The challenges for those in debt have been well debated through all forms of media over the past six years. Politicians were advised that despite a slow start there were tools to tackle the issue of mortgage and personal debt and all will be well.
Those tools included the creation of an Insolvency service, Mortgage to Rent, reduction in Bankruptcy term from twelve years to three years and the Central Banks Mortgage Arrears targets.
Each of these has failed to tackle the tsunami of repossessions now facing thousands of Irish families. The Mortgage to rent programme is an excellent concept but executed horrifically. Both banks and advocates agree this has utterly failed. The reduction in bankruptcy from twelve years to three years is an optical illusion as; usually an income attachment order is added for a further two years after the three year bankruptcy term. The Central bank Mortgage Arrears Targets were a scam which resulted in banks focusing on targets from their regulator instead of meaningful restructuring of those most in arrears. This has caused a delay in addressing the inevitable.
Finally to great fanfare and cheerleading the Insolvency Service was established in 2013. Last week The Insolvency service of Ireland published its figures for “deals” done in 2014. When analysed they showed that nearly half (448) were not deals but bankruptcies and a further 230 were arrangements relating to debts below €20,000. There were 199 Personal Insolvency Arrangements (involving property) and 98 Debt Settlement Arrangements (unsecured debt).
It has gone beyond a blame game now, the situation is so serious. We need thinking outside the box to assist families stay where possible in their homes in their communities, at the same time protecting the state and not banks.
There are a few categories of people who are in debt. Those who have a minor glitch and with some help will resolve their issue. Those who have significant debts both secured and unsecured and who will need an insolvency arrangement. Finally there is then a category of people who have been abandoned by the system, the 37,484 people in mortgage arrears of more than two years. This category presents a clear and present danger to the social housing and political system along with the families themselves. It’s further exacerbated by another 21,881 who are in arrears of more than one year. By any reasonable analysis this leaves a minimum of 25,000 families in line for repossession of their family home.
So how do we prevent as many of these as possible and kick start resolving the debt for those in the middle category who have employment but can’t service the levels of debt they have.
The insolvency system needs to be simplified and the veto the banks have must be removed or diluted – possibly by way of a binding review board. This may present legal challenges, however in the meantime there is an immediate solution to focus banks minds. Where someone has made a reasonable application/proposal for a personal insolvency arrangement, which shows a greater return than bankruptcy and where the bank has rejected it then the debtor should be allowed a one or maximum three year bankruptcy.
There are many other operational issue that need addressing such as the revenue being the school yard bullies and staying outside insolvency arrangements and the charging of VAT, but until the minds of the banks are focused these are a distraction.
In real terms those facing repossession have little available to them and are faced with a horrible time ahead. Mortgage to Rent was designed for this category of person as an option of last resort to prevent repossession and save the state having to house the family. The banks were allowed control this process and those managing it sought advice from the same banks hence it’s in absolute failure. This needs real leadership from The Taoiseach who needs to take this by the scruff of the neck and redesign it considering benefits to the family, lender and the state. This requires a coordinated, professional approach by existing experts in housing and representing debtors, not vultures or cowboys. Let’s not forget the enormous social housing waiting list that exists. This stands at 100,000 nationally and with any knowledgeable understanding there are 25,000 waiting on the edge of repossession.
Consider the following, which is a drastic improvement to the Mortgage to rent model. A family meet the social housing criteria and are in a suitable home but the mortgage is unsustainable. They are currently being tortured with uncertainly. If their home is repossessed they will not alone be homeless but also have a residual debt owing. What if, having been deemed eligible for social housing the local authority took over in joint ownership with the bank the home, leaving the family in the house and paying the allotted rental allowance to the bank. This could also form a debt for equity swap product involving the borrower and the bank or the local authority and the borrower.
Instead of paying a landlord they are paying for an asset where the family, if their circumstances improve could purchase back in the future. There are many voluntary housing agencies that could assist in the management of such a project. This seems to be a no brainer when it comes to state owned banks. Why would we want to throw a family into a dysfunctional social housing process and all that it entails including the administrative time and cost when an alternative could be explored as outlined above. This was never going to be an easy crisis to resolve but we are way off course and heading for an ice berg.
Citizen’s reacted passionately over water charges; they might explode if 25,000 families are thrown out on the street in the interests of banks, banks whose existence is down to a patient and compliant nation.
David Hall
CEO
Irish Mortgage Holders Organisation
Lo Call 1890 623624
