ANALYSIS:The programme for government is vague on the issue of mortgage arrears and all eyes now turn to the group tasked with providing workable recommendations
THE FINE Gael-Labour Coalition has to a certain extent been caught off-guard by the mortgage arrears crisis. The issue has developed to major proportions during the summer recess, landing right in the middle of the Cabinet table as Ministers assembled for the first time in weeks last Tuesday.
An entire page of the programme for government is devoted to “housing and distressed mortgages”, but the only specific commitment given is to “examine” various options.
These include converting the Money Advice and Budgeting Service (Mabs) into a debt management agency with quasi-judicial powers.
This was also part of the Labour election manifesto, which proposed that “the agency will support families who make an honest effort to deal with their debts, including non-mortgage debt, providing protection from their creditors where appropriate, so that they have time to sort out their affairs”.
However, Minister for Social Protection Joan Burton expressed reservations about this in a recent Irish Times interview, as it might adversely affect the Mabs low-income client-base, persons who do not generally have mortgages. She suggested the banks should be obliged to set up an agency instead.
There is also a reference in the programme for government to “fast-tracking personal bankruptcy reform”, and much of the debate is starting to focus on this issue because Irish legislation is seen as being far behind that of the United Kingdom, for example.
Fine Gael’s policy document in this area, entitled “Credit where Credit is Due” and released before the general election, included a proposal for universal mortgage indemnity insurance (negative equity insurance) which would be compulsory for all new borrowers with a loan-to-value ratio in excess of certain levels.
In the event that a family was forced to sell their home due to adverse economic circumstances, any difference between the loan value and sale proceeds would be paid for by the insurance scheme.
Little has been heard of this proposal since the Government took office but perhaps it will resurface in the coming weeks. Labour outlined a similar plan and also proposed a two-year moratorium on repossessions, but Minister for Finance Michael Noonan made the point on RTÉ yesterday morning that only a limited number of houses have been handed back at this stage.
All eyes now turn to the 10-member group of civil servants from various departments as well as Central Bank and general banking representatives. This is to provide recommendations later this month. Dealing with mortgage debt is a complex and difficult challenge and this group, headed by Declan Keane, a KPMG accountant seconded to the Department of Finance, will need all that time to prepare its report.
The Keane group is expected to draw on the Law Reform Commission’s “Report on Personal Debt Management and Debt Enforcement” published last December.
The main recommendations included a small debt enforcement office to oversee proposed new non-judicial debt settlement arrangements.
The office would include a small independent unit, the debt settlement office, which would license a panel of personal insolvency trustees to manage an arrangement, which would be for debtors who could pay at least some of their debt.
The debtor would repay an agreed amount of personal debt to creditors over a period of up to five years. At the end of this, the debtor would be able to make a “fresh start” without any damage to their personal credit rating.