THEY SAY THE sting is in the tail. In the Keane Report, the sting is in the preamble. “Importantly,” it says, “it will not be the case that the distressed mortgage holder will be entitled to a particular solution and all solutions carry consequences.”
Consequences. Moral hazard. Responsibility.
The Government is keen that the people of Ireland pay for their mistakes. By paying for them, the logic goes, foolish citizens will be minded not to make such mistakes again.
So, it appears, are the civil servants who put this report together. The second challenge listed in the report is ‘To avoid inappropriate mortgage holder behaviour.’ A search of the report does not find the following phrase: ‘To avoid inappropriate banker behaviour.’
The Taoiseach reminded us solemnly in the Dáil last week that ‘there are those who don’t want to pay’. Yes there are Taoiseach – but they are not the mortgage holders, they are the banks. Two weeks ago, I and other members of the Finance Committee met with the senior teams of Bank of Ireland and AIB. Two very interesting numbers emerged: Of the billions of euro which the Irish people had given these two banks to deal with the mortgage crisis, how much had been passed on to mortgage holders?
For AIB the number was €600,000. That’s about 0.0002 per cent of the money we’ve given them just to deal with distressed mortgages. Bank of Ireland had to be asked for their number five or six times, and finally conceded that for them the number was zero. Not one cent.
In other words, whilst the banks accepted that they may not get paid back fully on all mortgages, they would not surrender their legal hold on the money. They would not ‘forgive’ any mortgage holder the sin of believing the banks were acting responsibly when they loaned them the money. This means that even when you lose your house, you still owe the bank the full amount of the mortgage, plus interest, forever. In the only area that matters to banks, money, they are accepting absolutely no responsibility for their role in the mortgage crisis.
The working group’s field research? It “met with several of the banks”.
And they are delighted with the Keane report, which was welcomed warmly by The Irish Banking Federation. Why? Because this is a report for the banks. The report does not lay down as a principle that those responsible should share the cost of the clean up. Instead, the first ‘Guiding Principle’ in the report is this: ‘Those who can discharge their mortgage obligations must do so.’
Two clear tones emerge throughout the report: condescension towards borrowers, and a refusal to consider imposing requirements on the banks.
Why might that be? The working group consisted of 16 civil servants and two bankers. It met just eight times. Its field research? It “met with several of the banks”. But it appears to have had no contact with ordinary borrowers, or with people representing them. It didn’t meet the New Beginning group of lawyers and other experts who are representing borrowers and developing policy ideas.
The report is written by insiders for insiders. A sample sentence: “AHB buys the house from the mortgage holder at a discount to CMV; D/ECLG provides 25 per cent equity to AHB.” Had they talked to New Beginnings (or to any public representative), they would have heard stories of individual borrowers being treated with contempt by some lenders, who are using intimidating tactics to bully borrowers into supposed solutions.
The working group has swallowed the lazy “moral hazard” argument hook, line and sinker. There are repeated references to borrowers having no “entitlement” to a solution and having to suffer the “consequences”. But another, far more valuable report on this issue released recently, by the Monetary Advice and Budgeting Service (MABS), suggests that borrowers are well aware of the consequences of their actions, and take responsibility for them.
The report’s authors, Michelle Norris and Simon Brooke, interviewed MABS clients in order to create a portrait of the typical household in mortgage arrears. Many were up front about their own responsibility.
“I bought into it as much as anyone else did and I take responsibility for that too,” was how one MABS client, in Arklow, put it.
People talk of being “ashamed”, of being afraid to answer the phone
What the MABS report clearly shows is that the burden these people are under is enormous, and that it is a burden that is emotional and psychological as much as financial. People talk of being “ashamed”, of having “at least six bricks on my shoulder”, of “breaking down crying”, or being afraid to answer the phone, of fighting with their spouse and ignoring their children.
In terms of substance, the Keane Report contains several proposed solutions for mortgage holders. Most of these focus on ensuring that the bank gets paid back one way or the other. However, there are some good ideas. Stronger representation for mortgage holders is welcomed.
As is the emphasis on reform of bankruptcy law, to incorporate a new, non-judicial debt-resolution process. Both of these were recommended by the Law Reform Commission last year. Both have been repeatedly championed by me and others.
But even here the Keane Report fails to deliver. Rather than giving a recommendation on the length of time a person should remain in bankruptcy (the Law Commission recommends 3 years), the report notes that ‘the automatic bankruptcy discharge period…could be set as low as 3 years.’ And true to form, lest the citizens of Ireland are contemplating not giving up our aul’ sins, the report warns that ‘changes that incentivise behaviour to cease paying debts must be avoided.’
So what’s next? The report is to be debated in the Dáil this week. In the meantime, the Ministers for Finance and for Justice are working on an implementation strategy, which they are due to set out… “at the conclusion” of the Dáil debate. So what, precisely, is the point of the debate? This whole exercise has the feeling of just more smoke and mirrors.
Government spokespeople are already using the report as a reason to continue the Irish establishment’s love affair with the banking system. In February of this year, when we voted Fianna Fáil out of office, we voted for change. Maybe the French are right… Plus ça change…
Stephen Donnelly is Independent TD for Wicklow and East Carlow. See more at www.stephendonnelly.ie