Banks must provide for debt restructuring

Local TD Denis Naughten has highlighted the fact that 1,350 families in Roscommon and South Leitrim are in mortgage arrears of three months– based on an analysis of figures released by the Central Bank.
“These families are in a dire situation and the additional costs of returning to school, along with the failure to pass on recent interest rate reductions will force many more people into significant arrears,” stated Denis Naughten.

Speaking in the Dáil recently Deputy Naughten pointed out that these families, and thousands more who are struggling to manage financially, paid €6,000m last summer to the banks via the Government specifically to address mortgage arrears, yet it will be the end of this year before the banks intend to take any action to help with debt restructuring.

“The banks must immediately introduce measures to take equity or part ownership in a home, which would then allow families to continue to service their mortgage without having the full value of the loan written off.
“This would leave families in a position where they can maintain a roof over their heads while still protecting the taxpayer from further exposure if homes are repossessed and families forced to seek council housing.
“Ignoring this problem is a false economy, especially when there is also a major personal debt crisis. Last year, 315,000 ESB customers were behind with their electricity payments and had to engage in a special arrangement to pay off their debts in small instalments.

A recent survey carried out by the credit unions showed that 40% of householders have borrowed to pay their bills in the last 12 months, and 10% of those have gone to moneylenders to do so.
These are the real working poor in this country. They are working hard, paying for the running of this country on a weekly and monthly basis through their taxes, and yet they are entitled to absolutely nothing from the State.

These people are living in fear of the monthly bills such as ESB, phone and fuel bills, and they are living in dread of back to school expenses. They are not entitled to any social welfare supports. They are over the threshold for everything such as medical cards, back to school allowances.

“No-one believes that mortgage-dodgers should be bailed out. But there are many genuine cases and the number of these is rising all the time. They need assistance and they need it now” concluded Denis Naughten

Denis’ speech in the Dail

Personal Insolvency Bill: Second Stage (Resumed)
Wednesday, 18 July 2012
Deputy Denis Naughten:
I welcome the opportunity to speak on this legislation. The main reason I wished to speak on this Bill is because more than 1,350 families in my constituency of Roscommon-South Leitrim are in arrears of three months or more. The position is the same in every other constituency and many such families now are in a dire situation. Moreover, they now face into the months of August and September in particular, when the additional costs associated with returning to school will force many of them into further significant arrears. Many more families have restructured their mortgages, with approximately half such families going back into arrears. While examining the available statistics regarding those who are in mortgage difficulties at present, I came across a figure to the effect that each day, 85 families are falling into arrears of more than three months, which is a significant statistic in the current climate. These families and thousands more are struggling to manage financially, even though more than €6,000 million has been paid to the banks specifically to address mortgage arrears. However, these families are now obliged to pay on the double because to date, the banks have not been prepared to engage fully with people in mortgage difficulties. It is important to remember that last July, just one year ago, €17 billion was provided to the banks, more than one third of which was targeted specifically to deal with the mortgage arrears. Although the banks have the capacity to absorb some of the losses of distressed mortgage holders, to date this has not happened and they have not been prepared to engage on a realistic basis with many people in serious financial difficulty.

While no one believes that mortgage dodgers should be bailed out, genuine cases arise all the time involving people who are in genuine difficulty and who need assistance and these are the people on whom Members must be focused in respect of this legislation. It is welcome that at long last, the bankruptcy system in Ireland is being reformed because such a system exists to protect society from people who have become excessively indebted. However, the present system is not working for either creditors or for debtors. There is a need to reduce the bureaucracy involved with this process and to provide people who are made bankrupt with a fairer system in which they can discharge their debt and start to contribute positively again to the economy. Bankruptcy should be a penalty for financial mismanagement but it should not be a life sentence for people.

It is important to remember, especially in respect of mortgages, that there are two sides to this issue. I broadly welcome the legislation before Members because it brings back some balance by placing some responsibility back on the banks. It is important to remember it was the banks that shoved mortgages onto many young couples. The banks shoved mortgages on them when they knew in their heart and soul there was no possible way in the long term that such people would be able to repay those mortgages were property prices to stabilise, let alone to collapse to the extent they have. It is unfair that mortgaged families are the ones who have been obliged to bear all the burden to date in this regard.

I note a mortgage arrears resolution process has been entered into by the banks, which were to use that process as a mechanism to try to address the difficulties of young families. While I will revert to the mortgage arrears resolution process shortly, in October 2011 the Central Bank issued a requirement to each of the mortgage lenders to develop a specific strategy and to implement plans to deal with families in serious financial arrears on their mortgages. Since then, however, the Central Bank has tried to force lenders to take a proactive and creative approach to dealing with troubled mortgage holders. It has written to them several times, requesting that these plans be submitted, but it is only in the last month that the banking sector actually submitted plans. That is nearly eight months after the Central Bank had requested the banks to do so. Now we are being told that those initiatives will only be introduced on a pilot basis until the end of this year. This means we are going to see something happen 14 months after the Central Bank requested the mortgage lenders to develop and implement a strategy to deal with distressed mortgages.

The banks’ solution in the meantime was to introduce a mortgage arrears resolution process, but that has not worked effectively since then. There has been a disclosure in the media that Ulster Bank refused to change the collection date to the end of the month for one mortgagor that would make it easier for the person to make the mortgage repayments. Permanent TSB threatened the repossession of a mortgage holder because the person refused to set up a direct debit account, even though the person was meeting the revised payments on a monthly basis. The reality is that 50% of the restructured mortgages have gone back into arrears again, so it is clear that the current process in place has failed to deal effectively with the problem. It has only kicked the can down the road. The banks are clapping themselves on the back for the new initiatives being introduced, but they are only pilot schemes and it will be the end of the year before any real steps are taken to deal with families who have significant financial problems. That is why I am concerned about this particular Bill. The banks are not being compelled to participate in the debt resolution process. Based on the performance of the banks since last October, following pressure from the Central Bank, they have failed to live up to their moral responsibility. Unless there is a stick approach to the banks in Ireland, they will fail again to live up to their responsibility. They have been dragged kicking and screaming to the table to put a fair and balanced system in place.

The Bill gives discretion to the courts, and that is a positive step. Must of the Judiciary in this country are fair minded, and I believe that when it is clear in cases before them that the banks have not dealt with mortgage holders in a fair and reasonable process, especially when this Bill is in place, then the banks will throw out those requests for repossession. Once a number of cases like that take place, the banks will reassess the situation on how they manage mortgages in arrears and families in severe financial crisis.
A major personal debt crisis also exists. Up until the end of last year, 315,000 ESB customers were behind with their electricity payments and had to engage in a special arrangement to pay off their debts in small instalments. A recent survey carried out by the credit unions showed that 40% of householders have borrowed to pay their bills in the last 12 months, and 10% of those have gone to moneylenders to do so. A quarter of Irish credit card holders are using their cards to make ends meet at the end of the month. These are the real working poor in this country. They are working hard, paying for the running of this country on a weekly and monthly basis, and yet they are entitled to absolutely nothing from the State. These people are living in fear of the monthly bills such as ESB, phone and fuel bills, and they are living in dread of back to school expenses, Christmas, confirmation or holy communion. These people are not entitled to any social welfare supports. They are over the threshold for everything such as medical cards, back to school allowances and supports for holy communion and confirmation.

People are being forced into financial difficulties due to the operation of our social welfare system. An example of that is the family income supplement, which has to be renewed on an annual basis. It takes up to three months to renew that application. We are talking about people in work who are the poorest of the poor and whom the State recognises as being in receipt of an income so low that is not enough to meet their basic needs on a weekly basis. To keep them in work, the State tops up their salary. However, the State can leave them go for three months without a payment and hope they can live off fresh air, even though the State recognises that they do not have enough money to meet their basic needs. Many of these people now being forced by the State into the arms of moneylenders, who charge up to 190% APR, due to the inefficiency in dealing with these particular renewal applications. These should happen automatically. People should get their payments and by all means they should be reviewed to ensure they are being made fairly. However, it should not take up to three months and force people to go to moneylenders to make ends meet while they wait for the Department of Social Protection to decide they are in a low paid job and need that additional top-up payment to put food on the table and pay basic bills.

It is important the Bill not only deals with mortgage arrears but also that there is some recognition in it of other difficulties in which people find themselves. There needs to be flexibility on the write-down of debt, and I know there is an acknowledgment of this in the Bill, but more needs to be done. The Bill deals with people who are unable to pay their debts in full. There are many people who cannot pay their debts at the current level but who, with a level of write-down, could continue to make repayments and could get back to participating in the economy. It is crucial that such people get back working in the economy. Without their engagement in the economy, we are only undermining the possibility of the economy getting up and running again. These people are the lifeblood of the economy because many of them were the entrepreneurs during the 1990s who created new businesses and jobs and as they have now fallen on hard times, they are up to their eyeballs in debt. Unless they can get out of it, they will not be able to participate actively in the economy, create new businesses in the future and the additional jobs that will be the lifeblood of the economy. I urge the Minister to take a flexible approach to try to encourage the entrepreneurial spirit of those people who have found themselves in debt. The point has been consistently made in the Law Reform Commission report on the reform of indebtedness that we need to support those people because they will be the drivers of the economy in the future.