Check Against Delivery
Speech by Minister for Justice and Equality
Mortgage Arrears Resolution (Family Home) Bill 2017
12th July 2017
A Cheann Comhairle,
I would like to thank Deputy McGrath for raising this important issue, and for his further explanation today of his proposed Bill. I fully acknowledge the Deputy’s genuine concerns about this issue, and his positive intentions in bringing forward this Bill.
The remaining home mortgage arrears problem, and the risk of repossession, remain a major issue, and a high priority, for the Government - as the Programme for Partnership Government clearly underlines.
We have already taken extensive actions to address these issues. Those actions are achieving demonstrated practical results, in reducing arrears and helping to get sustainable solutions into place for distressed mortgage holders: and I’ll return to those later.
Further important Government measures to address these problems are continuing to come on stream, and I’ll speak about those also.
Unfortunately, this Private Member’s Bill will not contribute to resolving these important problems.
It is an over-simplistic solution, in this very complex area, and risks creating a range of serious and unintended negative effects – most importantly, for the distressed mortgage holders themselves.
The Bill is not fully thought out on fundamental issues, and if implemented, would be at high risk of ongoing legal challenges.
Most seriously, the Bill appears to be incompatible with the Constitution and at very high risk of Constitutional challenge, following advice received from the Attorney General.
The Government will oppose the Bill, for all of these reasons.
I’ll turn first to the significant legal and Constitutional problems raised by the Bill.
Essentially, what the Deputy is proposing is the creation of a new independent quasi-judicial body, to be called the Mortgage Resolution Office. A financially distressed borrower, who was in arrears on their home mortgage on or before 1 January 2017, could apply to this new Office.
The Mortgage Resolution office, or MRO, would have power under the Bill to make a new form of Order, called a Mortgage Resolution Order, which would impose legally binding changes to the terms of the existing mortgage. Such changes could include:
- extending the term of the mortgage by up to 20 years,
- directing a change in the interest rate,
- imposing a reduction in the principal sum due under the mortgage,
- directing interest only payments for up to 4 years,
- reducing the principal sum due on the mortgage,
- imposing a ‘split mortgage’ with ‘warehousing’ for up to 10 years,
- imposing a Mortgage to Rent solution, or
- imposing any other solution to the borrower’s arrears that the Office considered appropriate.
A Mortgage Resolution Order would also prevent a mortgagee or a financial institution from issuing any new enforcement or repossession proceedings.
It’s clear that these powers are extremely far-reaching. The only appeal provided under the Bill is effectively to a second newly established quasi-judicial body, an Appeals Officer.
An Appeals Officer could refer a point of law arising before them to the High Court for determination. But under the Bill, there is no appeal to any court - either against a Mortgage Resolution Order made by the Mortgage Resolution Office, or against an appeals decision by an Appeals Officer.
This is a fundamental flaw in the whole conception of the Bill, and raises very serious Constitutional difficulties.
The Bill essentially seeks to give these 2 new quasi-judicial bodies – the Mortgage Resolution Office and the Appeals Officer – extremely wide-ranging powers to intervene in and change the vested constitutional and contractual legal rights and obligations of private parties.
However, such powers are exclusively reserved to the Courts, under Article 34 of the Constitution, as part of the administration of justice. Following legal advice obtained from the Office of the Attorney General, it is likely that the proposed far-reaching powers and discretions of these bodies would contravene Article 34.
The Deputy’s Bill seems to be based on legislation providing for a statutory scheme of grants, where state subsidies or payments are the only matter at issue – such as social welfare appeals or agriculture appeals. The proposed mechanisms (quasi-judicial decision at first instance and on appeal) could be suitable in that context. They are wholly inappropriate in the context of this Bill.
Indeed, even if the Bill were fundamentally revised, to provide for the proposed Mortgage Resolution Orders to be made by a Court rather than a quasi-judicial body, it would remain at high risk of constitutional challenge. Such Orders would intervene in the bank’s legal right to be repaid under a mortgage contract validly entered into with private parties. These are constitutionally protected vested property rights, under Article 40 of the Constitution.
The constitutionality of proposals to impose mortgage resolution solutions has been very extensively discussed between Government Departments and the Office of the Attorney General in recent years. Any legislative interference with private property rights in this area, seeking to achieve an objective of the common good, still has to demonstrate clearly that it is a carefully balanced and strictly proportionate intervention which has taken full account of the respective rights and obligations of both parties. The very cursory provision in this Bill falls far short of that standard.
The Bill also has significant further legal defects. For example:
- The income, asset and debt levels required to qualify as a financially distressed borrower (a ‘Financially Restricted Mortgagor’) are not defined by the Bill, and it is very questionable whether a Bill could constitutionally leave this key issue to be decided by statutory instrument.
- There is no provision for the Mortgage Resolution Order to be varied, if the borrower’s financial situation changes – only for it to be terminated, which may leave the borrower in a worse position than before.
- The new Office is proposed to be located in the Insolvency Service of Ireland, but there are a number of conflicts between the statutory functions of the ISI and those proposed for the new Office which are likely to lead to ongoing operational problems.
In addition, the Bill raises significant practical problems. For example:
- While the Bill provides a mechanism intended to protect against enforcement or repossession of the home, it does not provide any protection against registration of a judgment mortgage against the home by a creditor other than the mortgage lender. This creates a significant risk that unsecured creditors would rush to register judgment mortgages against the home, creating new problems for the distressed borrower. (A judgment mortgage is a court order, and can only be varied or suspended by a court – not by a quasi-judicial body.)
- Given the very considerable legal defects I have outlined, the Bill is likely to give rise to a very high proportion of objections, appeals and legal challenges, which will be time-consuming and expensive.
- The Bill only provides for resolution of the borrower’s mortgage arrears. There is no provision for dealing with their other debts or returning the borrower to solvency, as would be done by a statutory solution under the Personal Insolvency Acts. There is a risk that borrowers will opt for this new solution, only to find themselves ‘back in the frying pan’, for this reason. The Bill risks delaying a debtor getting a comprehensive solution, and making that outcome more difficult to achieve.
The Government is also concerned that this Bill could discourage financial institutions from new lending for house purchase purposes, and exert a negative impact on a recovering housing market.
I’ll turn now to the extensive measures already taken by Government in this area, and their demonstrated and practical results in helping homeowners in mortgage arrears.
The Government and its predecessor have clearly prioritised supporting and assisting financially distressed borrowers in mortgage arrears on their homes. Measures already introduced include:
- the Personal Insolvency Act 2012,
- the Court’s power under section 2 of the Land and Conveyancing Law Reform Act 2013 to adjourn repossession proceedings so a borrower can explore whether personal insolvency can resolve their financial difficulties,
- the Personal Insolvency (Amendment) Act 2015, which removed the ‘bank veto’ in personal insolvency cases by introducing a Court power to review an unreasonable refusal by a creditor,
- the ‘Abhaile’ Mortgage Resolution Service (2016), set up to implement the first bullet in the Programme for Government commitments on mortgage arrears, and providing free independent expert financial and legal advice and assistance, via MABS, to borrowers at risk of losing their homes due to mortgage arrears; and
- the development of MABS resources across the country, now integrated into Abhaile, to assist borrowers in home mortgage arrears. These include including 32 specialist in-house mortgage debt advisers, and Court Mentors attending all repossession hearings across the country to provide support and information to unrepresented borrowers.
Mortgage arrears remain high – but despite what is suggested by some media reports and commentators, both home mortgage arrears and repossessions are falling significantly, and have been doing so for a sustained period.
Owner-occupied home (‘PDH’) mortgage accounts have been falling consistently for 15 consecutive quarters, since their peak in September 2013. All categories of PDH mortgage arrears are continuing to decline – even those in the largest arrears, equivalent to over 720 days’ payments, have now been declining steadily for 7 consecutive quarters.
The number of owner-occupied home (‘PDH’) mortgage accounts in any level of arrears has fallen from 141,639 accounts in arrears at peak in Sept. 2013, to 76,422 at end of Q1/2017 – a drop of almost half. This is equivalent to an overall drop from about 109,000 mortgaged homes in any level of arrears in Sept 2013, to about 58,786 at end of March 2017. (As the Deputy will be aware, the mortgage account statistics produced by the Central Bank include second mortgages on the same property: in general, the rule of thumb used by the Dept. of Finance is that the number of mortgage accounts is 1.3 times larger than the number of mortgaged properties.)
It should also be noted that the Central Bank indicates that the figure of 76,422 home mortgage accounts includes 26,503 restructured mortgage accounts - where the remaining arrears are historic, and the borrower is not at risk provided s/he meets the current terms of the restructure.
The Bank also indicates that 120,894 PDH mortgage accounts have already been restructured, and that overall, 87% of borrowers are currently meeting the terms of their restructure.
Meanwhile, repossession statistics are also continuing to fall very significantly.
We can see the clear impact of Government measures to help borrowers in home mortgage arrears to get solutions into place:
• Some 447 applications have been made to the Courts under the new Personal Insolvency court review under the Personal Insolvency (Amendment) Act 2015 (where creditors refuse a personal insolvency proposal by a borrower which is considered reasonable by the personal insolvency practitioner.) The review appears to be operating successfully, and has already been interpreted and applied in a number of High Court judgments.
• Uptake on the Abhaile service is well ahead of expectations. As of 7 July 2017, 8,034 vouchers for free financial or legal advice from a personal insolvency practitioner on a panel run by the Insolvency Service, or a solicitor on a panel run by the Legal Aid Board, had been issued under the Abhaile service. As of end June 2017, the MABS in-house mortgage debt advisors (now also part of Abhaile) had helped almost 4,000 borrowers. 1,300 borrowers facing repossession have been referred by MABS Court Mentors for specialist help and advice. Up to end of August, Abhaile duty solicitors will have attended almost 500 repossession lists before the County Registrar, across the country, to providing legal assistance to unrepresented borrowers wishing to engage with Abhaile.
• Data collected on the 1565 borrowers who consulted a personal insolvency practitioner under Abhaile in 2016 would indicate that the service is reaching its main target group, of those in the deepest arrears. Insolvency Service statistics indicate that 2/3 of these borrowers were in the deepest category, of arrears exceeding 720 days’ payments. A quarter were already before the courts on repossession proceedings. 60% were recommended to avail of a Protective Certificate under the Personal Insolvency Acts.
• Take-up of statutory solutions under the Personal Insolvency Acts increased significantly, probably due both to the Abhaile service and to the end of the ‘bank veto’ in late 2015. Regarding the Personal Insolvency Arrangement, which is the solution designed to deal with mortgage debt as well as other debts – there were 791 applications in 2014, 1291 in 2015, 2530 in 2016 and 1,144 in Q1 alone of 2017. PIAs are working effectively - a 2016 sample study by Insolvency Service of outcomes in Personal Insolvency Arrangements shows that in 89% of PIAs, the borrowers remained in their homes.
Important further measures are already in train under the Government’s Action Plan on Housing and Homelessness, including recent and continuing changes to the Mortgage to Rent scheme to extend its availability, particularly for borrowers in rural areas. These changes are particularly important, as they will benefit those borrowers who do not have financial capacity to support a restructure or a Personal Insolvency Arrangement.
My Department already launched a public consultation on reviewing the personal insolvency legislation, which will be completed later this year under the Programme for Government commitments on Mortgage Arrears. We have identified some valuable potential suggestions for simplifying and streamlining the personal insolvency processes, among the submissions received, and will be looking at these closely.
In conclusion – this House is well aware of the extent and level of complexity of the home mortgage arrears problem. It is a major priority for Government. Arrears and repossessions are falling steeply, but they are still too high and we are determined to reduce them further. We have taken, and are continuing to take, effective actions to address them across a range of fronts and we will continue to address them.
The Government is open to looking at all constructive solutions. I fully appreciate the Deputy’s very genuine intentions - but this Bill is fundamentally flawed, appears incompatible with the Constitution, and risks adding to the problems of those in the worst arrears. The Government cannot support it.