Speaking in the Dáil today on the personal solvency Bill 2012, Joan Collins TD of the United Left Alliance said that the bill did not address the urgent issue of mortgage arrears and the prospect of thousands of people losing their family homes.
As with the Keane report the fate of home owners in arrears is left in the hands of the banks and mortgage providers. While home owners may be offered temporary solutions under the Central Bank guidelines (MARP), such as reduced or interest only payments, there is an inevitability of repossession if their personal circumstances do not change.
The only change this bill offers is to be declared insolvent and to have the negative equity balance still owing after the family home has been sold written off after three years. The government have to face the reality of the situation and force banks and mortgage providers to do the same. A percentage of mortgage debt has to be written off. If people who have lost jobs or small businesses due to the collapse of the economy cannot pay, the debt won’t be paid.
Repossessing homes where the security is now on average only equal to 50% of the loan means that the banks and mortgage lenders are going to take losses. These losses were calculated as part of the bank recapitalisation at the states expense.
This reality needs to accepted, and a system devised to allow people to pay what they can and remain in the family home. This should not be a ‘desired outcome’ of negotiations but an explicit requirement of a mortgage resolution process.
This has been done in a number of northern European countries, and the ULA has been preparing a bill along the lines of legislation in Norway which resolved a similar crisis there in the 1990s. In this approach there is an explicit right to the family home. Only that part of the mortgage which now matches the current value of the house, plus 10%, is considered as secure debt. Payments are then adjusted to pay the capital and interest on the secured portion of the mortgage only, while leaving sufficient income for a reasonable standard of living.
The negative equity or unsecured debt element of the mortgage is then treated as any other unsecured debt and is written off after five years if the debtor fulfils the terms of the resolution agreement. Safeguards to stop any abuse of the system can be written into the legislation.
The ULA will be seeking to amend this legislation to ensure these objectives. There is also an urgent need to deal other aspects of the general housing crisis, such as negative equity in general , the very serious arrears problem in the shared ownership schemes operated by local authorities, and the scandalous lack of social housing.