THINK of everyone you know who has a mortgage. Family, friends, work colleagues. Today, one in 12 of them has not paid their mortgage for at least three months. At the present rate, in two years that will be one in six -- half a million men, women and children.
Many more are living in poverty to avoid going into arrears. They are spending virtually nothing on themselves or their children. They are living in a state of constant fear and stress. Why? Because trying to negotiate with your bank once you go into arrears is like taking a penknife to a gunfight.
The banks have vast financial and legal resources which borrowers do not. They also have the law. The law says that your bank can repossess your house when you fall into arrears, and that a judge cannot take into account any mitigating circumstances. It says that your bank can move to bankrupt you for a debt as low as €1,900. If it succeeds, you will remain bankrupt for 12 years.
Armed with these extraordinary powers, the banks can extract every last penny from you. The ones I have asked, including AIB and Bank of Ireland, have no guidelines in place for what they will leave you with, for what qualifies as a 'reasonable standard of living'.
One Wicklow local I spoke to recently was chastised by a bank official who spotted a bill for shopping which had been done in Tesco when there was a Lidl nearby.
Let us be very clear -- the sole objective of the banks is to get back as much of their money as possible. They accept that they engaged in negligent lending practices. They know that they have been saved by the taxes of these same borrowers. They see the social consequences of their actions. None of this is their concern. It is, however, the concern of the 166 TDs and 60 senators who make up the Oireachtas. It is our job to consider issues of fairness, social consequences and costs to the State. It is our job to correct the imbalance of power between banks and borrowers.
Two new pieces of legislation could go a long way towards this.
The first is a short bill which I have before the Dail next Friday. In just 336 words, the Family Home Protection Bill would allow judges to consider mitigating circumstances when a bank tries to repossess a family home. I am seeking meetings with the Taoiseach and ministers Alan Shatter and Michael Noonan to see if the Government will support it.
The second is Mr Shatter's Personal Insolvency Bill, the 164-page outline of which was published last Thursday. This would create a new Insolvency Service, radically improving the options for many people in Ireland with unsustainable personal debts. It would bring the bankruptcy period down from 12 to three years. Concerns have been expressed that the legislation does not force the bank to agree to any solution, and gives the bank the power to extend the effective bankruptcy period from three to eight years. This is complex legislation, and issues such as these will be debated in the Oireachtas and the media in the coming months.
Here's how these two bills could work together. During the week, I met a Wicklow couple whose family home and business property are both in negative equity and arrears. She is a public servant whose wages have fallen. He runs a small business which is struggling due to the falling demand in the domestic economy. They were servicing both mortgages comfortably enough.
Then last year the banks began to increase the interest rates on their mortgages. Several interest rate hikes in 12 months soaked up all of their disposable income and savings, and forced both mortgages into arrears. If the banks repossess their properties, the couple and their young children will be homeless, the business will close and the workers will be laid off. As an employer, he will not qualify for the dole. Once the banks take possession of their house and business premises, they will still owe the full amount of negative equity to the two banks in question.
Due to the law on repossession, a judge cannot take into account the fact that the banks had effectively forced the couple into arrears by repeatedly jacking up the interest rates on their mortgages. Nor that they were doing everything possible to find the money, and were already giving the banks almost everything they had. The devastation wrought upon the couple and their children would make no difference. The costs to the State would be irrelevant. If the banks so wished, the judge would have to grant possession. And as to the money outstanding? The couple could file for bankruptcy. This would see them living in enforced poverty for the next 12 years, stigmatised, unable to open any new business.
Now imagine this couple trying to negotiate with their banks. The banks don't have to repossess the properties -- it is rarely the best way to get their money back. Instead, armed with the threat of possession and bankruptcy, they can take everything from this couple for decades to come. The Family Home Protection Bill and the Personal Insolvency Bill would change that negotiation. They would give some chips to the couple during the negotiation. These bills could lead to a better outcome, where the couple still pay back what they can, while having a reasonable standard of living for themselves and their children.
The banks, predictably, have said that they will continue to argue the case against these proposed changes. Already, they are talking about the impact on their balance sheets. They will try to convince people that it is taxpayers' money that would be used. Though I don't recall hearing this when on Wednesday last we paid €1.25bn of taxpayers' money to anonymous holders of unguaranteed bonds in a bank that doesn't exist.
The next time you hear this line of argument from the banks, think of this: last year we gave four of our banks more than €7.5bn to address residential mortgages. AIB got €2.5bn of the €7.5bn. But its senior team admitted to us at a Finance Committee hearing that the total amount of mortgage debt it had written off was a mere €600,000. One 50th of one per cent of what we gave AIB. Bank of Ireland got €1.8bn of the €7.5bn. It told us it had forgone nothing, not one cent.
We have already given the banks the money to deal with this crisis. But they have decided to keep it. The result is a mortgage crisis which is growing so fast that it threatens our social and economic recovery. Every one of us in Dail Eireann was elected in part to take a stand against the banks that have destroyed our economy. It is time for more forceful action.
Stephen Donnelly is an independent TD for Wicklow