I must admit that I was deeply sceptical when Minister Noonan announced out of nowhere at the end of August 2011 that there was an inter-departmental group under the tutelage of a seconded KPMG consultant, Declan Keane, looking at the mortgage arrears crisis. The announcement came just days after the 18th August, 2011 when Professor Morgan Kelly had drawn attention to the crisis and at the time when MP Mac Domhnaill from Kerry wrote his heart-breaking letter to the Irish Times.
When the group was announced in the last week of August, I asked Joan Burton’s Department for Social Protection on 30th August for details of the group and its workings, the names and qualifications of its members, its terms of reference, its deliverables, the resources that would be made available to it. There was no response.
And last weekend, at the Dublin Castle, Irish Diaspora Get-together or the Global Irish Economic Forum as it was grandly called, the star speaker, former US president Bill Clinton said, after an hour-long meeting with Taoiseach Kenny, that the mortgage crisis was the biggest challenge facing Ireland; not a euro break-up, not a sovereign debt crisis, not global economic downturn, not our 14.3% unemployment rate, not the return of Irish emigration but the mortgage crisis. And the former US president indicated that today’s report, about which he had obviously been briefed, would contain 15 recommendations for dealing with the crisis. For his part at the gathering last Saturday, Taoiseach Kenny elevated the status of the mortgage expert group to that of “specialist commission”, and indeed he is still referring to the group off-and-on as a “commission”.
The report published this morning by the Department of Finance provides some answers to the scepticism. There were 15 items that comprised the terms of reference, maybe that’s where Bill Clinton got his “15”. The group says it has been at work “formally” since 29th July 2011. So apparently it wasn’t some hastily cobbled-together knee-jerk response to an issue which had caught the nation’s attention. The group comprised 22 members whose names are shown in an appendix to the report. There is no information on their qualifications or background other than the ministry for which they now work. There were two members from outside government departments, one from AIB and one from EBS (which of course was recently merged with AIB). There is no information on the resources available to the group, or anything on deliverables other than the terms of reference.
It is a dreadful report.
Remembering that 56,000 households were in arrears to the end of June 2011 and that is likely to be over 60,000 today. And there are an estimated 40,000 households, in addition, which have had their mortgage “re-structured” which can mean anything from going to interest-only to a complete moratorium on any payment. There are about 19,000 households in receipt of a mortgage interest supplement welfare payment though some of those might be restructured mortgages. So conservatively, that means 100,000 households, which will represent about 270,000 people on average, are in difficulty. Some people are being forcibly evicted from their homes, though overall repossessions are tiny. Considering the three most important factors influencing arrears, the housing market is moribund and prices are down 43% on average and seem to be continuing on a downward slope, unemployment is 14.3% representing just over 300,000 people and is projected to remain elevated for the next two years and incomes are being squeezed as a result of interest rate rises/taxes/reduced gross pay. And remember the mortgage crisis doesn’t just affect borrowers, it is a drag on the rest of the economy which is spooked into conserving income.
Although it was surprising to hear Bill Clinton say it, perhaps he is right that the mortgage crisis is the most serious challenge facing the country.
So then, what does today’s report do to tackle the urgent crisis? With little evidence of any in-depth research the report produces a number of generalised recommendations which will be debated in the Oireachtas next week. All of the solutions require someone, somewhere to pick up a tab, and I can say right here that sorting out the funding is not even touched upon. Remembering the country is the recipient of one of the biggest bailouts anywhere ever and is still running a large annual deficit that will be €15-18bn this year depending on how you count it, the report doesn’t say who is going to fund the new quango – the independent mortgage advice service – who is going to fund the purchase of homes from distressed borrowers, even if we could force our covered banks to play ball who will force local units of foreign banks to take hits on their loans, who will fund the additional cost of housing those who the report says will inevitably lose their homes?
And because we have been kicking the can down the road for so long, how will any new quango cope with the tsunami of distressed mortgage cases, how will new bankruptcy legislation cope with an estimated 5-10,000 cases in its first year, how will non-judicial bankruptcy processes (seem to be modelled on the UK’s Individual Voluntary Arrangement) cope with the colossal scale of problems.
There is practically nothing in this report that we didn’t know already. The recommendations seem take the scatter-gun approach and cover everything; although there is a rejection of “blanket debt forgiveness” there is no indication of how far-reaching the measures will be. Will they just deal with those presently in arrears, what about those suffering dreadfully just about making their mortgage payments, at the expense of other basic necessities?
The position on here is that personal bankruptcy legislation be introduced without delay, that a template from elsewhere – probably theUKwhose legislation is generally similar to ours – be imported so as to expedite the enacting of reforms and reduce problems with interfacing with our own legal system. And our legal system needs to be resourced to deal with the temporary tsunami of urgent cases that our can-kicking has created. Because of the unique aspects of the Irish property and credit bubble, it is likely that additional measures will be needed, but without a basic bankruptcy process, we will end up creating some convoluted Irish innovation which may cost colossal sums and have unintended financial and societal consequences. The two-day debate next week should be abandoned and be replaced by a two-day debate on new bankruptcy legislation. We need action, not reports and certainly not reports that don’t tell us anything we didn’t know already.