setting up a system to deal with one stream of debt is inadequate.

What is the delegates' experience of the banks and how they are dealing with clients in difficulty? Of the 70,000 mortgages that have been restructured by agreement between borrower and lender, some 65,000 involve reducing the amount being paid, going to interest only or slightly more than interest only loans, or capitalising arrears. None of the more innovative solutions proposed is being employed by the banks. How are borrowers in difficulty being dealt with by Irish banks, non-Irish banks and sub-prime lenders?

Deputy Thomas P. Broughan

I thank the delegates for their helpful presentations. Like them, members of the committee also meet many people in debt on a weekly and monthly basis. In addressing total indebtedness as opposed to just mortgage debt, is it not the case that many people see their mortgage payment as their first bill, the one that must be paid before anything else? In that context, is it not correct that we focus urgently on a mortgage solution? The delegates did not seem to address some of the suggestions made in the Keane report. Is it their view that a haircut should be applied to the principal, thereby reducing the amount owed and the monthly repayments to an affordable level, for certain categories of borrowers such as first-time buyers who purchased family homes during the boom? Have the delegates investigated how much it might cost to take that approach for first-time buyers who were ripped off in the boom years and are now struggling to repay €2,000 or €3,000 per month?

Deputy Pearse Doherty

I welcome the delegates and commend them for the sterling work they are doing. At a time when many have lost faith in politicians and financial institutions, there is great faith in these organisations which have a key role to play in devising future solutions.

I am not clear on some of the points made on the role of MABS, the 100 additional advisers and the agency which would be linked with MABS. The programme for Government commits to placing MABS within a strong legal framework. As a public representative, I am aware that MABS is helping thousands of people who are struggling to meet mortgage payments. It has an excellent reputation, as confirmed by the findings of the European audit. Is there a clear view among the organisations on whether MABS should be left to provide advice not only on personal debt but also on mortgage debt?

Is it the view of the Citizens Information Board and MABS that there should be a debt writedown? Ms Dunne suggested some of the recommendations made in the Keane report seemed to offer comfort to the financial industry. The Keane report proposals certainly do not go far enough, but do the delegates have other proposals? What is their view on debt for equity swaps? Do they support proposals for a debt writedown or do they favour the type of split mortgage alluded to in the Keane report which would see people, after 30 years, still not owning their homes, having to repay a bill of some €226,000 and still in negative equity? Are these the type of proposals towards which the organisation is leaning or is it of the view that there is a need for fundamental change and that other proposals should be considered? What would be the nature of such proposals?

Ms Carol Dunne

In the context of the questions posed by Deputy Michael McGrath, our view is that a holistic solution is required. We would concur in respect of the "cannot pay-will not pay" debate. It is our experience that the overwhelming majority of people who come to MABS want to pay what they owe. The view of MABS NDL is that we would be at risk of introducing an unnecessary additional layer. We are of the view that MABS would be more than capable of performing the function if the resource and structural deficits highlighted in the Keane report could be addressed.

Deputy Broughan referred to mortgages being priority debts. Separating mortgages from other priority debts can cause problems for borrowers because other creditors can be left with little option with regard to how they can recoup the moneys owed to them.

Some of the other witnesses may wish to comment on certain of the points raised by Deputy Doherty but our ultimate view is that a package of solutions is required. It will not be possible to arrive at a single solution that will meet the needs of every borrower. Any solution must be comprehensive and holistic in nature and must deal with the issue of residual debt in order that borrowers will be able to move on with their lives within a foreseeable timeframe. In the context of choice, we would ultimately like to see a situation develop where those in the credit industry can recoup their moneys and where borrowers understand fully the consequences of the options on offer and what they are committing to into the future.

Chairman

Does anyone wish to add to what Ms Dunne has said?

Ms Yvonne Bogdanovich

MABS has responded to many different things during the almost 20 years of its existence. When the redress boards were established, it responded to the needs of those who required redress. In the past ten years, we have been responding to people who are in difficulties with their mortgages. We deal with whatever is presented to us. We require additional resources to allow us to deal with the challenge with which we are currently faced. Taking a holistic approach means considering a client in total - that is, his or her personality, emotions and capacity to deal with his or her situation. By and large, we find solutions for our clients although these may take time to work through. If we added the proposed 100 staff to MABS and provided them with training, we would be more than able to cope with current demand.

Mr. Tony McQuinn

Mr. Paddy Lavery

From a staff point of view, we would not necessarily agree with Mr. McQuinn. We are of the view that we possess the competency and ability to allow us to take on that role. As Ms Dunne stated, it is a matter of resources. We are approaching the matter purely from the point of view of dealing with it on the front line.

With regard to whether we have proposals to offer in respect of the bigger picture, we are so preoccupied with operating at the front line that we do not have the time to come up with such proposals. MABS NDL possesses the resources to deal with that matter, which relates to its functions but not to ours. It should not be forgotten that any solution to this problem must begin with providing clients with enough money and support to allow them to live. If people cannot afford to live, then all bets are off. The matter must be approached from that point of view.

Deputy Liam Twomey

I am somewhat taken aback. We are trying to identify solutions to this crisis but the Citizens Information Board and those who provide advice to people appear to be at odds with each other. Our guests have access to information which could prove to be of great assistance to the committee in obtaining an indication of what is really happening. As a result of what they hear at their clinics, members have first-hand knowledge with regard to some of the examples they provided. However, our guests have information from across the entire country which - if it were made available - could assist the committee in assessing the seriousness of the situation. If the average person coming to MABS has four debts, then we are facing into a major crisis. As previous speakers stated, some mortgages are unsustainable in the long term and there is nothing we can do for those who took them out.

We must try to identify those who can be rescued from the difficulties they are facing. Information in that regard has not been provided to us. The banks are not making it available. When representatives from the banks appeared before the committee a month ago, they stated that they are not making any write-downs on capital loans. The approach of the banks is that people must pay back their loans and that if they cannot do so, their homes will be repossessed. We need to hear from those who can offer solutions that will really work. As busy as they are, perhaps our guests could bear that in mind.

Deputy Stephen Donnelly

I thank our guests for appearing before us. I wish to pose a number of questions, the first of which is directed to MABS. I met a constituent yesterday who informed me that she met representatives from MABS in January or February and received a great response. Essentially, MABS assisted her in negotiating a six-month agreement with her bank. However, a few days prior to the end of the agreement, representatives from the bank came knocking on her door. She went back to MABS recently but was informed that it is no longer taking on any individual mortgage cases and that it could not provide her with any further assistance. Is that the position with MABS companies throughout the entire country?

Were any of our guests consulted by the interdepartmental working group on mortgage arrears? Were they approached and asked for ideas, case studies, etc.?

I appreciate that the response to my next point may be subjective in nature. However, one of the matters about which I and other members are concerned is that which relates to allegations of serious bullying, intimidation and so forth on the part of the banks. Our guests are probably best placed to provide an indication of whether such tactics are being employed. Will they indicate, in the context of their experience of dealing with the those with distressed mortgages, how the banks are determining the amount of income they will allow people to retain in order to meet their living expenses?

We talked about debt write-downs and I note Ms Dunne's comments regarding the Keane report. I apologise if I am not reflecting what she said but I understood her to say there is a set of solutions missing from it which deal with the debt and that all the recommendations are geared towards the banks getting as much money as they can back but there is not a single recommendation bar the one on bankruptcy, which is important, that deals with the total quantum of debt and writing it down. I would like to know if the Money Advice and Budgeting Service, MABS, the Citizens Information Board, any of the witnesses present or their organisations put forward any solid proposals on how that type of debt write-down might work.

Throughout the Keane report and in conversations I have had with bankers and others, there seems to be a national obsession with moral hazard on the part of borrowers in that as soon as there is any notion that the banks may share the pain everyone concerned will pretend to be bankrupt and try to live in their €1.2 million valued houses for free. In the witnesses' experience is there much evidence of moral hazard behaviour or inclination towards that type of gaming system from the borrowers with whom they deal?

Chairman

Before I call Deputy Mathews, I wish to emphasise again the need to switch off mobile phones. I am sorry to be irritating about this point but we have been contacted by the communications unit and advised that a good deal of the debate we have had is not broadcastable. I make that point in case anybody thought it might be useful to broadcast our deliberations. We are performing a public function here and the proceedings cannot be broadcast because they are being interfered with by mobile phone activity. Those here can make up their own minds about this. I cannot understand why we could not come into a room, deal with an important public issue and switch off the mobile for a few hours. It is not that much to ask. I ask members, colleagues, visitors, the people in the Gallery - I do know whose phone is not switched off - to switch their phones off. It is not the end of the world if they are out of touch for two hours. I call Deputy Mathews.

Deputy Peter Mathews

I thank all the witnesses for coming in. The questions that have been asked are good ones. They are at the level of the coalface. The witnesses can use the aggregation of their organisations' coalface locations to do some useful cross-checking of the type, for instance, done in the prudential capital assessment reviews of BlackRock Solutions, Barclays Capital and Boston Consulting Group. If they have the detail of individual mortgage cases, they can aggregate them and do estimates of the underlying value of the houses. They will then have the information to assess what sort of provisioning might be necessary. It could be a very good cross-check against the models used by BlackRock Solutions in trying to estimate what sort of provisioning and loan losses were expected. The witnesses' clients are the ones presenting the symptoms of what will be a further outbreak of the rash, as it were, to use the measles analogy. I would be interested to know if they have done such an aggregation exercise. Have they done any aggregate provisioning estimates or anything like that?

Chairman

Which of the witnesses would like to respond first?

Ms Yvonne Bogdanovic

On the question of whether we have had any real ideas and were we part of the Keane group, we were not part of it. We put a proposal to the Minister for Social Protection which we asked to be included. We could have real ideas. One does not come up with them in the space of two minutes. A space needs to be created to share ideas among people who may have solutions to the problem.

A client being turned down by MABS and told that it would not deal with his or her mortgage situation is not the norm. We would have to know the case to know whether there were other circumstances involved. Normally, we try to help people; we even help people with business debts sometimes for whom we do not have a remit. We would try to point them in the right direction. Therefore, I cannot answer the question on that point.

On the question of the banks and how they are behaving with clients, clients dealing with debt feel very vulnerable. If one receives letters that threaten one with the loss of one's home or other such losses, it makes one vulnerable. If one is constantly receiving telephone calls from credit institutions, which may not be delivered in a particularly threatening way if one is on an even keel, they are perceived by our clients as threatening from their vulnerable position. We would welcome what Matthew Elderfield talked about today in managing such a situation and managing such communications and that some measures would be put in place.

In MABS we look upon our clients first and foremost as people who have to eat, who must have a level of heat, who have to live and whose children need to go to school. Therefore, we work on the basis that we prioritise the roof over their heads and those core living expenses. The mortgage, where it exists, is extremely important but a hungry belly is the biggest priority that some people have. I had a woman in my office yesterday who was prepared to commit suicide because she could not put food on the table. Her child has been going to school since September in the child's own clothes rather than a uniform because she was not given the back to school allowance because of a mix up with welfare benefits. She is not a mortgage client, she is a welfare client. We deal with people who perceive things more highly than the members and I might if we are comfortably enough off.

MABS believes that there should be a level of settlement because there are people who will not be able to return to economic and social viability unless there is a level of it. There are degrees in all things; that is why we say we need to look at all cases individually. There is no set answer for any two of our clients just as there is probably no set answer for any two of the banks' clients.

We find that the majority of clients who come to us want to repay. They want to find a solution to their problem. They will go anywhere to find a solution. They do not mind where MABS is based; they would come to meet us in a tin shed at this stage as long as they are offered some help and some solution to the problem.

We have not examined aggregating anything. We have a database that has some potentially very valuable information on it once it is anonymised so that our clients can maintain the confidentiality of their situation, and I agree that it should be potentially used to inform this situation.

Chairman

I call Mr. McQuinn.

Mr. Tony McQuinn

The Citizens Information Board has a role in ensuring that the resources which are available to MABS, which consists of 50 plus separate companies, are used to the best effect possible. We have recently engaged with MABS in some research in that area and have drawn from the experience of MABS to make the best use of those resources in a finite situation.

A specific question was asked by a Deputy on the Keane group. The Citizens Information Board had passed information to the Keane group on the operations of MABS. The addendum members have in the document we circulated is essentially that information. It is a factual description of MABS, the MABS process, the potential that exists for MABS to deliver services. Our function in life is to ensure that this service operates to the best effect for the people of Ireland. My colleague, Eileen Fitzgerald, may want to speak about the managing of services report.

Ms Eileen Fitzgerald

In the context of the development of the structures and the development of the MABS network, to ensure that there is a consistent approach across the MABS companies, we undertook some research recently which reported in September on managing client demand. Members may be aware there are statistics available around the demand for the services provided by MABS and it is quite difficult to get a consistent picture across all the services because of the variations in practice across the services, which have been improving recently. The concern that exists about clients being given different advice from one service to another is that there is not necessarily consistent practice across all the different companies. That is one of the concerns in regard to the implementation of a new structure for the current services. In terms of managing client demand, we are examining putting in place consistent, standardised practices for every new client coming to MABS in order that they would all be recorded, inputted, their data collected, accounted for and processed through the system in a similar kind of approach.

Chairman

I will next call Mr. Lavery and Ms Dunne who might take one minute or so to reply.

Mr. Paddy Lavery

The problem we have with our service is people are different. If we could get them all to be the same we would have no problem. The basic problem in our service is that people are so different and we have to manage that.

I do not know where the question came from about establishing a separate service with 100 people to specifically address the mortgage situation, one will find that we do not have sufficient information to give the committee because our IT infrastructure was set up initially to handle payments through a budget account scheme which we use for people in serious difficulties. That has been developed through Money Advice and Budgeting Service consistently, but we do not have the information as we cannot capture it at the moment. I assure the committee that if one takes 100 people and puts them into offices and gives them 50,000 mortgages to handle over a period of two years, regardless of where one puts them of those 50,000 mortgages at least 48,000 will have serious personal debt as well. That issue will come back in on top of us. That is why the other model may not work. That is the difficulty we see with it.

Ms Carol Dunne

I wish to correct something for the record. I would not want there to be any misconception. I was not suggesting that Mr. Keane was on the side of the credit industry. What I said is that we were concerned that any driving factor in any option would be based on recouping money for the banks. The concern we have is in reviewing the solutions on offer in the document that they tend to stop at the point where the crisis has passed. There is not sufficient attention given to the overall indebted situation of the clients. That is the point I was making.

I reiterate that many of the advances we have made have been in partnership with the credit industry. That must be acknowledged as well. In regard to mortgage debt and the potential for separating it, I would not like any member to believe there is disquiet within the Citizens Information Board and MABS in terms of our relationship. We have a difference of opinion. That is a healthy indicator. Our concern in NDL is that if one has mortgage advisers coming to MABS for a two to three year period there is the chance that our own staff will become deskilled. What will happen three years down the road when those people leave and we still have mortgage debt is that our skill base will have been eroded.

Deputy Stephen Donnelly

Mr. McQuinn said he had made a submission to Mr. Keane. Did the Keane group approach him and ask for a submission or did he send it a submission unsolicited?

Mr. Tony McQuinn

As the Deputy is probably aware from the list of people who were on the Keane group, our parent Department was on the group so the meeting was in the context of meeting with our Department representative. The Keane group came to us. The Department made a submission but we provided the background and much if not all of the information was provided by MABS-NDL such as the background descriptive piece about MABS. We then indicated within that document what our approach was in regard to MABS.

Deputy Arthur Spring

I thank the delegates for attending the meeting. It is positive that people are coming to debate the issue. Rather than the Keane report being a final product that is giving a solution we are looking for solutions now. I hope everyone in the room will come forward with such. It is not a framework that gives the banks the idea of how to come together with the ideal solutions. Ms Dunne said we need a package of solutions. We are listening to ideas.

To put matters in context, there are 200,000 stressed mortgages in the country at the moment. I do not think 100 people will be enough to deal with them. One of the statistics I have learned today is that if more than 88.5% of people who are going to MABS with mortgage problems have more than four other forms of debt then we must do something to make the new group work with MABS at all times.

There is conflicting information on the number of stressed mortgages that are attributable to people where nobody in the home is in employment. According to the Central Bank, 32,000 mortgages currently are in arrears of greater than 180 days. Based on those numbers, do the delegates believe that 100 new staff would be capable of dealing with the issue without the provision of an overarching solution such as the split mortgage option that could deal with the vast majority of the problems in the first instance?

We are looking for solutions. The Keane report is a document for debate. I have spoken to members of the Government about it. We are looking for solutions but we need to know all of the problems and the figures relating to them. We are in a position to ask for the solutions to be provided so that we can debate the issues further until we come up with something. This is the biggest problem for the generation of people between the ages of 30 and 45. The overall well-being of the economy cannot be sorted until we resolve the situation. It is good to see all those present and that we are addressing the problem.

Deputy Michael Creed

I thank the Citizens Information Board and MABS. The debate is an interesting one.

I am interested in the criteria used to define unsustainable mortgages. In the opening address it was indicated that MABS has 26,000 clients of whom 44% present with mortgage difficulties. It is possible for us to extrapolate from those figures a reasonably accurate picture of what is happening in the community. We have experience of it from our constituencies. In terms of those who present to a MABS office with mortgage difficulties, what percentage of them are classified as unsustainable mortgages that will never be repaid? I accept the point made by Mr. Lavery in respect of the cases. What percentage of the mortgages are tracker mortgages? Do MABS staff have experience of dealing with the banks in terms of trading the tracker value off for a more sustainable pathway for repayment for them? That is not debt forgiveness; it is trading an asset. What percentage of clients have sub-prime mortgages and what premium are they paying? If sub-prime mortgages could be converted by an agency in the future, be it a new agency or an extension of the current functions of MABS, into high street mortgage repayments on a variable rate, what percentage of them would be viable? How many clients are being tipped over into unsustainability by the premium they are paying for their mortgage? What percentage of those presenting are currently on variable rates?

In terms of the cost to the State of people losing their home due to having an unsustainable mortgage, who go into the private rented sector and become dependent on the State for a rent allowance, if we take an holistic approach, there is a pot of money outside the current resources available to fix the problem, which then comes into play after people have faced the calamity of losing their home, and if that resource was made available upfront to MABS, how many people could be rescued and remain in their homes?

Senator Aideen Hayden

I thank all the parties for appearing before the committee. The discussion has been most interesting. I agree with Ms Dunne that debate on the issue is healthy. I am slightly concerned that the debate on this issue has been the entire focus of the discussion. I wish to ask a couple of questions relating to the wider MABS document as well as the issue which my colleagues have raised.

It is important that we establish the extent to which the recommendations of the Keane report is the way we ought to proceed rather than working directly through the existing MABS structure. In an effort to advance that debate I wish to ask a few questions in that regard. First, we are aware that one in nine mortgages is distressed. They have either been restructured or they are distressed. To what extent has MABS interfaced with the approximately 100,000 mortgage holders? A total of 69% of MABS clients are in receipt of social welfare. It is to be expected that a significant cohort of people are engaging with banks and other lending institutions who do not have the benefit of a MABS-type service. It would also be reasonable to infer that because we now have groups such as New Beginning, there is a perceived gap in the market that is not being filled by MABS. Has MABS carried out a skills audit? Can the representatives provide the committee with information on the number of lawyers employed by MABS and the number of people in their organisation with third level qualifications in finance and banking? Would it be possible for the committee to have more information on the skills level of its existing structure? That would be useful for us in determining the capacity in MABS in that if we were to favour, say, Ms Dunne's approach we could say that those skills exist in MABS. That would helpful to the committee.

I agree that the Keane report does not deal with the buy-to-let market and, importantly, the representatives flag that the failure to address this major area in the report could have enormous consequences. I ask them to comment on that.

In the context of the debate on the need for all debt to be addressed, it has come to my attention that certain lenders are attempting to prioritise their debt. In particular, mortgage lenders have tried, perhaps because historically Irish people always wanted to pay their mortgage, to have borrowers prioritise their mortgage debt over other more expensive forms of debt such as credit card debt. I ask the representatives to comment on that also.

Deputy Richard Boyd Barrett

I welcome the representatives. MABS does great work and it has been very helpful to many of my friends and constituents. It is welcome that people are dealing with the position at the coalface and the human reality of people who find themselves in these circumstances.

Dramatic examples were given of the unsustainability of people's debts and while the representatives talked about them having several debt streams, the examples all included a substantial mortgage debt element. They might not state it explicitly but it strikes me that what they are describing is unsustainable debt for huge numbers of people and no matter how much in terms of resources they might be given, it still does not deal with something that is utterly unsustainable.

The representatives may not be in a position to say so but is it not abundantly clear that unless this unsustainable debt burden is relieved by a write-down of some of kind an impossible situation will arise regardless of the resources available? Do they agree that is the fundamental problem we must deal with, not just in terms of mortgages but that it is a significant part of the extra problem they now face? I invite them to comment on that proposition.

The level of debt people have on their shoulders is unsustainable if huge numbers of them are without work. What is the representatives' view of the fact that unemployment is a massive contributory factor to that?

Much of the discourse around this issue is about moral hazard and so on. In their experience of dealing with the problem at the coalface, do the representatives accept the proposition occasionally put forward that the majority of people are culpable for their debt position or is it to do with factors such as the behaviour of the lenders, the unemployment crisis and so on?

Representatives of the Irish Bank Officials Association appeared before the committee last week and gave a very different perspective from that of the bankers at the top of the banking system, which was that if the people at the bottom, both in terms of the workforce, the debtors, the customers of financial institutions, and public interest voices had more input at the top of the banking and financial institutions they might behave differently. Given that the banks are now effectively financed by us, would the representatives agree with me that it might be a good idea to have more public interest voices - people representing the debtors or groups representing their interests such as MABS - on the boards of banks to ensure that when they examined these issues they had the perspective of the people in debt?

Chairman

I can take only one reply from each of the three groups if that is agreed. I call Ms Bennett.

Ms Colette Bennett

A number of issues were raised and I will do my best to address them. On the percentage of the stressed mortgages attributable to those on social welfare income, our statistics indicate that of those presenting to MABS with mortgage difficulty, 49% are dependent primarily on a social welfare income.

Regarding a definition for unsustainable mortgages, as an overarching principle, MABS does not define what is and is not an unsustainable mortgage. In the work carried out in all local services we try to provide solutions within the current framework and work with clients in regard to their individual circumstances.

Key to what we have discussed so far is that legal reform must be the first priority if any real sustainable solutions are to be found. Working every day within the current structures, MABS is negotiating settlements that are not set out in the code of conduct on mortgage arrears and considering imaginative solutions. One such solution was a debt settlement pilot MABS had with the Irish Banking Federation between 2002 and 2004 which was successful for many participants. Something along those lines may need to be discussed.

In that context, we do not understand the reason there is no personal insolvency or debt settlement legislation in Ireland at present. It is something for which many of us have been calling for decades now, rather than simply in recent years. We believe it is indispensable and the Keane report has specifically admitted this. On page 17 of the aforementioned report, one will find an admission that the mortgage debt crisis cannot be dealt with effectively until personal insolvency legislation is introduced. In our view, such legislation must be overseen by an independent debt resolution agency. We are considering the Keane report in respect of suggestions being made to the institutions to do the right thing or to consider this or that scheme but ultimately, our experience in dealing with clients is that until solutions are imposed on the banks and other creditors, they will deal with cases on a case-by-case basis with different results for different people. There needs to be consistency and fairness of treatment for people in debt. Obviously, personal insolvency legislation must involve debt write-off. Generally speaking, when one considers the position among our neighbours in Europe and beyond, debt settlement legislation involves a rigorous financial assessment of a household's capacity to pay, an attempt to repay on that household's behalf for a defined period, followed by a write-off of residual debt. Moreover, in the case of unsustainable mortgages, this must include a write-off of legacy mortgage debt.

We believe that access to independent representation for people in debt is critical. Members have heard from MABS in detail and I refer to the debate regarding the 100 additional advisers and so on. Our position in this regard is that more assistance for those in debt is urgently necessary. It is extremely difficult for people in indebted circumstances to face their problems and they need an advocate to examine the financial position and present a plan. That role can be and is being performed by MABS but additional assistance is needed. However, we believe that separately, an independent debt resolution agency must oversee this process and must have the legislative powers to so do. While debts are being repaid, we are strongly of the view that households must be entitled to a minimum income to meet daily, weekly and monthly household needs.

There is a misunderstanding among the media, generated by the term "debt forgiveness", that some kind of magic wand is waved but this is not the case. When one considers debt settlement legislation as it operates across Europe, it is tough medicine for those households concerned. Efforts must be made to repay over what often is a substantial period. If one has a household paying its residual income over five years, major sacrifices are involved. Ultimately, there is light at the end of the tunnel, which is the write-off of residual debt but it is a misnomer to consider this to be simple or painless. Consequently, the question of minimum income is of particular importance. The Vincentian Partnership attached to the Society of St. Vincent de Paul, which is part of our grouping, has done some work on household budgets using different types of households and examining minimum expenses.

On the question of unsustainable mortgages, which was discussed earlier, I agree there are unsustainable mortgages. The Central Bank figures reveal at the end of June 2011, there were, as far as I am aware, 40,000 households in arrears for six months or longer on their principal private residential mortgages. The average arrears figure per household is €21,000. If members wish to consider a definition of an unsustainable mortgage, they should think about how long it will take that household to get back to paying the monthly instalments and discharging the arrears.

A sizeable number of unsustainable mortgages exist. Forbearance from the institutions is working in certain cases and the code of conduct on mortgage arrears is in place, which has been useful in setting up an infrastructure but greater measures definitely are needed. I understand New Beginning has proposals that complement, or which it believes to be stronger than, the split mortgage proposals set out in the Keane report. The latter report also includes two pilot mortgage-to-rent schemes. We question the extent to which plans already are in operation to put those schemes into practice.

We believe the State's policy in respect of debt and mortgage debt in particular should emphasise the retention of the dwelling. It may not always be possible in all circumstances but this should be the primary objective. There is a certain amount of detail in the paper we submitted that embellishes on these points but from the perspective of our organisations, that is, the Free Legal Aid Centres, FLAC, the Society of St. Vincent de Paul, Threshold, Respond! housing association, Focus Ireland, New Beginning, Northside Community Law Centre, Ballymun Community Law Centre and a number of independent researchers, they are all set out in the aforementioned paper. All the organisations and individuals involved have a strong track record of working on debt, housing and anti-poverty issues and we believe these principles set a template for how we should deal with indebtedness problems in the future. They are only principles and the organisations concerned have many more opinions, both individually and collectively, to help inform the joint committee's deliberations.

Chairman

I thank Mr. Joyce. The organisations to which he referred are indeed set out on the face of the paper he sent to the joint committee last week and which was circulated and I thank him for his contribution. We have been joined by Ms Noeleen Blackwell, also from FLAC, and I welcome her to the meeting.

I now call on Mr. Ross Maguire, who represents New Beginning and is accompanied by Mr. David Hall, to address members for perhaps three minutes.

Mr. Ross Maguire

I thank the Chairman and members for the invitation to attend. I will begin by setting out in brief detail the history of New Beginning. It was formed approximately one year ago when we recognised growing lists in the courts of people who were facing repossession of their homes. Inevitably, the lenders were represented by solicitors and counsel, while borrowers in most cases were unrepresented. Rather than seeking to lobby or seek a solution, we decided to step into the breach. Using a previously existing group established by Mr. Vincent P. Martin, Public Access to Law, we had a pool of up to 100 barristers who were available to step into the breach. We made a commitment in October 2010 that we would represent anyone in any circumstances anywhere in the country who faced repossession and who was unable to afford legal representation. We have to date, as best we could, fulfilled that mandate and we commit to continuing to fulfil that mandate in the future.

In the course of the last year, two things have become apparent to us. The first is the outrageous problem that exists, caused by reckless lending that was going on for the past decade, which is unspeakable in terms of the stupidity that underlay it. Second, the courts have no discretion. Recent Supreme Court decisions have stated the courts cannot take into account anything other than the black and white contractual document. One borrowed the money; one, therefore, has to pay. The courts are not entitled to take into account any sympathetic factors, the conduct of the lender, the fact the market is on the ground and house prices fetch tiny prices. We have this perfect storm with huge indebtedness caused by reckless lending with courts hamstrung, not able to do anything for borrowers.

While New Beginning has continued in the past year to provide representation, seek out loopholes and unashamedly make life as difficult for the banks as possible, the solutions are not to be found in the courts. Over the past several months, we have sought creative solutions. We recognise debt forgiveness on a grand scale has deep problems and is politically unacceptable. However, we do not agree with the Keane report's approach which puts all the blame and burden on borrowers. I could not advise anybody to pay a mortgage for 30 years so that they would end up having nothing. That is a form of slavery. This would be a consequence of the split mortgage proposal in the Keane report.

Gerard Malone, who spent much time in the United States, developed a solution which would share the pain. Requiring the banks to take some pain provides an opportunity in which people can pay down mortgages over a long period and end up with ownership.

New Beginning will continue to provide representation. The solutions, however, are the next step.

Deputy Pearse Doherty

I welcome the various groups which are doing good work in the community in addressing the problem of mortgage debt, for which we are grateful.

One main argument made by FLAC is the need for an independent debt resolution agency. Sinn Féin always supported this and there is a growing consensus among other politicians that debt resolution cannot be left solely to the banks. How would such an independent body be fleshed out? What tools would such a body need? I believe debt-for-equity swaps need to be the main tool. What other approaches could be used to make such a body more effective than the current approach of forbearance?

I agree with Mr. Maguire on the Keane report's proposal for split mortgages. While it takes a while to get one's head around it, New Beginning gave an example of a borrower who owes €226,000 ending up with €9,000 of negative equity. It makes no sense. However, could this be tweaked to provide a debt-for-equity swap? While this premise is based on the borrower paying the capital sum over a period, what about those who will not be able to pay it? What exactly is meant by the banks needing to take some of the pain? I have not seen a write-down in New Beginning's proposals, bar the loss of interest payments on the mortgage. Does New Beginning believe there has to be a further write-down of debt, given that the taxpayer has already transferred up to €14 billion already to do so?

Deputy Liam Twomey

Did New Beginning use the Civil Liability Act to negotiate with the banks to take responsibility for what it describes as reckless loans? Has it used other legislation? The Civil Liability Act has never got as far as a court hearing. How does New Beginning negotiate legally with the banks on behalf of its clients?

Insolvency legislation will be passed by the Oireachtas some time. The heads of the Bill will take a year to be published, followed by another year for drafting, however. This committee would be delighted if the groups could make submissions on this legislation because it would help speed up the process.

Insolvency is one way of getting people out of these problems with mortgage debt. A generation of young people trapped in mortgage debt, however, see leaving the country as their only solution. It is argued they are walking away from their responsibilities. However, the banks have taken a hard-line position and made it clear to this committee that they will not give any mortgage write-downs, making it very difficult for those caught in mortgage debt. This is a massive crisis. One in ten mortgages is unsustainable which amounts to between €12 billion and €15 billion, an enormous figure even taking into account the residual values of the properties affected. What are the groups' opinions on dealing with this problem?

Chairman

The bankruptcy legislation will more than likely come from the Department of Justice and Equality and, therefore, will be dealt with by the Joint Committee on Justice, Defence and Equality. That, of course, does not mean this committee would not be interested in receiving submissions on the legislation.

Deputy Stephen Donnelly

I welcome the groups to this meeting. I am delighted to see an anti-Keane and more pro-citizen approach. It is nice to hear that we were not all foolish, reckless thieves.

The two key parameters in the insolvency process are the time one is involved in the process and the amount written off after that time. Obviously, at one extreme, it could be the entire mountain; there are other cases where it might not be. I am interested in their immediate reaction as to what those parameters should be. We have just had a debate about where the extra 100 personal advisers recommended by the Keane report would go. There was some recommendation that they would be subsumed within MABS. Others suggested that maybe they be retained as a central organisation and work with MABS.

In terms of parameters for the minimum standard of living, which is something about which Mr. Joyce spoke. Did Mr. Joyce see guidelines from any of the banks as to what it is legitimate to leave people with? Does Mr. Maguire have recommendations in that regard?

Can New Beginning say what will happen or what can be done if the banks do not begin to co-operate with the recommendations?

Mr. Paul Joyce

On the question of debt for equity swaps, perhaps Ms Loughnan and Mr. Bob Jordan might like to respond.

On the effective structures of a debt resolution agency, which Deputy Doherty raised, the opportune time to prepare for this is with the introduction of a personal insolvency Bill which would create an overarching agency that would supervise settlements. We know the public purse is strained. It is not a great time to create new agencies, but this is of fundamental importance. There is too much of a case-by-case, who-shouts-the-loudest and who-can-negotiate-best approach. The approach generally taken in European countries with debt settlement legislation is that voluntary settlements are encouraged but the big stick is reserved to impose a settlement if people refuse to negotiate properly. We would see it as an agency in the background that will mediate but will also adjudicate where there are disputes, but will facilitate the parties to arrive at their own debt settlement arrangement.

Chairman

I will go to Mr. Maguire next and then I will come to the others.

Mr. Ross Maguire

In reply to Deputy Doherty on those who cannot pay, we believe the solution we have put forward would apply to approximately 85% of distressed mortgages. There is a group of 15%, to whom this does not apply, that is truly unsustainable. For example, we have done deals with some lenders whereby they have agreed that if we step out of the way and let them take the house, they would write off the debt. The next step in that is to allow somebody else, a housing authority or the State, purchase that house at discount and then rent it back to the owner so that the owner goes from owner to tenant but remains in situ.

It is important to recognise that under our proposal we take 35% of the net income of a person and we measure what that mortgagee can pay. The type of new mortgage will be an increasing mortgage so that if I owed the Chairman €30, I could pay him €10 a year and that would make the €30 or I could pay him €9 this year, €10 next year and €11 the following year. If we can index the mortgage, start at a base today which represents 35% and then increase it by 1% or 2% per annum, one will find over a period that it covers a great deal, and then we shelve the bit that cannot be paid and reintroduce that in a particular type of way later on. When that is applied, believe it or not, it answers for many of the mortgages that one might think otherwise could not be.

It is also true that under our proposal the only pain the bank will take - really, it should take much more than this - will be in foregoing interest on the amount for the period that it is shelved. We have not been harder on the banks because we must come up with something that is workable. If we start to talk about write downs, the banks will talk about their balance sheets and then we are back into the issue of bondholders, and so on. We believe this is a solution that can work.

In terms of Deputy Twomey's questions as to what we can do now, something the Houses could do immediately is to give the court discretion. If there was one section put into an Act which states that the court, in determining whether to repossess a family home, shall take into account matters such as offers to restructure, temporary issues and the conduct of the lender, that would revolutionise the system because the judges would not be faced with a situation where they have no choice; they could take into account the global picture. One could go to the court and suggest restructuring, which - albeit different to the terms of the mortgage - if the court had discretion, it might well deem a fair enough proposition in that the bank would get more under that than it would under a repossession order and the banks would be forced to accept it. It is a simple solution.

Ms Joyce Loughnan

I thank the committee for the opportunity to speak. Focus Ireland is one of the largest housing associations in the country. We were been involved with the Department of the Environment, Community and Local Government in negotiating leasing deals since April 2008. Unfortunately, in terms of the schemes available and that are being spoken about in connection with solving this debt crisis, there has been very limited success with any of them. We must have meaningful engagement from the housing associations to outline some of the difficulties and risks involved in relying on the housing associations to be the panacea for this issue. We certainly are in favour of a debt for equity and a shared ownership response. The solution to this debt crisis must be that we support people to stay in their homes. We cannot have so many people facing into the crisis of becoming homeless and all the social costs associated with that.

Unfortunately, this cannot be done in isolation. We have spoken at length about the fact that one must look at the total debt, but one also must look at the solutions to this crisis in the context of the housing crisis. There are 5,000 people who are homeless. The majority of those have been holed up in private temporary emergency accommodation for more than two years. There are the situations that one hears about in the news about Priory Hall. There are many demands with regard to ghost estates. There are numerous people living in substandard local authority housing who have been waiting ten years for a home. We must solve this crisis in the broader context of the housing crisis and the shift to moving to shared ownership and rent solutions, and leasing solutions. The solutions are possible, but one must have the right stakeholders around a table in meaningful dialogue.

Chairman

I ask Mr. Jordan to keep it brief on this occasion and he can contribute later.

Mr. Bob Jordan

Threshold made a submission to the expert group. What we proposed on the mortgage-to-shared equity side was that local authorities would buy the loan at a significant haircut from the bank and then that we would have a scheme based loosely on the incremental purchase scheme. The incremental purchase scheme is a way for people to take steps like a staircase into home ownership and what we suggest is a reverse gearing of that, in other words, a person would pay a mortgage based on, perhaps, a 40% stake in his or her property and then buy-in over time. It is worth remembering that there is a cost of managing a property and that is recognised in the incremental purchase scheme where people are conferred with 3% equity a year based on the fact that they incur costs in managing the property. If one compares that with the Keane report, I suppose what we would be saying about the Keane report is that in the split-mortgage scheme one would not be paying any interest on the shelved amount and there might be some recognition of the cost of managing the property over time.

Deputy Thomas P. Broughan

I welcome our guests. I thank them and the generality of civil society for putting forward real solutions for the disastrous situations in which so many of our constituents find themselves.

I want to ask New Beginning a couple of brief questions. I want to fully understand the interesting idea of parking, with non-payment of interest. How would that operate, say, if there was a catastrophic fall in income? We were given figures on the long term but a family might face disastrous economic conditions over the long term. Would a straight write down be preferable?

In regard to the estimated 15% of mortgages that are unsustainable, or non-viable as earlier speakers described them, is it envisaged these would be written down or are the alternatives of split mortgages and renting preferable?

I want to know the bridge between the Keane report's figures and New Beginning's projections after 30 years.

Senator Katherine Zappone

I thank the witnesses for the innovation they have shown in their approaches and solutions. I have two questions and, perhaps, a suggestion.

Mr. Maguire has already partially answered my first question in his statement that the courts have no discretion. According to New Beginning's website the original intention was to argue in cases that the banks have a duty of care which should be part of the resolution with borrowers. Did he make his discovery because the courts have no discretion, because they will not exercise discretion or because they do not have the powers to exercise discretion? I acknowledge the suggestion he made in an attempt to change that.

Mr. Joyce indicated that the Society of St. Vincent de Paul produced figures on minimum household income. It would be useful to have that information. I am struck by the point he made that it is important to avoid the piecemeal approach of separating personal and mortgage debt in determining minimum household income. Both New Beginning and the Keane report suggest that the borrower ought to be able to pay 35% of his or her net disposable income on the mortgage. That does not take account of other types of debt, however. The issue of determining minimum household income is related to Deputy Donnelly's question regarding whether banks have guidelines for the legitimate amount people should be left but, again, that is only considering the mortgage debt.

The principles that the witnesses set out for the committee are very helpful. Many of their organisations have developed solutions or tools based on these principles. It would be useful if we were provided with a document that outlined these solutions.

Mr. Ross Maguire

With regard to the Deputy's other question about minimum household income, which was also asked by Senator Zappone, Sr. Bernadette of the Vincentian Partnership for Social Justice has done a great deal of work in this area with some experts in the UK, including people attached to Loughborough University and the University of York. UK courts have been using protected earnings calculators since attachment of earnings legislation was introduced in 1972 and court officials have guidelines to set protected earnings rates. That is of critical importance.

Deputy Twomey asked what other measures could be put in place temporarily while personal insolvency legislation is being assembled. It is not a huge option but there is a MABS and IBF protocol, which has been in operation for a couple of years, that sets out ground rules of engagement between creditors of MABS to avoid legal proceedings. The LRC recommended in its interim and final reports that the protocol be given a statutory basis and extended to the whole of the credit industry so that there would be common rules of engagement across the industry.

Another measure which perhaps stitches in a little to what Mr. Maguire said is the code of conduct on mortgage arrears. That is not expressly admissible in legal proceedings as of yet. The Master of the High Court occasionally asks whether the code has been complied with by a lender bringing repossession proceedings. That code could be strengthened. It obliges each lender to consider a suite of alternative repayment arrangements in respect of each borrower. Our evidence and our experience is that the code of conduct is not being treated by lenders with the respect it deserves. People need to be better informed of that code. It needs to be strengthened but it needs to be admissible in proceedings and that might also help.

Mr. Bob Jordan

I would like to answer a question that was asked earlier of MABS but was not answered in regard to the buy-to-let market. There is evidence from June of this year that one in five of AIB's buy-to-let mortgages is in trouble so there is an assumption that the buy-to-let market is alright. I understand why people are looking at residential mortgages as opposed to buy-to-let. There is a paradox in the sense that tenants who are fully paid with their rent are being given only a few day's notice by the sheriff to leave properties that are being repossessed by banks whereas we have a situation where people who are not paying their mortgages have a moratorium on repossession. Will the committee propose a change to the Residential Tenancies Act 2004, which would make the bank equivalent to the landlord in that instance? In other words, people would at least get the minimum legal notice that they are entitled to under the Act to leave the property. A question also needs to be asked of banks. If one has somebody in the property who can pay the rent, why would one seek vacant repossession when that tenant could pay rent to the bank and contribute to reducing the borrower's debt?

Ms Noeleen Blackwell

Every single submission the committee has heard has stressed the importance of personal insolvency legislation. The Keane report stressed the importance of personal insolvency legislation. All of that also underpins the principles of this group and the committee is looking for solutions. I suggest to the committee that the solution is to introduce personal insolvency legislation quickly. It does not have to take a year in these committees. I would like this committee and the justice committee to ask the respective Ministers why the legislation is not before them and why the resources are not being put into the drafting and production of that legislation. If this is the second most serious crisis after the jobs crisis, why are they not sweeping everything aside and putting in place a proper personal insolvency regime which would underpin every single solution?

Mr. David Hall

Deputy Donnelly asked what happens if the banks do not accept this. On a day-to-day basis, the banks are deploying bully boy tactics against borrowers who, with the support of organisations like MABS, ourselves and FLAC and others, have some level of support but if the banks do not accept this, there will come a time when borrowers, their friends, their families and society generally have to draw a line in the sand and say "Enough". A time will come where those people must collectively come together and take a stand and deal with it as a collective group of people unless the Government and the regulators instruct the banks to do what they are requested to do and assist in resolving the matter instead of hindering the growth of the country.

Deputy Peter Mathews

What are the total gross payments under the Keane proposals after 30 years? Under New Beginning's-----

Chairman

Mr. Keane will be here in 35 minutes.

Deputy Peter Mathews

New Beginning will know from their presentation.

Chairman

The representatives can look at that and reply later.

Deputy Liam Twomey

I referred to the civil liabilities Acts.

Mr. Ross Maguire

The Acts make contributory negligence a defence to breach of contract. That is a point that has not been run before the courts probably because it would take a brave enough lawyer to make that argument. It was never meant to apply to reckless lending. Reckless lending has in effect been ruled out by the courts as a tort.

Senator Aideen Hayden

I welcome all the groups and thank them for all the work they have done on the document and the proposals with which they have come forward. We are dealing with a phoney war where we have no housing market and, therefore, the level of repossessions does not reflect the reality. The Keane report has two fundamental flaws. The first, which he acknowledged, is that he only examined residential mortgages and did not consider buy-to-let mortgages, to which Mr. Jordan alluded. Given that AIB officials told the committee that their buy-to-let mortgage loan book was more impaired than their residential mortgage loan book, what are the implications for future distress given that the buy-to-let market is largely supported by rent supplement payments?

There is no concept of sharing the pain in the report and this has been mentioned by one or two of the representatives. Under the split mortgage proposal, there is no cost to the banks. In addition, at the very least, as Mr. Jordan said, when people remain in their own homes they have to pay for the insurance and carry out the maintenance and so on. New Beginning has addressed that to some extent in its proposal, but I believe it does not go far enough. I would argue that the parked portion should be entirely interest free. Mr. Maguire might take into consideration that the incremental purchase scheme might be integrated with that. In other words a proportion of the banked capital could be handed over for free, purely because of the owner's interest in the home and so forth.

Another flaw in the Keane report is that it favoured a mortgage-to-rent proposal which is predicated on the savings the State would achieve by basically abandoning the mortgage interest supplement. What are the witnesses' views on the mortgage-to-rent scheme? This should take into account two matters. First, it involves the voluntary housing associations. Would they have the capacity to carry out that function? Second, the report's second proposal envisages ownership ultimately remaining with the bank, which is a major fundamental flaw. This would mean that the local authority would effectively have paid the bank for the use of the property over a period of, for example, 20 years and the bank holds the asset at the end of the day. Do the witnesses have any comment on that?

There have been comments about the 100,000 households on the housing waiting list. One of the criticisms made is that someone who remains in their own home courtesy of the State is jumping ahead of those on the housing waiting list.

Chairman

I can only take one minute each from the remaining members as we must finish in ten minutes.

Deputy Arthur Spring

We are used to that.

Chairman

The Deputy is very good at it as well.

Deputy Arthur Spring

We let the field do the talking. I like the solutions proposed by the representatives of New Beginning. Have they considered the implementation of moratoriums whereby a bank considering securitising the loans is not allowed take any profit from it? The cash flows of all institutions will show that the longer the term of the mortgage, the more money they will make on it. That is something that should be weighted heavily towards the peak of the market and working its way backwards. That is something I have worked on myself and have put to the Minister for Finance.

There is a generation that has access to pension tax relief but they do not have the wherewithal to do that. Even if they have the wherewithal they cannot use it for the purpose of paying down their mortgages, which is most relevant to them now. That is another potential solution we need to consider. In some cases what is called arms length reach, a stipulation in legislation, could be removed to allow people stay in the house. Under current legislation, it would be possible to set this up under a self-administered pension fund. While that is something normally associated with the extremely wealthy who have done it in the past, this is not for that purpose. It is for the purpose of allowing the person to stay in the house and making repayments. The tax relief deals with the here and now and recapitalises the banks. As 95% of what is invested in pensions in Ireland goes outside the Irish economy, that is a major benefit to begin with. Both of those need to be considered.

If there can be a write-down for the developers as NAMA has indicated it will do, why should we shy away from demanding in the particular and exceptional circumstances that gave rise to the current crisis a write-down to current market value of the mortgages and loans that relate to the period of the property bubble? Morally and in every other way we should do that and it would begin to free up the economy for the future.

Mr. Paul Joyce

I will be brief, as Mr. Jordan may wish to make a short comment. Concerning the mortgage-to-rent proposal, a significant sentence on page 23 reads: "The owner would pay or part-pay the mortgage with the proceeds of the sale". By implication, the report foresees a legacy debt or mortgage shortfall but does not say how it should be handled. The previous report by Mr. Hugh Cooney specifically suggested that this shortfall be written off in the context of personal insolvency legislation, yet that suggestion is not mentioned in this report. The mortgage-to-rent proposals are convoluted and it is difficult to know how much buy-in there is by lenders and local authorities. Our understanding is that a pilot will be announced. The proposals will not comprise a sweeping scheme. Deputy Boyd Barrett is correct in that not many people would want to remain in the houses as tenants.

There is no sign of the courts taking the initiative in terms of write-offs, write-downs and so on. As the Constitution sets out a separation of powers, it is for legislators to put measures in place to consider writing off portions of mortgages if the Houses believe doing so is necessary. A court will not do it. This is the reason reckless lending cases do not seem to have succeeded.

Mr. Bob Jordan

We have no sense of whether Mr. Keane consulted with the voluntary housing associations on the mortgage-to-rent proposal. My understanding is that he did not. Senator Hayden referred to jumping the queue. The proposal is for 25% equity to be provided by the State under the mortgage-to-rent scheme. It would be unacceptable if this money came from the social housing budget as doing so would deprive the homeless and other persons on the list of that opportunity. A separate budget would need to be established.

As regards the buy-to-let market, up to 50% of the private rented market is paid for through the rent supplement scheme. The Minister for Social Protection, Deputy Burton, is considering reducing the supplement. It is a big ticket item. If this reduction is not done in a considered way - by direct discussion with landlords to determine their financial positions - and if rash decisions are made and the supplement is cut across the board again, there is a danger of collapsing the market.

Chairman

I thank Mr. Jordan of Threshold, Ms Loughnan of Focus Ireland, Ms Blackwell and Mr. Joyce of the Free Legal Advice Centres and a wider group to which they referred, and Mr. Maguire, Mr. Hall and Mr. Martin of New Beginning for their attendance. It has been helpful. This is by no means the last word on this significant issue, which must be addressed by the Oireachtas rather than just this committee. I thank our guests for their written submissions which have been of great assistance. If any additional information arises on the basis of the comments made during this meeting, perhaps they will relay it through the clerk. We will ensure the committee members receive it.

As I mentioned to my colleagues, I must attend a meeting of the EU finance chairs. Is it agreed that, when we resume in a few minutes time, Deputy Twomey will take the Chair? Agreed.

Sitting suspended at 3.50 p.m. and resumed at 4 p.m.

Deputy Liam Twomey took the Chair.

Vice Chairman

We are considering the report of the interdepartmental working group on mortgage arrears. I welcome Mr. Declan Keane, chairman of the interdepartmental working group on mortgage arrears. The format of the meeting will be that Mr. Keane will make some opening remarks, which will be followed with a question and answer session.

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

Members are reminded of the long-standing rule of the Chair to the effect that members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable. Members and witnesses are requested to turn off their mobile phones as their signals interfere with the broadcast signal and they have caused problems in the previous two sessions. Mr. Keane may make his remarks before we start.

Mr. Declan Keane

I thank the committee for the opportunity to come before it this afternoon. I am joined by Mr. John Hogan from the banking policy division in the Department of Finance, and we welcome the opportunity to discuss the interdepartmental report on mortgage arrears. We are glad to give the committee the opportunity to raise questions and issues in this very complex and important matter.

Our group was established at the request of the economic management council to consider 15 specific actions set out in the terms of reference in the report. I will not repeat them. The group comprised representatives from relevant Departments, the Central Bank and two members of the banking industry to provide banking insight to our deliberations. The specific Department representatives are also set out in the report. We carried out the work in August and September, addressing each of the matters set out in the terms of reference. However, as has been mentioned in the report, we have extended, as one might expect, somewhat beyond the terms of reference.

With regard to the summary findings, the committee will be aware that Central Bank statistics indicate that the mortgage arrears problem is getting worse and future trends are expected to show deterioration. The current wait and see approach is understandable as an initial approach to any crisis, but it is the view that a broader response is now required. We must accept the reality that some positions are unsustainable and existing forbearance or sheltering behind the legal moratorium on action is only delaying the inevitable. Longer-term structured solutions are hence necessary. Before discussing those I stress that the view of the group was that the existing practice of forbearance is very useful as a support mechanism. However, it will not always be appropriate, particularly in cases where the borrower will not create sufficient equity properly over time. In that case a longer-term solution is required.

In the report we put forward a package of recommendations to address the issue. Together, this package of measures will make a meaningful difference while individually they would make less of a difference. Fundamentally, the package is a reform of bankruptcy legislation to strengthen the bargaining power of the borrower, as without that we will not have an appropriate solution. There should be introduction of an advice function to provide necessary advice to the borrower to deal with the bank and balance the two sides of the negotiation. There is a need for the State to introduce State-supported mortgage-to-rent schemes to help the most vulnerable people stay in their homes. Finally, there should be a requirement on mortgage lenders to develop more long-term and sustainable solutions, taking into account a borrower's ability or inability to pay, and which would avoid bankruptcy and repossession where possible. At the same time this action should not act as an incentive to people to walk away from their obligations.

Several suggested solutions are set out in the report but we stress that these and others must be adapted and developed by the banks, with oversight from the Central Bank. The first solution suggested is the mortgage-to-rent scheme. Where the borrower qualifies for social housing and the home is deemed eligible, the mortgage-to-rent schemes offer a very fair and appropriate solution in meeting housing needs. We recognise that there are some hurdles to be overcome to bring those schemes into being but we believe these are very surmountable. There is the issue of a shortfall that must be addressed but it can be dealt with. I will return to the issue in a moment.

Another suggestion relates to trade-down mortgages. Where a borrower is in a position to move to a smaller or lower value house, a trade-down mortgage may represent an appropriate solution. The group recognises the danger of the bank wishing to put the borrower on new terms with a lower mortgage, and we recommend that this should not be allowed because it would defeat the objective of the borrower moving to a more affordable mortgage.

A third suggested solution is split mortgage option. This is a mechanism for splitting the mortgage into an affordable portion and warehousing the balance in a secondary portion. Importantly, before entering into this arrangement the borrower must be happy that the expected residual balance in the warehouse would be a size that can be managed in future, either through equity in the property or other means. Where this is not the case and the balance in the warehouse would be too high, we recommend that the split mortgage not be used as a solution. As indicated in the report, a variant which considers the interest treatment, shared equity schemes or life interests should be considered.

We are very clear that suggested solutions are not exhaustive and further solutions or variants of those suggested must be developed. We have advised the economic management council that the Government must require mortgage lenders to develop this range of solutions and the Minister addressed that yesterday in the Dáil. Where no solutions can be agreed - there will be such positions - the group considers that sale by agreement is a significantly better option than an unco-operative legal case followed by repossession. In these cases an appropriate debt settlement agreement should be reached, taking in any remaining shortfall and recognising individual circumstances.

This brings me back to the mortgage-to-rent schemes I referred to a moment ago. The shortfall in those cases would need to be addressed and dealt with in the same manner. The debt cannot be left hanging over people forever and the mortgage lender and borrower, together with the support of their adviser, should agree a settlement to bring certainty to the individual case.

With regard to debt forgiveness, we are quite clear in the recommendations that there should be no blanket debt forgiveness. However, this should not be confused with the fact that the group recognises that there are many loss positions within the bank portfolios and mortgage lenders will have to and should engage in debt settlement agreements. We also recognise that it is inevitable that mortgage lenders will need to offer solutions in certain cases where they may not recoup the entire amount of the loan, as that would be more economically advantageous to both parties than repossession or bankruptcy. The issue should be addressed case by case. People's positions can be very different so, unfortunately, there is no one-size-fits-all solution to the problem. A range of solutions is required and that is the approach recommended by the group.

Deputy Pearse Doherty

I welcome Mr. Keane and Mr. Hogan before the committee. I am sure Mr. Keane has been following the debate in the Dáil over recent days. We have been debating Mr. Keane's report and, more importantly, other solutions to the mortgage crisis. Mr. Keane will be aware of my and my party's position on the report. It is very disappointing. This is the third report on the mortgage crisis and it is very disappointing that again it will be largely left up to the banks and the lenders to implement solutions. Is Mr. Keane disappointed that one of the only groups to come out in support of his report is the Irish Banking Federation? Most other groups that have been working at the coalface recognise that it is not the comprehensive solution required and are quite critical of many aspects of the report.

Many people have argued that the debt for equity swaps proposal should be considered. Did the group consider that? What other models did the group examine and, if it did consider that, why did the group rule it out? Some of the main resolutions in the report are about leaving this to the banks. We need a mortgage distress body to impose settlements on the banks or between the lender and the mortgage holder. Has Mr. Keane considered the concept of an independent agency? Does he believe the banks will act any differently from how they have in the past? If he considered an independent agency, why was that ruled out?

Did Mr. Keane examine some of the programme for Government commitments, particularly in the context of the banks absorbing interest hikes from the ECB? His group has been working on these issues since July but it was last Thursday when Mr. Matthew Elderfield basically ordered the banks not to increase variable interest rates as it will cause further damage to those whose mortgages are in danger of becoming distressed. This has not been dealt with in the report. Mr. Elderfield said the Central Bank will ask the Government for powers to impose this but that was not dealt with in the report. Was it considered?

With regard to the three primary proposals in the report - the mortgage to rent, the mortgage to lease and the split mortgage options - what number of mortgage holders does he envisage availing of each of those? I realise it would be an estimate. Some of these proposals are welcome. They can be tweaked and they would address the issue in the case of a number of mortgage holders. However, I do not believe they address the substantive issue in any shape or form, given that there are nearly 100,000 mortgage holders in serious distress.

With regard to the mortgage to rent and mortgage to lease proposals, the scheme would require investment by the Department and local authorities. Is it his view that this funding should come from the existing allocations for social housing or should there be a separate account to provide it? A total of 25% equity investment is required under the mortgage to rent approved housing bodies, for example. It also requires the Department to pay 80% of the market rental to the approved housing body. Has Mr. Keane an idea of the cost this would be per individual mortgage holder? He mentioned that this and the mortgage interest supplement would write each other off. The cost of mortgage interest supplement last year was approximately €66 million. What figures is Mr. Keane working with in terms of how many people he believes should avail of these schemes?

Does he think there is any economic justice in all of this? The State has handed over, taking the lowest figure-----

Vice Chairman

I am sorry, Deputy, but we must stick to the time limit.

Deputy Pearse Doherty

Yes, I will finish soon. I have two simple questions. The State will hand over €6.5 billion for mortgage losses in the next three years to the covered banks. Under Mr. Keane's proposals, how much losses of that €6.5 billion would the banks actually accrue? Finally, where does he believe there is economic justice in his split mortgage proposal? He can correct me if I am wrong, but the mortgage holder would pay €141,000 to the bank over a 30 year period and would still end up with a loan of €226,000. I do not see the sense in that. Mr. Keane is coming at this from a fundamentally flawed position where he wishes to grow the equity in the house. What we need to deal with is the income. It is not just about getting the equity in the house to a level where it can be sold and the person is left with no debt, but about the fact that people wish to stay in their houses and pay off a mortgage but they wish to pay it at a sustainable rate.

My last question is on behalf of Deputy Stephen Donnelly, who had to leave the meeting. I agree with his position. There is no mention in the report of burden sharing. Why has Mr. Keane run away from the issue of burden sharing with the banks in any substantial way? Again, I refer to the fact that we have over-capitalised the banks for the reason that there would be burden sharing. The banks told us there was a need-----

Vice Chairman

I am sorry, Deputy, I must intervene.

Deputy Pearse Doherty

Mr. Keane's report does not deal with this issue.

Vice Chairman

I ask all members to try to keep their contributions short. I do not wish to fight with everybody to get them to shorten their contributions.

Senator Aideen Hayden

I will confine myself to what I consider to be the principal issues. I thank Mr. Keane and our guests for attending. I am conscious that Mr. Keane did not have a long period to prepare his report and that he has said it is not the last word on the subject. I welcome that.

I have three concerns about the report. We have listened to the representatives of a number of organisations and it is clear that one of the major problems at present is that individuals are suffering with not just one form of debt, housing debt, but multiple forms of debt. I am not convinced that the report deals with that comprehensively.

Mr. Keane said at the beginning of his report that he focused on homeowner mortgages and did not consider the buy-to-let market. I have a particular concern about this. Representatives from Allied Irish Banks have appeared before this committee and they acknowledged that their buy-to-let mortgage book was far more impaired than the domestic mortgage book. I have made the point previously, and it is important, that at present there is a recognition by all the lenders who have appeared before this committee that their buy-to-let books are seriously impaired. That market is currently being supported by the State in light of the fact that almost 50% of all mortgages in the buy-to-let sector are being supported by the rent supplement. Does Mr. Keane not consider that this represents a serious potential catastrophe for the banking sector and that perhaps he should have dealt with it in his report?

I agree with the comments by other members that the proposals have all been put forward on the basis of an almost zero cost. I was very disappointed with regard to the split mortgage proposal. I had hoped the mortgage-to-shared equity scheme would be given greater consideration. The report seems to be predicated on almost zero loss to the lending institution, which is grossly unacceptable considering that the homeowner retains all the costs of maintaining and insuring the property. The mortgage-to-rental scheme is predicated on savings on the mortgage interest supplement. I am very concerned about it. I can understand the voluntary housing association proposal but the second proposal, the lease back from the lending institution to the local authority, appears to be predicated on the local authority funding the bank's debt, with the bank retaining ownership of the leased asset in the eventual outcome. That does not represent good value either for the distressed homeowner or for the State.

Mr. Declan Keane

Deputy Doherty asked several questions. One of them relates to interest curtailments on the banks. That was outside our terms of reference so we did not look at it.

He asked whether we examined the idea of debt for equity swaps. It is something that might come into being as one of the solutions, and we refer to it in the report. The split mortgage option we have proposed is a mechanism designed to determine what is affordable today, and what cannot be afforded is put into a warehouse. The Deputy said that the number left over at the end is not appropriate. The reality is that there will be a number at the end, the question is how big it is. If it is so big, and the outline we set out is an illustration, the borrower should not accept it. If they are in a situation where the debt overhang at the end is too big, they should not accept it. They should look at different solutions, including variance of it. That is where we are not closed to the idea of interest reductions or rebates on the warehouse, equity sharing in that regard or, indeed, life interest. We refer to these in the report, which people have not picked up on. The idea of equity sharing could be a solution and it might be in some situations but the important point is that it is not, and should not be seen as, the answer to all situations. We have not majored on it but we are not ruling it out.

On the idea of leaving everything to the bank and on whether we should bring in a body to impose settlement, the group's view is that if we do as we recommend, we will change the landscape for borrowers and bankers. We will bring in more amenable and more real bankruptcy legislation to give borrowers a real bargaining chip and we will support that with professional advice, so there will be a levelling up of negotiation in that regard. If we bring in a State-supported mortgage-to-rent scheme, it will limit the banks' option to look for repossession in those situations because there will be a scheme to keep the people their in houses. Those things will change the landscape. I think that will inevitably change banks' dealings with individual situations. As a group, we hope it will work.

Could we go for a statutory body to impose settlement? That could be an option but we would recommend against it at the moment. One must look at the consequences that could have. Many of the solutions will require buyers for houses and mortgages to be given for those houses. If we bring in a situation where there is an independent body which can override the mortgage situation and determine the answer in all cases, one could run the risk of fundamentally changing the mortgage market in terms of how mortgages are priced, how they are made available and even how they are funded. That could have a long-term impact which we would want to be careful to avoid. It might end up being the only way out if the banks do not respond to these measures but I think that at this point, it is too early to go there.

A member spoke about burden sharing. As I said in my opening remarks, there will be losses for the banks and they will have to accept losses. That is inevitable. I think there will be sharing in that regard. I am not sure what other ones the member was referring to.

The issue of buy-to-let and other debts was raised by two members. We did not focus on it significantly. Again, it was outside our terms of reference but we acknowledged it. It is a significant issue. We are aware that the other third party, or unsecured debts, are causing a difficulty for individuals and are complicating the mortgage resolution. However, if we cannot get our position right in terms of how we will deal with the bilateral situation of a mortgagee and a bank, we will not be able to deal with the more complicated situations, so our focus has been on trying to work out solutions on that bilateral basis and then we need to look at the more complex situations of having other debt involved. There is some way to go on that.

We point to the fact that the forthcoming bankruptcy reforms will have three elements to them. These are the judicial process, the non-judicial process and the debt relief orders. The second two will have a significant role to play in dealing with other creditors in that regard. The member was right that it was not a significant part of what we were tasked with looking at.

Deputy Pearse Doherty

I asked a question, which was not answered, about the State's investment in regard to mortgage-to-rent and mortgage-to-lease, the 25% equity and the 80% rent and the cost of that and whether it come from separate funding outside housing funding.

Mr. Declan Keane

Neither the group nor I looked at that specifically but we looked at the costing of it. In our estimate, the costing of a mortgage-to-rent scheme on an annual basis, in terms of the leasing cost, would be in the region of €35 million or thereabouts. That would be somewhat reduced, although not entirely by any means, by some reductions in mortgage interest supplement for those same individuals.

Deputy Pearse Doherty

How many individuals avail-----

Vice Chairman

We will have to leave that until the end. A specific period of time has been allocated.

Senator Aideen Hayden

Will Mr. Keane reply to my last question which was on the mortgage-to-rent scheme?

Vice Chairman

As we are a bit stuck for time, Mr. Keane might park that question. I will call two more speakers first. Time is of the essence.

Mr. Declan Keane

I appreciate that. I am just trying to remember what the question was. I apologise but there were so many questions.

Senator Aideen Hayden

I asked about retaining ownership of the dwelling after the leased period in the mortgage-to-rent scheme.

Deputy Richard Boyd Barrett

I read Mr. Keane's report and listened to his presentation. How would he respond to the view that I am developing that his approach to this is a microcosm of what is happening in the bigger macro-economic picture in that while he talks about restructuring the debts of people who are in difficulty, the bottom line of what he is doing seems to be to protect the financial institutions and give them the decision-making when it comes to how people's distressed mortgage situations are ultimately dealt with? That is not acceptable, as some of the previous witnesses before this committee today indicated. The balance is just wrong.

In the recommendations, what jumps out is that those who can discharge their mortgage obligations must do so and blanket debt forgiveness is not recommended. That does not seem to take into account at all the culpability of the financial institutions in creating this situation. Is it not arguable as to whether these are legitimate obligations at all, in so far as a very substantial proportion of the debt arose from a situation that was manufactured by the financial institutions, the Government and by developers, and that it is not the responsibility of people trying to put a roof over their heads, were in a difficult situation created by others and are now landed with the consequences of it?

Why does Mr. Keane set his face against write down to the level of current market value - in other words, to the real value of these properties? The figure being bandied about is €14 billion, that that would be too costly and so on. I do not accept the moral hazard argument but in terms of the costliness, could Mr. Keane tell us a little bit about that figure of €14 billion? What is it based on in terms of what the cost would be so that we can assess whether write down is a possible and reasonable solution?

On the mortgage-to-rent proposal, as I said at a previous committee meeting, it is a reasonable proposal in so far as people wish to do that but it is not a reasonable proposal - perhaps Mr. Keane will clarify if I have misunderstood it - if the person who engages in this scheme still has the debt hanging over him or her. I am not quite clear what Mr. Keane is proposing in that regard.

Vice Chairman

I ask the Deputy to conclude.

Deputy Richard Boyd Barrett

That must be left behind.

Everybody seems to agree that personal insolvency legislation and so on is required. There is no dispute about the general principle of that. Will Mr. Keane say a little bit more about what precisely that legislation should involve and how it will shift the balance, as I think he referred to it, towards the rights, concerns and circumstances of the borrower as against the current situation where, essentially, the banks can enforce their contract regardless of the circumstances of the borrower?

Deputy Kieran O’Donnell

I welcome Mr. Keane and his colleague. Until insolvency legislation is introduced, what would happen to the element of the loan in a mortgage that must be written off? How will that be dealt with in the intervening period? If a couple enter the split mortgage scheme, after 30 years will the principal amount they owe be the same as when they started? Someone in his 40s who enters this scheme will still have a mortgage in this 60s.

Why should the mortgage interest supplement be curtailed? Clearly, it was stated the mortgage-to-lease scheme costs €35 million. Was there a case for revising the mortgage interest supplement to get people over the hump so when the economy recovers, they would be able to repay the principle on the mortgage? I want to look at the practical implications. Mr. Elderfield said recently that the banks should deal with this issue. That would tie in with the insolvency legislation that is coming in for debt write-offs.

Mr. Declan Keane

In reply to Senator Hayden's question on ownership, the preference for all concerned would be that the approved housing body scheme would be the route of choice for the mortgage-to-rent scheme. In the leasing scheme as it stands, the banks would end up owning the property. They would get a rental based on current market values so there would be a loss recognition in that regard. The banks would prefer not to be in this at all. If we could find an exit route, and that has not yet happened, the banks would willingly sell those houses to the approved housing body. The problem is that we do not have the capacity within the system to deal with them in terms of approved housing bodies taking those properties on. The banks do not want to hang on to the properties so I would not be too concerned about that in the long term.

Deputy Boyd-Barrett made a number of points. I would not agree that we are protecting the banks; we are trying to move the current situation forward. The forbearance is appropriate but not in all cases and we must move on. Banks do not want a mortgage-to-rent scheme as we have set it out. They do not like the idea of trade-down mortgages or split mortgages. They do not want the bankruptcy laws changed to the level we have advised and do not want an advisory function. I do not think, therefore, that we are pandering to the banks.

The idea of writing down all loans to current market value appeals to everyone but there would be significant costs of in excess of €14 billion involved according to the Central Bank. That number is growing as house prices fall. It is based on values in June 2011 so it has increased since then. It will not, however, deal with affordability. The person who currently cannot afford his mortgage is probably in a more significant hole than negative equity. Writing down his negative equity does not solve the problem.

I cannot allow any more supplementary questions, as this has gone on for long enough. I will call Deputy Spring and then Deputy Donnelly

Deputy Arthur Spring

I am glad to hear that Mr. Keane does not think this report is the final product, as there is more to come from many different areas.

Will he comment on the proposal from New Beginning? Has he analysed it and what is his opinion of it? Has he considered the idea of personal pension relief being attributable to mortgages and a marginal moratorium for banks? I fear banks will get away with making a profit on the longevity of the mortgages, because in the long-term the cash flow will ultimately mean that the securitisation of these mortgages are worth more than the average mortgage.

Did the Department of Finance indicate a figure to Mr. Keane as to what it would see as an acceptable amount of money that it is willing to write down in order to deal with the mortgage amounts? Is there a maximum figure?

Deputy Stephen Donnelly

I thank Mr. Keane for agreeing to appear before the committee. I looked forward to the report but was disappointed, rightly or wrongly, because the tone of it feels to me like a pro-bank report. The most important three lines of the report, from which the rest of it presumably flows, are the guiding principles which state: those who can discharge their mortgage obligations must do so - there is no entitlement to particular solutions; solutions have consequences; and there are unsustainable situations and unfortunately it is inevitable, etc. Will Mr. Keane share with the committee where those three ideas came from? Similarly the second bullet point in the challenges section states that it is to avoid inappropriate mortgage holder behaviour. I note there is no similar challenge to the banks, to avoid inappropriate bank behaviour. Can I get his thoughts on why there is nothing to balance this paternalistic or status view of the citizens acting in an inappropriate way. I do not believe there is any reference to the possibility that banks may act in an inappropriate way.

Following on from Mr. Keane's response to Deputy Doherty on burden sharing - and Deputy Doherty and I spoke beforehand - I believe what he was referring to in terms of burden sharing was not the banks taking a provision but an actual substantive sharing of the burden of a distressed mortgage. This would mean, for example, that if somebody bought a house for €500,000 and it is now worth €300,000, the bank would say, "We lent you five times your income and lent you a mortgage of 105% so we are partly responsible and we will write it down by €100,000". The figures we had from the banks show that the State gave AIB approximately €3 billion just to deal with distressed mortgages. They told the finance committee that they have made a provision of €836 million in their own books but the amount they have written off or surrendered any legal hold to is €600,000. After repeated questions to Bank of Ireland we found out that they have written off zero. I think I am correct in saying that in his report, it does not suggest any of that type of burden sharing. I would like to learn why not and many people are interested in that.

Did the Department set a maximum figure for the budget?

Mr. Declan Keane

No. On the contention that the report is pro-bank, it is not meant to be pro-bank and I apologise if that message is coming cross. It is very much the view of the group that the current situation is not moving on and we need to move it on, which will entail losses for the banks. A bankruptcy law and other mechanisms recommended in the report are things the banks do not want. The report is not pro-bank.

On burden-sharing, we envisage that write-down will be required in terms of losses the banks will have to take. The report states they will have to be applied in debt settlement scenarios and sales by agreement. It is our understanding that in cases where there is a shortfall the banks are seeking to take the loss over 20 or 30 years. The view of the group is that this is not appropriate. The changes in bankruptcy laws will result in a more amenable resolution being found between the parties. However, this needs to be done on a case-by-case basis. Where individuals can afford to pay, the State should not ask a State-owned bank to write off a debt. One must consider individual circumstances. That is a key tenet.

The Deputy referred to the group's view on borrower behaviour. We seek to ensure people are kept in their homes, where possible. We tried to balance this issue. If a certain tone was detected, that was not the thought process of the group through our deliberations.

It is true that the banks have not used the capital they have been given. The Governor of the Central Bank has also made this observation. We would like to see more action taken on mortgages that are in distress and certainty in as many cases as possible. The current position is unsustainable and there are many reasons for this. Many of the actions of all parties in recent years have reflected an attempt to kick the issue down the road and wait to see what will happen. This has resulted in a hiatus. We need to move on and that is the aim of the report. Until we do so, we will not see resolutions being found on a case-by-case basis. Only then will the capital given to the banks start to become eroded. That is what I expect to happen.

The Deputy also asked about bankruptcy periods. The group does not have a view on what the period should be or whether it should be three years or five years. We know considerable work is being done on the issue by the Central Bank and Departments of Finance and Justice and Equality. The current automatic discharge period of 12 years is not a meaningful solution for anybody. It must be reduced to a more appropriate level so that people are given an option. It should not be reduced to an inappropriate level which would make it easy for people to write off debts and walk away. As to the reason two different periods - five years versus three years - apply in the two mechanisms, I do not know the answer to the Deputy's question. The issue is being addressed by the Department of Justice and Equality.

Deputy Stephen Donnelly

Were guiding principles given to the group in its terms of reference or did it produce the three principles that guided its work?

Mr. Declan Keane

The guiding principles arose through the work of the group over the period.

Deputy Peter Mathews

Deputy Tommy Broughan

I welcome our guests. To return to the brief and membership of the interdepartmental group, I note the group had seven basic objectives, the last of which was to minimise costs to the State and target scarce resources for maximum efficiency. I notice there were seven basic challenges, the seventh being to minimise the cost to the State and to target scarce State resources for maximum efficiency. Under that I do not see any cost-benefit analysis of the different solutions, of the mortgage-to-rent and the split and so on so, that we could definitively say that Mr. Keane had minimised costs to the State. Did the Secretary General of the Department say to him that on no account was there to be debt forgiveness, even in respect of owner-occupied dwellings? Was order was he given in going out to do this report or did he interpret it that way himself?

Given that it is an interdepartmental group it is astonishing that there were 22 public servants on it - 20 from among his colleagues in the Civil Service and two from the banks we own, AIB and EBS. How did he interact with the uncovered institutions? Some of the most horrendous tales we hear are about uncovered sub-prime mortgages from foreign institutions operating here. How did the group interact with them? Would it have been useful if the excellent bodies that appeared in the earlier sessions from civil society, such as New Beginning, MABS and Threshold, were represented on the body and was that a missed opportunity? I know Mr. Keane will say this is being done step by step. As my colleague's brilliant metaphor shows, those galley slaves are rowing very hard and effectively the head of the Department, Deputy Michael Noonan, is banging the gong and saying, "keep rowing, girls and lads, that is the only way out."

I want to ask about Mr. Keane's raison d’etre. Across the whole area of schemes and debt write-downs, what figures are available? For example, page 25 of the report reads:

- Our estimates show that MtR is likely to be cheaper than MIS where the mortgage holder is on a SVR mortgage,

- Whereas if the mortgage holder is on a tracker at current ECB rates, MIS is likely to be cheaper.

How did the group make that finding given that there are so many people on tracker loans, the majority of whom are mortgage holders? Mr. Keane referred to people who can negotiate forbearance agreements and moratoriums on legal action. What percentages are we talking about? I did not notice any detail on that issue. Did the group look at any of the UK arrangements, although I appreciate that is under the bankruptcy side, or the personal insolvency side, for example, individual voluntary arrangements, IVA?

We cannot comment on that as a group - we did not look at that. Deputy Broughan asked whether we were set a target by the Secretary General. We were not set a target. In regard to how we dealt with the uncovered institutions, the approach of the group was to work through our various solutions within the group and develop them to a point where we thought it was worthwhile to meet certain banks and develop those solutions with them and get their take on them. They would not be very pleased with many of the issues we are raising. Laterally we met a number of the uncovered institutions to put it to them that is where we are thinking of going.

It was important that the approach we took was not one which covers a percentage of the market but it actually only covers half of the arrears. That is why we shied away from the idea that just because we own the banks we could force them to do something. We had to have a solution that would find its own level with the market. That is why the bankruptcy solution, with the advisory functions and with mortgage-to-rent suggestion, creates a different landscape for the entire banking sector, not just for the covered banks. That is how we addressed that issue.

Deputy Broughan asked about the schemes and the costings between mortgage-to-rent for upwards of MIS. We looked at scenarios of individuals on average size houses that would be in that situation and what the MIS cost would be for the individual and the mortgage rent cost would be for that individual and ran quite a number of scenarios, because there are many variants of it. The overriding conclusion was that if someone is on a standard variable rate, then mortgage-to-rent would be cheaper. If he or she was on a tracker mortgage today and there was a low level of negative equity it might be cheaper than MIS but if the rate was to increase that difference would be eroded. That is the approach to that.

Before Mr. Keane responds, I wish to ask a few questions. It has been suggested here that he was not quite as much on the side of the borrower as he could have been. When Mr. Joyce was making his presentation earlier, he spoke about strengthening the codes of practice and, perhaps, giving them a legislative footing so that borrowers might have a stronger hand when going to the lender. This support is missing currently and borrowers may have to wait too long to make their case if they must wait for legislation on insolvency, which may take a number of months to be enacted. Is there a quicker solution that could give them some bargaining power when they go to their banks?

Mr. Keane stated in his report that MABS is not structured or resourced to provide this support and advice, but MABS seems to have contradicted this earlier. It considers it has the structure to do this and would be able to provide the advice required if it was resourced properly to do so. However, there seems to be somewhat of a clash between it and the Citizens Information Board. How did Mr. Keane reach his conclusion with regard to MABS?

Mr. Declan Keane

If one listens to some of the comments made by groups such as FLAC or New Beginning, it can be seen that we are not a million miles apart in what we are saying. It is a matter of emphasis.

On whether we had carte blanche, I did say we had carte blanche, meaning we were not set a financial limitation. The working group had a 15-action terms of reference and that is where we focused our efforts. We dealt with each of those terms and went beyond them in some situations, which is how we came up with the framework. We were never going to come up with a solution to every problem. That would not have been possible in an eight-week period.

Deputy, please.

Deputy Richard Boyd Barrett

Why did Mr. Keane set his face against that?

Deputy Thomas P. Broughan

I asked a question about the numbers of forbearance and moratoriums. What kind of information did his group get on that? The report has a figure of €14 billion for write downs and so on. I understand the difference. Some people might argue that maybe we should have another referendum on 27 October in regard to some of the matters that have been revealed and the so-called rights of property. For most ordinary citizens, first-time buyers of owner occupied property are in the cohort that we feel deeply about. We feel deeply about them for obvious reasons. They are being threatened with eviction from their homes and so on. What would be the cost of doing a significant write down for them in the bubble years? Professor Kelly seemed to be talking about them primarily. Did Mr. Keane's group talk to him? We have a distinguished economist on this committee. Did the group engage widely with academic and professional economists on this?

Everything has to move so slowly on these issues, but we saw a Government come in here and sign us up within a couple of hours to €70 billion to dig out ultimately developers and crazy and criminal bankers. This happened in a couple of hours. In the past, I have seen a Government coming in at 10.30 a.m. and passing a Bill by 11.00 a.m. which was necessary to protect State property. It can be done very quickly when we need to have it done, but why not look after that cohort who are really suffering?

Senator Sean D. Barrett

I want to pick up on a point made by the FLAC and Threshold delegates. Where a buy-to-let borrower defaults, the tenants are told to quit by the bank because the bank wants vacant possession. That seems to me to be bizarre conduct by a bank that we have rescued, where a fully paid up tenant is told to quit. If I have interpreted it correctly, that was never the intention of the legislation, but it seems bizarre if it is working like that. The first direction to the banks should be that they cannot do that. Their debt is against the buy-to-let person and not against a sitting tenant, and that should stop immediately.

Mr. Declan Keane

I will take Senator Barrett's question first. We did not look at that, to be honest. I was not aware that this was the case. I apologise for not being able to respond to that point.

I can assure the Deputies that I will look into that.

Vice Chairman

I thank Mr. Keane for his informative briefing and for engaging in the discussion. I thank all the witnesses for attending. I thank Mr. Horgan for attending.

The joint committee adjourned at 5.35 p.m. until 2 p.m. on Wednesday, 26 October 2011.

JOINT COMMITTEE ON FINANCE, PUBLIC EXPENDITURE AND REFORM díospóireacht - Wednesday, 19 Oct 2011

Report by Interdepartmental Working Group on Mortgage Arrears: Discussion

Mr. Tony McQuinn

Ms Carol Dunne

Mr. Paddy Lavery

Mr. Paddy Lavery

Ms Carol Dunne

Ms Yvonne Bogdanovich

Mr. Tony McQuinn

Mr. Tony McQuinn

Mr. Tony McQuinn

Mr. Tony McQuinn

Mr. Tony McQuinn

Mr. Paddy Lavery

Ms Yvonne Bogdanovic

Mr. Tony McQuinn

Ms Eileen Fitzgerald

Mr. Paddy Lavery

Ms Carol Dunne

Mr. Tony McQuinn

Ms Colette Bennett

Mr. Tony McQuinn

Mr. Paddy Lavery

Mr. Paul Joyce

Mr. Paul Joyce

Mr. Paul Joyce

Mr. Paul Joyce

Mr. Ross Maguire

Mr. Paul Joyce

Mr. Ross Maguire

Ms Joyce Loughnan

Mr. Bob Jordan

Mr. Ross Maguire

Mr. Ross Maguire

Mr. Ross Maguire

Mr. Ross Maguire

Mr. Ross Maguire

Mr. Ross Maguire

Mr. Ross Maguire

Mr. Ross Maguire

Mr. Paul Joyce

Mr. Bob Jordan

Ms Noeleen Blackwell

Mr. David Hall

Mr. Ross Maguire

Mr. Ross Maguire

Mr. Ross Maguire

Mr. Paul Joyce

Mr. Bob Jordan

Mr. Declan Keane

Mr. Declan Keane

Mr. Declan Keane

Mr. Declan Keane

JOINT COMMITTEE ON FINANCE, PUBLIC EXPENDITURE AND REFORM díospóireacht -
Wednesday, 19 Oct 2011