Fianna Fáil Seanad Private Members Motion on Mortgage Arrears 17 April, 2013 Speech by Joe Costello, T.D., Minister of State at the Department of Foreign Affairs and Trade on behalf of the Minister for Justice, Equality and Defence Alan Shatter T.DCathaoirleach,
I move Amendment No. 1 to the motion.
I have listened to the Senator opposite introducing his motion with a sense
of growing disbelief. Where has he been for the past number of years? Has
he and his party forgotten that we are still dealing with the mess in which
his Government left this country? Their legacy included huge increases in
unemployment and consequent family indebtedness and inability to meet
financial obligations. That Government, in which the Senator’s party was
the main element, bears a significant responsibility for the financial
difficulties now being experienced by tens of thousands of our people.
This Government, in stark contrast to its predecessor, has made
considerable progress across a number of sectors in addressing the very
significant and severe mortgage arrears crisis which it inherited. This
crisis is directly linked to the economic situation presided over by
members of the previous Government.
There was a total failure of the part of the previous Government, though in
office for a considerable period, to propose or introduce relevant
insolvency or bankruptcy reform legislation. The consequences of that
failure are clearly apparent. Unfortunately, the motion before the House
this evening shows the same mind-set which they displayed down through the
years while causing the economic collapse of this country. They pretended
the good times would always roll, that the property bubble would never
burst, that a bailout would never be necessary. And now they seek to
pretend, to those whose financial lives they were responsible for ruining,
that there is some painless way of resolving their problems.
Each motion on financial and economic matters which Fianna Fáil brings
before this House or the Dáil appears to be informed by the same amnesia.
There is little or no recollection of their failed policies that resulted
in an economic, fiscal and banking collapse. Thousands of people have lost
their jobs. Living standards were substantially reduced for families across
the country. Ultimately, this country lost our economic sovereignty.
The party opposite did nothing to reform the law on bankruptcy and personal
insolvency. Any response was piecemeal with short term solutions. It did
not seek to address the problem in a real way. Nor did it require banks to
start addressing the problem. They did not provide any statutory debt
resolution mechanisms or structures to facilitate individuals in financial
difficulty. Nowhere was the problem more acute than the area of mortgage
arrears.
Against that background, a useful consequence of the motion tonight is to
provide an opportunity for a suitable apology from the party opposite for
all they did to contribute to the mortgage difficulties in which so many
people, regrettably now find themselves.
As the counter motion in Amendment No. 1 makes clear, this Government since
coming into office has taken a number of significant steps to address the
personal insolvency situation, including the mortgage arrears problem, and
also to stabilise the banking and wider economic situation. Such steps can
be contrasted with the inactivity of the previous Government in regard to
updating our ancient and ineffective personal insolvency law.
The Government has two overall key strategic objectives in this area.
First, there is a need to ensure that mortgage holders who were
experiencing real difficulty should, where appropriate, be assisted in
remaining in their own homes. Second, any framework and range of supports
for mortgage holders must be able to distinguish between those who cannot
afford to pay their mortgage on their primary home and those who choose not
to pay. The principle of a fresh start for people facing genuine
difficulty in dealing with their mortgage commitments is a key priority.
This Government, on assuming office in 2011, established the Inter
Departmental Mortgage Arrears Working Group (also known as the Keane
Report) and are now implementing the key recommendations of the Report
published in October 2011. Based on its recommendations, the Government
established the Mortgage Arrears Steering Group to co-ordinate the
responses of the Departments and agencies centrally involved. Since March
2012, the Steering Group has reported to the Cabinet Committee on Mortgage
Arrears.
In contrast to the inactivity of our predecessors, let us consider some of
the important initiatives taken by this Government.
For example, the mortgage-to-rent scheme, available since June 2012, is a
mainstream social housing solution for the most acute cases of mortgage
arrears. Lenders are now engaging with the process and substantial progress
has been made. Over 800 cases have been put forward for the scheme.
Development of a mortgage to lease scheme is also progressing. Under this
scheme, the lender would become the long term owner of the property after
voluntary repossession had taken place. The household would become a social
housing tenant of the relevant local authority and the local authority
would, in turn, lease the property from the financial institution for the
period of the lease.
An information and advice service has been established to help people in
mortgage arrears through the website www.keepingyourhome.ie; an information
helpline and the availability of independent financial advice for people
being offered long term restructuring proposals by the banks.
The most significant development in addressing the area of personal
over-indebtedness including mortgage arrears has been the development and
enactment of our new personal insolvency legislation. The Personal
Insolvency Bill was published in June 2012, passed by both Houses on
December and signed into law in December.
The development of modern insolvency law was a key commitment in the
Programme for Government. It was also required under the EU-IMF-ECB
programme of financial support for Ireland. It was inspired by the Law
Reform Commission’s significant contribution in its 2010 Report on Personal
Debt Management and Debt Enforcement and by the recommendations of the
Keane Report.
The Personal Insolvency Act 2012 provides for three new debt resolution
processes which, though requiring approval by the court, are essentially
non-judicial in nature:
· The Debt Relief Notice (DRN) will allow for the write-off of
qualifying debt up to €20,000, subject to a three year supervision period.
· The Debt Settlement Arrangement (DSA) provides for the agreed
settlement of unsecured debt, with no limit involved, normally over five
years.
· The Personal Insolvency Arrangement (PIA) will enable the agreed
settlement of secured debt up to €3
million, although this cap may be
increased with the consent of all secured creditors, and unsecured debt
without limit, normally over six years.
The Act also provides for the automatic discharge from bankruptcy after 3
years subject to certain conditions.
The Act introduces new insolvency resolution concepts to Irish law. The new
Personal Insolvency Arrangement, or PIA, is a process, which I understand
is unique in insolvency law anywhere, in providing for the negotiated
resolution of secured debt in a court sanctioned process that provides
certainty for creditors, and, if I may say so, hope and relief for debtors.
The “personal examinership” approach in the PIA is designed to be
sufficiently flexible and robust to be able to address complex personal
insolvency cases which may include combinations of trade, consumer and
mortgage debt. It offers a second chance mechanism for talented and capable
individuals and entrepreneurs to return not only to solvency but to make a
contribution to the economic development of our society.
To protect the constitutional rights of all concerned, and to prevent
potential actions for judicial review, the Act makes provision for enhanced
oversight by the court of the three new debt resolution procedures. This
enhancement of court involvement has the significant benefit to the debtor
of providing protection from enforcement actions by creditors, either
during the negotiation period or during the lifetime of the arrangement. In
order to deal with this anticipated volume of work and to facilitate the
speedy consideration of insolvency applications, a new cadre of Specialist
Judges of the Circuit Court is being recruited.
The Insolvency Service of Ireland was established on 1 March 2013 by
Ministerial Order. It will be formally launched tomorrow and will commence
its information campaign which will include its website, the issuing of
publications designed to assist those interested in the new debt resolution
processes and the opening of a public information line. The announcement of
the regulatory framework for personal insolvency practitioners will follow
shortly. The Director of the Insolvency Service, Mr. Lorcan O’Connor, is
working with all speed to complete the administrative and technical
preparations to ensure that the full operation of the provisions of the
Personal Insolvency Act can begin as soon as possible.
The Personal Insolvency Act makes provision for the Insolvency Service to
draw up guidelines in regard to reasonable living expenses that would be
applicable to a debtor in one of the new insolvency processes. In
developing these guidelines, the Act required the Insolvency Service to
have regard to a number of criteria. The Insolvency Service has engaged in
extensive consultation with the relevant Departments, Agencies and
organisations. I am informed that these guidelines should be ready for
publication very soon.
It may be expected that a significant number of persons are likely to avail
of the new or reformed insolvency processes. For broad planning purposes
for the first full year of operation of both the law and the Insolvency
Service, the tentative estimate of applications is for about:
· 15,000 applications for the Debt Settlement Arrangement and Personal
Insolvency Arrangement,
· 3,000 to 4,000 applications for Debt Relief Notices, and
· 3,000 bankruptcy petitions may be made.
The critical message – which I wish to reiterate again tonight - to all
those experiencing debt problems is please engage with your lenders and
other creditors so as to negotiate an appropriate settlement. That also
requires that lenders must engage properly with customers. Now that the
architecture of our new insolvency legislation is settled, financial
institutions must now better engage with debtors.
Mortgage lenders themselves have the primary responsibility to deal with
the customers who are experiencing difficulties with their mortgage
repayments. These institutions extended the credit in the first instance
and often, we might say, without much in the way of expected oversight or
due diligence. Urgent action is now required from the banks to address the
problems their customers in genuine difficulty are experiencing. However,
each case of mortgage arrears is different and will have to be looked at on
its merits on a case by case basis.
If our financial institutions refuse to constructively and realistically
engage, then the Government has made it very clear, on a number of
occasions, in this House and in the Dáil that it will take any necessary
measures to refine our approach to ensure that the new debt resolution
processes work. I realise that banks must have regard to commercial
considerations, but they must also behave with greater flexibility and
insight and apply a broader range of common-sense options based on
financial reality.
The new Debt Settlement Arrangement and Personal Insolvency Arrangement are
designed to facilitate a workable, sustainable voluntary resolution between
a debtor and his or her creditors. A common-sense rather than a coercive
approach is taken, as can be seen in the creditor voting process provided
for in the Act. It is also an approach designed to avoid, insofar as is
possible within constitutional constraints, the necessity for contentious
court hearings and adjudications together with the substantial delay and
inevitable legal costs inherent in such process.
The Government has very much engaged with the financial institutions in the
lead-in to the enactment of this legislation. They understand exactly what
our concerns are and what they should do in the context of operating the
legislation constructively and sensibly.
Justifiable concerns have been raised about the balance of power between
banks and debtors. There is talk of what has been commonly referred to as a
“bank veto”. The reality is that it is in the best interests of both
debtors and creditors to seek to conclude an acceptable and workable
arrangement under the Act.
The Central Bank has had ongoing and detailed engagement with the lenders
on their mortgage arrears situation and has explored possible options that
could be applied to cases where more than a temporary forbearance response
would be required. These are well known at this stage and include split
mortgages, trade down mortgages and sale by agreement options which would
allow families to move to homes more suited to their current needs; whether
it is to obtain employment or to move to a more appropriately sized home
for their family. There will also be cases in which debt forgiveness is the
only practical solution and will also, in the medium to long term, benefit
both debtors and creditors and the write off of a portion of the capital
debt outstanding on a family home is a further option. Where appropriate,
the mortgage to rent scheme will also be available for consideration.
The Central Bank is now satisfied that the tools are now in place to
accelerate the work-out of the mortgage crisis. Banks and borrowers now
need to use these tools to reach fair and sustainable solutions to
mortgage
arrears on a case-by-case basis. Of course, progress by the banks in
providing durable solutions had not been sufficient. Thus, the Central Bank
has set targets for the conclusion of sustainable agreements and for the
durability of such solutions and will audit each bank’s performance against
the targets and where necessary apply sanctions.
The Central Bank has also commenced a review of the Code of Conduct on
Mortgage Arrears to ensure that it can facilitate better engagement between
borrowers and lenders about a mortgage problem while also maintaining
important protections for those bowers who do engage with their lender. A
consultation process on the review of the Code ended on 12 April, and the
Bank is now reviewing the submissions received. I understand that the aim
of the Central Bank is to publish the revised CCMA in the first half of
this year.
In addressing the mortgage arrears problem, we cannot, however, ignore the
fact that the issue of repossession must be addressed in some cases.
Ireland, for a number of reasons, has had a very low level of
repossessions. Currently the majority of repossessions arise on a voluntary
basis. However, nobody can be unaware of the issues that arise where
repossession proceedings relate to family homes. It is an emotive and
sensitive topic.
The Minister for Justice and Equality has recently published legislation -
the Land and Conveyancing Law Reform Bill 2013 - designed to address issues
arising from case law in various repossession proceedings which have
created uncertainty relating to the exercise by lending institutions of
their repossession rights. The consequences of this case law were
unintended at the time of enactment of the Land and Conveyancing Law Reform
Act 2009 and the purpose of the Bill is to restore the intended position.
The new legislation also fulfils a commitment to remedy these issues in the
context of the Quarter 3, 2012 Review of the EU/IMF Programme of Financial
Support for Ireland.
Essentially, this Bill is designed to restore the law that has existed over
the centuries which enables a lending institution to rely on its security
in relation to a mortgage, as intended by the Oireachtas when enacting the
Act of 2009. The Bill also provides for the adjournment of actions for
repossession in certain cases relating to the principal private residence
of the borrower where it is the opinion of the court that the matter could
be resolved by recourse to the Personal Insolvency Act 2012 and to examine
whether a Personal Insolvency Arrangement would be a more appropriate
course of action.
Where the court is of such an opinion, it may adjourn the hearing for no
more than two months. What the Minister is seeking to provide, by way of
this provision, is a transparent, final, time limited safety net for a
homeowner where repossession is being pursued without the PIA possibility
having been fully explored by the parties.
However, it may be the case that, as a last resort, the best interests of
the borrower may be served if repossession does take place. This could
arise, for example, if there are substantial arrears and there is no
prospect that the borrower will be in a position to address these arrears
or to restore some stability to the mortgage situation. This is in fact
recognised in some cases and currently the majority of repossessions arise
on a voluntary basis, or there is some other voluntary arrangement to
address the unsustainable mortgage.
In circumstances in which individuals borrow money to acquire a home and
that home is security for borrowing, it has been the law of this State
going back over the centuries that ultimately the financial institution
that provides the loan can apply to the courts for possession of the
property where the borrower fails to discharge mortgage repayment. In the
absence of such a law no financial institution would lend money for house
purchases as their security would be meaningless.
Modern insolvency legislation is a required feature of any properly
functioning market economy. It will assist not only debtors and financial
institutions, but also business of all types and sizes, tradespersons,
local co-operatives, etc. All debtors and creditors are concerned by this
reform. All must be treated fairly. Many persons or companies may be both
debtors and creditors. While I can understand and indeed, share, some of
the very negative feelings towards financial institutions and their
contribution to our current economic difficulties, we must not lose sight
of our objective, which is to introduce reformed, workable and balanced
insolvency legislation.
This approach, which seeks balance and fairness, has been criticised as
suggesting that creditors, particularly mortgage creditors, will exercise a
veto. That criticism is reflected in the ill thought out Motion this
evening. Such a contention is based on an incorrect view of how normal
commercial contractual issues may be resolved. If you borrow, you must
repay where you can. If you receive a good or service, the provider is
entitled to be paid. If the debtor is genuinely unable to pay, negotiation
with creditors may resolve the difficulty, and this Act provides the new
framework for sensible negotiation.
The approach in the proposed Debt Settlement Arrangement and Personal
Insolvency Arrangement is that the insolvent debtor will, with the
assistance of a personal insolvency practitioner, put forward what the
debtor considers to be a realistic offer to his creditors, one that will
restore the debtor to solvency within a reasonable period while at the same
time giving creditors a better financial outcome than the alternatives of
debt enforcement or bankruptcy. The creditors will need to consider
carefully the debtor’s offer, conscious that if they refuse, the debtor has
another option - the standard debt discharge procedure available under the
reformed bankruptcy laws.
The motion from the Opposition Senators tonight also makes reference to
developing some form of non-judicial independent agency or process to
arbitrate and impose solutions on creditors and debtors. However, the new
debt resolution processes which this Government has introduced, and in
particular the Personal Insolvency Arrangement, are designed to operate on
a voluntary basis with common sense and enlightened self-interest in mind
rather than coercion of any of the parties. There is no example of the type
of body that appears to be demanded by the Senators in their Motion
existing in any jurisdiction. During the debate on the passage of the
Personal Insolvency Bill last year, no Senator, nor indeed no member of the
other House, could give an example of such a body. There is good reason for
that. Such a body would be struck down by the courts as a gross
interference in the rights of parties to conduct their affairs.
The State cannot impose a settlement on parties to a private contract
involving the provision of goods, services or capital.
On behalf of the Government and the Minister for Justice and Equality,
I
oppose this quite cynical and badly informed motion which does not seek to
inform or educate or indeed to improve matters by offering constructive and
objective proposals. It has no particular purpose. Rather, it serves to
again highlight the inaction of the previous Government.
The Personal Insolvency Act 2012 is one of the key elements of the
Government’s strategy to return this country to stability and economic
growth. Its success will depend on the goodwill and determination of both
debtors and creditors to agree workable arrangements that can be sustained
over a number of years to a successful outcome.
We cannot allow the emerging economic recovery to bypass families in
mortgage arrears or leave a significant number of families in limbo because
they have no certainty about their future financial situation. However,
neither can we allow situations to arise where people, who have the
capacity to repay their debts, renege on their commitments or, if there is
a problem, not to meaningfully engage with their lender.
This Government, unlike its predecessor, is delivering the reform process
and the real solutions needed by our citizens so that they can engage
constructively with financial institutions and creditors to bring about
certainty, hope and relief.
Thank you.