Mortgage crisis is worse than we realise

Wexford TD Mick Wallace continues his account of life in the Dáil...

The month of May began with the Technical Group putting a motion recommending a form of mortgage debt relief for people living under the threat of having their house repossessed. In the Dáil, I said:

“Going around from house to house during the general election, I was struck by the level of difficulties being experienced by people, whether in social or private housing. Most of those in social housing had no work. Those in private housing had jobs but were experiencing terrible difficulty paying their mortgages. It was difficult to credit, as I had not been around the entire county of Wexford previously. Going from house to house, I was amazed at how many people were in trouble. No doubt the moratorium on repossessions has certainly been a help, but there is an element of kicking the can down the road. Matters are a great deal worse than we realise.

"We are fairly used to the fact that the banks do not tell us everything first-off. We were drip-fed the truth over recent years. I have experience in the construction sector of building and selling apartments and I can assure the Minister that close to 50% of the apartments I sold between 2003 and 2008 are in difficulty. Given that 270,000 units were built between 2004 and 2008, it is hard to credit that only 44,000 are in the difficult position of being 90 days behind in their payments. If this is the case, I will be very surprised if the number does not increase dramatically in the coming 12 to 18 months because I am very much aware of people who bought properties from me who are in severe difficulties. This is having a huge impact on the entire economy. It is very difficult to see how the economy will recover if people are afraid to spend money. They are saving the little bit they have to try to deal with their mortgages and to keep a roof over their heads. It is very challenging. Their take-home pay is less than it was because of tax and they have less disposable income. Any opportunity we have of creating more jobs has been diminished by this. It will be difficult for unemployment figures to go in the right direction if people are spending less money, and God knows this is creating a social misery which is devastating for many people.

The notion of debt forgiveness seems unthinkable to many people. However, we know from history that it has been applied before and it worked. Roosevelt used it in the United States in the 1930s after the great depression and it worked to great effect. In this country, in 1932 de Valera introduced a form of it with regard to land tenants…

I know there are difficulties with it. I know the dangers with regard to moral hazard, whereby one will behave differently if one knows one will be bailed out if one fails. The banks are in good contact with their customers and are aware of who genuinely cannot pay and who can. If work was put into this, we could deal with those in the most trouble and help them out of their situation which would help the economy in general. If I bought a house in 1995 I would like to see someone who bought one between 2003 and 2008 receive help because I would be better off. From a selfish point of view, I would be better off even though I bought my house in 1995 if those who bought between 2003 and 2008 received help because not only would it help us see a bottom in the market, it would also help the economy in general and we would all be better off. If the benefit exceeds the cost it is something the Government should consider.”

Surprise, surprise, the motion was defeated, despite the huge impact that negative equity is having on the lives of so many people in the country. The government did show a bit more concern when the same issue was later raised by the Master of the High Court, Edmund Honohan, who stressed not just the financial and social pressures attached to same, but also the mental stress associated with it.

The following day, I had a priority question on education and I addressed the issue of the planned cuts. After Minister Ruairi Quinn outlined the government position, I said:

“The Minister referred to schools that have 33 or more pupils supported by RTT posts. A school with 200 kids of whom 33 are from the Traveller community is entitled to a learning support teacher. However, RTTs are being done away with for schools with fewer than 33 RTT supported pupils. Are they supposed to fall under the remit of the learning support system?

I was approached by Clonroche national school. It has 110 pupils, of whom 23 are from the Traveller community and another 25 are in receipt of learning support. That is a total of 48 kids, which is almost half the school population. The school had one learning support teacher and 1.5 resource teachers for Travellers to deal with the 48 kids. The number of teachers has reduced to one because it does not meet the threshold of having 33 pupils supported by RTT posts…One teacher must cope with 48 kids who need special attention, of whom 23 have a Traveller background, in a school with an enrolment of 110. Even the brightest kids in the class will suffer and not only the Traveller children or those on learning support. Just about every kid in the school will suffer because it is unfair and they will not be able to cope. I realise the money is not there for everything but, in special cases, the Minister surely has to examine the position. It is too unfair on the kids in these areas.”

On 4 May, I got an opportunity to speak on the EU-IMF Programme which I regard as being grossly unfair, given that the taxpayers is being asked to pay for the problems of badly run financial institutions. It should probably be referred to as the ECB Programme given that it is the European Central Bank which is pressurising our government to make sure that the people of Ireland face austerity cuts in order to maximise the chances of Irish banks paying back the European banks – a bad case of the strong dominating the weak, so much for us all being part of a European family. In the Dáil, I said:

“Deputy Joe O’Reilly made a few points that were very fair. He spoke about the lack of credit and stated the Government would ensure credit would be available soon. From my experience in business, I note it is now nearly three years since credit was freely available. I have been listening for a long time to Governments stating credit will become available every time the banks are given money, but, unfortunately, credit is not yet available and I am not sure when it will be.

It was good to hear Deputy Joe O’Reilly refer to mortgage restructuring. When we debated the notion last night, some Members on the other side of the House were throwing seriously cold water on it. The taxpayer and the bank is now one and the same person. If somebody bought a house for €400,000 which is now worth €200,000, does it make more sense for the taxpayer or bank to repossess it, put it on the market and sell it for €150,000 or to give the person some help, even in terms of €50,000? There would still be €350,000 for the State, rather than getting €140,000 from an initial investment of €400,000. We must seriously fight repossessions. They just do not make sense, financially or socially.

The Minister also mentioned the importance of equity and fairness. We agree on that. In the period before the publication of the revised terms of the EU-IMF programme, the Minister, Deputy Noonan, stated that all changes must be fiscally neutral and that in terms of total cuts and taxes the revised memorandum of understanding remains unchanged. Does this mean we will still achieve the target deficit of 3% of GDP by 2015? In the past couple of weeks the forecast for our growth rate has been revised down from the 1.8% forecast last December to an optimistic estimate of 0.8%. Can we still achieve the target of 3% in 2015 with the same figures?

I understand that cuts amounting to €3.6 billion are planned for the December budget. Will that figure be larger to compensate for the fact that GDP growth will not be as good as we thought? We are probably being very optimistic in anticipating that the levels we are calculating for 2013 and 2014 will be reached, given the serious effect of the austerity measures. If the budget is to be even more severe, do Members agree that the people who will probably suffer most are the most vulnerable? It is generally accepted that those who are most hurt by budget cuts are, as a rule, the most vulnerable. Fairness is disappearing at this stage.

There is reference to property tax and water charges in the document. I find it hard to believe that even the current Government could have the neck to impose water charges and property tax on people who are already suffering as a result of the universal social charge, rising interest rates - we have not seen the last of them - and mortgage problems. God knows, the figure of 44,000 households being 90 days behind with their mortgage repayments will certainly increase dramatically in the next year. All this adds up and makes one wonder about the role of the State. Is it to protect big business, look after the financial institutions and play ball with the boys in the ECB? I understood that the role of the State was to work towards protecting the most vulnerable in our society. Undoubtedly, history will be hard on the last Government, but I believe it will be hard on this one as well.”