Keane report 'designed to protect the banks'

The Keane report is cold comfort for those in mortgage distress. By Christina Finn.

When the Keane report was first commissioned there was some hope that something good might come out of it. Finally a report on the mortgage crisis, where everyone can sit down and hammer out a solution. We weren’t just fools to think that would happen; we were downright stupid.

That the people behind the report were 16 civil servants and two bankers is notable. That this group met just eight times is more notable still. And what great minds did they talk to? Economists, perhaps, or even a few of the thousands of people in mortgage arrears? No, of course not: they “met with several of the banks”. In other words, the very people who got us into this mess are expected to offer revolutionary ‘independent’ solutions to get us out it.

The group did not meet with New Beginning, a group of lawyers and other experts who are representing borrowers and developing policy ideas.

David Hall, of the New Beginning group described the report as “a document designed to protect the banks.”

Debt forgiveness was ruled out in the report, instead it is suggested that the 32,000 households that have been unable to pay their mortgages in the last six months perhaps take up one of the other solutions offered.

One such solution is that local authorities take control of some houses, and the mortgage holder effectively rents their house from them.

Why were no solutions put forward that would adversely hit the banks and force them to take some responsibility? Likely because the Keane report only consulted the banks for solutions. A similar reasoning would see a criminal being asked how he would like to be punished. “Not at all,” he would reply, which is exactly what the banks are saying in this report.

David Hall has called the report “a bankers’ solution, to solve a problem for banks in the bankers’ interest.” The banks are taking no hit in this report. The Irish people have bailed them out and it is now the Irish people who are being instructed by the banks as to how we should proceed. Hall says that if the report’s recommendations are followed, the result will be that after years of paying off a mortgage people will still owe money; and he adds that handing properties to local authorities to administer is impractical as the system is already “stretched to the limit”.

As it stands, for many people in this country, even when you lose your house, you still owe the bank the full amount of the mortgage, plus interest, until you pay it off in full. The message from the banks in this report runs: if you were foolish to believe them when they lent you the money, then you will pay it back in full regardless of their recklessness, and regardless of the fact that you have bailed the banks out already. You will pay in full on their terms. Money is the message in this report - money for the banks. And the people who should be calling this report on its flaws are instead taking every recommendation at its word and pressing on.

Speaking in the Dáil on Tuesday, Minister for Finance Michael Noonan said that the approaches set out in the Keane Report will help people make a new start with regard to their mortgages.

“Government spokespeople are already using the report as a reason to continue the Irish establishment’s love affair with the banking system,” according to Independent TD Stephen Donnelly writing in TheJournal.ie.

Financial advisor Eddie Hobbs, speaking about the report on RTÉ Radio’s Drivetime, said: “The bank is the client here, not the citizen…[the report is] imbalanced and in favour of the banks.” He pointed out that the report recommends that people with mortgage pay up to 40% of their salary towards their mortgage and described this percentage as much too high, saying the banks are not taking into consideration the other debts that people might have. He argued that the percentage of income that should be put against the mortgage should be closer to 35%

According to Ross McGuire and David Hall of New Beginning, writing in the Sunday Business Post, the recommendations of the Keane Report could lead to the banks walking away with more than was in the original agreement. They use an example from the Keane Report whereby an existing mortgage of €200,000 has a house valuation today of €120,000:

“The mortgage is split – €123,000, which is affordable to the borrower, is to be paid down and the balance of €77,000 is shelved. Using the example quoted in the report, after 30 years, the borrower has a house worth €217,000 and debt to the bank of €226,000. Presumably the bank will then demand sale of the property and repayment of the balance…This is a one-sided solution – it enslaves the borrower, offering nothing in return.”

However they suggest there is an alternative to ‘enslaving’ the mortgage payer, and agree with Eddie Hobbs’s suggestion that people should be asked to pay about 35% of their net disposable income.

McGuire also appeared on RTÉ’s The Frontline, elaborating alternative solutions:

“We take that figure and then we can work out the kind of mortgage that you can pay over whatever term it is. And using our maths and our systems it is possible in fact with a restructuring of the mortgage to pay the full amount over the term of the mortgage as originally set out.

At present, when you take out a mortgage your first payment is the most expensive - because you pay capital and you pay the interest on the whole lot - and your last payment is the cheapest because very little interest is left to pay. And we simply flatline that. So if someone is able to pay interest only, or even less, we can say to that person: ‘Pay that, be willing to grow that a little bit as years go by, and you can pay your entire mortgage off.’”

If the measures that are suggested in the Keane report are implemented by the government we will step back in time to a feudal system almost - whereby the homeowner becomes the tenant and where the allocation of land is given in return for service. Our service being that we work till the extended retiring age to pay off debt we were not wholly responsible for, and in return we will be allowed stay in our homes.

The Keane report is a report for the bankers and not for the citizens of this country. Delay on the mortgage matter, as Stephen Kinsella writes in The Irish Times, is the deadliest form of denial, but if the government plough through with these recommendations it is the Irish people that will truly be enslaved by debt, a debt that cannot be paid.

Image top: infomatique.