The problem is causing untold pain and suffering to huge numbers of people, but it can be addressed.
Someone in election HQ has obviously run the numbers. Right now, there are over 300,000 men, women and children in Ireland living in homes in mortgage arrears. That is more than the populations of Galway, Limerick, Cork and Waterford cities combined.
Some level of mortgage arrears was inescapable, given our housing market collapse and economic recession. However, other countries facing similar difficulties managed to keep things under control.
A report by Deutsche Bank shows that by the end of 2013, arrears in Ireland were several times higher than in other countries facing similar problems. They were two-and-a-half times higher than in Spain, which had the second-highest arrears. They were four times higher than in Greece, which suffered a far more severe economic crisis.
Total arrears are now falling, but arrears over two years are not. This group represents those most at risk of ending up in court and losing their homes. And because we’re not just dealing with a mortgage crisis – but with a housing crisis and homelessness crisis as well – losing your home can mean there is, literally, nowhere for you and your children to go.
On Tuesday, Cabinet agreed to rush through some changes to the bankruptcy laws. The highlight is a reduction in the bankruptcy period from three years to one. This is welcome, though in reality it’s about one-quarter of what’s needed, four years too late. And even this minimalist approach is flawed in numerous ways.
First, it only partly applies to those already in the bankruptcy process – they will have their terms reduced to one and-a-half years, rather than one – penalising them for no obvious reason.
Second, the total effective bankruptcy time remains high. There are two phases to bankruptcy – the first three years, when a person is declared as bankrupt, and an additional few years, when they still have excess income taken from them to pay creditors. The total period tends to be five years.
The proposal is to reduce it to three, which is welcome, but not quite the headline of reducing it from three years to one. And this only applies if the person is deemed to be ‘fully co-operating’.
Which brings us to the third flaw. The total potential time of bankruptcy is actually being increased to 15 years. This is for cases of serious non-co-operation, where borrowers are found to be hiding their assets. There can be no defence for anyone hiding assets, but the objective at this time should be to destigmatise bankruptcy and remove the psychological barriers to it as a viable final option for those with unsustainable debts.
Famous bankrupts include Walt Disney, Francis Ford Coppola, Meat Loaf and Larry King – all of whom went on to have successful careers afterwards. Talk of rewarding people for fully co-operating or giving them life sentences for serious non-co-operation is not helpful at this time – it has the whiff of the Victorian-era debtors’ prison, with time off for good behaviour.
The proposed changes to bankruptcy could be improved and, if combined with a relatively small number of other policy changes, would see an end to the mortgage crisis much more quickly, efficiently and fairly.
Here are five barriers to be addressed:
1. Most people who can’t afford to pay their mortgage also can’t afford to pay for financial or legal expertise. This means they don’t know their options, don’t have someone to negotiate with lenders on their behalf and don’t have representation in court. That’s bad for lenders and borrowers alike.
2. Lenders making genuine efforts to do the right thing are being penalised. This is because other lenders have decided to squeeze every last cent out of those in mortgage arrears and, in many cases, make higher profits from them. So lenders trying to help suffer a competitive disadvantage.
3. Lenders aren’t obliged to offer particular types of restructures. Again, this penalises lenders who make efforts to work with customers and leads to many people being denied the best solutions for them.
4. Courts cannot refuse orders for possession, even with a sustainable restructuring proposal on the table. Judges and registrars can delay the process, but ultimately they must still grant possession, except in some new circumstances where there is a formal insolvency process involved.
5. The mortgage-to-rent scheme is overly complex and requires agreement and participation of the lender, a voluntary housing body, the relevant local authority and the Department of Environment, Heritage and Local Government. Just 169 mortgage-to-rent cases have been successfully processed to date.
The solutions? Reduce bankruptcy to one year, with no more than an additional two years of income payments. Establish a one-stop-shop for borrowers providing free financial and legal expertise and representation. Equip the courts to refuse possession orders if there is a sustainable solution available. Mandate lenders to offer, at a minimum, an agreed set of restructuring options (where the borrower qualifies), including split mortgages and mortgage-to-rent.
Simplify the mortgage-to-rent scheme and centralise the administration of it. Pilot a local authority mortgage subsidy scheme, to keep people in their homes who would qualify for housing supports should they lose their homes.
The mortgage crisis continues to cause untold pain, fear and damage in our society – for hundreds of thousands of men, women and children across the country.
The solutions are right there. They’ve been right there for years, and have been steadfastly ignored. They’re simple, cost practically nothing and could be implemented in months. The only missing ingredient is political will – political will that clearly has existed in other countries from day one and must be found here in Ireland.