I thank the committee for the invitation to appear before it. Following on from this morning's session, it is clear that the committee is fully aware of the mortgage arrears problem in this country. While the overall number of mortgage accounts in arrears has been falling every quarter since 2013, there are still more than 70,000 mortgage accounts in arrears.
These accounts represent more than €13.5 billion of debt and roughly 10% of all mortgage accounts held in this country. More than 30,000 of those accounts are in arrears of more than 720 days which, by their nature, means that they are the most complex to solve. The Central Bank reported that at the end of June of this year, 120,000 family home mortgage accounts were restructured on an informal basis. Where these restructurings have been done on a sustainable basis, they are to be welcomed. It is important to remember that there are people and very distressed families behind these statistics. In working closely with debtors and debtor advocacy groups the ISI is all too aware of the impact mortgage arrears can have on debtors. It affects their physical and mental health but it goes further. It can also have a significant detrimental effect on the well-being of the wider family. The challenge for us all is clear: to find permanent sustainable solutions for as many as possible of the remaining mortgage accounts that are in arrears. It is apparent to me that the Bill has this objective at its core. I will be happy to address any specific questions that the committee might have concerning the Bill, but before that I wish to address briefly two areas at this stage, namely, an appraisal of the existing personal insolvency legislation and some high-level observations around the proposed Bill.
Prior to 2013, personal insolvency legislation in Ireland was outdated. The Personal Insolvency Act 2012 established the ISI as the independent statutory body responsible for all personal insolvency matters. It brought Ireland in line with international best practice and went one important step further with the introduction of the PIA. This solution seeks to restructure or settle secured debt within voluntary arrangements, something that had not been attempted elsewhere. Members will note that included in appendix 1 to this submission are examples of where PIAs have returned people to solvency while keeping them in their home. These personal stories represent debtors and families who were in real fear of losing their homes. PIPs, who are the professional advisers we regulate across the country, were able to find a sustainable solution to their problem debt, including their mortgage, that saw them stay in their home. Further testimonials are available on our website. Members will note one strong theme across the testimonials above all others, which is the huge sense of relief experienced by debtors when they secure a permanent solution that returns them to solvency.
Since opening, the ISI has returned almost 6,000 debtors to solvency. Approximately 2,000 of those cases were PIAs dealing with mortgage debt. In more than 90% of these PIA cases, debtors have been able to stay in their home. That, in my view, is a very significant achievement. International experience shows that it takes several years for a new insolvency regime to really gain traction. The ISI has, however, never worked towards the steady growth that international comparisons would suggest we aspire to. Rather, since our establishment, we have done everything within our power to ensure that all those that could benefit from the statutory solutions available, in particular the PIA, do so.
Earlier this year, the ISI undertook a critical appraisal of its work so far. This culminated in the publication of a submission to the Department of Justice and Equality in June, a copy of which we have provided to all members of this committee. Our analysis identified three key factors that influence activity levels. They were the efficiency of the process, debtor engagement and creditor engagement. In terms of the efficiency of the process, the core recommendation contained within our submission is that the insolvency arrangements provided for under the Act should be approved by the ISI rather than requiring a court to make an order for their approval. Importantly, this recommendation has the support of all members of a consultative forum chaired by the ISI which is made up of debtor advocates, creditors, PIPs and the Courts Service. The ISI is of the view that such a change would result in a number of benefits, including an increase in the accessibility to the personal insolvency system, savings in terms of the overall time taken to deal with a particular case, cost savings and consistency of approach. In addition, the ISI recommends a number of other enhancements to the existing legislative framework to drive efficiencies, reduce barriers to entry and otherwise improve the overall process. I would be happy to speak around any of these proposed changes should members of the committee wish me to do so.
Our submission also sets out steps we have undertaken to date to ensure debtors are aware of the solutions that are available to them. These range from national and local campaigns on radio, television and print as well as free debtor advice clinics we have held around the country and attendance at similar events. We also have a debtor-focused website called backontrack.ie and related materials. Through the new Abhaile service, there are now free consultations available for debtors with PIPs as well as a number of other supports to ensure the insolvent debtor is supported at every stage of the process of addressing their unsustainable mortgage. Once again, I would be happy to give the committee more details about what we have done to date in this area or to speak around our communications plans for the coming months should members of the committee wish me to do so.
In terms of creditor engagement, the ISI has consistently encouraged each main creditor to avail in a timely manner of the provision within sections 64 and 98 of the Act to make clear to PIPs the manner in which the creditor wishes the debts of a specific debtor to be dealt with as part of an arrangement and provide all PIPs with details of the range of options the creditor will broadly support within an insolvency proposal. An example would be a so-called waterfall statement setting out their preferences as to when and how they would accept term extensions, adjustments to interest rates or the write-off of capital. This would be of assistance in helping the overall process run more efficiently.
It is disappointing to say that I am unaware of any significant progress on either of these fronts. The simple reality is that the PIA is an extremely efficient solution for creditors as well as debtors. There are several checks and balances contained in the legislation which is overseen by the courts to ensure that no party is unfairly prejudiced, but it does require the goodwill and support of both parties for the system to work efficiently and effectively. Despite best efforts, I do not believe that creditors have constructively engaged with the personal insolvency legislation. I can point to statements made by various banks as evidence of this. I can point to dozens upon dozens of cases where banks have rejected proposals that produced a better return than repossession while also having due regard for the underlying security linked to any mortgage. I can point to legal challenges mounted by creditors to various PIAs on technical rather than commercial grounds. While it is perfectly within the rights of creditors to take such challenges, these challenges, where successful, amount to a pyrrhic victory. The creditor still has a bad loan that they need to deal with. They have turned down what should have been a sustainable solution that did not unfairly prejudice them for the case to have met the minimum statutory requirements set out in the Act. Some creditors appear to be mounting objections which are designed to preserve their own credit guidelines, which have wide customer application, rather than dealing with the merits of individual cases which in many instances would provide a commercial return for the creditor which is far better than that which could be achieved through repossession or bankruptcy.
The committee should be aware of the section 115A review process introduced in late 2015 which was designed to remove the so-called bank veto whereby there is a requirement to attain certain levels of support from creditors before an arrangement can be put in place. The legislation was designed to operate in a relatively quick manner whereby courts would be asked to review and assess the reasonableness of a rejected arrangement and, where satisfied and having regard to specific criteria set out in the Act that the arrangement was reasonable, the court would impose the arrangement over the will of the creditor. These review cases have proven to be long and drawn out. While I can point to a number of cases that have made significant strides forward, for example, with regard to warehousing and separated spouses, we still see large numbers of court reviews where the arguments before the court are technical legal points which inhibit consideration by the court of the commercial aspects of a proposal.
I see no evidence that creditors are using sections 64 or 98 of our Act, whereby they have an opportunity in the first instance to engage with practitioners and identify how they would wish their loans to be dealt with. Instead, the practice appears to be to wait for the personal insolvency practitioner to produce a proposal, which is then challenged on as many fronts as possible. Creditors must recognise what it is that this Act is designed to achieve - a fair outcome for all sides. Such positive engagement could ensure that we keep as many people in their homes as possible, while also ensuring that the rights of creditors and secured lenders are respected to the greatest extent possible, and that creditors finally deal with their remaining non-performing loans. In order to ensure positive engagement, the Act needs to be amended to oblige creditor engagement at that early stage in the process.
I now wish to turn to the main focus of today, which is the Mortgage Arrears Resolution (Family Home) Bill 2017. I should say at the outset that the ISI welcomes any initiative designed to help deal with mortgage accounts that are in arrears. The ISI notes the role envisaged for the service within the proposed Bill. However, I should say that I am of the view that the Personal Insolvency Act incorporating our proposed amendments as set out in our submission this summer, coupled with the mandatory creditor engagement that I have just referred to, is the most appropriate way of achieving the objectives and the purpose behind the Bill. Such an approach would, in my view, minimise the risk of legal challenge; minimise potential delays, expense and uncertainty that might be experienced from setting up a new office; and offer a holistic solution for debtors, returning a debtor to solvency by addressing all of their debts, not just the family home.
On the legal challenge, I am aware from Dáil debates during the summer that the Minister for Justice and Equality has indicated that the Government has a number of constitutional concerns regarding the Bill. It is not for the ISI to comment on such constitutional issues. However, I would point out that the Personal Insolvency Act 2012 has operated for almost four years now without challenge. The ISI set out in its summer submission why it believes its suggested proposal of removing the courts from the various processes, with regard to its existing arrangements, is sound from a constitutional perspective.
On minimising potential delays in setting up the office, the Bill does propose that a new office, the mortgage resolution office, be established within the ISI and that a new instrument, a mortgage resolution order, be introduced. I would point out that there is a tendency among citizens to delay taking action until there is clarity around any new policy initiative. Any initiative that causes insolvent debtors to delay engaging with their financial institution could have consequences in terms of increased arrears and increased risk of repossession. For these reasons, I suggest that changes to the insolvency legislation that build on and enhance the current provisions will cause the least uncertainty for insolvent debtors. It can also be delivered quickly. Should the Bill become law, the ISI would be tasked with setting up the mortgage resolution office. The committee has my commitment that we will leave no stone unturned in opening the service as quickly as possible, having regard to our duties and responsibilities under any establishing legislation. However, it needs to be recognised that it will take time to set up an office of the type envisaged.
Understandably, the Bill is focused on mortgage arrears. The Bill fails to address the other debts of the debtor, however. Our existing Act takes a holistic approach, dealing with all the debts of a debtor, both secured and unsecured. Our analysis shows that people with mortgage debts who seek help from the ISI have on average five other creditors. Our experience in reviewing cases that have previously been dealt with on a bilateral basis between the debtor and their mortgage provider is that they often fall down due to the other debts that are owing. It is essential that a holistic solution for debtors is provided that returns them to solvency as part of the process. As a consequence of this, the family home is far more secure in the short term and longer term.
To conclude, my assessment is that creditors have yet to fully engage in a constructive manner with the Personal Insolvency Act 2012. This is notwithstanding the fact that it is carefully balanced to ensure the rights and obligations of all parties are protected and to ensure that no party is unfairly prejudiced. I have already explained that creditors are not working within the spirit of the legislation. PIPs are not getting clarity around the manner in which the creditor wishes for his or her debts to be dealt with, and this is despite numerous efforts on my part in every single engagement with banks. While acknowledging that there is no legislative obligation on the creditor to provide this clarity, I am disappointed that the banks are not doing so voluntarily. I believe, therefore, that it should become compulsory. I also believe that some measures are needed to curtail the number of court review cases that are being contested on procedural rather than commercial grounds. I believe that creditors should be restricted to only those arguments that they raise during the protective certificate period. This would be fair to all sides and it would bring a much greater efficiency to the process. I believe that these two creditor-focused changes, combined with the overall efficiency measures identified in our summer submission to the Department, would get us to the point we should have been at some years ago, whereby the Act, and the personal insolvency arrangement, PIA, in particular, can be used to deal with all of the difficult mortgages and maximise the number of cases that see debtors remain in their homes. This, I respectfully submit, would achieve the objectives that lie behind the proposed Bill the committee is considering this morning, with minimum risk. I thank the committee for taking the time to listen to my opening statement. I would be happy to take any questions.
